Good afternoon. My name is Mike, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to Starbucks Coffee Company’s Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. DeGrande, you may begin your conference.

Thank you, Mike. Good afternoon. This is JoAnn DeGrande, Vice President of Investor Relations for Starbucks Coffee Company. Joining me on the call today are Howard Schultz, Chairman, President and CEO; John Culver, Group President of China, Asia Pacific, Channel Development and Emerging Brands and Troy Alstead, CFO. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and the risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K. Starbucks assumes no obligation to update any of these forward-looking statements or information. This conference call is being webcast and an archive of the webcast will be available on our website at investor.starbucks.com. With that, let me turn the call over to Howard Schultz. Howard?

Thank you, JoAnn, and welcome to everyone on today’s call. I’m very pleased to discuss the record Q4 and fiscal 2013 results that Starbucks reported today. Q4 capped off what was without question the best year in Starbucks 42 year history, driven by robust innovation and disciplined operating and financial performance across each of our business segments and virtually around the world. Continued strong comparable store sales growth of 8% in each of our Americas and China Asia-Pacific regions in Q4 combined with positive comps of 2% in EMEA to produce global comp store sales of 7% marking our 15th consecutive quarter of comp growth in excess of 5%, despite continued challenging economic and consumer headwinds in many of the global markets we serve. Starbucks consolidated Q4 revenue rose 13% to a record $3.8 billion while operating leverage and a continued focus on controlling expenses enabled us to expand our operating margin to a full 220 basis points over last year to a quarterly record of 17.6%. And outstanding execution across the company enabled us to deliver record Q4 EPS of $0.63 a share to our shareholders, a full 37% over last year’s Q4 and the highest EPS of any single quarter in the 42 year history of our Company. For the full fiscal 2013 Starbucks increased revenues by 12% to a record $14.9 billion, expanded its operating margin 150 basis points to a record 16.5% and draw a 26% increase in EPS to a record $2.26 per share. Noteworthy and immensely gratifying is that each one of our business segments contributed to a remarkable performance in fiscal 2013, equally significant is that each segment contributed to growing the equity and trust of the Starbucks brand around the world. With over 3 billion customer visits to more than 19,000 stores…

Thank you, Howard. 2013 was indeed an extraordinary year for Starbucks and I couldn't be more proud for the significant role for the China and Asia-Pacific region and the Channel Development business is playing in our overall success. I'll begin with the incredibly charmed results for cap, Starbucks' fastest growing region with 13 countries, close to 4,000 stores and nearly 70,000 partners serving 11 million customers every week. As you can see from our results the growth throughout the region continues to be a meaningful component of the Starbucks overall story. For the quarter I'm very pleased to share that the region is reporting record results in three key areas; total revenue, total operating income and new stores opened. In the fourth quarter revenue grew a very healthy 29% reaching 256 million which was driven by 8% comp growth and the opening of 588 net new stores in the year. This store growth represents a 31% increase over the prior year. In the fourth quarter we delivered 96 million in operating income which represents a 46% increase over the prior year. Operating margin increased to 37.5%, a 440 basis point improvement over last year. This was driven by a combination of strong sales leverage, lower operating costs and a reduction to our estimated asset retirement obligations on certain store leases. Today, we have a very well balanced portfolio of company-operated, joint venture and licensed markets led by China and Japan and these results demonstrate the strength of the Starbucks brand and the relevancy we are gaining with our customers across the region. We continue to take a holistic approach to building the Starbucks brand in our markets while making the necessary investments ahead of the curve that will fuel our future growth. We now have localized capabilities in the region…

