1. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the balance sheet and why? 2. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the income statement and why? 3. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the Cash Flow Statement and why? 4. Risk number 10 above states "Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business andfinancial results." Which ratios would be adversely affected if increases in cost or supply chain disruptions occurred for arabica beans? Explain why. Compare your readings of management's assertions and your findings of your vertical, horizontal, ratio and chart analysis. Discrepancies may exist between what the ratios are indicating and what management is telling you. Is management telling the public one thing. but the financial information indicates another? Explain to the best of your ability. To help you answer this question read the following. Form 10-Ks normally follow specific patterns. It is important to read all three years (2016, 2017 and 2018) to see how management modifies its discussion from year to year. The specific narrative in each section generally does not change too much unless new disclosure requirements or other laws/policies/procedures are enacted. This is often a company's achilles heel. If management is telling the public a similar narrative each year, the charts should show a taumy ouer areas of the Annual Report and observations of its store operations. Starbucks identifies the following 15 material risks: 1. Economic conditions in the U.S. and international markets could adversely affect our business and financial results. 2. Our success depends substantially on the value of our brands and failure to preserve their value, either through our actions or those of our business partners, could have a negative impact on our financial results. 3. Incidents involvingfood or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions about the health effects of consuming our products, could harm our business. 4. The unauthorized access, use, theft or destruction of customer or employee personal, financial or other data or of Starbucks proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues. 5. We rely heavily on information technology in our operations and growth initiatives, and any material failure, inadequacy, interruption or securityfailure of that technology could harm our ability to effectively operate and grow our business andcould adversely affect our financial results. 6. We may not be successful in implementing important strategic initiatives or effectively managinggrowth, which may have an adverse impact on our business and financial results. 7. We face intense competition in each of our channels and markets, which could lead to reduced profitability. 8. We are highly dependent on the financial performance of our Americas operating segment. 9. We are increasingly dependent on the success of certain international markets in order to achieve our growth targets. 10. Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business andfinancial results. 11. Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control. 12. Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability. 13. Failure to meet market expectations for our financial performance andfluctuations in the stock market as a whole willlikely adversely affect the market price and volatility of our stock. 14. The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business andfinancial results. 15. Failure to comply with applicable laws and changing legal and regulatory requirements could harm our business andfinancial results. Part 1, Item 2. Properties In this discussion, Starbucks discloses select properties that it owns, providing locations, sizes and purposes. This information can heln a random + Fit to page Page view | A Read aloud PART 1 Item 1. Business General Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 78 markets. Formed in 1985, Starbucks Corporation's common stock trades on the NASDAQ Global Select Market ("NASDAQ") under the symbol "SBUX." We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of high-quality food items through company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice accounts. In addition to our flagship Starbucks Coffee brand, we sell goods and services under the following brands: Teavana, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Starbucks Reserve and Princi. Our objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world. To achieve this, we are continuing the disciplined expansion of our global store base, adding stores in both existing, developed markets such as the U.S., and in newer, higher growth markets such as China, as well as optimizing the mix of company operated and licensed stores around the world. In addition, by leveraging the experience gained through our traditional store model, we continue to offer consumers new coffee and other products in a variety of forms, across new categories, diverse channels and alternative store formats. We also believe our Starbucks Global Social Impact strategy, commitments related to ethically sourcing high-quality coffee, contributing positively to the communities we do business in and being an employer of choice are contributors to our objective In this Annual Report on Form 10-K (*10-K" or "Report") for the fiscal year ended September 30, 2018 (fiscal 2018"), Starbucks Corporation (together with its subsidiaries) is referred to as "Starbucks," the "Company," "we," "us" or "our." Segment Financial Information Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. On August 26, 2018, our Channel Development segment finalized licensing and distribution agreements with Nestl S.A. ("Nestle") to sell and market our consumer packaged goods ("CPG) and foodservice products and received an upfront prepaid royalty payment of approximately $7 billion. As a result, we realigned our organizational and operating segment structures in support of the newly established Global Coffee Alliance. The scope of the arrangement converts the majority of our