JoAnn DeGrande - Director, Investor Relations James L. Donald - President, Chief Executive Officer,Director Martin Coles - Chief Operating Officer Peter J. Bocian - Chief Financial Officer, Executive VicePresident, Chief Administrative Officer Howard Schultz - Chairman of the Board

John Glass - CIBC World Markets Glen Petraglia - Citigroup Sharon Zackfia - William Blair Steven Kron - Goldman Sachs Joe Buckley - Bear Stearns Andrew Barish - Banc of America Securities Jeffrey Bernstein - Lehman Brothers Larry Miller - RBC Capital Markets

Good afternoon. My name is Mark and I will be yourconference operator today. At this time, I would like to welcome everyone toStarbucks Coffee Company’s fourth quarter and fiscal year-end 2007 financialresults conference call. (Operator Instructions) Ms. DeGrande, you may beginyour conference.

Thank you. Good afternoon, ladies and gentlemen. This isJoAnn DeGrande, Director of Investor Relations at Starbucks Coffee Company.With me today are Jim Donald, President and CEO; Martin Coles, Chief OperatingOfficer; and Pete Bocian, CFO. Today’s call is scheduled for one hour,including Q&A. As a reminder to all listeners, this call is being broadcastlive over the Internet. A replay will be available via telephone at800-642-1687, reservation number 4132564. That’s through 5:30 p.m. Pacific Timeon Friday, November 23rd, and on the investor relations page at starbucks.comthrough 5:00 p.m. Pacific Time on Friday, December 14th. In addition, today’s remarks will be available on theinvestor relations portion of starbucks.com by the end of the day today andwill remain available through Friday, December 14th. This conference call includes forward-looking statementsabout trends in or expectations regarding store openings, comparable storesales, net revenue, earnings per share, effective tax rate, operating margin,capital expenditures and commodity costs. These forward-looking statements areall based on currently available operating, financial, and competitiveinformation and are subject to various risks and uncertainties. Additional information concerning factors that could causeactual results to differ materially from those in the forward-lookingstatements are contained in the company’s filings with the Securities andExchange Commission, including the risk factors section of Starbucks' annualreport on Form 10-K for the fiscal year ended October 1, 2006. The company assumes no obligation to update any of theseforward-looking statements. I would now like to turn the call over to Jim Donald. Jim. James L. Donald: Thanks, JoAnn. Good afternoon, ladies and gentlemen.Starbucks fourth quarter and full year results reflect our on-going commitmentto deliver on our financial goals. In achallenging operating environment, we have demonstrated resiliency and discipline.With that said, there are areas of opportunity within our control to deliverbetter performance. We ended the fiscal year with encouraging trends andmomentum in our International business, and we believe we are in a solidposition to continue these trends into this new fiscal year. We face challenges in our U.S. business, as do others, butwe believe we are addressing them and strengthening our business. Today, I will briefly walk you through our fourth quarterand fiscal year accomplishments, as well as challenges and opportunities for usas we move into 2008. Let me begin with a summary of some of the key highlights ofthe fourth quarter and the fiscal year. We reported net revenues of $2.4 billion for the quarter, up22% from the same period in fiscal 2006. Fiscal 2007 net revenues reached $9.4billion, a 21% increase over last year. Operating income for the fourth quarter was $248 million, up25% from a year ago and $1.1 billion for the year, an 18% increase year overyear. We delivered earnings per share of $0.21 for the quarter,compared to $0.15 per share a year ago and for the full year, EPS was $0.87compared to $0.71 in 2006 and we delivered comparable store sales growth of 4%for the quarter, driven by a 4% increase in the average value per transaction.For the full year, comparable store sales growth was 5%, comprised of a 1%increase in transactions and 4% growth in the average value per transaction. New store openings continued at a good pace as we opened 615stores in the fourth quarter to end the year with more than 15,000 stores in 43countries. As we enter fiscal 2008, we continue to examine the stepsnecessary to both capture the significant long-term opportunity that existsglobally, while we deliver on our financial targets for the year. Early in thefourth quarter, we took a step in this direction with the realignment of ourexecutive management team, which included the addition of a chief operatingofficer. Our team is sharpening our focus on operational executionwhile supporting our long-term growth. We have developed a strong bench ofleaders, as evidenced by this realignment which was accomplished entirely withinternal candidates. Martin Coles, who recently led our International business,is now our COO. His proven expertise in global operational excellence isinvaluable and we look for his lead in optimizing day-to-day operations as wecontinue our global expansion. Launi Skinner, our new president of the U.S. business, hasbeen a Starbucks partner since 1993 and has served in a number of increasinglycritical operations positions in the field. Most recently, she held aleadership role in Store Development, guiding the U.S. business through itssignificant store growth. And Jim Alling, who led the rapid expansion of the U.S.retail business, is now leading our international business, where he bringsstrong operational experience not only in our retail business but also in foodservice and licensed partnerships. Turning to U.S. retail, we will spend considerable time on today’scall discussing the challenges and opportunities in this business. But before we do that, I want to quicklyacknowledge some of the accomplishments for the fourth quarter and the year. Of note, U.S. retail delivered 19% revenue growth for boththe fourth quarter and the full year. During the year, we opened a total of1,065 net new company-operated retail stores and within that total, wecontinued to grow our drive-Thru presence to meet the convenience needs of ourcustomers. There remains significant opportunity for our drive-thrumodel in North America. We like both the geographic expansion options and theattractive unit economics of this store format. We ended the year with nearly2,200 drive-thru locations, making up more than 30% of our U.S. company-operatedstore base. We ended the year with warming in over 3,000 U.S. locations,an increase of nearly 2,400 stores during the year. We also expanded our lunchprogram by more than 1,000 locations. Lunch is now available in more than 70%of our U.S. company-operated retail store base. During the fourth quarter, we entered into a strategicalliance with Apple, allowing our customers to digitally download music fromthe iTunes Wi-Fi Music Store at participating Starbucks locations. The Starbucks Card reached two key milestones during theyear, driven by our activity in our U.S. company-operated locations. For thefirst time, customers both loaded and redeemed more than $1 billion during afiscal year. To put that into context, it took three years from the time welaunched the card for customers to load the first billion dollars. Turning to comparable store sales for the U.S. segment, inthe fourth quarter we saw transaction trends decelerate from those experiencedin the second and third quarters. The average value per transaction increased5% in quarter four, while traffic decreased by 1%, resulting in a 4% comparablestore sales growth. For the full fiscal year, U.S. retail delivered 4%comparable store sales growth, nearly all driven by the average value pertransaction. While we did report U.S. comparable store sales within ourstated range for the consolidated business both for the quarter and the year,we did it through two price increases and we recognize that theflat-to-negative trends needs to be addressed. The pressure we are seeing on the traffic isn’t entirelyunexpected considering the challenging operating environment and similar trendsreported across both the retail and restaurant industry. It is apparent thatour customers are feeling the impact of the economic slowdown. We believe the combination of this slowdown and the priceincreases we implemented in 2007 to help mitigate significant cost pressureswithin our business, such as dairy, have impacted the frequency of customer visitsto our stores. Despite that, we believe there are opportunities within ourcontrol to increase traffic into our stores and today, we will share with youspecific initiatives underway to do just that. I will outline the general areaswe are working on and then Martin will expand upon these initiatives in hisremarks. First, the greatest opportunity for us is to sharpen ourfocus on our core business and be uncompromising when it comes to executing toour standards. We built this brand and quite candidly this industry on theStarbucks Experience, connecting with our customers by delivering the highestquality coffee and hand-crafted beverages in a warm and inviting storeenvironment. While we have not been executing consistently to ourstandards, we are committed to getting back to those levels. Second, we have a significant opportunity to attract morecustomers to our stores through avenues not tapped by us historically. And, third, we plan to drive beverage sales by recapturingthe consistent quality our customers expect from our core beverage line-up anddelivering meaningful innovation. This focus will result in new products thatreflect our core high-quality, handcrafted beverages. We remain committed todelivering high-impact innovations that surprise and delight our customers andincrease traffic in our stores. To help with this focus, we’ve also re-examined the velocityat which we are opening new stores in the U.S. and decided to further reviseour fiscal 2008 U.S. company-operated store opening target. We now plan to open900 company-operated and 700 licensed locations in the U.S. this year. Byreducing the pace, we expect to improve our ability to select both the locationand the store format that are the best fit for our customers and the business. Before I turn the call over to Martin, I want to address thegrowing level of interest of others to participate in the specialty coffeeindustry, as well as the economic trends. I think it is important to discuss these issues side by side to ensureappropriate weight is given to the challenging operating environment and toemphasize that we remain the clear leader in this industry. Starbucks built this market and the customer awareness,which has resulted in a growing demand for specialty coffee in the U.S. We arein the enviable position of having an incredibly loyal customer base, somethingthat we work hard to preserve day in and day out. We have delivered years of strong results because we havedifferentiated ourselves in a way that can’t be duplicated. Considering thechallenging macroeconomic factors, our call to action at this time is to ensurethat we are consistently executing against the unparalleled StarbucksExperience on which the brand and our customers’ loyalty was built. With our renewed focus, we believe we are poised to not onlymaintain our leadership position during these tough economic times but tocapture significant growth in this business for the years to come. I want to emphasize that we believe we have a solid grasp onthe opportunity for substantial growth, that we are in a position of strengthto be able to execute our strategic plan and deliver long-term shareholdervalue. We are keenly aware of the current economic conditions andhave a great respect for the competitive landscape but we believe theopportunity is within our control. We remain committed to our global growthstrategy and continue to see significant potential to broaden our footprintboth domestically and outside the U.S. We are also committed to executing on our growththoughtfully, strategically and with a disciplined approach to ensure we meetour profit and return targets. I’m now going to turn the call over to Martin, who will walkyou through more details on specific initiatives slated for fiscal 2008. Martin.

