NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited consolidated financial statements as of December 29, 2019, and for the quarters ended December 29, 2019 and December 30, 2018, have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for the quarters ended December 29, 2019 and December 30, 2018 reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q (“10-Q”), Starbucks Corporation is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
In the fourth quarter of fiscal 2019, we changed the classification of certain costs on our consolidated statements of earnings and revised prior period information to be consistent with the current period presentation. The most significant impact to the first quarter of fiscal 2019 was the reclassification of our company-operated store occupancy costs from costs of sales to store operating expenses of approximately $582.9 million. We also made certain other immaterial changes. There was no impact to consolidated revenues, consolidated operating income, or net earnings per share as a result of these changes. Additionally, certain prior period information on the consolidated statements of cash flows was reclassified to conform to the current year presentation.
The financial information as of September 29, 2019 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 29, 2019 (“fiscal 2019”) included in Item 8 in the Fiscal 2019 Annual Report on Form 10-K (“10-K”). The information included in this 10-Q should be read in conjunction with the footnotes and management’s discussion and analysis of the consolidated financial statements in the 10-K.
The results of operations for the quarter ended December 29, 2019 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 27, 2020 (“fiscal 2020”).
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
On September 30, 2019, we adopted the new guidance from the Financial Accounting Standards Board (“FASB”) on the recognition and measurement of leases utilizing the modified retrospective approach. As a result, the prior period information reported under the previous lease guidance has not been restated.
As permitted under the new guidance, we elected the package of practical expedients, which allowed us to retain our prior conclusions regarding lease identification, classification and initial direct costs. For our lease agreements with lease and non-lease components, we elected the practical expedient to account for these as a single lease component for all underlying classes of assets. For our adoption, we did not elect to use hindsight for our existing leases. Additionally, for short-term leases with an initial lease term of 12 months or less and with purchase options we are reasonably certain will not be exercised, we elected to not record right-of-use assets or corresponding lease obligations on our consolidated balance sheet. We will continue to record rent expense for each short-term lease on a straight-line basis over the lease term.
The new guidance had a material impact on our consolidated balance sheet; however, it did not have a material impact on our consolidated statement of earnings. The most material impact was the recognition of right-of-use assets of $8.4 billion, with corresponding lease liabilities of $9.0 billion relating to our operating leases. Existing deferred rent and tenant improvement allowances of approximately $568.0 million, previously recorded within other long-term liabilities, were recorded as an offset to our gross operating lease right-of-use assets. Additionally, pursuant to the transition guidance, we derecognized build-to-suit lease assets, previously recorded in property, plant and equipment, net, along with the corresponding liabilities on the consolidated balance sheet as of September 30, 2019. Accordingly, these leases have been recorded as operating leases as of the adoption date and are now included in operating lease, right-of-use assets and operating lease liabilities on the consolidated balance sheet as of December 29, 2019. As of the adoption date, accumulated deficit within shareholder's equity on our consolidated balance sheet decreased by $17.3 million, primarily related to the derecognition of build-to-suit leasing arrangements.
See Note 9, Leases, for further discussion regarding the adoption of the new guidance.
In the first quarter of fiscal 2020, we adopted the new guidance from the FASB on the reclassification of certain tax effects from accumulated other comprehensive income (“AOCI”) which permits entities to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from AOCI to retained earnings. The guidance was adopted prospectively with no material impact on the consolidated financial statements as of December 29, 2019.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued guidance simplifying the accounting for income taxes by removing certain exceptions to the general principles. The guidance will be effective at the beginning of our first quarter of fiscal 2022. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. We are currently evaluating the impacts of adoption of the new guidance to our consolidated financial statements.
Note 2: Acquisitions, Divestitures and Strategic Alliance
Fiscal 2019
In the third quarter of fiscal 2019, we sold our company-operated retail business in Thailand to Coffee Concepts Thailand, a joint venture between Maxim's Caterers Limited and F&N Retail Connection Co. Ltd, converting this operation to a fully licensed market. This transaction resulted in a pre-tax gain of $601.9 million, which was included in net gains resulting from divestiture of certain operations on our consolidated statements of earnings.
In the second quarter of fiscal 2019, we sold our company-operated retail businesses in France and the Netherlands to Alsea, S.A.B. de C.V. converting these operations to fully licensed markets. These transactions did not have a material impact to our consolidated financial statements.
Note 3: Derivative Financial Instruments
Interest Rates
From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in AOCI and is subsequently reclassified to interest expense over the life of the related debt.
To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 8 Debt, for additional information on our long-term debt.
Foreign Currency
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, cost of sales, or interest income and other, net, respectively, when the hedged exposures affect net earnings.
From time to time, we may enter into financial instruments, including but not limited to forward contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.
Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables and receivables; these gains and losses are recorded in interest income and other, net.