previously defined Channel Development segment operations, as well as certain smaller businesses previously reported in the Americas, EMEA and Corporate and Other (previously All Other Segments), to licensed operations with Nestl, and our reportable segments have been restated as if those smaller businesses were previously within our Channel Development segment. We have four reportable operating segments: 1) Americas, which is inclusive of the US, Canada, and Latin America: 2) Chinal Asia Pacific ("CAP); 3) Europe, Middle East, and Africa (EMEA) and 4) Channel Development. We also have several non reportable operating segments, including Siren Retail, which consists of Starbucks Reserve Roastery & Tasting Rooms Starbucks Reserve brand stores and products and Princi operations, as well as Evolution Fresh and the Teavana retail business which substantially ceased operations during fiscal 2018. Collectively, the combined group of non-reportable operating segments is reported within Corporate and Other Revenues from our reportable segments and Corporate and Other as a percentage of total net revenues for fiscal 2018 were as follows: Americas (68%), CAP (18%. EMEA (4%), Channel Development (9%) and Corporate and Other (1%). Our Americas, CAP and EMEA segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are either in various stages of development or undergoing transformations of their business models. Therefore, they may require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. dn.com/869488222/files/doc_financials/annual/2018/2018 Annual Report.pdf Fit to page Page view A Read aloud Our Americas, CAP and EMEA segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are either in various stages of development or undergoing transformations of their business models. Therefore, they may require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. Our Channel Development segment includes roasted whole bean and ground coffees, Seattle's Best Coffee Starbucks and Teavana-branded single-serve products, a variety of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot Starbucks Refreshers beverages and Teavana iced tea, and other branded products sold worldwide outside of our company-operated and licensed stores. Historically our consumer packaged goods have been sold directly to grocery. warehouse club and specialty retail stores and through institutional foodservice companies. With the establishment of the Global Coffee Alliance with Nestl, a large portion of our Channel Development business transitioned to a licensed model in the fourth quarter of fiscal 2018. Additionally, the CPG and foodservice businesses previously included in our Americas, EMEA and Corporate and Other (previously All Other Segments) were also transitioned to a licensed model under the Global Coffee Alliance and realigned to the Channel Development segment. Our collaborative relationships with PepsiCo, Inc., Anheuser-Busch InBev, Tingyi Holding Corp., Arla Foods and others for our global ready-to-drink beverage businesses in this segment are excluded from the Global Coffee Alliance. Starbucks Corporation 9 2018 Form 10-K Starbucks segment information is included in Note 16, Segment Reporting, to the consolidated financial statements included in Item 8 of Part II of this 10-K. Revenue Components We generate the majority of our revenues through company operated stores and licensed stores. Company-operated and Licensed Store Summary as of September 30, 2018 YO Asa 10% of As a % of As a % of Total Americas Stores Total Total CAP Americas EMEA Stores CAP As a % of Total Stores Corporate and Other Corporate and other Company -operated stores Licensed stores Total 9,684 7,770 17.454 55% 4 5% 1 00% 5,159 3,371 8,530 60% 40% 100% 490 2,830 3,320 15% 85% 100% 8 12 20 40% 60% 100% 15,341 13,983 29,324 52% 48% 100% The mix of company-operated versus licensed stores in a given market will vary based on several factors, including our ability to access desirable local retail space, the complexity, profitability and expected ultimate size of the market for Starbucks and our ability to leverage the support infrastructure within a geographic region. Company-operated Stores Revenue from company-operated stores accounted for 80% of total net revenues during fiscal 2018. Our retail objective is to be the leading retailer and brand of coffee and tea in cach of our target markets by selling the finest quality coffee, tea and related products, as well as complementary food offerings, and by providing each customer with a unique Starbucks Experience. The Company-operated store data for the year-ended September 30, 2018: 25 of 401 8 9 Stores Open Stores Open as of Oct 1, 2017 Opened Closed Transfers Net Sep 30, 2018 Americas U.S. 8,222 353 8,575 Canada 26 1,109 Brazil (112) (108) Total Americas (87) (112) 271 9,684 China/Asia Pacific China 1,540 (24) 1,477 1,981 3,521 Japan 1,218 84 (16) - 68 1,286 Thailand 312 40352 Total China/Asia Pacific 653 (41) 1,477 2,089 5,159 EMEA: U.K. a 35 15 (23) (2) (10) 335 All Other 155 Total EMEA (28) (2) (12) Corporate and Other: Teavana (288) - (288) Siren Retail Total Corporate and Other 290 6 (288) - (282) Total company-operated 13,275 1,147 (444) 1,363 2,066 15.341 Americas store data includes the transfer of 112 company-operated retail stores in Brazil to licensed stores as a result of the sale of our Brazil retail operations in the second quarter of fiscal 2018. China/Asia Pacific store data includes the transfer of 1,477 licensed stores in East China to company-operated retail stores as a result of the purchase of our East China joint venture in the first quarter of fiscal 2018. Starbucks company operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses and in select rural and off-highway locations. We are continuing the expansion of our stores, inclusive of Drive Thru formats that provide a higher degree of access formats, which are focused on an elevated Starbucks Experience for our customers. Retail sales mix by product type for company-operated stores: 18 1. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the balance sheet and why? 2. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the income statement and why? 3. Of the 15 risks that Starbuck's management discloses, which one do you think could most adversely affect the Cash Flow Statement and why? 4. Risk number 10 above states "Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business andfinancial results." Which ratios would be adversely affected if increases in cost or supply chain disruptions occurred for arabica beans? Explain why. Compare your readings of management's assertions and your findings of your vertical, horizontal, ratio and chart analysis. Discrepancies may exist between what the ratios are indicating and what management is telling you. Is management telling the public one thing. but the financial information indicates another? Explain to the best of your ability. To help you answer this question read the following. Form 10-Ks normally follow specific patterns. It is important to read all three years (2016, 2017 and 2018) to see how management modifies its discussion from year to year. The specific narrative in each section generally does not change too much unless new disclosure requirements or other laws/policies/procedures are enacted. This is often a company's achilles heel. If management is telling the public a similar narrative each year, the charts should show a taumy ouer areas of the Annual Report and observations of its store operations. Starbucks identifies the following 15 material risks: 1. Economic conditions in the U.S. and international markets could adversely affect our business and financial results. 2. Our success depends substantially on the value of our brands and failure to preserve their value, either through our actions or those of our business partners, could have a negative impact on our financial results. 3. Incidents involvingfood or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions about the health effects of consuming our products, could harm our business. 4. The unauthorized access, use, theft or destruction of customer or employee personal, financial or other data or of Starbucks proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues. 5. We rely heavily on information technology in our operations and growth initiatives, and any material failure, inadequacy, interruption or securityfailure of that technology could harm our ability to effectively operate and grow our business andcould adversely affect our financial results. 6. We may not be successful in implementing important strategic initiatives or effectively managinggrowth, which may have an adverse impact on our business and financial results. 7. We face intense competition in each of our channels and markets, which could lead to reduced profitability. 8. We are highly dependent on the financial performance of our Americas operating segment. 9. We are increasingly dependent on the success of certain international markets in order to achieve our growth targets. 10. Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business andfinancial results. 11. Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control. 12. Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability. 13. Failure to meet market expectations for our financial performance andfluctuations in the stock market as a whole willlikely adversely affect the market price and volatility of our stock. 14. The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business andfinancial results. 15. Failure to comply with applicable laws and changing legal and regulatory requirements could harm our business andfinancial results. Part 1, Item 2. Properties In this discussion, Starbucks discloses select properties that it owns, providing locations, sizes and purposes. This information can heln a random + Fit to page Page view | A Read aloud PART 1 Item 1. Business General Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 78 markets. Formed in 1985, Starbucks Corporation's common stock trades on the NASDAQ Global Select Market ("NASDAQ") under the symbol "SBUX." We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of high-quality food items through company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice accounts. In addition to our flagship Starbucks Coffee brand, we sell goods and services under the following brands: Teavana, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Starbucks Reserve and Princi. Our objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world. To achieve this, we are continuing the disciplined expansion of our global store base, adding stores in both existing, developed markets such as the U.S., and in newer, higher growth markets such as China, as well as optimizing the mix of company operated and licensed stores around the world. In addition, by leveraging the experience gained through our traditional store model, we continue to offer consumers new coffee and other products in a variety of forms, across new categories, diverse channels and alternative store formats. We also believe our Starbucks Global Social Impact strategy, commitments related to ethically sourcing high-quality coffee, contributing positively to the communities we do business in and being an employer of choice are contributors to our objective In this Annual Report on Form 10-K (*10-K" or "Report") for the fiscal year ended September 30, 2018 (fiscal 2018"), Starbucks Corporation (together with its subsidiaries) is referred to as "Starbucks," the "Company," "we," "us" or "our." Segment Financial Information Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. On August 26, 2018, our Channel Development segment finalized licensing and distribution agreements with Nestl S.A. ("Nestle") to sell and market our consumer packaged goods ("CPG) and foodservice products and received an upfront prepaid royalty payment of approximately $7 billion. As a result, we realigned our organizational and operating segment structures in support of the newly established Global Coffee Alliance. The scope of the arrangement