Great. Thank you, Jim and good afternoon everyone. Let me starttoday by stressing that from an execution perspective, we are already workingon many of the initiatives that Jim has just outlined for you, the first ofwhich is a significantly enhanced focus on operational excellence andconsistency. Consistent execution of our standards means reducingcomplexity to free up time for our operators in the field to get closer to ourcustomers. This includes fewer and more powerful promotions, SKUs and newprograms rolled out to our stores. In other words, what we internally call focusing on thevital few, those areas of focus that truly make the difference in winning theloyalty of our customers. We are also providing our field leadership thesupport necessary for them to spend significantly more time in their stores. Specifically, our district managers, who typically manage eightto 10 stores each, will now spend closeto 80% of their time in the stores helping with the execution. By materially increasing the time our fieldleadership spends in their stores connecting with our store partners, we believe we will have a better opportunityto share the direction of the company while developing stronger business skillsand focusing our work as a team to improve the overall store environment andexecution against our strategy. From this, we expect to see enhanced partner engagementwhich ties, we believe, directly to our customers’ experience and therefore trafficin our stores. We also have a significant opportunity to attract customersto our stores through a more robust and integrated marketing strategy. We arein a very good position to tap into tools not used by Starbucks to date withthe launch of our first national television campaign highlighting our holidaypromotion. This is an important season for us and we’ve created acompelling campaign that keeps our offerings top-of-mind with our customers,with the TV component reaching our customers out of store and in their homes. During the holiday season, customers look to Starbucks as abeacon of this very special celebration of community. Our integrated campaignwill increase customer awareness and engagement by highlighting those criticalfactors which differentiate us -- our connection with customers through thehighest quality coffee and hand-crafted beverages, in the third placeenvironment that exists only at Starbucks. We believe the overall campaign, coupled with targetedadvertising, will capitalize on our brand awareness while driving both new andexisting customers into our stores. We will focus on driving beverage sales byrecapturing the consistent quality that our customers expect from our corebeverage line-up, while delivering meaningful innovation. Ensuring consistent quality of every beverage we serve is absolutelycore to creating the Starbucks Experience. We are analyzing every aspect ofwhat it takes to deliver that quality by implementing initiatives such asadditional training for new baristas that specifically focuses on drinkpreparation, and by collecting feedback directly from our customers on ourperformance through an enhanced customer survey tool. Through this tool, customers are randomly invited throughtheir register receipt to provide feedback on their store experience, which isthen passed on to our store managers. We believe this tool will provide us withadditional insights to ensure that we are consistently delivering the StarbucksExperience. In the arena of meaningful innovation, we are aggressivelyfocusing our efforts on fewer, more powerful and differentiated beverageproducts. You will continue to see beverage innovation but the pace willreflect a renewed focus on relevancy to our core -- that’s our coffee and thecoffee house experience. So turning now to our holiday promotion, which launched instores last week, we are focusing on three key areas to drive sales in ourstores -- beverages, the Starbucks Card and Starbucks Christmas Blend. We will be featuring the familiar holiday beverage trio ofPeppermint Mocha, Gingerbread Latte and Eggnog Latte. We believe these much anticipated favoriteswill be sure to bring more customers into our stores during the busy shoppingseason. In addition to two new holiday card designs, we’ve also introduceda unique card innovation called My Customized Starbucks Card for the holidayseason. For the first time, customers may purchase a voucher in our stores andthen go online to our website to personally design their own distinctiveStarbucks Card. This will also work great as a gift as the voucher can bepurchased in a gift box and the recipient can redeem and design theirpersonalized card online. While this has only been in stores for a few days, initialresponse to this new card has been very strong. Starbucks second quartertypically sees the highest level of quarterly Starbucks Card redemptions and webelieve this new twist on the card will provide yet another incentive to chooseStarbucks. On the merchandise side, our signature holiday whole beancoffee offering, Starbucks Christmas Blend, signifies the start of the holidayseason and it will be part of what we believe is a lineup of unique giftingitems that customers have come to love and expect from Starbucks. So all in all, the message I want to leave you with is that weare very focused on a number of initiatives that are dedicated to improvetraffic in the United States. So moving beyond the specific initiatives that I haveoutlined, we also have the opportunity to better leverage our growth across theback end of our operations. Specifically, as we have analyzed opportunities tomitigate the recent trends in the United States business, we believe we canbetter align our support and size our infrastructure to handle changes intransaction volumes as we continue our global expansion. Our goal is to take advantage of our enterprise scale whilefueling innovation and driving operational excellence in the stores. Turning now to international, we finished the year withstrong momentum. Revenue growth was 31%for the fourth quarter, the ninth consecutive quarter with revenue growth of22% or higher, and 30% growth overall for the year. Also during the fourth quarter, we posted double-digitoperating margins, our second-highest in the last eight quarters. Thisimprovement demonstrates our focus and our commitment to growing revenueprofitably, expanding our operating margins steadily, and leveraging our largecore markets while expanding into newer markets for future growth. Pete will provide further color on the internationaloperating margin and targets for 2008 later in the call. By the end of the year, we had more than 4,300 storesoutside of the United States. OurGreater China market opened 126 locations during the fiscal year, second onlyto Canada in the number of stores added in an international market during theperiod, and ended the year with more than 560 stores. We are in a good position leading up to the Summer Olympicsin 2008 and we continue to have a great deal of enthusiasm about theopportunities that Greater China offers. In addition to expanding in existing markets, we openedstores in several new markets during the year, and these included Brazil,Denmark, Egypt, Romania, The Netherlands and most recently Russia, with the openingof our first store in Moscow. The Russia market is especially encouraging to us, havingexperienced a very strong reception to our market entry. The average ticket atthat first store is running at the high end of any of our new market openings,which bodes very well for us as we further build out our presence in this very largemarket. Our efforts to expand our international footprint willcontinue into fiscal 2008 with a continued focus on extending the geographicreach of our existing joint venture business partners when and where theopportunity arises. Our established, successful partners provide for strongentries into new markets and provide greater efficiencies, allowing us to gainleverage by building larger regional businesses. Examples of this include ourentry into Argentina later this fiscal year with our experienced and successfulpartner in Mexico, Alsea, who is also a minority partner in our Brazilianmarket. You will see us similarly leverage partnerships to expandour presence in our Europe and Middle East region. A recent example is ourentry into Russia with our existing partner for the Middle East and Turkey,M.H. Alshaya. By entering these diverse markets, we are further laying thegroundwork for capturing the long-term international opportunity whileleveraging the scale and expertise of existing partners. So today, our international business spans 42 countries butit is really the maturity and scale of our developed markets -- in this case, Canadaand the U.K. -- that fuel the revenue growth, allowing the smaller countries togain experience and gradually build out scale over time. When we look at profit contribution, Japan’s performancejoins Canada