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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

For the Quarterly Period Ended December 29, 2002

OR

For the transition period from ____________ to _____________.

Commission File Number: 0-20322

STARBUCKS CORPORATION
(Exact Name of Registrant as Specified in its Charter)

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.

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

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

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STARBUCKS CORPORATION

FORM 10-Q

For the Quarter Ended December 29, 2002

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PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)

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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

See Notes to Consolidated Financial Statements.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

See Notes to Consolidated Financial Statements.

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STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks Ended December 29, 2002 and December 30, 2001

Note 1: Financial Statement Preparation

The consolidated financial statements as of December 29, 2002, and December 30, 2001, and for the 13-week periods ended December 29, 2002, and December 30, 2001, have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial information for the 13-week periods ended December 29, 2002, and December 30, 2001, is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The financial information as of September 29, 2002, is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended September 29, 2002, included in Item 7A in the Fiscal 2002 Annual Report to Shareholders on Form 10-K, and should be read in conjunction with such financial statements.

Certain reclassifications of prior year’s balances have been made to conform to the current format.

The results of operations for the 13-week period ended December 29, 2002, are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 28, 2003.

Note 2: Summary of Significant Accounting Policies

Goodwill and Other Intangible Assets

Accounting for Stock-based Compensation

SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair market value of options granted. The Company has chosen to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the grant price equals the market price on the date of grant for options issued by the Company, no compensation expense is recognized for stock options issued to employees.

On December 31, 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure,” which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company has elected to early adopt for the 13-week period ended December 29, 2002. Starbucks will continue to account for its stock based compensation according to the provisions of APB Opinion No. 25.

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Had compensation cost for the Company’s stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company’s net earnings and earnings per share would have been as follows (in thousands, except earnings per share):

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

Recently Issued Accounting Pronouncements

Note 3: Inventories

Inventories consist of the following (in thousands):

As of December 29, 2002, the Company had fixed-price purchase contracts for green coffee totaling approximately $274.2 million.

Note 4: Derivative Financial Instruments

Cash Flow Hedges

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Net Investment Hedges

Note 5: Property, Plant, and Equipment

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

Note 6: Shareholders’ Equity

In June 2002, the Company’s Board of Directors authorized the repurchase of up to 10.0 million shares of common stock in the open market. During the 13 weeks ended December 29, 2002, Starbucks acquired 1.5 million shares at an average price of $20.62 per share, for a total cost of $29.9 million. The Company acquired 2.1 million shares under this plan at an average price of $19.81 per share, for a total cost of $42.0 million, during fiscal year 2002. All repurchases were effected through Morgan Stanley & Co. Incorporated. As of December 29, 2002, there were 6.4 million additional shares available for repurchase under this plan.

Note 7: Comprehensive Income

Comprehensive income, net of related tax effects, is as follows (in thousands):

The Company is subject to foreign currency translation adjustments because its international operations use their local currencies as their functional currencies. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and the resulting translation adjustments are recorded as a separate component of “Accumulated other comprehensive loss” on the accompanying consolidated balance sheets.

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Note 8: Earnings Per Share

The following table represents the calculation of net earnings per common share – basic (in thousands, except earnings per share):

The following table represents the calculation of net earnings per common and common equivalent share – diluted (in thousands, except earnings per share):