converts the majority of our previously defined Channel Development segment operations, as well as certain smaller businesses previously reported in the Americas, EMEA and Corporate and Other (previously All Other Segments), to licensed operations with Nestl, and our reportable segments have been restated as if those smaller businesses were previously within our Channel Development segment. We have four reportable operating segments: 1) Americas, which is inclusive of the US, Canada, and Latin America: 2) Chinal Asia Pacific ("CAP); 3) Europe, Middle East, and Africa (EMEA) and 4) Channel Development. We also have several non reportable operating segments, including Siren Retail, which consists of Starbucks Reserve Roastery & Tasting Rooms Starbucks Reserve brand stores and products and Princi operations, as well as Evolution Fresh and the Teavana retail business which substantially ceased operations during fiscal 2018. Collectively, the combined group of non-reportable operating segments is reported within Corporate and Other Revenues from our reportable segments and Corporate and Other as a percentage of total net revenues for fiscal 2018 were as follows: Americas (68%), CAP (18%. EMEA (4%), Channel Development (9%) and Corporate and Other (1%). Our Americas, CAP and EMEA segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are either in various stages of development or undergoing transformations of their business models. Therefore, they may require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. dn.com/869488222/files/doc_financials/annual/2018/2018 Annual Report.pdf Fit to page Page view A Read aloud Our Americas, CAP and EMEA segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are either in various stages of development or undergoing transformations of their business models. Therefore, they may require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. Our Channel Development segment includes roasted whole bean and ground coffees, Seattle's Best Coffee Starbucks and Teavana-branded single-serve products, a variety of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot Starbucks Refreshers beverages and Teavana iced tea, and other branded products sold worldwide outside of our company-operated and licensed stores. Historically our consumer packaged goods have been sold directly to grocery. warehouse club and specialty retail stores and through institutional foodservice companies. With the establishment of the Global Coffee Alliance with Nestl, a large portion of our Channel Development business transitioned to a licensed model in the fourth quarter of fiscal 2018. Additionally, the CPG and foodservice businesses previously included in our Americas, EMEA and Corporate and Other (previously All Other Segments) were also transitioned to a licensed model under the Global Coffee Alliance and realigned to the Channel Development segment. Our collaborative relationships with PepsiCo, Inc., Anheuser-Busch InBev, Tingyi Holding Corp., Arla Foods and others for our global ready-to-drink beverage businesses in this segment are excluded from the Global Coffee Alliance. Starbucks Corporation 9 2018 Form 10-K Starbucks segment information is included in Note 16, Segment Reporting, to the consolidated financial statements included in Item 8 of Part II of this 10-K. Revenue Components We generate the majority of our revenues through company operated stores and licensed stores. Company-operated and Licensed Store Summary as of September 30, 2018 YO Asa 10% of As a % of As a % of Total Americas Stores Total Total CAP Americas EMEA Stores CAP As a % of Total Stores Corporate and Other Corporate and other Company -operated stores Licensed stores Total 9,684 7,770 17.454 55% 4 5% 1 00% 5,159 3,371 8,530 60% 40% 100% 490 2,830 3,320 15% 85% 100% 8 12 20 40% 60% 100% 15,341 13,983 29,324 52% 48% 100% The mix of company-operated versus licensed stores in a given market will vary based on several factors, including our ability to access desirable local retail space, the complexity, profitability and expected ultimate size of the market for Starbucks and our ability to leverage the support infrastructure within a geographic region. Company-operated Stores Revenue from company-operated stores accounted for 80% of total net revenues during fiscal 2018. Our retail objective is to be the leading retailer and brand of coffee and tea in cach of our target markets by selling the finest quality coffee, tea and related products, as well as complementary food offerings, and by providing each customer with a unique Starbucks Experience. The Company-operated store data for the year-ended September 30, 2018: 25 of 401 8 9 Stores Open Stores Open as of Oct 1, 2017 Opened Closed Transfers Net Sep 30, 2018 Americas U.S. 8,222 353 8,575 Canada 26 1,109 Brazil (112) (108) Total Americas (87) (112) 271 9,684 China/Asia Pacific China 1,540 (24) 1,477 1,981 3,521 Japan 1,218 84 (16) - 68 1,286 Thailand 312 40352 Total China/Asia Pacific 653 (41) 1,477 2,089 5,159 EMEA: U.K. a 35 15 (23) (2) (10) 335 All Other 155 Total EMEA (28) (2) (12) Corporate and Other: Teavana (288) - (288) Siren Retail Total Corporate and Other 290 6 (288) - (282) Total company-operated 13,275 1,147 (444) 1,363 2,066 15.341 Americas store data includes the transfer of 112 company-operated retail stores in Brazil to licensed stores as a result of the sale of our Brazil retail operations in the second quarter of fiscal 2018. China/Asia Pacific store data includes the transfer of 1,477 licensed stores in East China to company-operated retail stores as a result of the purchase of our East China joint venture in the first quarter of fiscal 2018. Starbucks company operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses and in select rural and off-highway locations. We are continuing the expansion of our stores, inclusive of Drive Thru formats that provide a higher degree of access formats, which are focused on an elevated Starbucks Experience for our customers. Retail sales mix by product type for company-operated stores: 18