and the U.K., with the three markets providing the financialflexibility to balance our investment in expansion with profitability. Let me turn now to our consumer product goods business, or CPG,and the growth in both our packaged coffee and tea and our ready-to-drinkbusinesses continues as we expand into new markets and further developestablished channels. Market share by volume for packaged coffee in the UnitedStates continues to grow for both the Starbucks and the Seattle’s Best Coffeebrands. And extending our relationship with Kraft during the year to includedistribution in Canada and the U.K. has given us further leverage in thestrength of this relationship. We continued to maintain our significant presence in theU.S. ready-to-drink market with an 85% market share in 2007. Our opportunitynow lies in building similarly strong customer acceptance and brand recognitionin international markets. Internationally, our ready-to-drink platform in theAsia-Pacific region reached several significant milestones during the quarter, whichinclude: selling over 100 million beverages in Japan and achieving 99%penetration in the all-important convenience store segment within that market.Also, the expansion outside North America of our PepsiCo partnership with theestablishment of a multi-country agreement. We were excited to launch Starbucks bottled Frappuccinoready-to-drink beverages in China on November 1, and we are in the uniqueposition of being able to leverage our brand through products like bottledFrappuccino beverages. Starbucks’ reputation of delivering the highest qualitybeverages in our stores extends to our ready-to-drink business and allows us tointroduce new customers to the Starbucks Experience outside of our retaillocations. The introduction of bottled Frappuccino beverages in China will helpStarbucks brand awareness in this important market, attracting new customers toour existing stores while also increasing the demand for new stores. The expansion of ready-to-drink beverages and packagedcoffee and tea into our international markets clearly demonstrates the vastopportunity we have to extend the Starbucks Experience beyond our stores. So in closing, as I look ahead in my new role, I am fullyaware of both the opportunities and the challenges ahead of us. I take veryseriously the responsibility of leading our passionate, dedicated partnersaround the world to the next level of operational excellence and I can say withabsolute confidence that we are up to the task. We are well-positioned to execute on the initiatives we haveestablished and I look forward very much to updating you in late January on ourprogress. So now let me turn things back over to Jim for his finalremarks. Jim. James L. Donald: I would now like to take a moment to recognize thetremendous contribution that Michael Casey has made to this organization in histwelve years as Starbucks CFO. During that period of time, our companyexperienced spectacular growth. With Michael in the critical role of ChiefFinancial Officer, we were able to aim higher and in many cases exceed ourgoals. His disciplined leadership and strong commitment toStarbucks’ success have delivered value to our shareholders over the years andhis contribution has been recognized externally as well, as he has receivedseveral awards for his accomplishments - most recently CFO of the Year fromInstitutional Investor magazine. On October 1st, Michael stepped aside as CFO in preparationfor his retirement early next spring. I can’t think of many CFOs of Fortune 500companies who have held their position for that length of time. This speaks tohis tenacity and commitment and his dedication to Starbucks partners. I would also like to thank Michael for his commitment totransitioning Pete Bocian into the CFO role. We wish Michael the best of luck. Before I turn the call over to Pete, let me just recap a fewthings. We posted solid financial results for the fourth quarter andthe fiscal year 2007, which is noteworthy given the economic environment. Whilethere are clearly challenges in our U.S. retail business, we believe there aresignificant opportunities within our control to improve our results. Today weoutlined for you some of the changes we are making to address these challengesand continue on the path towards building long-term shareholder value. We ended the year with momentum in our internationalbusiness that we believe will continue into fiscal 2008. We have a strongleadership team that is appropriately aligned to execute our strategy. I amconfident in our ability to deliver on the significant opportunities within ourcontrol. We are a nimble and determined organization that has the passion, the discipline,the strategy and the brand strength to capture the global growth opportunitiesahead of us. Now, Pete will provide you with a review of the quarter andyear and our outlook for 2008. Peter J. Bocian: Thanks, Jim and good afternoon, everyone. It’s a pleasure tojoin you on my first earnings call as Starbucks’ CFO. Today I will provide someadditional color on our reported financial results for the fiscal fourthquarter and the full year. I will also review our latest outlook for fiscal2008. Let me start first with a look at total company fourth-quarterresults. Revenues for the fourth quarter of 2007 were up 22% to $2.4 billionfrom $2.0 billion a year ago. Comparable store sales growth was 4% for the quarter, alldriven by an increase in the average value per transaction. While the U.S.performance was weaker than we expected, specifically with respect to traffic,we are encouraged by the strength in our international comparable store salesgrowth. Operating income increased to $248 million for the quarterfrom $198 million in the prior year. As a percentage of total net revenues,operating margin increased to 10.2% from last year’s fourth-quarter margin of9.9%. The year-over-year improvement was the result of lower store operatingexpenses and general and administrative expenses as a percent of revenues,coupled with price increases taken in fiscal 2007. Those factors helped offsetthe shift to higher cost products and the impact of higher dairy costs. Earnings per share increased to $0.21 in the fourth quartercompared to $0.17 per share for the comparable period in fiscal 2006, excludingthe $0.02 negative impact a year ago from the required accounting changerelated to asset retirement obligations. Non-operating factors impacting net earnings for the quarterincluded a higher effective tax rate year over year and a higher interestexpense, primarily related to an increased level of debt. Let me now move to fourth-quarter results for our operatingsegments. Beginning with the U.S. business, total net revenues increased by 19%to $1.9 billion in the fourth quarter of fiscal ‘07. Company-operated retail revenues rose 19% to $1.7 billionfor the quarter, driven by the opening of 1,065 new company-operated retailstores in the last 12 months and comparable store sales growth of 4% for thequarter. The growth in same-store sales was driven by a 5% increasein the average value per transaction, which resulted from the two priceincreases implemented in fiscal ‘07 and from increased food sales. Partially offsetting the ticket increase was a 1% decreasein transactions. U.S. cost of sales including occupancy costs as a percent oftotal revenues increased to 41.7% compared to 39.4% in the comparable period ayear ago. This was due to higher dairy costs, which contributed nearly 100basis points to the increase, and a shift in sales mix to higher cost products,adding approximately 70 basis points of impact. The shift in sales mix wasprimarily due to higher sales of food and merchandise. U.S. store operating expenses improved 90 basis points to42.2% of related U.S. retail revenues, resulting primarily from leverage gainedwithin the business. Partially offsetting these reductions were higherpayroll-related expenditures in fiscal 2007, stemming from the company’sOctober 2006 wage increase for hourly store partners and the second-quartersalary increase for our store management partners. U.S. other operating expenses improved significantly to24.3% of related specialty revenues in the fourth quarter of fiscal ‘07, from27.4% in the prior year, primarily due to lower salaries and benefits as apercentage of related specialty revenues and due to lower discretionaryspending. U.S. operating income increased to $225 million during thequarter from $201 million during the same period in fiscal 2006. The operatingmargin declined to 12.1% of related revenues for the fourth quarter of fiscal ‘07from 12.8% a year ago, with cost of sales including occupancy as the largestcontributor to the decline. Now moving to the international segment. International totalnet revenues increased 31% to $472 million in the fourth quarter of fiscal ‘07.Company-operated retail revenues increased 32% to $399 million in the fourthquarter of fiscal ‘07 mainly