Commodities
Depending on market conditions, we may enter into coffee forward contracts, futures contracts, and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5, Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The resulting gains and losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.
Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand. The resulting gains or losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.
To mitigate the price uncertainty of a portion of our future purchases, including dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales on our consolidated statements of earnings.
Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (in millions):
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|
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|
|
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|
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|
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|
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|
|
Net Gains/(Losses)
Included in AOCI
|
|
|
|
Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months
|
|
Outstanding Contract/Debt Remaining Maturity
(Months)
|
|
Dec 29,
2019
|
|
Sep 29,
2019
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
Interest rates
|
$
|
17.8
|
|
|
$
|
0.5
|
|
|
$
|
2.5
|
|
|
154
|
Cross-currency swaps
|
(0.8)
|
|
|
(1.4)
|
|
|
—
|
|
|
59
|
Foreign currency - other
|
8.1
|
|
|
12.9
|
|
|
4.7
|
|
|
36
|
Coffee
|
8.6
|
|
|
(1.0)
|
|
|
6.5
|
|
|
24
|
Dairy
|
—
|
|
|
|
—
|
|
|
—
|
|
|
4
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
Foreign currency
|
16.0
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|
|
16.0
|
|
|
—
|
|
|
0
|
Cross-currency swaps
|
5.6
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|
|
—
|
|
|
—
|
|
|
117
|
Foreign currency debt
|
(13.9)
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|
|
(26.1)
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|
|
—
|
|
|
51
|
Pretax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings (in millions):
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Quarter Ended
|
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|
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Gains/(Losses)
Recognized in
OCI Before Reclassifications
|
|
|
|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
|
|
|
Location of gain/(loss)
|
|
|
|
|
Dec 29,
2019
|
|
Dec 30,
2018
|
|
Dec 29,
2019
|
|
Dec 30,
2018
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
|
|
|
$
|
20.0
|
|
|
$
|
(15.7)
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
|
Interest expense
|
|
Cross-currency swaps
|
|
|
|
6.2
|
|
|
(8.0)
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|
|
(0.2)
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|
|
(0.4)
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|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
5.6
|
|
|
(11.3)
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|
|
Interest income and other, net
|
|
Foreign currency - other
|
|
|
|
(4.7)
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|
|
14.6
|
|
|
1.7
|
|
|
1.4
|
|
|
Licensed stores revenues
|
|
|
|
|
|
|
|
|
|
(0.3)
|
|
|
0.5
|
|
|
Cost of sales
|
|
Coffee
|
|
|
|
11.0
|
|
|
—
|
|
|
—
|
|
|
(0.2)
|
|
|
Cost of sales
|
|
Dairy
|
|
|
|
(0.1)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
10.7
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
Interest expense
|
|
Foreign currency debt
|
|
|
|
13.0
|
|
|
(21.9)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
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Pretax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related hedged item recognized in earnings (in millions):
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|
|
|
|
|
|
|
|
|
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|
|
|
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|
Gains/(Losses) Recognized in Earnings
|
|
|
|
Location of gain/(loss) recognized in earnings
|
|
Quarter Ended
|
|
|
|
|
|
Dec 29, 2019
|
|
Dec 30, 2018
|
Non-Designated Derivatives:
|
|
|
|
|
|
Foreign currency - other
|
Interest income and other, net
|
|
|
$
|
3.4
|
|
|
$
|
(7.9)
|
|
|
|
|
|
|
|
Dairy
|
Interest income and other, net
|
|
|
—
|
|
|
(2.1)
|
|
Diesel fuel and other commodities
|
Interest income and other, net
|
|
|
0.9
|
|
|
(6.6)
|
|
Fair Value Hedges:
|
|
|
|
|
|
Interest rate swap
|
Interest expense
|
|
|
(10.9)
|
|
|
16.1
|
|
Long-term debt (hedged item)
|
Interest expense
|
|
|
4.2
|
|
|
(16.9)
|
|
Notional amounts of outstanding derivative contracts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Interest rate swap
|
$
|
1,500
|
|
|
$
|
1,500
|
|
Cross-currency swaps
|
1,021
|
|
|
341
|
|
Foreign currency - other
|
1,140
|
|
|
1,125
|
|
Coffee
|
43
|
|
|
52
|
|
Dairy
|
3
|
|
|
1
|
|
Diesel fuel and other commodities
|
15
|
|
|
17
|
|
Fair value of outstanding derivative contracts (in millions) including the location of the asset and/or liability on the consolidated balance sheets:
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|
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|
|
|
Derivative Assets
|
|
|
|
Balance Sheet Location
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Designated Derivative Instruments:
|
|
|
|
|
|
Interest rates
|
Other long-term assets
|
|
$
|
17.5
|
|
|
$
|
0.1
|
|
Cross-currency swaps
|