Thanks, John. Let’s turn now to the America segment where the fourth quarter represents an impressive continuation of the strength delivery in Q3. Revenue growth of 11% was driven by 8% of comp growth including 5% lift in transactions. And as the case has been for quite some time now there were a diverse set drivers behind the growth. In the U.S. food continues to boost our sales adding about two percentage points to comp in the quarter. That is a result of gains in both the tax rate and favorable mix in both lunch and bakery items. Food is a key driver behind our strength in the lunch hours of 11am to 1pm our fastest growth apart and the one with the highest incremental profit potential. Pumpkin Spice platform now in its 10th year once again delivered strong growth. Additionally our focus on summer refreshment and ice beverages was a success. Those promotions combined for one point of comp. Treat Receipt was a hit again this year with 16% higher redemption rate than last year, and as a result of the favorable mix shift in food as well as recent pricing actions, ticket growth contributed three percentage points to comp in Q4 its highest contribution in two years. While food was the single largest driver of U.S. comp in Q4, La Boulange is just 15% of our stores for the entire quarter does not yet have the reach to contribute meaningfully. It has, however, been very meaningful in stores that carry it which is encouraging to us as we proceed with the rollout. Profitability remains strongly in the Americas as operating income grew 16% to $606 million in Q4 with operating margin expanding 100 basis points to 21.8%. Sales leverage continues to be the primary driver of margin expansion…

(Operator Instructions) Your first question comes from Sara Senatore with Sanford Bernstein. Your line is open. Sara Senatore - Sanford C. Bernstein & Co.: Great. Thank you very much. I actually had two quick questions on the Americas. One is, I think with respect to La Boulange, the last time we heard from you said they react -- the response from customers has been phenomenal and I just wanted to see, if you could give us either a quantification or qualitatively East Coast versus West Coast in terms of contribution. And then the other piece is on the margin. I’m surprised the Americas margin tied into -- is it from moderate expansion because I would think on strong comps and some coffee benefit and then mix shift towards license we would see -- we see better expansion than just moderate. Can you give a sense of what investments or offsets you might be making? Thanks.

Sara, I’ll take the margin question first and then I will hand over to Cliff to talk about La Boulange. First, on the size and skill of a U.S business has big and profitable and as many stores as they we’re very pleased that we can commit to the kind of margin expansion -- in fact deliver the kind of margin expansion we have over the years, again in fiscal ’13, again in Q4 and again promising in fiscal 2014. So we’re quite pleased with our ability to deliver that comp growth into stronger growth on the bottom line. Recall that coffee benefit does not have meaningful impact on our store segment. So the Americas and the U.S does not get a significant benefit from the coffee tailwind that primarily lands in our channel development business. So that’s the first thing to remember. And then beyond that as we’ve significantly elevated margins over the years, I’d anticipate our ability to continue to slowly and moderately over time raise the profitability you got system, which is recognize how far its come already in a short period of time. Cliff?

Yes, thanks Sara. La Boulange, we are seeing incredible excitement around the new product. It is showing up really well in store and we’ve achieved in the last nine months what we didn’t achieve in the previous 20 years around food. So the quality East coast, West coast, every market, we’re launching in we’re getting a real passion around it from our teams in stores and customer reaction is superb. That said, we’re still in the early days we’ve launched in 3.5000 stores. We will complete that rollout in the next 12 months and we will be able then to see that meaningful contribution is making. But wherever we launched it and particularly around the pastry, the croissant, the chocolate croissant we’re seeing a huge difference in experience, the customers are getting. We continue to refine the range. We continue to refine our operations in store, but it is elevated in a whole experience and it really is a testament to the investment we’ve made in La Boulange to help us grow a capability around food, I’m really excited for the future. Sara Senatore - Sanford C. Bernstein & Co.: Thank you.

Your next question comes from Jeff Bernstein with Barclays Capital. Your line is open.

Hello?

Hello. Go ahead Jeff.

Thanks. Two quick questions as well. One just from a cash usage perspective, Troy you talked about the share purchase and dividend, I’m just wondering how the Board evaluates or balances between the repurchase and the dividend in terms of -- you boost the payout ratio and if you could just tie that in with the 750 million of leverage you guys just took on whether it’s opportunity for more leverage or better yet, what’s the appropriate debt level that you guys think the system can handle?