due to the opening of 277 new company-operatedretail stores in the last 12 months, favorable foreign currency exchange forthe British pound sterling and Canadian dollar, and comparable store salesgrowth of 6% for the quarter. The comparable store sales increase resulted from a 5%increase in the number of customer transactions, coupled with a 1% increase inthe average value per transaction, reflecting another quarter of strong growthin our international retail business. International operating income increased to $51 million inthe fourth quarter of fiscal 2007 compared to $21 million in fiscal 2006. Favorableforeign exchange was not a significant contributor to the increase. Wedelivered strong operating margin improvement to 10.8% of revenues from 7.3% infiscal 2006, primarily due to lower general and administrative expenses andstore operating expenses as a percent of net revenues, as well as higher incomefrom equity investees. Over time, we expect further leverage from the investmentsin our international business and significant margin improvement in fiscal2008, which I will comment on later in my remarks. Our third business segment is our Global Consumer ProductsGroup, or CPG. CPG total net revenues increased 44% to $110 million in thefourth quarter of fiscal 2007. This was driven mainly by increased sales ofpackaged coffee and tea in the U.S., along with increases in product sales androyalties from the international ready-to-drink business. Operating income for CPG was $62 million in the fourthquarter of fiscal 2007 compared to $47 million in fiscal Q4 of 2006. Theoperating margin decreased to 56.9% of related revenues from 61.8% in fiscal2006. This decline was due to slower growth in equity income from The NorthAmerican Coffee Partnership due in part to higher dairy costs. Now for a few comments on Starbucks’ balance sheet. InAugust, the company issued $550 million of 6.25% ten-year notes as part of ourstrategy to reduce the overall weighted average cost of capital for thecompany. Proceeds from this offering were primarily used to repayshort-term borrowings and fund additional share repurchases. As we take alonger term outlook on the company’s capital structure, any additional fundingwould be consistent with the company’s strategy of targeting leverage andcoverage levels to be roughly in line with a high Triple B rating over themedium-term, which is where we are at today. During the fourth quarter, the company repurchased 12.6million shares of common stock under the current authorized share repurchaseprogram for a total cost of $342 million. This brings total share repurchasesfor the fiscal year to 33 million shares at a cost of approximately $1 billion. At the end of the fiscal year, approximately 13.5 millionshares remained available for repurchase under our current share authorization.Since the inception of our share repurchase program in 2001, Starbucks hasreturned nearly $3.4 billion to shareholders through the repurchase of 132million shares through September 30, 2007. For the full year, we generated $1.3 billion in cash from operatingactivities compared to $1.1 billion in the prior year. Capital investments forthe year totaled $1.1 billion, compared to $770 million in fiscal ‘06. Our investments in 2007 equated to about 11% of revenue,which was slightly higher than the past few years. Of our fiscal 2007expenditures, approximately 80% was in support of store growth and maintenance. To wrap up my discussion on fiscal 2007, let me recap how weperformed against our four key financial targets. Store openings -- we targeted the opening of 2,400 net newstores globally and we finished fiscal 2007 at 2,571 new stores; 1,788 in theU.S. and 783 in International markets. Comparable store sales growth of 5% fell right in themidpoint of our stated range of 3% to 7% growth, while the transaction comp forour U.S. business was well below our expectations. We achieved revenue growth of 21%, just about at our statedtarget of approximately 20% growth. And fiscal 2007 earnings per share came in at $0.87, whichwas at the low end of our original target range, as pressures from dairy costsand soft transaction comps in the U.S. limited our ability to get to the upperend of the range. In summary, we achieved solid performance despite headwindsfrom dairy and a challenging economic environment. We also recognize that ourperformance did not meet our internal expectations, particularly theperformance of our U.S. business. We have a renewed focus on this business andwe expect to make improvements beginning in this fiscal year. Before I move on to discuss 2008, I wanted to share my ownobservations leaving 2007. We are on track to open 10,000 stores between 2007 and 2010and we believe in the long-term market opportunity for the 40,000-store count.As I look at China and have had the opportunity recently to meet with ourbusiness partners and our own regional leadership in the international space, Isee enormous opportunity there. We increased revenues over 20% in 2007 and generated over $1billion in operating income, and $1.3 billion in cash from operatingactivities. In other words, financially we are very healthy. That said, it’s a more challenging environment from aneconomic, operational and competitive standpoint. While I believe we havemanaged through these factors and delivered in 2007, we also need to step upour focus in several key areas. As Jim and Martin mentioned, we need to work on betteroperational excellence at the store level and better, more meaningfulinnovation to continue to differentiate our store experience. Also, as Martin mentioned, we need to give the businessmodel more room, get more efficient and effective in the back-end, and be morecapable of navigating through some of these fluctuations in the externalenvironment. Now I’d like to update you on our fiscal 2008 outlook andfinancial targets. Throughout 2007, we saw a consistent weakening in our U.S.business with a negative trend in transactions exiting the year. Our goal insetting targets for 2008 is to balance the long-term opportunity for storegrowth with the near-term reality. We plan to execute on the key initiativesthat Jim and Martin outlined and deliver improved operating margins, withsignificant margin expansion in international. Given an expected continuation of this challenging operatingenvironment, we are updating our targets as follows: as Jim mentioned, in theU.S. we are now targeting opening approximately 900 new company-operatedstores, with the same 700 licensed store openings we previously stated. International openings remain unchanged at approximately 900net new stores, comprised of 300 company-operated and 600 licensed stores. In light of the weaker transactions we experienced in 2007,a trend shared by many others in the consumer space, we now expect comparablestore sales growth in the range of 3% to 5%. Total net revenue growth is expected to be in the range ofapproximately 17% to 18%, to over $11 billion. We expect operating margin improvement in 2008 as follows: totalcompany operating margin is expected to expand slightly year over year. Giventhe continued pressure from dairy costs, along with the other factors we havepreviously discussed today, we expect the margin to contract in Q1, but toimprove in the second-half of the year to deliver margin expansion year overyear. This will be driven by our U.S. initiatives and improvement in ourInternational business. We expect the U.S. operating margin to remain relativelystable for the full year and we expect the international operating margin toexpand by at least 100 basis points year over year, to achieve over 9% for thefull year. We are targeting earnings per share in the range of $1.02 to$1.05, representing 17% to 21% growth. Given the current economic and operatingenvironment, we are also providing specific guidance around Q1 EPS. Withongoing dairy cost pressure, which in this first quarter alone is $0.02 ofheadwind to EPS, and expectations of continued softness in the U.S. consumerand economic environment, we are currently expecting Q1 EPS of $0.28. For the full fiscal year range, we have factored in theimpact of dairy costs, which are not expected to ease until the latter part ofthe year, along with the challenging environment. All said, EPS expansion isexpected to be greater in the second-half of fiscal 2008. For fiscal 2008, we expect an effective tax rate in linewith the 2007 reported rate of approximately 36% and capital expenditures alsoto be in line with the $1.1 billion invested in 2007. In summary, we believe these targets are balanced for 2008.We will continue to build out stores to take advantage of the globalopportunity. We will better execute in our U.S. business. We will grow anddeliver significant margin expansion in international and overall we willdeliver margin improvement for the company. With that, I would like to ask the operator to cue the firstquestion.

