Starbucks Corporation 1

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September28, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

incorporation or organization)(IRS Employer

(Registrants Telephone Number, including Area Code): (206)447-1575

Securities Registered Pursuant to Section12(b) of the Act: None

Securities Registered Pursuant to Section12(g) of the Act:Common Stock, $0.001 Par Value Per Share

Indicate by check mark whether the Registrant: (1)has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (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 90days.YesNo

Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation of S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act):YesNo

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Registrants Common Stock on March30, 2003 as reported on the National Market tier of The NASDAQ Stock Market, Inc. was $9,058,001,760.

As of December17, 2003, there were 393,891,489 shares of the Registrants Common Stock outstanding.

Portions of the Registrants Annual Report to Shareholders for the fiscal year ended September28, 2003, have been incorporated by reference into Part II of this Annual Report on Form10-K. Portions of the definitive Proxy Statement for the Registrants Annual Meeting of Shareholders to be held on March30, 2004 have been incorporated by reference into Part III of this Annual Report on Form10-K.

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Market for the Registrants Common Equity and Related Shareholder Matters

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Item 10. Directors and Executive Officers of the Registrant

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

FORM10-KFor the Fiscal Year Ended September28, 2003

Submission of Matters to a Vote of Security Holders

Market for the Registrants Common Equity and Related Shareholder Matters

Managements Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Directors and Executive Officers of the Registrant

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Certain Relationships and Related Transactions

Principal Accountant Fees and Services

Exhibits, Financial Statement Schedules and Reports on Form8-K

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATIONREFORM ACT OF 1995

Certain statements herein, including anticipated store openings, comparable store sales expectations, trends in or expectations regarding Starbucks Corporations revenue growth, operating expenses, capital expenditures, effective tax rate and net earnings and earnings per share results, 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, 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 Corporations other filings with the Securities and Exchange Commission.

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.

Starbucks Corporation, which was formed in 1985 as a Washington corporation, (together with its subsidiaries, Starbucks or the Company) purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, coffee-related accessories and equipment, a selection of premium teas and a line of compact discs, primarily through Company-operated retail stores. Starbucks sells coffee and tea products through other channels, and, through certain of its equity investees, Starbucks also produces and sells bottled Frappuccino and Starbucks DoubleShotTMcoffee drinks and a line of premium ice creams. These non-retail channels are collectively known as Specialty Operations. The Companys objective is to establish Starbucks as the most recognized and respected brand in the world. To achieve this goal, the Company plans to continue rapid expansion of its retail operations, to grow its Specialty Operations and to selectively pursue other opportunities to leverage the Starbucks brand through the introduction of new products and the development of new channels of distribution.

The Company has two operating segments, United States and International, each of which include Company-operated retail stores and Specialty Operations.

The Companys retail goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing superior customer service, thereby building a high degree of customer loyalty. Starbucks strategy for expanding its retail business is to increase its market share in existing markets primarily by opening additional stores and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. In support of this strategy, Starbucks opened 602 new Company-operated stores during the fiscal year ended September28, 2003 (fiscal 2003). In July 2003, through its acquisition of Seattle Coffee Company (SCC) from AFCEnterprises, Inc., Starbucks acquired 70Company-operated Seattles Best Coffee (SBC) and Torrefazione Italia (TI) stores. At fiscal year end, Starbucks had 3,779Company-operated stores in the United States, 373in the United Kingdom, 316in Canada, 40in Australia and 38in Thailand. Company-operated retail stores accounted for approximately 85% of total net revenues during fiscal 2003.

Starbucks retail stores are typically located in high-traffic, high-visibility locations. Because the Company can vary the size and format, its stores are located in a variety of settings, including downtown and suburban retail centers, office buildings and university campuses. While the Company selectively locates stores in suburban malls, it focuses on stores that have convenient access for pedestrians and drivers.

All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, a broad selection of Italian-style espresso beverages, cold blended beverages, iced shaken refreshment beverages and a selection of teas and distinctively packaged roasted whole bean coffees. Starbucks stores also offer a selection of fresh pastries and other food items, sodas, juices, coffee-making equipment and accessories, a selection of compact discs, games and seasonal novelty items. Each Starbucks store varies its product mix depending upon the size of the store and its location. Larger stores carry a broad selection of the Companys whole bean coffees in various sizes and types of packaging, as well as an assortment of coffee and espresso-making equipment and accessories such as coffee grinders, coffeemakers, coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages, a limited selection of whole bean coffees and a few accessories such as travel tumblers and logo mugs. Approximately 1,200 stores carry a selection of grab and go sandwiches and salads. During fiscal 2003, the Companys retail sales mix by product type was comprised of approximately 78% beverages, 12% food items, 5% whole bean coffees and 5% coffee-making equipment and accessories.