Sure. Let me speak to that Jeff. First of all, in terms of how we evaluate repurchases versus dividends, we’re committed as a company to return cash through both avenues. Dividends of course will be much more sustainable and routine and we’re very, very fortunate in our business to have healthy and consistent cash flow that has rapidly grown over time and which we anticipate will continue growing as we go forward. That’s given us confidence both to grow our dividend rate faster than our rate of earnings as we – as I announced today in terms of what our Board has approved, but also to give us flexibility over time to expand that payout ratio higher, which is also we announced today. Share repurchases are also important to us, but we will always be a bit more opportunistic as there are plenty of times when we as a company are blacked out of the market or updating our plan. So I would expect repurchases to over the course of any three or four, five quarter period of time to be a component of our cash return not unlike its been over the past few years. But there will always be quarters where it’s higher rather than lower and vice versa. In terms of debt levels, its -- I would suggest you that in our history we tended to be a bit underleveraged and we recognized some opportunity, particularly given where the market conditions have been over the past year to bring a little bit more debt under the balance sheet and to enhance our liquidity. So we’ve done that. That still leaves us, we believe with a very strong credit rating which we intend to maintain and capacity within that credit rating over time if opportunity warrants and market conditions warrant to bring on more debt. So let me be clear, we’ve no immediate plans to do anything more than that $750 million offering that we just placed.

And if I could follow up, you mentioned just the coffee costs being a 100% locked. Just wondering whether you’re seeing any unusual or irrational behavior from peers with the very favorable coffee costs than -- or maybe better yet. Internally how you guys think about price to be taken or whether using value to drive traffic when coffee costs are so favorable?

Well, at times because our -- many of our peers buy shorter term than we do and frankly are chasing us often. So I would suggest trying to catch up with -- catch us with whatever pricing actions they can take. Sometimes we see those actions down the aisle. Frankly and perhaps even in competing coffee stores around the country. Frankly that tends to be less of a driver of our own action particularly in the stores as does, [ph] plus pricing to meet customer need. Now down the aisle it is much more competitive and reacting to that marketplace we took a price reduction earlier this year. We believe that positioned us very nicely and I would suggest that the Q4 results for our Channel Development business that we just released today underscore that we did the right thing with pricing action that we are now competing nicely again down the aisle. We're positioned well and we strongly believe not only by competing on price but on innovation, packaging, about the leadership we can bring down the aisle, all those things will contribute to our ability to continue to hold and grow share over time in all forms of consumption.

Thank you.

The next question comes from Sharon Zackfia with William Blair.

Hi. Good afternoon. I was hoping to touch a little bit more on the food in the Americas. If you can update us on where food ended as a percent of sales for fiscal '13 versus '12? And then Troy if you could help us think through the impact of the increased food penetration as we think of the pushes and pulls in the Americas gross margin for 2014, I'm understanding the new food is higher margin than the old food but probably still lower margin than coffee. So just if you could talk through that?

Yes. On margin first, Sharon, what I would say is that over time there were a few dynamics that happened as we grow our food business which we believe still continue to be a significant opportunity for us and we've been experiencing that as food has been a [indiscernible] driver of comp growth this year as you heard from us each quarter recently. With that said and you netted all the pushes and pulls of profit margin and distribution, the efficiencies we get in the back office, the weak management initiatives that we do from our stores, all those things in the long term we believe negate each other and we don't think that there will be meaningful movement whatsoever in gross margin. Yes, food is a moderately lower product gross margin than is beverage but remember as we sell more food to an existing system, it is extremely accretive to percent margins not just to mention dollar margins at the bottom line of the store and highly profitable for the store profitability and return of capital in that existing asset we have with our store systems. So the economics top to bottom are very, very good for us. In terms of food mix, food remains right around 19% of sales mix of our stores. There's some upper movement over that over time, but again huge base of business we have and I think that will be a slow and moderate progression reaching next toward 20 and we think ultimately a bit higher.

Thank you.

The next question comes from Michael Kelter with Goldman Sachs. Your line is open.

I wanted to ask about La Boulange as well and the first is, can you talk to any food book constraints that may have developed in your stores as well a bit out and whether you've come to the conclusion that you may need to flex that a bit to keep the stores moving? And then also on La Boulange you talked about extending it to lunch for next fall and I was curious if you could talk us through what makes sense for lunch at Starbucks and what doesn't?