(Operator Instructions) Our first question is from the lineof John Glass of CIBC. Please go ahead. John Glass - CIBCWorld Markets: Thanks. A question maybe for Jim or Martin; negative trafficin the U.S. could come from a lot of different things -- cyclicality,competition, even your own over-building, and you seem to believe that a lot ofit has to do with your own execution, and I’m wondering what you mean by that,what feedback or metrics you’ve seen in your stores that make you believe thatthere is an opportunity there other than the usual opportunities to alwaysimprove? If you could talk a little bit about that, please. James L. Donald: I think that when we look at the softness in transactions,there’s a couple of things unfolding, and I mentioned them in my remarks. Thereare other operators in this specialty coffee business, but that doesn’tnecessarily link in to this softness in comps. I think what you have to look atis just the pure and simple economic trends that we see. However, having said all that, the point that Martin wasmaking on delivering the execution, reducing the priorities of our partners tofocus in on the core of our business, which is coffee, which is taking care ofthe customer, and on the back side of this, reducing the priorities to continueto deliver on innovation by removing some of the line extension we’ve done inthe past. I think that’s what we are referring to in our ability to improve ourexecution. The three points that Martin made, whether that has to dowith a district manager starting to execute to those standards, it all playsin. Martin, do you have anything to add to that?

Thanks for the question. Our focus is going to continue tobe laser-like over the course of the next year on the basics of the customerexperience, and let’s be clear hear; the full customer experience comes to lifeover those individual transactions between our customers and our baristas 45million times a week. So for us, the focus is on creating great products, greatcustomized products, continuing to create great human connections, and tocontinue again to focus on the third place environment as a space of[sanctitude] and in some cases sanctuary for our customers. So it’s all about every store, every customer, every day andfocusing on the consistency and excellence of that experience. We believe therecontinues to be significant upside there.