Starbucks Specialty Operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop and dine by establishing relationships with prominent third parties that share the Companys values and commitment to quality. These relationships take various forms including licensing arrangements, foodservice accounts and other initiatives related to the Companys core businesses. In certain situations, Starbucks has an equity ownership interest in licensee operations. During fiscal 2003, specialty revenues (which include royalties and fees from licensees as well as product sales derived from Specialty Operations) accounted for approximately 15% of total net revenues.

Although the Company does not generally relinquish operational control of its retail stores in the United States, in situations in which a master concessionaire or another company controls or can provide improved access to desirable retail space, the Company licenses its operations. As part of these arrangements, Starbucks receives license fees and royalties and sells coffee and related products for resale in licensed locations. Employees working in licensed locations must follow Starbucks detailed store operating procedures and attend training classes similar to those given to Starbucks Company-operated store managers and employees.

During fiscal 2003, Starbucks opened 315licensed retail stores in the United States. In addition, Starbucks obtained 76franchised SBC retail stores through the acquisition of SCC in July 2003. As of September28, 2003, the Company had 1,422licensed or franchised stores in the United States. Product sales to and royalty and license fees from these stores accounted for approximately 22% of specialty revenues in fiscal 2003.

The Companys international licensed retail stores are operated through a number of licensing arrangements with prominent retailers. During fiscal 2003, Starbucks expanded its international presence by opening 284 new international licensed stores, including the first stores in Chile, Peru and Turkey. At fiscal year end

Product sales to and royalty and license fee revenues from international licensed retail stores accounted for approximately 17% of specialty revenues in fiscal 2003. In total, worldwide retail store licensing accounted for approximately 39% of specialty revenues in fiscal 2003.

Starbucks has a licensing agreement with Kraft Foods, Inc. (Kraft) to market and distribute Starbucks whole bean and ground coffees to grocery stores as well as in warehouse club stores. Pursuant to that agreement, Kraft manages all distribution, marketing, advertising and promotions for Starbucks whole bean and ground coffee in grocery and mass merchandise stores and pays a royalty to Starbucks based on a percentage of total net sales. Additionally, Kraft distributes Starbucks products to warehouse club stores, for which the Company pays a distribution fee. By the end of fiscal 2003, the Companys whole bean and ground coffees were available throughout the United States in approximately 19,500 grocery and warehouse club accounts. Revenues from grocery and warehouse club accounts comprised approximately 25% of specialty revenues in fiscal 2003.

The Company has licensed the rights to produce and distribute Starbucks branded products to two partnerships in which the Company holds a 50% equity interest: The North American Coffee Partnership with the Pepsi-Cola Company develops and distributes bottled Frappuccino and Starbucks DoubleShot

coffee drinks; and the Starbucks Ice Cream Partnership with Dreyers Grand Ice Cream, Inc. develops and distributes premium ice creams. The associated revenues from these equity investees accounted for approximately 1% of specialty revenues in fiscal 2003.

The Company sells whole bean and ground coffees, including the Starbucks, Seattles Best Coffee and Torrefazione Italia brands, to institutional foodservice companies that service business, industry, education and healthcare accounts, office coffee distributors, hotels, restaurants, airlines and other retailers. In fiscal 2003, Starbucks became the only premium national brand coffee actively promoted by SYSCO Corporations national broadline distribution network. The Company is currently in the process of transitioning the majority of its foodservice accounts to the broadline distribution network as well as aligning its current foodservice sales, service and support resources with SYSCO Corporation. This alliance is expected to improve service levels to current customers and generate new foodservice accounts over the next several years. In fiscal 2003, the Company had approximately 12,800 foodservice accounts, and revenues from these accounts comprised approximately 27% of specialty revenues.

The Company has several other initiatives designed to enhance its core business. For example, the Company has marketed a selection of premium tea products since the acquisition of Tazo, L.L.C. in 1999. The Company maintains a website at through which customers may purchase, register or reload a Starbucks stored value card, as well as apply for the Starbucks Card DuettoTMVisa (the Duetto Card), issued through the Companys agreement with BankOne Corporation and Visa. The Duetto card is a first-of-its-kind card combining the functionality of a credit card with the convenience of a reloadable Starbucks card. Additionally, the website contains information about the Companys coffee products, brewing equipment and store locations. The Company also maintains an e-commerce site at m, from which customers may purchase coffee, coffee flavorings and gift items online. Collectively, these operations accounted for approximately 8% of specialty revenues in fiscal 2003.

Information about the Companys total net revenues, earnings before income taxes, depreciation and amortization, income from equity investees and identifiable assets by segment is included in Note18 of the Companys consolidated financial statements included in Exhibit13 to this report.