Yes, thanks Michael. It's Cliff. In terms of what we're seeing on the La Boulange operation, it's obviously new. We're investing in La Boulange launch as we can share these fantastic new products with our customers and once we're through that launch phase it becomes part of our operation, it's not about adding labor, it's just being very deliberate and how we deploy our labor. The customers are already there and we're obviously trying to move the percentage of customers who buy our food on a regular basis, we're going to increase that. The opportunity is significant. We're already serving the customers. And give you an example. I was in New York which is one of those recent markets we launched those there last week. I was extremely plaintiff I saw in terms of customer engagement, the way the partners are embracing La Boulange routines and disciplines and the food and beverage were being served with great experience to the customer. As we do it in New York, we can do it in all our markets. So I think that's a great start for us. If we look at the lunch, we start in the same premise. A great ingredient building on the opportunity to serve existing customers who come into the stores. The lunch time, as Troy said, we're starting to see some growth in that earlier. I think the investments we're making in a combination, investments in tea will also both complement that lunch time occasion and give us time [indiscernible]. The food again will be starting from a fantastic ingredient relevant for our customers and will give them a fresh and healthy approach to food, really complement beverages we've done. The investments we made in supply chain supplies and the investments we made in our store so far will all help us with this food range. We've invested in [indiscernible] segment, a small test in San Francisco and it's around [indiscernible] it's around science, it's around convenience food for customers that are enjoying the store or take back to their office and it's been again extremely well received and we're extremely excited that we'll be able to follow on from the morning enhancement of our food with a lunch time offering which we think will be the start of a significant business around lunch.

Thank you very much.

Thanks, Michael.

The next question comes from John Glass with Morgan Stanley.

Thanks. I guess still two things on La Boulange. One is when will you feel comfortable in talking about the sales lift, it's the question I guess that's imposed a number of times and what point or how many stores do you need to feel comfortable that you've got a good baseline? And then secondly why wouldn't this be additive? I know you noted a couple of times mid single digit comps and I understand you want to be reasonable in terms of the expectation, but it doesn't seem like any – is there anything that's going to fall away from this that you lose, is there some anniversarying of some of the lunch items you've added recently that you have less confidence in or do you simply just see the business maybe be more moderate in the last few weeks or months and maybe that gives you rise for caution?

John, let me speak to comp growth and then I'm going to ask Cliff to come back to a bit more on La Boulange. The first thing to remind you and everyone is and of course you know this, John, but comp growth trends towards zero every year for everybody out there, every retailer, anybody who measures it. Everything we did over the past year to drive the fantastic and amazing comp growth because of the new system that we've done, beverage generation, food, contribution from loyalty, all those things now are in the baseline and as we move into this coming year just doing those things again would provide zero additional conflict. What we need to do and what we have great confidence in by the way is our ability to come up with that next level of beverage generation, the next fantastic food program, the elevation of food that continue the enhancements to consumer technology and to the loyalty program. But all those things need to be more and better than last year [indiscernible]. So comp growth can never be active. It starts over and we believe we had the ability to take what we've done in the past year and yet add to it in terms of traffic, volumes, in terms of dollar sales to our system. And by doing that we believe a mid single digit comp growth on a system, the size of our Starbucks and the maturity of Starbucks is nothing short of outstanding.

Troy, let me add one more thing. It seems like we can't get through our conference call without somehow this tension between us and you with regarding to comp growth guidance. But let's just try and establish common language so there's an understanding about what it is we're trying to do and what it is we're trying to guide. Last quarter we had a 9% comp in the U.S. business and I had said then as I think we're trying to say now that was an 8% comp this quarter and it would be just irresponsible of any of us at Starbucks to project to you or guide you to that level. Now, do we have aspirations to try and do it again as we did this year? Absolutely. Do we think we can? Many of us think we can but we're not going to sit here and put a number out there that is such a stretch target and have you put it in your model. And then we come up with a 6 or 7 which gets our peer group as stunning and incredible and then you write reports that says we've disappointed. That's not going to happen. So the guidance we're giving is the most responsible guidance we could possible provide you especially when you consider the maturation of our store base and the number of stores. Now one other thing. What La Boulange is providing us well beyond the morning pastries and the lunch is a significant platform to go after need states and dayparts well into the future. And what we've learned over the years is that our stores now provide a third place well beyond the morning daypart which was our core business just five, six years ago. The opportunity to expand Starbucks significantly…