Other long-term assets
|
|
12.0
|
|
|
0.2
|
|
Foreign currency - other
|
Prepaid expenses and other current assets
|
|
|
8.9
|
|
|
11.4
|
|
|
Other long-term assets
|
|
5.7
|
|
|
7.8
|
|
Coffee
|
Prepaid expenses and other current assets
|
|
9.8
|
|
|
—
|
|
|
Other long-term assets
|
|
0.1
|
|
|
—
|
|
Interest rate swap
|
Other long-term assets
|
|
|
7.3
|
|
|
18.2
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
Foreign currency
|
Prepaid expenses and other current assets
|
|
|
3.5
|
|
|
1.0
|
|
|
|
|
|
|
|
Diesel fuel and other commodities
|
Prepaid expenses and other current assets
|
|
|
1.0
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
Balance Sheet Location
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Designated Derivative Instruments:
|
|
|
|
|
|
Interest rates
|
Other long-term liabilities
|
|
$
|
—
|
|
|
$
|
2.6
|
|
Cross-currency swaps
|
Other long-term liabilities
|
|
|
7.4
|
|
|
9.7
|
|
Foreign currency - other
|
Accrued liabilities
|
|
|
1.7
|
|
|
0.6
|
|
|
Other long-term liabilities
|
|
|
1.1
|
|
|
0.1
|
|
Coffee
|
Accrued liabilities
|
|
|
—
|
|
|
1.0
|
|
|
Other long-term liabilities
|
|
|
—
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
Foreign currency
|
Accrued liabilities
|
|
|
1.6
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel fuel and other commodities
|
Accrued liabilities
|
|
|
0.1
|
|
|
1.1
|
|
The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Carrying amount of hedged item
|
|
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Location on the balance sheet
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
757.6
|
|
|
$
|
761.8
|
|
|
$
|
7.6
|
|
|
$
|
11.8
|
|
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 11, Equity.
Note 4: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis (in millions):
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|
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|
|
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|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
Balance at
December 29,2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,040.5
|
|
|
$
|
3,040.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
Corporate debt securities
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
Marketable equity securities
|
64.4
|
|
|
64.4
|
|
|
—
|
|
|
—
|
|
Total short-term investments
|
68.4
|
|
|
64.4
|
|
|
4.0
|
|
|
—
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
Derivative assets
|
23.2
|
|
|
9.8
|
|
|
13.4
|
|
|
—
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
91.1
|
|
|
—
|
|
|
91.1
|
|
|
—
|
|
Auction rate securities
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
U.S. government treasury securities
|
98.6
|
|
|
98.6
|
|
|
—
|
|
|
—
|
|
State and local government obligations
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
Mortgage and other asset-backed securities
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
199.8
|
|
|
98.6
|
|
|
95.4
|
|
|
5.8
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Derivative assets
|
42.6
|
|
|
0.1
|
|
|
42.5
|
|
|
—
|
|
Total assets
|
$
|
3,374.5
|
|
|
$
|
3,213.4
|
|
|
$
|
155.3
|
|
|
$
|
5.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
8.5
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
Total liabilities
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
11.9
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
Balance at September 29, 2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,686.6
|
|
|
$
|
2,686.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
Commercial paper
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
Corporate debt securities
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
Marketable equity securities
|
66.5
|
|
|
66.5
|
|
|
—
|
|
|
—
|
|
Total short-term investments
|
70.5
|
|
|
66.5
|
|
|
4.0
|
|
|
—
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
Derivative assets
|
12.6
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
101.2
|
|
|
—
|
|
|
101.2
|
|
|
—
|
|
Auction rate securities
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
U.S. government treasury securities
|
106.5
|
|
|
106.5
|
|
|
—
|
|
|
—
|
|
State and local government obligations
|
4.9
|
|
|
—
|
|
|
4.9
|
|
|
—
|
|
Mortgage and other asset-backed
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
220.0
|
|
|
106.5
|
|
|
107.7
|
|
|
5.8
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Derivative assets
|
26.3
|
|
|
—
|
|
|
26.3
|
|
|
—
|
|
Total assets
|
$
|
3,016.0
|
|
|
$
|
2,859.6
|
|
|
$
|
150.6
|
|
|
$
|
5.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
5.7
|
|
|
$
|
1.1
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
12.5
|
|
|
—
|
|
|
12.5
|
|
|
—
|
|
Total liabilities
|
$
|
18.2
|
|
|
$
|
1.1
|
|
|
$
|
17.1
|
|
|
$
|
—
|
|
There were no material transfers between levels, and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.
Gross unrealized holding gains and losses on available-for-sale debt securities and marketable equity securities were not material as of December 29, 2019 and September 29, 2019.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets and other assets. These assets are measured at fair value if determined to be impaired.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 8, Debt. There were no material fair value adjustments during the quarters ended December 29, 2019 and December 30, 2018.