Starbucks is committed to selling only the finest whole bean coffees and coffee beverages. To ensure compliance with its rigorous coffee standards, Starbucks controls its coffee purchasing, roasting and packaging, and the distribution of coffee to its retail stores. The Company purchases green coffee beans from coffee-producing regions around the world and custom roasts them to its exacting standards for its many blends and single origin coffees.

The supply and price of coffee are subject to significant volatility. Although most coffee trades in the commodity market, coffee of the quality sought by the Company tends to trade on a negotiated basis at a substantial premium above commodity coffee prices, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather, political and economic conditions. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or restricting coffee supplies.

The Company depends upon its relationships with coffee producers, outside trading companies and exporters for its supply of green coffee. Prices for green coffee of the quality purchased by Starbucks reached historic lows for the Company in 2002 and have gradually increased since then. In an effort to encourage the continuing supply of high quality coffee, the Company negotiates contracts directly with its suppliers and has been successful in securing long-term contracts for the majority of its coffee requirements on this basis. The Company routinely enters into fixed-price purchase commitments for future deliveries of coffee. As of September28, 2003, the Company had $287.2million in fixed-price purchase commitments which, together with existing inventory, are expected to provide an adequate supply of green coffee for calendar 2004. The Company believes, based on relationships established with its suppliers in the past, that the risk of non-delivery on such purchase commitments is low. There can be no assurance that these activities will successfully protect the Company against the risks of higher coffee prices or that such activities will not result in the Company having to pay substantially more for its coffee supply than it would have been required to pay absent such activities.

In addition to coffee, the Company also purchases significant amounts of dairy products to support the needs of its Company-operated retail stores. Fluid milk is purchased from multiple suppliers who have processing facilities near concentrations of Company-operated retail stores. Dairy prices vary throughout the year as supply and demand fluctuate and are subject to additional changes due to government regulations.

The Company also purchases a broad range of paper and plastic products, such as cups, lids, napkins, straws, shopping bags and corrugated paper boxes from several companies to support the needs of its retail

stores as well as its manufacturing and distribution operations. The cost of these materials is somewhat dependent upon commodity paper and plastic resin costs, but the Company believes it mitigates the effect of short-term raw material price fluctuations through strategic relationships with key suppliers.

Products other than whole bean coffees and coffee beverages sold in Starbucks retail stores are obtained through a number of different channels. Beverage ingredients other than coffee and milk are purchased from several specialty manufacturers, usually pursuant to long-term supply contracts. Food products, such as fresh pastries and lunch items, are generally purchased from both regional and local sources. Coffee-making equipment, such as drip and French press coffeemakers, espresso machines and coffee grinders, are generally purchased directly from their manufacturers. Coffee-related accessories, including items bearing the Companys logos and trademarks, are produced and distributed through contracts with a number of different suppliers.

The Companys primary competitors for coffee beverage sales are restaurants, specialty coffee shops and doughnut shops. In almost all markets in which the Company does business, there are numerous competitors in the specialty coffee beverage business, and management expects this situation to continue. Although competition in the beverage market is currently fragmented, a major competitor with substantially greater financial, marketing and operating resources than the Company could enter this market at any time and compete directly against the Company.

The Companys whole bean coffees compete directly against specialty coffees sold through supermarkets, specialty retailers and a growing number of specialty coffee stores. Both the Companys whole bean coffees and its coffee beverages compete indirectly against all other coffees on the market. The Company believes that its customers choose among retailers primarily on the basis of product quality, service and convenience, and, to a lesser extent, on price.

The Company believes that supermarkets are the most competitive distribution channel for specialty whole bean coffee, in part because supermarkets offer customers a variety of choices without having to make a separate trip to a specialty coffee store. A number of nationwide coffee manufacturers are distributing premium coffee products in supermarkets that may serve as substitutes for the Companys coffees. Regional specialty coffee companies also sell whole bean coffees in supermarkets.

In addition to the competition generated by supermarket sales of coffee, Starbucks competes for whole bean coffee sales with franchise operators and independent specialty coffee stores. In virtually every major metropolitan area where Starbucks operates and expects to expand, there are local or regional competitors with substantial market presence in the specialty coffee business. Starbucks Specialty Operations also face significant competition from established wholesale and mail order suppliers, some of whom have greater financial and marketing resources than the Company.

The Company faces intense competition from both restaurants and other specialty retailers for suitable sites for new stores and qualified personnel to operate both new and existing stores. There can be no assurance that Starbucks will be able to continue to secure adequate sites at acceptable rent levels or that the Company will be able to attract a sufficient number of qualified personnel.

