Personal Report of Starbucks Corporation’s
2011 Annual Report
1. Introduction
This report represents the results of our group discussion and my analysis of Starbucks
Corporation’s annual report on form 10-K for the fiscal year ended October 2, 2011. Our
research covered a review of Starbucks’ basic business information, balance sheet, and
income statement.
2. Basic Business Information
Starbucks (SIC code: 2095) is a roaster and retailer of coffee. It generates its revenues
through company-operated stores, licensed stores, consumer packaged goods (i.e. whole
bean and soluble coffee) and foodservice operations. Because the market in which
Starbucks is involved is very competitive and the barriers to entry are very low, Starbucks
faces many challenges from its competitors. Its main competitors are Dunkin Donuts (SIC
5412), Green Mountain Coffee Roasters Inc. (SIC 2095), Farmer Bros. Co. (SIC 2099),
Peet’s Coffee and Tea Inc. (SIC 2095), etc. However, Starbucks maintains itself standing as
one of the most recognized and respected brands in the world by three ways. First, even its
products are similar to other companies’ products, Starbucks tried to keep its products
different on price. Second, the company owns and has applied to register numerous
trademarks and service marks in the US and in many other countries throughout the world.
The corporation also holds patents on certain products, systems and designs. In addition,
Starbucks has registered and maintains numerous Internet domain names. Third, Starbucks
is an innovative company. It spends much money on technical research and development
activities, in addition to customary product testing and product and process improvement
in all areas of its business.
As a listed company, Starbucks approximately had 742.6 million outstanding shares and
21,900 shareholders as of November 11, 2011. It is very important to carefully consider the
risks for all of shareholders. The key risk of Starbucks is commodity price risk. Starbucks
purchased high-quality whole bean Arabica coffee and considerable amounts of dairy
products to support the demands of company-operated stores. The price and availability of
these commodities directly impacts the results of operations and can be expected to impact
future results of operations. To handle risks, Starbucks used an umbrella risk management
policy. Under this policy, market-based risks are quantified and evaluated for potential
mitigation strategies, such as entering into hedging transactions. In addition to fixed-price
and price-to-be-fixed contracts for coffee purchases, Starbucks has entered into commodity
hedges to manage commodity price risk using financial derivative instruments. To handle
foreign currency exchange risk, Starbucks engaged in transactions involving various