So John, just to say when we will be able to share the contribution La Boulange is giving us and quite frankly it will be after we’ve rolled out all markets and we’ve really what happens in the first year. We are going very quickly with the rollout. I am absolutely delighted about the fact we got to 3,500 stores by the end of the financial year. We’ll complete the rest of the stores and we’ve already said the stores company operated will be completed in FY ’14. We will also have the opportunity to bring a new food range to our Canadian business into our licensed stores, so we’re busy working on that. It is a new skill for us. It is a new discipline, we’ve been beverage led for a very long time and we will continue to work on the operational data. The fantastic thing is we can respond very quickly on recipes, on customer feedback and that is also part of this. So we’re in that learning phase, but I really am excited by way our partners and our customers are receiving the food. We have some great success stores. Really again, I just want to go through with the operational discipline we’ve brought to be Americas and make sure that when we share something with you, we can continue to build up that, but it's definitely complementing the experience for the customer, complementing the beverage purchase and our potential for the future is exceptionally strong with food. Thanks, John.

Great. Thanks, Troy.

The next question comes from Joe Buckley with Bank of America Merrill Lynch.

Thank you. I want to ask two questions if I can, I want to take advantage of Howard and John being on the call and I’ll just ask about the recent media coverage about pricing in China and just your perspective on it. And then secondly I want to go back to an earlier question; that’s much the staffing that’s needed for La Boulange, but kind of a broader question, not just La Boulange base, while you had a point in terms of speed of service where something else has to change to handle this tremendous level of traffic growth that you’re driving?

I’ll take the later question. Unlike others who have talked about speed of service or throughput issues that is not a problem that we have or anticipate. So, you can take that off the table. And in fact what we have been able to do with mobile payment in the card have absolutely cracked the code in terms of to me it's the speed of service and we’re only going to get better at that because we will be introducing new levels of technology in calendar ’14. We have no speed of service or throughput issue inside Starbucks to take that off the table. John?

Thanks Joe, for the question. Regarding the recent media speculation on the price issue on China, as you know Joe we’ve been in China now for 15 years and we have over a 1000 stores. We operate in over 60 cities across the mainland. And as this issue became public, we acted very swiftly and as we always have communicated in an very open, honest, transparent and very factual way with our customer’s, and one thing I would say is that we have been able to build a level of trust, loyalty, respect with our customers and key stakeholders across the country and we felt it was important that we should respond very openly and transparently to them. In terms of the speculation, there’s a couple of things I’d like to point out. First is, that the prices that we charge for our products in China, the Latte are comparable to and in some cases lower than the competition; so that’s number one. Number two, the prices that we are charging in the market actually reflects the cost of doing business in that market, and at the same time reflect a level of investments that we’re making ahead of the curve so that we can feel the future growth of the business. So, we will continue to be very transparent, very open and very factual with any questions that come up around pricing. But let me just add that, as a company building a large business in China well over a 1000 stores and beyond, that we’re not immune to the challenges and complexities of building a large business in China, but at the same time given the trust and loyalty that we’ve been able to build with our customer base there as well as key stakeholders across the mainland that we have tremendous confidence in our ability to continue to build a very strong business, not only in 2014 but well into the future.

Thank you.

Thank you.

The next question comes from Jason West with Deutsche Bank.

Well, thanks. Just one on the channel development side; the revenue growth accelerated there. It sounds like that was mainly driven by the better pricing positioning I guess, but just wondering if you could talk a little bit more about what drove that revenue growth and is that the kind of number you guys are expecting kind of going forward?

Well, I think that we obviously had very strong growth in the quarter and finished the year very strong double-digit revenue growth for the year. The results that you saw on the fourth quarter were the results of the momentum that the business is beginning to get around the LTR on package coffee. But then also the momentum that we’re building on K-Cups. And as I said, K-Cup growth during the quarter was 42%. We’ve added two additional skews in the quarter and we got aggressive plans to continue to expand and grow the K-Cup offering in 2014 throughout the year. I think it's also important to note that I talked a little bit about the My Starbucks Rewards down the aisle. And as we’ve talked in the past, this is our opportunity to leverage the strategic flywheel that Howard spoke about. And in a very short period of time just over three months, we’ve been able to provide over 1.5 million stars to our most loyal customers down the aisle who are purchasing our package coffee. So, we remain very optimistic that we can continue to accelerate stars down the aisle and leverage that flywheel. Going forward, as I said there is volatility that’s happening down the aisle and in the grocery segment particularly as it relates to package roast and ground coffee. We feel we’re very well positioned to navigate that volatility. We’ve got a lot of new innovation that’s coming into the business this year not only on the package coffee side but also K-Cups, VIA and other items. And what you’re going to see this year in 2014 is that our performance is going to build by quarter and with the back half being stronger pieces of business due to the first half LTR rollover. So again my comments earlier we’re committed to sustain double-digit growth in this business both on the top and bottom line in 2014, and we’re looking forward to another very successful year in the channels.