Note 5: Inventories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Coffee:
|
|
|
|
Unroasted
|
$
|
609.3
|
|
|
$
|
656.5
|
|
Roasted
|
253.7
|
|
|
276.5
|
|
Other merchandise held for sale
|
269.1
|
|
|
288.0
|
|
Packaging and other supplies
|
276.6
|
|
|
308.4
|
|
Total
|
$
|
1,408.7
|
|
|
$
|
1,529.4
|
|
Other merchandise held for sale includes, among other items, serveware, food and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations.
As of December 29, 2019, we had committed to purchasing green coffee totaling $992 million under fixed-price contracts and an estimated $456 million under price-to-be-fixed contracts. A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures. See Note 3, Derivative Financial Instruments for further discussion. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on these purchase commitments is remote.
Note 6: Supplemental Balance Sheet Information (in millions):
Prepaid Expenses and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Income tax receivable
|
$
|
141.0
|
|
|
$
|
141.1
|
|
Other prepaid expenses and current assets
|
333.0
|
|
|
347.1
|
|
Total prepaid expenses and current assets
|
$
|
474.0
|
|
|
$
|
488.2
|
|
Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Land
|
$
|
46.8
|
|
|
$
|
46.8
|
|
Buildings
|
569.7
|
|
|
691.5
|
|
Leasehold improvements
|
8,121.7
|
|
|
7,948.6
|
|
Store equipment
|
2,722.8
|
|
|
2,659.5
|
|
Roasting equipment
|
783.9
|
|
|
769.6
|
|
Furniture, fixtures and other
|
1,818.8
|
|
|
1,799.0
|
|
Work in progress
|
360.3
|
|
|
358.5
|
|
Property, plant and equipment, gross
|
14,424.0
|
|
|
14,273.5
|
|
Accumulated depreciation
|
(8,033.1)
|
|
|
(7,841.8)
|
|
Property, plant and equipment, net
|
$
|
6,390.9
|
|
|
$
|
6,431.7
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Accrued occupancy costs
|
$
|
74.3
|
|
|
$
|
176.9
|
|
Accrued dividends payable
|
482.4
|
|
|
485.7
|
|
Accrued capital and other operating expenditures
|
684.8
|
|
|
703.9
|
|
Self insurance reserves
|
218.0
|
|
|
210.5
|
|
Accrued business taxes
|
178.3
|
|
|
176.7
|
|
Total accrued liabilities
|
$
|
1,637.8
|
|
|
$
|
1,753.7
|
|
Note 7: Other Intangible Assets and Goodwill
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Dec 29, 2019
|
|
Sep 29, 2019
|
Trade names, trademarks and patents
|
$
|
206.5
|
|
|
$
|
203.4
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
|
|
|
|
Sep 29, 2019
|
|
|
|
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Acquired and reacquired rights
|
$
|
1,084.3
|
|
|
$
|
(589.7)
|
|
|
$
|
494.6
|
|
|
$
|
1,075.0
|
|
|
$
|
(537.2)
|
|
|
$
|
537.8
|
|
Acquired trade secrets and processes
|
27.6
|
|
|
(19.9)
|
|
|
7.7
|
|
|
27.6
|
|
|
(19.2)
|
|
|
8.4
|
|
Trade names, trademarks and patents
|
41.1
|
|
|
(23.7)
|
|
|
17.4
|
|
|
40.6
|
|
|
(22.9)
|
|
|
17.7
|
|
Licensing agreements
|
15.9
|
|
|
(12.6)
|
|
|
3.3
|
|
|
16.2
|
|
|
(12.2)
|
|
|
4.0
|
|
Other finite-lived intangible assets
|
22.4
|
|
|
(12.8)
|
|
|
9.6
|
|
|
22.0
|
|
|
(11.5)
|
|
|
10.5
|
|
Total finite-lived intangible assets
|
$
|
1,191.3
|
|
|
$
|
(658.7)
|
|
|
$
|
532.6
|
|
|
$
|
1,181.4
|
|
|
$
|
(603.0)
|
|
|
$
|
578.4
|
|
Amortization expense for finite-lived intangible assets was $54.1 million for the quarter ended December 29, 2019 and $54.5 million for the quarter ended December 30, 2018, respectively.
Estimated future amortization expense as of December 29, 2019 (in millions):
|
|
|
|
|
|
Fiscal Year Ending
|
Total
|
2020 (excluding the quarter ended December 29, 2019)
|
$
|
162.6
|
|
2021
|
197.0
|
|
2022
|
163.3
|
|
2023
|
2.7
|
|
2024
|
2.1
|
|
Thereafter
|
4.9
|
|
Total estimated future amortization expense
|
$
|
532.6
|
|
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
Goodwill balance at September 29, 2019
|
$
|
496.7
|
|
|
$
|
2,958.4
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,490.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(1)
|
0.3
|
|
|
24.8
|
|
|
—
|
|
|
—
|
|
|
25.1
|
|
Goodwill balance at December 29, 2019
|
$
|
497.0
|
|
|
$
|
2,983.2
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,515.9
|
|
(1)“Other” primarily consists of changes in the goodwill balance resulting from foreign currency translation.