Our next question is from the line of Glen Petraglia fromCitigroup. Please go ahead. Glen Petraglia -Citigroup: Thanks. Jim or Martin, in terms of the consumer weaknessthat you highlight, we generally thought, and I think we’re not alone, thatyour products are generally considered an affordable luxury. And your commentssuggest that perhaps you are even more discretionary than we thought and I washoping you might be able to help us think about that. And then, is there aparticular day part that you are seeing weakness? Is it the late afternoonwhere it’s generally more snacky versus the breakfast, where it’s perhaps moreroutine? Thanks.

Thanks for the question. I’m not sure that there’s aparticular day part that I would point to as seeing weakness. In general, Ithink our customers across the United States are experiencing a very similarphenomena, whether it’s through the increase in gas prices, the overhang fromthe breakdown in the mortgage market, increasing dairy prices or cost of livingfor them in general. For us, the focus continues to be in making sure that wecreate the value propositions as uniquely Starbucks by making sure that wedeliver on that great-tasting and great executed beverage again in the storeenvironment they have come to expect and appreciate, most importantly throughthe great relationships that exist between our partners, not just in the UnitedStates but across the world. So again, it comes back to one cup at a time, onetransaction at a time and one relationship at a time.

Our next question is from the line of Sharon Zackfia ofWilliam Blair. Please go ahead. Sharon Zackfia -William Blair: Good afternoon. I don’t know if Howard is around, but Ithink historically, he’s been pretty anti- the idea of doing televisionadvertising. I’m just curious about how long this has been incubating, and isthis a one-time, kind of seasonal campaign or should we expect ongoingcampaigns? And is it a reallocation of the marketing budget it or is itincremental?

I am here, so thank you for the question. I wouldn’t readinto the advertising initiatives too much. I think it’s a natural evolution ofthe maturity of the brand and the experience and the fact that we think we canget enormous leverage, given the national footprint we have in major markets asa result of the TV campaign. I also think that we need to recognize that the category isevolving and as the leader, we have an opportunity to make sure that our voiceis heard through the all-important medium of television. I think we are excitedabout this. I think it’s the beginning of a new opportunity for us and we willreview it and look at it and measure it, and I think in the future, you’llprobably see more of it but I wouldn’t read too much into it. I do think it’s the evolving nature of the equity of thebrand, and I think it’s also important to note that we feel very strongly thatthe experience that we have created over a long period of time, three-plusdecades, gives us the opportunity to continue to differentiate our brand fromeveryone else that is entering this category because the experience is what hasbuilt the category, has built our company. And as we do our own research andunderstand from our most loyal customers as well as those that come lessfrequently, it’s that experience that has defined the differentiation betweenus and everyone else and we will continue, as Martin and Jim have said, to makesure that we create new separation in the marketplace between ourselves andeveryone else.

Our next question is from the line of Steven Kron of GoldmanSachs. Steven Kron - GoldmanSachs: Thanks. Three related questions on the traffic front; first,can you just make a comment as to how the first quarter traffic is trending?Has that worsened since we exited the fourth quarter here, or what you reportin the fourth quarter? Second, you took down the consensus, or where consensus iscurrently at in modeling for the first quarter by a few cents and the full yearby the same, which implies to me that maybe the expectations that traffic willimprove in the second quarter and beyond. Can you comment on whether that iswhat you’re baking in? And if so, what’s going to drive that? Which leads me to the third question, which is you talkabout meaningful beverage innovation, and I was hoping to get a little bit morecolor on that. Because really, if I think about the competitors coming in andbringing products to market that are similar to what you have, theopportunities to really expand your reach to something and raise the bar a bit,I was hoping to get a little bit more as to what type of beverages and whatthings might be incubating at this point. Peter J. Bocian: I’ll hand the first two and then Martin will handle theinitiatives question, the innovation question. As Martin said, we just introduced holiday and a lot of thefirst quarter is back-end loaded towards December, so we won’t know the quarteruntil we get through the next six weeks. Our intent in providing the EPS estimate for Q1 was to giveyou a sense of how we thought we’d start with bulk dairy, and really what’sbaked into that is a similar transaction environment to what we saw in the U.S.in Q4. So we think there’s a couple of headwinds but we have a lot ofinitiatives around improving that balance of year. As I look at the EPS guidance, the $0.28 fits within the$1.02, $1.05 for the year and really I look at the $1.02, $1.05 to beconsistent with our long term goals, which we said we would build 10,000 storesin the next four years. This would be 5,000 if you add the ’08 number. We saidwe would double the company in four to five years and we did 21% in ’07, we’relooking at 17% to 18% in ’08. And then we’ve got to focus on growing EPSthrough operating margin faster than revenue, and really that’s what thisoutlook for the year reflects with EPS expected to be 17% to 21% while we growrevenue 17% to 18%. So still uncertainty around the economic environment, but wedo believe there is a lot in our control to drive to good improvement on ourpath towards our long-term objectives. Martin, on the third question.