Okay. Thanks for the color.

Yeah.

The next question comes from John Ivankoe with JPMorgan.

Great, hi, thank you. First quickly and then a longer question. Troy, do you have the Starbucks card balance at the end of the quarter in front of you?

Yes, we do. I’m going to have Adam Brotman actually make a couple of comments about that. Adam is our Chief Digital Officer. He is here with us. Go ahead, Adam.

Hi, John. At the end of the quarter the balance in the U.S. was $621 million and reflected by the record year we just had $4 billion loaded across U.S. and Canada.

And do you have that corporate balance as well that we see on the balance sheet?

I don’t have that with me at the time.

Yes, let me (indiscernible) the question John, I’ll try to answer (indiscernible).

Okay, all right. Great, thank you. And Howard maybe this question is for you, a couple of years ago, I guess in 2009 at least part of the Starbucks revitalization you included a refocus of excelling at your store level base which obviously you did in a fairly profound way. When we listen to the call today, I mean there's a number of initiatives that are coming into the stores the next couple of years, Teavana, cold carbonated drinks, the continued expansion and focus on La Boulange specifically and maybe food more generally that does add more complication to the stores perhaps than the risk today. So it's kind of like a little bit of broader question just talk about how the system has been prepared and maybe relative to five years ago to handle this increased complexity with the lowest nature that you demonstrated over the past couple of years?

John, I think that's a very important and appropriate question and if you were in many of our meetings during this year as we prepare for fiscal '14, that was much of the conversation. We want to do one thing and one thing well and that is whatever we bring into the store we want it to be enhancing to the customer experience and complementary to our leadership position in coffee. Having said that I think the last two years of our stores that we've opened couple with the comp number demonstrates the significant health and strength and I say unequivocally the U.S. business has never been stronger or healthier than it is today in terms of financial results and the equity of brand and the experience. We feel very good that we have prepared our stores and if you go through them, Evolution juice when we brought into the store as we replaced an existing used product and enhanced the quality and hence the experience. Teavana tea that we're going to bring in at some point in calendar '14, we're already in the tea business. The tea represents less than 1% of our sales and we believe we can significantly expand that and in doing so create significant awareness and trial and use our [indiscernible] to drive new traffic and incrementality to Teavana stores. When we get to La Boulange we been selling food for 30 years, it just haven't been as good as our coffee. Now our food is as good as our coffee as we have a story to tell and we're going to tell that story in multiple dayparts and fulfill multiple needs states. Carbonation, that is a new category for us. The test results in Austin and Atlanta and in Japan and Singapore are very…

John, to your question about Starbucks card, at the end of the fourth quarter, so at the end of the fiscal year, the deferred revenue balance on our balance sheet and that deferred revenue balance especially the Starbucks card balances was $654 million. And by the way that's almost 30% growth over the same period a year ago, over the yearend 2012. And that 30% almost same growth in that balance on the balance sheet just reflects the continued tremendous uptake of Starbucks card of the adoption of loyalty of how mobile was contributing and how we're resonating with our customers in a way that is unique anywhere else in this space and by prepaying essentially a significant amount of transactions and having that sit in our balance sheet long before it turns into revenue.

Let's start with [indiscernible] for the future of the company in the near term by having 30% greater loaded on the card versus a year ago and that 30% is almost three times greater than the growth rate of the company.

Great. Thank you so much.

The next question comes from Brian Bittner with Oppenheimer.