Note 8: Debt
Short-term Debt
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As of December 29, 2019, we had $497.9 million of borrowings outstanding under the program.
Long-term Debt
Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity (in millions, except interest rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
|
Sep 29, 2019
|
|
|
Stated Interest Rate
|
Effective Interest Rate(1)
|
Issuance
|
Amount
|
Estimated Fair Value
|
|
Amount
|
Estimated Fair Value
|
|
|
|
November 2020 notes
|
$
|
500.0
|
|
$
|
501
|
|
|
$
|
500.0
|
|
$
|
501
|
|
|
2.200
|
%
|
2.228
|
%
|
February 2021 notes
|
500.0
|
|
501
|
|
|
500.0
|
|
500
|
|
|
2.100
|
%
|
2.293
|
%
|
February 2021 notes
|
250.0
|
|
251
|
|
|
250.0
|
|
250
|
|
|
2.100
|
%
|
1.600
|
%
|
June 2022 notes
|
500.0
|
|
510
|
|
|
500.0
|
|
509
|
|
|
2.700
|
%
|
2.819
|
%
|
February 2023 notes
|
1,000.0
|
|
1,033
|
|
|
1,000.0
|
|
1,033
|
|
|
3.100
|
%
|
3.107
|
%
|
October 2023 notes(2)
|
750.0
|
|
797
|
|
|
750.0
|
|
798
|
|
|
3.850
|
%
|
2.859
|
%
|
March 2024 notes(3)
|
775.3
|
|
786
|
|
|
788.3
|
|
795
|
|
|
0.372
|
%
|
0.462
|
%
|
August 2025 notes
|
1,250.0
|
|
1,350
|
|
|
1,250.0
|
|
1,351
|
|
|
3.800
|
%
|
3.721
|
%
|
June 2026 notes
|
500.0
|
|
504
|
|
|
500.0
|
|
502
|
|
|
2.450
|
%
|
2.511
|
%
|
February 2028 notes
|
600.0
|
|
644
|
|
|
600.0
|
|
644
|
|
|
3.500
|
%
|
3.529
|
%
|
November 2028 notes
|
750.0
|
|
835
|
|
|
750.0
|
|
837
|
|
|
4.000
|
%
|
3.958
|
%
|
May 2029 notes
|
1,000.0
|
|
1,086
|
|
|
1,000.0
|
|
1,080
|
|
|
3.550
|
%
|
3.871
|
%
|
June 2045 notes
|
350.0
|
|
393
|
|
|
350.0
|
|
390
|
|
|
4.300
|
%
|
4.348
|
%
|
December 2047 notes
|
500.0
|
|
520
|
|
|
500.0
|
|
518
|
|
|
3.750
|
%
|
3.765
|
%
|
November 2048 notes
|
1,000.0
|
|
1,175
|
|
|
1,000.0
|
|
1,160
|
|
|
4.500
|
%
|
4.504
|
%
|
May 2049 notes
|
1,000.0
|
|
1,165
|
|
|
1,000.0
|
|
1,165
|
|
|
4.450
|
%
|
4.433
|
%
|
Total
|
11,225.3
|
|
12,051
|
|
|
11,238.3
|
|
12,033
|
|
|
|
|
Aggregate debt issuance costs and unamortized premium/(discount), net
|
(81.0)
|
|
|
|
(83.1)
|
|
|
|
|
|
Hedge accounting fair value adjustment(2)
|
7.6
|
|
|
|
11.8
|
|
|
|
|
|
Total
|
$
|
11,151.9
|
|
|
|
$
|
11,167.0
|
|
|
|
|
|
(1)Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance.
(2)Amount includes the change in fair value due to changes in benchmark interest rates related to our October 2023 notes. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
(3)Japanese yen-denominated long-term debt.
The indentures under which the above notes were issued require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of December 29, 2019, we were in compliance with all applicable covenants.
The following table summarizes our long-term debt maturities as of December 29, 2019 by fiscal year (in millions):
|
|
|
|
|
|
Fiscal Year
|
Total
|
|
|
2020
|
$
|
—
|
|
2021
|
1,250.0
|
|
2022
|
500.0
|
|
2023
|
1,000.0
|
|
2024
|
1,525.3
|
|
Thereafter
|
6,950.0
|
|
Total
|
$
|
11,225.3
|
|
Note 9: Leases
The following significant lease accounting policies from our most recent Annual Report on Form 10-K have been updated to reflect the adoption of FASB's new guidance on the recognition and measurement of leases.
