1. Presented By: Ann Hempfling Conclusion and 08 Sierra Kollar-Lane Investment Utilization Bob Kasai Intro Ryan Wein Overall Performance Yi-Tai Lee Test of Financial Conditions Joe Ndukwe Profitability

2. History & Business CompanyPeet’s Coffee & TeaDiedrich Coffee, Inc. Starbucks Started1966 Berkley, CA1972 OC, CA1971 Seattle, WA Incorporated19711985;Reincorporate d 1996 1987 1992 Public Highest Distribution166 retail stores693 outlets national and international (338) Still growing. Growth goal of 20,000 US and 20,000 International Current Distribution2007 - 166 retail stores, 135 independent distributors or mult- liners 2007 - 306 retail outlets nationally and 800+ wholesale distribution companies 1997 - Purchases Seattle’s Best 60 stores in UK 2003 - Acquires Seattle’s Best US 2006 - Purchased 40 of 47 Dietrich & Coffee People stores 2007 - 15760 US (11168) and International stores + wholesale and resale distribution companies

3. Overall Performance Measures Price/Earnings Ratio = Market price per share Net Income per Share Return on Assets = Net Income + (1-Tax Rate) Total Assets Return on Invested Capital = Net Income + (1-Tax Rate) Long-term Liab + Shareholders’ Equity Return on Shareholders’ Equity = Net Income Shareholder’s Equity

4. Overall Performance Measures Price/Earnings Ratio = Market price per share Net Income per Share Peet’s vs Starbuck’s 20072006 Peet’s (Diluted) 4847 Starbuck’s (Diluted) 3148 Diedrich’s00

5. Overall Performance Measures Return on Assets = Net Income + (1-Tax Rate) Total Assets Peet’s vs Starbuck’s 20072006 Peet’s 5.25%6.12% Starbuck’s 12.62%12.91% Diedrich’s0%0%

6. Overall Performance Measures Return on Invested Capital = Net Income + (1-Tax Rate) Long-term Liab + Shareholders’ Equity Peet’s vs Starbuck’s 20072006 Peet’s 6.1%7.15% Starbuck’s 21.15%22.94% Diedrich’s0%0%

7. Overall Performance Measures Return on Shareholders’ Equity = Net Income Shareholder’s Equity Peet’s vs Starbuck’s 20072006 Peet’s 5.69%6.13% Starbuck’s29.45%25.32% Diedrich’s0%0%

8. Overall Performance Measures Summary: Starbuck’s appears strong with a higher % of return on ROA, ROIC, ROE. Peet’s consistent b/w ROA, ROIC, ROE

9. Profitability Measures Gross Margin % = Gross Margin Net Sales Revenues Profit Margin = Net Income Net Sales Revenues Earnings per Share = Net Income No. Shares Outstanding

10. Profitability Measures Gross Margin % = Gross Margin Net Sales Revenues Peet’s vs Starbuck’s 20072006 Peet’s 52%53% Starbuck’s57%59% Diedrich’s33%38%

11. Profitability Measures Profit Margin = Net Income Net Sales Revenues Peet’s vs Starbuck’s 20072006 Peet’s 3.36%3.71% Starbuck’s7.15%7.25% Diedrich’s-4.82%-25.37%

12. Profitability Measures Earnings per Share = Net Income No. Shares Outstanding Peet’s vs Starbuck’s 20072006 Peet’s$0.60$0.58 Starbuck’s$0.91$0.75 Diedrich’s$0.00$0.00

13. Profitability Measures Summary Similar level of Gross Margin Starbuck’s stronger Profit Margin over Peet’s : 7.1% vs 3.3% Starbuck’s stronger Earnings per share: $0.91 vs $0.60

14. Investment Utilization Current Ratio = Current Assets Current Liabilities Acid-Test Ratio = Monetary Current Assets Current Liabilities Inventory Turnover = Cost of Sales Inventory

15. Investment Utilization Current Ratio = Current Assets Current Liabilities 20072006 Peet’s2.542.69 Starbuck’s0.79 Diedrich’ s 1.902.07

16. Investment Utilization Acid-Test Ratio = Monetary Current Assets Current Liabilities 20072006 Peet’s1.271.54 Starbuck’s0.340.35 Diedrich’s 1.391.64

17. Investment Utilization Inventory Turnover = Cost of Sales Inventory Peet’s vs Starbuck’s 20072006 Peet’s4.835.06 Starbuck’s5.785.00 Diedrich’s5.615.57

18. Investment Utilization Summary Similar Inventory Turn ~5 times Peet’s- –Strong Current Ratio at 2.5:1.0 –Strong Acid Test at 1.27:1.0 Starbuck’s- –Too Levered: Poor Acid Test at 0.3:1.0 –Current ratio below 1:1 at 0.8:1.0

19. Financial Condition Financial Leverage Ratio = Assets Shareholders’ Equity Debt/Equity Ratio = Total Liabilities Shareholders’ Equity

20. Financial Condition Financial Leverage Ratio = Assets Shareholders’ Equity Peet’s vs Starbuck’s 20072006 Peet’s1.211.20 Starbuck’s2.341.99 Diedrich’s1.441.41

21. Financial Condition Debt/Equity Ratio = Total Liabilities Shareholders’ Equity Peet’s vs Starbuck’s 20072006 Peet’s20.57%20.06% Starbuck’s133.96%98.74% Diedrich’s43.97%40.64%

22. Financial Condition Summary Peet’s- Debt/Equity Ratio is conservative at 20% Starbuck’s- Debt/Equity Ratio reflects its high leverage levels with a D/E of 133%.

23. Current 2008 Performance Consistent performance thus far with the exception of: –Starbuck’s Profit Margin has reduce from 7% to 3% which is now in line with Peet’s –Peet’s has slowed it’s Inventory Turn from ~5 to ~2.3 and slight reduction in Acid Test from 1.27:1.0 to 1.01:1.0.

24. Recommendation Due to Market Conditions Peet’s should continue to be conservative with their leverage and focus on Cash preservation and liquidity. Peet’s better opportunity, b/c conservative w/ their liab. & equity. Will prove beneficial long-term. Once debt markets become stronger, Peet’s could benefit from some added leverage. Peet’s would be a better investment based on their approach to their Balance Sheet and conservative approach to their leverage. Starbuck’s relies heavily on their Sales Volume and Debt levels that in this market is a risky investment.