Thanks, Pete. Steven, thanks for the question. So up front,I want you to understand that we are as committed to innovation as we ever havebeen, and in fact, we are aggressively focusing our efforts on, as we said,more meaningful innovation, which means in my terms, at least, high impactinnovation reflecting our core. It also means that the pace of introductions will reflectthis new focus, so going forward you should expect fewer but more powerfulbeverage introductions focused around our core coffee house experience. And in specific terms, this means that from the point ofview of whether it’s a latte based beverage, an espresso, a drip or a Frappuccinoin our line-up, that our innovation is focused on making sure that we give thevery best experience the customer can expect in any one of those formats on anyparticular day. James L. Donald: Let me just add to that. When we examine the competitivelandscape, I think one of the things that we have not done a very good job of,because we haven’t had to, is just examine and leverage the assets that thecompany has that’s meaningful to our customers. As an example, most people that are entering the space andcreating lots of noise are not coffee roasters. They don’t have 35 years ofhistory and heritage around sourcing, buying, blending, and providing thecustomer with a fully comprehended, vertically integrated experience. That’s anasset that is very, very important to our customers and speaks to the quality,the loyalty, and the trust they have in Starbucks. We have not really had to tell that story for many, manyyears because we haven’t been concerned about people trying to in any waycreate attrition for us. The issue of competition I just want to address, is that wetake it extremely, extremely seriously. We understand all too well that we havebuilt a very attractive business for others to look at and try and take away,whether it’s 1% on the margin or big companies that are trying to take more. Weare up for the defense and we are going to get on the offense. I want to make it clear also that the size of the prize isso large and although I’ve said it so many times, I need to say it again; wehave less than 10% share of the total coffee consumption market in NorthAmerica and less than 1% in the world. As what has happened in many consumerproducts when there is new awareness, it creates a new trial among consumerswho have not yet been in the category. That is taking place as we speak. Those consumers over time are going to trade up. They are goingto trade up because they are not going to be satisfied with the commoditizedexperience or the flavor. We will do everything we can to ensure the fact thatwhen they trade up, they are trading up to the company that built the categoryand is the leader and that, ladies and gentlemen, is Starbucks. And you can beassured that we are deeply, passionately committed to preserving our leadershipposition.

I’ll also say too that this whole meaningful innovation hasbeen given more structure around the company as the head of our category sitsat my table working with my team that I mentioned earlier, and the investmentsthat we are making on this innovation front continue to grow with the business.

Our next question is from Joe Buckley of Bear Stearns.Please go ahead. Joe Buckley - BearStearns: I want to ask a couple of questions on expansion. I don’tthink the advertising campaign question was answered in terms of duration andspend. My question is really on units. Would you cut the new U.S. openings for’08 more aggressively if you had the flexibility to do so, if you weren’tlocked into leases already? And would you anticipate opening fewer stores in2009 in the U.S.? Maybe as an add-on to that, can you talk about theperformance of the ’07 openings and maybe the ’06 openings? James L. Donald: We’re looking at reducing the U.S. openings by about 100stores in order to just kind of take a breather and make sure that theselocations that we looked at are the locations that we want in fiscal ’08. Itwill also prepare us as we get ready to accelerate into ’09 on this 10,000growth trajectory that we had out there to ensure that we hit those targets. We had a 2,400 store target in ’06 and finished with -- or’07 and finished with 2,571, so it’s hard to say that we are taking 100 out,although we are. We are still at that 10,000 store mark. So the internationalwill increase slightly as well to give us our store count for FY08. The question on the advertising, Joe, we’re not going to talkabout the cost of doing this. It’s part of our holiday campaign, but as Howardsaid, this is just a start for us to reach a broader audience and in this case,reach out with some of our holiday offerings to customers that quite franklycontinued to grow and we haven’t reached quite yet. So this is a campaign thatwe are putting in place now for the holiday season.

The answer to your question about if these leases were notsigned, would we go, and the answer is unequivocally yes. We believe in the size of the market. Wedon’t believe that the issue around saturation is something that we see. In thelong-term, we think our company and most importantly our shareholders will berewarded for the growth and the footprint that we are creating. James L. Donald: Martin, did you want to say one more thing to Joe on the --

Joe, let me just add to your question on advertising, tomake sure that we are being very clear in our answers to you, which is the TVadvertising campaign is really a small part of a much larger, integratedcampaign that you would normally expect from us around a major holiday periodsuch as Christmas time. So the components comprise in-store, outer house, there’sproduct and transaction, a significant product and transaction focus to thecampaign itself, and it’s very much an invitation to visit Starbucks during theholidays. And at the same time, going back to my commentary early on about thefocus on the basics, it’s also been incumbent on all of us as operators to makesure that we are showing up in our very best way for our customers when theyarrive. But I think it’s important to understand that this is anintegrated piece of a much larger campaign. This is not going to be a -- thisis not a standalone TV campaign, which would be very different for us if itwas. James L. Donald: And by the way, it starts tomorrow. Pete. Peter J. Bocian: Joe, I think you had a last question around store metrics. Acouple of things; first of all, we’re going to drive and set targets out therefor the businesses and you saw that today in terms of the op margin expansionand what we expect in the total company, in U.S. and international. And then wealso look at things like ROIC and return on equity for the company in total, andthose are all trending positively. Sub-metrics to that, if you look at the total store metrics,we stayed relatively flat at about 1,000,050 per store in the U.S. for the compstores. If you look at the new stores and you take the class of ’06, which isdone by now, we had about 870K for the first year on average for the ’06 class,and that represented about a 2.0-to-1 revenue-to-investment ratio. If you look at the ’07 class, it’s still not done and Iwould say as we look at it, if you trend it out, it’s a little -- it’s slightlybelow the ’06 class. But when we look at it, it’s really we believe the resultof the same economic factors we talked about through the call. There’s justmore months sitting in the ’07 class than there were in the ’06 class in termsof the economic pressure.

I would say that despite the downturn in comps, when youlook at the return on investment and the unit economics that we continue to putup year after year after year, they are best of class.