The majority of our leases are operating leases for our company-operated retail store locations. We also lease, among other things, roasting, distribution and warehouse facilities and office space for corporate administrative purposes. We do not enter into lease transactions with related parties.
We categorize leases as either operating or finance leases at the commencement date of the lease. Operating lease agreements may contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component for all underlying classes of assets.
We recognize a right-of-use (“ROU”) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term. Our leases often include options to extend or terminate at our sole discretion, which are included in the determination of lease term when they are reasonably certain to be exercised.
Our lease liability represents the present value of future lease payments over the lease term. Given our policy election to combine lease and non-lease components, we also consider fixed common area maintenance (“CAM”) part of our fixed future lease payments; therefore, fixed CAM is also included in our lease liability.
We cannot determine the interest rate implicit in each of our leases. Therefore, we use market and term-specific incremental borrowing rates. Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not borrow on a collateralized basis, we consider a combination of factors, including our credit-adjusted risk-free interest rate, the risk profile and funding cost of the specific geographic market of the lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral. Our credit-adjusted risk-free rate takes into consideration interest rates we pay on our unsecured long-term bonds as well as quoted interest rates obtained from financial institutions.
Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs. Most of our real estate leases require we pay certain expenses, such as CAM costs, real estate taxes and other executory costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. A significant majority of our leases are related to our company-operated stores, and their related costs are recorded within store operating expenses.
The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, initial direct costs, and any tenant improvement allowances received. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.
The components of lease costs (in millions):
|
|
|
|
|
|
|
Quarter Ended
|
|
Dec 29, 2019
|
Operating lease costs(1)
|
$
|
373.1
|
|
|
|
|
|
|
|
|
|
Variable lease costs
|
228.8
|
|
Short-term lease costs
|
8.3
|
|
Total lease costs
|
$
|
610.2
|
|
(1)Operating lease costs includes an immaterial amount of sublease income.
The following table includes supplemental information (in millions):
|
|
|
|
|
|
|
Quarter Ended
|
|
Dec 29, 2019
|
Cash paid related to operating lease liabilities
|
$
|
368.9
|
|
Operating lease liabilities arising from obtaining ROU assets(1)
|
226.4
|
|
|
|
|
Dec 29, 2019
|
Weighted-average remaining operating lease term
|
9.0 years
|
Weighted-average operating lease discount rate
|
2.5
|
%
|
(1)Excludes the initial impact of adoption. See Note 1, Summary of Significant Accounting Policies for additional information.
Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. Finance leases were immaterial as of December 29, 2019.
Minimum future maturities of operating lease liabilities (in millions):
|
|
|
|
|
|
Fiscal Year Ending
|
Dec 29, 2019
|
2020 excluding the quarter ended December 29, 2019)
|
$
|
1,099.2
|
|
2021
|
1,393.3
|
|
2022
|
1,285.7
|
|
2023
|
1,155.5
|
|
2024
|
1,023.4
|
|
Thereafter
|
4,151.1
|
|
Total lease payments
|
10,108.2
|
|
Less imputed interest
|
(1,127.6)
|
|
Total
|
$
|
8,980.6
|
|
As of December 29, 2019, we have entered into operating leases that have not yet commenced of $517.1 million, primarily related to real estate leases. These leases will commence between fiscal year 2020 and fiscal year 2025 with lease terms of 3 years to 20 years.
Previous Lease Guidance Disclosures
Rent expense under operating lease agreements under the previous lease guidance, which excludes certain amounts required under the new guidance, for the quarter ended December 30, 2018 (in millions):
|
|
|
|
|
|
|
Dec 30, 2018
|
Minimum rent
|
350.8
|
|
Contingent rent
|
55.7
|
|
Total
|
$
|
406.5
|
|
As previously reported in our Annual Report on Form 10-K, the minimum future rental payments under non-cancelable operating leases and lease financing arrangements under the previous lease guidance as of September 29, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
Operating Leases
|
|
Lease Financing Arrangements
|
2020
|
$
|
1,432.9
|
|
|
$
|
5.2
|
|
2021
|
1,342.2
|
|
|
5.2
|
|
2022
|
1,247.4
|
|
|
5.0
|
|
2023
|
1,124.3
|
|
|
5.0
|
|
2024
|
996.4
|
|
|
4.9
|
|
Thereafter
|
4,087.7
|
|
|
42.6
|
|
Total minimum lease payments
|
$
|
10,230.9
|
|
|
$
|
67.9
|
|
Note 10: Deferred Revenue
Our deferred revenue primarily consists of the up-front prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance and our unredeemed stored value card liability and unredeemed loyalty points (“Stars”) associated with our loyalty program.