Great. Thank you very much. Just two questions. The first one is on EPS guidance for Troy. Particularly relating to the second quarter guidance, it looks like the first quarter guidance you're implying basically about 20% EPS growth and then fits down on a year-over-year basis to that 13 percentage range for the second quarter. So that's kind of below where you're going to be at for the full year. So what exactly is going on in that quarter, anything you can point out for us?

Yes, Brian, I'm happy to do that. First I'd make sure when you look at the second quarter growth rate over prior year, that got an unusual non-routine gain from a gain on the sale of our [indiscernible] business from Q2 over a year ago. So it's important you do that adjustment.

But it's still 13% off that 48.

Actually Brian, it's the range that we use 13% to 15%, so we will search for that mid teens EPS growth rate and then give me a moment, I'll explain what's going on. Our investment spending that we do throughout the year will vary significantly from quarter-to-quarter and initiate to the second quarter. We are planning to spend a bit more in marketing just timing the spent throughout the year as we look at that quarter. We have a number of other routine investments that come and go from quarter to quarter the timing of which every year can move a little bit from here to there. So we put that guidance out there to-date but you have some more visibility and transparency into how we're planning the year and how we see the earnings progression. With that said there will be some quarters that are more like mid teens and there will be some quarters as we have delivered over this past year that will tip for the higher part of that range and that's why we have an earnings range out there that I would have you think about as we go forward.

Okay. And just something about cash flow on balance sheet, I mean you guys did almost $2 billion of free cash flow this fiscal year. I think you generated more free cash flow this year than you generated in operating cash flow last year. I know you took on some debt this quarter but it looks like you have over $3 billion of cash and short-term investments on the balance sheet I think. Obviously that looks to be more than enough liquidity to deal with any resolution with Kraft. Is there any update on that arbitration that you guys can give us any timing update or anything like that?

Brian, what we can say is that we expect resolution of that to hear from our trader before the end of the calendar year. Naturally our only news for today is that we expect that to be sometime before the end of this calendar year.

Okay. Thank you.

And you're right on your earlier points. Our cash flow was phenomenally strong in the year and I think that's very, very reflective of our strong performance in the fourth quarter and for the full fiscal year and that consistently of strength of cash flow and the phenomenal strength of our balance sheet and the amount of cash we have sitting in the balance sheet both give me tremendous comfort that we have adequate liquidity to cover whatever the answer may be coming out of that arbitration and also gives us tremendous possibility as we look for the future and we make investments into our business and renovations and store development and gives us stability of elevating cash return to shareholders.

Mike, we're available for one last question and we'll follow-up with those that are left in queue.

The last question comes from Nicole Miller Regan with Piper Jaffray. You may ask your question.

Thank you. Thanks for the time. Of the royalty the 1.5 million I believe was incremental stars earned through the channel development. Can you talk to us about if anybody signed up new, so new users of the royalty program and then also what was most surprising versus what you tested and expected as you started to launch? Thank you very much.

Sure. Nicole, I'll take this. This is Adam. So first of all I would say that we – yes, we see a lot of new users coming to [indiscernible]. We're not ready to quantify those publicly but it's been exceeding our expectations in terms of both new users, it's been exceeding our expectations in terms of the velocity of take up of our loyalty members as well as new loyalty members that are being participating and frankly we were just getting started in terms of how we will integrate loyalty with our CBG business. So it's a great example of the strategic [indiscernible]. There's a mini version of it, there's a digital strategic [indiscernible]. We're integrating our loyalty card, mobile and now across channels and across brands and even across geographies. So this is just one example of how it's working well for us.

I would just add one thing that is in the sense what we're establishing is the Starbucks currency and that currency can be interchanged between Starbucks and Teavana stores and the stars the currency of the stars can now be leveraged across consumer products that are unparallel because its no other consumer product that has a retail store that can provide our customers with a reward and an incentive to come back and forth and this is just the beginning of us being able to thread these multiple channels of distributions and brands so that the customer has significant value in supporting and shopping at Starbucks Teavana and Starbucks consumer products.

Thank you, Howard. That concludes our call for today. Thank you for joining us and we will speak to you again on the next call for Q1 fiscal 2014 earnings. Thank you. Have a good day.

This concludes today’s Starbucks Coffee Company’s fourth quarter and fiscal year 2013 earnings conference call. You may now disconnect.