Our next question is from Andrew Barish of Banc of AmericaSecurities. Please go ahead. Andrew Barish - Bancof America Securities: I was wondering on the G&A number, you guys have done agood job on basically keeping that flat on a dollar basis for two years now. Itsounds like there are some efforts, obviously with the advertising and kind ofreinvesting in some things that may drive that higher, but then I think Martinalso mentioned some efficiencies. Can you just give us a sense on a dollarbasis, is this a new run-rate or do you expect that to kick up a little bit in2008? James L. Donald: I think the way I would look at it is separate the front-endfrom back-end, so when we talk about support expenses, I don’t put theadvertising or the revenue generating investments in that space. But I think over time, we’ve grown so fast that we’ve builda back-end or a support structure that has an opportunity to be better alignedwith the business going forward, take advantage of global scale, and we can dothat and leverage 17% to 18% growth, for example, in 2008. That will give us room in the model for op margin expansioneven if transactions move around a little bit, so that’s what we were trying tosay, both in Martin and my comments.

Our next question is from the line of Jeffrey Bernstein ofLehman Brothers. Please go ahead. Jeffrey Bernstein -Lehman Brothers: Thank you. Actually, two follow-up questions; first, I thinkyou had mentioned in your prepared remarks that fiscal ’07 U.S. traffic came inbelow plan and decelerated through the year. I know you said first quarterfiscal ’08 is probably running a similar level as to how it ended in ’07. Butit does seem like you have targets, so I’m just wondering what you arecurrently targeting in terms of traffic from all of fiscal ’08 in terms of theback three quarters. And then second, just on the U.S. unit growth topic andcannibalization, I think you’ve noted in the past some pockets of likelycannibalization across the U.S. but not the driver to further slowing your unitgrowth. I’m just wondering if you could talk about the magnitude of potentialcannibalization. And perhaps to play the role of devil’s advocate, what mightbe the pros and cons to slowing the unit growth in the U.S. even further andperhaps accelerating international, where I know you’ve highlighted tremendoussuccess, at least until the traffic trends reaccelerate? Thanks. Peter J. Bocian: Let me do the traffic question about ’08. We gave you compsfor global of 3% to 5%. Typically, and we expect the same thing in ’08, thatinternational is growing faster than U.S., so the U.S. numbers will be slightlybelow that. We had the October ’06 price increase drop off in the year.We still have about 10 months of the July 31st that will be baked in, so thereis -- the U.S. is slightly below the 3% to 5%. There is a ticket componentrelative to the price as well as food that we expect, but we definitely need tohave -- we expect to have transaction positive for the year embedded in the rangewe gave you for the U.S. James L. Donald: On the store count, we had reduced the U.S. slightly thisyear, but when we look at this traffic softening, we’re looking at it from aneconomic environment as we see it all across the retail industry. And our perspective,the saturation comments are overblown. Our perspective hasn’t changed. We’restill opening new stores knowing that the surrounding stores will experiencesome level of pressure but also the understanding of the convenience that willdrive the customer frequency. And we’ve said once, we’ve said quite a few times that wejust need to be where the customer is, so again we’re balancing that and thislittle pause in ’08 will give us a chance to recalibrate, look at this, andcontinue to grow towards the 10,000 stores. Howard.

I think your other question that you asked was aboutinternational, and we just came off of a three-day meeting in Seattle of ourglobal partners. We all felt really positive after that meeting, given thehealth, the strength, and the conviction that we and our partners have. And youcan sense also one partner after another wanting more geography as a result ofthe success they are having in their home market, whether it’s Mexico, whetherit’s our Middle East partner that took on Russia, our Spanish partner who wantsPortugal and on and on and on. So we clearly see the runway for international, the leveragethat we hope to gain, and the momentum that we think is on our back. One thing about this call that we just touched on is China.I just came back from a week in China and I can only tell you that we arewinning there, and not only in terms of unit economics but most importantly theattachment, the emotional attachment that the Chinese consumer has to the Starbucksexperience. And what we have done there since 1999 perhaps is unparalleledcompared to any other Western retailer. So we know all full well what the opportunity is but we haveto be very careful and measured so that we expand the international business asthoughtful as possible. But the size of that prize is enormous.

Our next question is from the line of Larry Miller of RBCCapital Markets. Please go ahead with your question. Larry Miller - RBCCapital Markets: Thanks. Good evening, guys. You know, I’m just looking atthe guidance and Pete, maybe you can give me a hand here. I can imagine whereinvestors are looking at Q1 and it’s only 6% to 7% growth and thinking thatlooks pretty conservative. But that also implies a very substantial earningsacceleration from Q2 to Q4, and that’s probably a bit hard to swallow, givenwhat you are saying about some traffic trends and some pressures on dairy. I’m just hoping that maybe you can give me a couple ofspecific leverage points as you look at the second half. And maybe related tothat, is it you guys staffed up for a lot of growth for ’07 and now there’sgoing to be a little bit less, maybe a little bit less going forward and youmight save a little bit there, or is it just as simple as dairy eases in yourplan in the second half? Or am I missing something? Peter J. Bocian: Well, the first point is that we expect a $0.02 dairy hitfor the year, and there’s $0.02 in the first quarter. And by the way, we’redealing with numbers that you round -- one penny rounds a significant amount,but look at it as the whole dairy impact is actually in Q1 and we’re not theexperts, but the experts are saying it will ease and we’ll actually have a goodguy in dairy in Q4, which will be dramatically different than what we justreported in Q4. The last significant transaction comps in the U.S., 3%, werein Q1 of ’07. So we’ve got the highest hurdle as well relative from acomparison standpoint, and those are the two big drivers, that we’recommunicating that the first quarter is going to not have the average let’scall it EPS expansion that we expect for the year, but we also, when you couplethe compare with the initiatives we’ve talked about today, that’s where we getto the $1.02, $1.05 for the year.

Ladies and gentlemen, we have reached the end of theallotted time for questions and answers today. Ms. DeGrande, are there anyclosing remarks?

Thank you, Mark. That concludes Starbucks' fourth quarterand fiscal year-end 2007 earnings call. We hope you’ll join the webcast of ourfirst quarter fiscal ’08 financial results on Wednesday, the 30th of January.Thank you for joining us today.

This concludes today’s Starbucks Coffee Company’s conferencecall. You may now disconnect.