At December 29, 2019, the current and long-term deferred revenue related to the Nestlé up-front payment was $176.5 million and $6.6 billion, respectively. During the quarters ended December 29, 2019 and December 30, 2018, we recognized $44.2 million and $44.1 million in current and long-term deferred revenue, respectively, related to amortization of the up-front payment.
Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions):
|
|
|
|
|
|
|
Total
|
Stored value cards and loyalty program at September 29, 2019
|
$
|
1,113.7
|
|
Revenue deferred - card activations, card reloads and Stars earned
|
3,507.5
|
|
Revenue recognized - card and Stars redemptions and breakage
|
(3,061.9)
|
|
Other(1)
|
1.7
|
|
Stored value cards and loyalty program at December 29, 2019(2)
|
$
|
1,561.0
|
|
(1)“Other” primarily consists of changes in the stored value cards and loyalty program balance resulting from foreign currency translation.
(2)Approximately $1,460.9 million of this amount is current.
Note 11: Equity
Changes in AOCI by component, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
Available-for-Sale Debt Securities
|
|
Cash Flow Hedges
|
|
Net Investment Hedges
|
|
Translation Adjustment and Other
|
|
Total
|
December 29, 2019
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
3.9
|
|
|
$
|
11.0
|
|
|
$
|
(10.1)
|
|
|
$
|
(508.1)
|
|
|
$
|
(503.3)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
(0.1)
|
|
|
25.8
|
|
|
17.7
|
|
|
76.1
|
|
|
119.5
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
0.1
|
|
|
(6.1)
|
|
|
(2.4)
|
|
|
—
|
|
|
(8.4)
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
—
|
|
|
19.7
|
|
|
15.3
|
|
|
76.1
|
|
|
111.1
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting adoption
|
(0.7)
|
|
|
|
3.0
|
|
|
|
2.5
|
|
|
|
—
|
|
|
|
4.8
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
3.2
|
|
|
$
|
33.7
|
|
|
$
|
7.7
|
|
|
$
|
(432.0)
|
|
|
$
|
(387.4)
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
(4.9)
|
|
|
$
|
17.7
|
|
|
$
|
19.6
|
|
|
$
|
(362.7)
|
|
|
$
|
(330.3)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
1.7
|
|
|
(7.3)
|
|
|
(16.3)
|
|
|
1.6
|
|
|
(20.3)
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
0.3
|
|
|
7.1
|
|
|
—
|
|
|
—
|
|
|
7.4
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
2.0
|
|
|
(0.2)
|
|
|
(16.3)
|
|
|
1.6
|
|
|
(12.9)
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
(2.9)
|
|
|
$
|
17.5
|
|
|
$
|
3.3
|
|
|
$
|
(361.1)
|
|
|
$
|
(343.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
AOCI
Components
|
|
Amounts Reclassified from AOCI
|
|
|
|
Affected Line Item in
the Statements of Earnings
|
|
|
Dec 29, 2019
|
|
Dec 30, 2018
|
|
|
Gains/(losses) on available-for-sale debt securities
|
|
$
|
(0.2)
|
|
|
$
|
0.5
|
|
|
Interest income and other, net
|
Gains/(losses) on cash flow hedges
|
|
7.6
|
|
|
(8.6)
|
|
|
Please refer to Note 3, Derivative Financial Instruments for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on net investment hedges
|
|
3.3
|
|
|
—
|
|
|
Interest income and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
(8.1)
|
|
|
Total before tax
|
|
|
(2.3)
|
|
|
0.7
|
|
|
Tax (expense)/benefit
|
|
|
$
|
8.4
|
|
|
$
|
(7.4)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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|
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|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to 2.4 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of December 29, 2019.
During the quarter ended December 29, 2019, we repurchased 13.0 million shares of common stock for $1.1 billion. As of December 29, 2019, 16.2 million shares remained available for repurchase under current authorizations.
In September 2018, we entered into accelerated share repurchase agreements (“ASR agreements”) with third-party financial institutions totaling $5.0 billion, effective October 1, 2018. We made a $5.0 billion upfront payment to the financial institutions and received an initial delivery of 72.0 million shares. In March 2019, we received an additional 4.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $65.03.
During the first quarter of fiscal 2020, our Board of Directors declared a quarterly cash dividend to shareholders of $0.41 per share to be paid on February 21, 2020 to shareholders of record as of the close of business on February 6, 2020.
Note 12: Employee Stock Plans
As of December 29, 2019, there were 45.8 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 12.3 million shares available for issuance under our employee stock purchase plan.
