Proposed Loan to Starbucks Corporation

1
Proposed Loan to Starbucks Corporation

• Presentation to the
• JPMorganChase Loan Committee
• Paul Byers and Cody Meglio
• December 3, 2007

Financial Statement Analysis Fall 2007
2
Purpose of the loan

• The Starbucks Corporation (NASDAQSBUX) seeks a
  350 million loan to purchase a controlling
  interest in The Cheesecake Factory, Inc.
  (NASDAQCAKE).
• Starbucks believes that this purchase would
  create a mutually beneficial working relationship
  between the two companies. A line of products
  from each company would be sold at the stores of
  both chains
• Starbucks is confident that Cheesecakes
  management, business practices, strategy, and
  long term vision will continue to make Cheesecake
  a successful and profitable venture.

3
Specifics of the deal

• Starbucks officials have already approached
  Cheesecake Factorys BOD
• Cheesecake has agreed to issue Starbucks 21
  million new shares of common stock _at_ 23 each.
  This will give Starbucks a 20.42 stake in
  Cheesecake.
• Starbucks has planned to fund the purchase 27.5
  through sale of marketable and available-for-sale
  securities and with cash

4
About The Starbucks Corporation

• Operates European-style coffeehouses in the
  United States and abroad
• Markets The Starbucks Experience
• Operates about 10,500 stores worldwide
• Has a goal of 20,000 locations in the United
  States and 20,000 locations overseas
• Recently experienced competition from low cost
  fast-food chains and doughnut shops
• Has launched a new advertising campaign

5
AboutThe Cheesecake Factory, Inc.

• Operates full-service, upscale, casual dining
  restaurants
• Manages 128 locations
• Offers a full bar and a lavish décor in all
  locations
• Boasts an extensive menu features over 200
  selections
• Serves 50 varieties of cheesecakes and desserts
• Operates bakery production facilities in
  California and North Carolina

6
Corporate Mix

• The two companies are compatible with one another
• Both companies focus on a growth strategy
• High financial performance has been a hallmark of
  both firms
• The value in catering to more affluent customers
  who are less price sensitive is recognized
• Both companies strive to recruit and retain good
  employees to ensure superior customer service
• Preservation of brand value is a priority in both
  firms

7
Quick Ratio
8
Debt/Equity Ratio
9
EBITDA/Minimum Fixed Obligations Ratio
10
Return on Equity
11
Operating Profit Margin
12
Year-over-Year Net Sales Growth
13
Ratio Analysis Summary

• Both companies are more profitable and more
  liquid than the peer group
• The debt paying ability of Starbucks is
  sufficient to cover loan payments
• Overall, both companies are stable, and, because
  of the market segment each caters to, both should
  still be stable in the case of an economic
  downturn
• Sales and profits are continuing to grow at an
  impressive pace for both companies

14
Concerns

• Yearly financials Starbucks have been restated or
  reclassified and these have been material
• In the beginning years, Starbucks equity
  earnings from Cheesecake will not cover the loan
  payments by itself
• Future growth may be too slow or fast
• Customers could fail to accept new products
• Either companys brand could deteriorate
• Competition could consume either companys market
  share

15
Final Recommendation

• We recommend that Starbucks be granted the 350
  million loan
• The companies have compatible management
  strategies and growth goals
• The future for each company looks promising both
  numerically and qualitatively
• We anticipate that the management teams for both
  companies can successfully mitigate all concerns