Patents, Trademarks, Copyrights and Domain Names

The Company owns and/or has applied to register numerous trademarks and service marks in the United States and in more than 140 additional countries throughout the world. Rights to the trademarks and service marks in the United States are generally held by a wholly-owned subsidiary of the Company and are used by the Company under license. Some of the Companys trademarks, including Starbucks, the Starbucks logo and Frappuccino, as well as other acquired trademarks and trade names such as Seattles Best Coffee and Torrefazione Italia are of material importance to the Company. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as

long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic.

The Company owns numerous copyrights for items such as product packaging, promotional materials, in-store graphics and training materials. The Company also holds patents on certain products, systems and designs. In addition, the Company has registered and maintains numerous Internet domain names, including Starbucks.com and . While valuable, the Company does not view its current copyrights, patents and domain names as material to its business.

The Companys research and development efforts are led by food scientists, engineers, chemists and culinarians in the Research and Development department. This team is responsible for the technical development of food and beverage products and new equipment. Recent development efforts have resulted in successful flavor line extensions for espresso-based beverages, coffee and non-coffee based Frappuccino blended beverages; new items for the Companys morning pastry and lunch lines; and the launch of iced shaken refreshment beverages made with Starbucks brewed coffee or Tazo tea. The Company spent approximately $5.4million during fiscal 2003 on technical research and development activities, in addition to customary product testing and product and process improvements in all areas of its business.

The Companys business is subject to seasonal fluctuations. Significant portions of the Companys net revenues and profits are realized during the first quarter of the fiscal year, which includes the December holiday season. In addition, quarterly results are affected by the timing of the opening of new stores, and the Companys rapid growth may conceal the impact of other seasonal influences. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

As of September28, 2003, the Company employed approximately 74,000people, approximately 68,000 in retail stores and the remainder in the Companys administrative and regional offices, and store development, roasting and warehousing operations. At fiscal year end, employees at 10 of the Companys Canadian stores and a group of nine maintenance mechanics and technicians at one United States roasting plant were represented by unions. The Company believes that its current relations with its employees are good.

Certain Additional Risks and Uncertainties

In fiscal 2004, the Company expects to open approximately 1,300new stores worldwide and expects Company-operated comparable store sales growth to be in the range of 3%-7%, with monthly anomalies. Management expects total net revenue growth of approximately 20% and earnings per share growth of approximately 20-25% per year for the next 3-5years. Managing rapid growth can be challenging, and any failure to execute that growth effectively could adversely impact the Companys business, financial condition and results of operations.

The Companys financial performance is highly dependent upon the retail operations of the United States operating segment. Any substantial, sustained decline in these operations would have a material adverse effect on the Companys business, financial condition and results of operations. Declines in financial performance could arise from, among other things:

failure to identify and secure real estate locations sufficient to meet annual targets for store openings;

shortfalls in comparable store sales growth expectations; and

negative trends in operating expenses.

The Companys International operating segment (excluding Canada) is not currently profitable, and its international stores and licensees may not be successful in their operations or in achieving expected growth. Some factors critical to the success of the Companys international stores and licensees are different than those affecting the United States stores and licensees. The economies of a number of the international markets in which Starbucks and its licensees operate have been weak in recent years. Tastes naturally vary by region, and consumers in the new international markets into which Starbucks and its licensees expand may not embrace products and services to the same extent as consumers in the Companys existing United States markets. Occupancy costs and store operating expenses are sometimes higher internationally than in the United States due to higher rents for prime, inner-city store locations or due to local laws that make it more expensive to retain or terminate employees. The Companys International operations are also subject to the inherent risks of foreign currency fluctuations and changes in economic, social and political conditions. Because the Companys International operations are in an early phase of development and have country-specific regulatory requirements, they require a more comprehensive field organization, compared to the United States, to provide resources and respond to the business needs in each region.

Future operating results for the Company may fluctuate, perhaps significantly, depending upon a number of factors which include, but are not limited to, the following:

the Companys ability to continue to increase net revenues and operating income in the United States operating segment;

the Companys ability to grow operating income in the International operating segment;

the impact of recording the cost of future stock option grants as an expense in the consolidated statements of earnings; and

general economic conditions in the markets in which the Company operates.

Market expectations for the Companys financial performance are high, and Starbucks stock often trades at a significant multiple to expected earnings per share. Failure to meet these market expectations could cause the price of the Companys common stock to drop rapidly and sharply. Investing in Starbucks common stock entails assuming the risk that the Company may not meet the markets high expectations.

The Companys annual reports on Form10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission are publicly available free of charge on the investor relations section of the Companys website at as soon as reasonably practicable after the Company files such materials with, or furnishes it to, the Securities and Exchange Commission. The Companys corporate governance policies, ethics code and Board of