Stock-based compensation expense recognized in the consolidated statements of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Dec 30, 2018
|
|
|
|
|
Options
|
$
|
1.7
|
|
|
$
|
8.3
|
|
|
|
|
|
Restricted Stock Units (“RSUs”)
|
88.6
|
|
|
88.9
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
90.3
|
|
|
$
|
97.2
|
|
|
|
|
|
Stock option and RSU transactions from September 29, 2019 through December 29, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
Options outstanding/Nonvested RSUs, September 29, 2019
|
15.2
|
|
|
8.9
|
|
Granted
|
—
|
|
|
3.5
|
|
Options exercised/RSUs vested
|
(0.8)
|
|
|
(2.9)
|
|
Forfeited/expired
|
—
|
|
|
(0.3)
|
|
Options outstanding/Nonvested RSUs, December 29, 2019
|
14.4
|
|
|
9.2
|
|
Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 29, 2019
|
$
|
3.3
|
|
|
$
|
294.9
|
|
Note 13: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
Dec 30, 2018
|
|
|
|
|
Net earnings attributable to Starbucks
|
$
|
885.7
|
|
|
$
|
760.6
|
|
|
|
|
|
Weighted average common shares outstanding (for basic calculation)
|
1,180.4
|
|
|
1,242.0
|
|
|
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
10.6
|
|
|
11.4
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding (for diluted calculation)
|
1,191.0
|
|
|
1,253.4
|
|
|
|
|
|
EPS — basic
|
$
|
0.75
|
|
|
$
|
0.61
|
|
|
|
|
|
EPS — diluted
|
$
|
0.74
|
|
|
$
|
0.61
|
|
|
|
|
|
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. As of December 29, 2019, we had no out-of-the-money stock options, compared to 0.2 million as of December 30, 2018.
Note 14: Commitments and Contingencies
Legal Proceedings
On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al. On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al.. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (OEHHA) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial.
On June 3, 2019, the Office of Administrative Law (OAL) approved the coffee exemption regulation. The regulation became effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. A status conference before the trial judge to discuss the motions that each party has filed is scheduled for March 23, 2020. At this stage of the proceedings, Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is remote. Accordingly, no loss contingency was recorded for this matter.
Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 15: Segment Reporting
Segment information is prepared on the same basis that our ceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results, and makes key operating decisions.
Consolidated revenue mix by product type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 29, 2019
|
|
|
|
Dec 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Beverage(1)
|
$
|
4,260.9
|
|
|
60
|
%
|
|
$
|
3,926.0
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
Food(2)
|
1,281.4
|
|
|
18
|
%
|
|
1,188.9
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(3)
|
1,554.8
|
|
|
22
|
%
|
|
1,517.8
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,097.1
|
|
|
100
|
%
|
|
$
|
6,632.7
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
(1)Beverage represents sales within our company-operated stores.
(2)Food includes sales within our company-operated stores as well as products sales to our licensees.
(3)“Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, serveware, beverage-related ingredients, and ready-to-drink beverages, among other items.
The table below presents financial information for our reportable operating segments and Corporate and Other segment (in millions):
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
December 29, 2019
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
5,010.9
|
|
|
$
|
1,571.1
|
|
|
$
|
494.6
|
|
|
$
|
20.5
|
|
|
$
|
7,097.1
|
|
Depreciation and amortization expenses
|
189.2
|
|
|
126.6
|
|
|
0.3
|
|
|
34.9
|
|
|
351.0
|
|
Income from equity investees
|
—
|
|
|
30.9
|
|
|
43.0
|
|
|
—
|
|
|
73.9
|
|
Operating income/(loss)
|
$
|
1,098.8
|
|
|
$
|
275.9
|
|
|
$
|
175.5
|
|
|
$
|
(330.4)
|
|
|
$
|
1,219.8
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
|
|
|
|
|
|
|
Total net revenues(1)
|
$
|
4,612.5
|
|
|
$
|
1,504.0
|
|
|
$
|
504.6
|
|
|
$
|
11.6
|
|
|
$
|
6,632.7
|
|
Depreciation and amortization expenses
|
166.9
|
|
|
127.0
|
|
|
—
|
|
|
39.5
|
|
|
333.4
|
|
Income from equity investees
|
—
|
|
|
26.4
|
|
|
41.4
|
|
|
—
|
|
|
67.8
|
|
Operating income/(loss)
|
$
|
968.7
|
|
|
$
|
230.0
|
|
|
$
|
175.8
|
|
|
$
|
(358.8)
|
|
|
$
|
1,015.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Prior period amounts have been restated to reflect the fourth quarter fiscal 2019 realigned Starbucks operating segment reporting structure.
Note 16: Subsequent Event
In late January 2020, we closed more than half of our stores in China and continue to monitor and modify the operating hours of all of our stores in the market in response to the outbreak of the coronavirus. This is expected to be temporary. Given the dynamic nature of these circumstances, the duration of business disruption, reduced customer traffic and related financial impact cannot be reasonably estimated at this time but are expected to materially affect our International segment and consolidated results for the second quarter and full year of fiscal 2020.