NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited consolidated financial statements as of December 27, 2020, and for the quarters ended December 27, 2020 and December 29, 2019, 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 27, 2020 and December 29, 2019 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.”
The financial information as of September 27, 2020 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 27, 2020 (“fiscal 2020”) included in Item 8 in the Fiscal 2020 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 27, 2020 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 3, 2021 (“fiscal 2021”). Additionally, our 2021 fiscal year will include 53 weeks, with the 53rd week falling in the fourth fiscal quarter.
The novel coronavirus, known as the global pandemic COVID-19, was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores. We have since established the necessary protocols to operate safely, and our businesses continue to recover. As of the end of the first quarter of fiscal 2021, nearly all our company-operated and licensed stores have re-opened; however, many were operating at less than full capacity.
Government Subsidies
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future. Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) to help employers offset a portion of their employee wages for a limited period. We elected to treat qualified government subsidies from the U.S., Canada and other governments as offsets to the related operating expenses. During the first quarter of fiscal 2021, qualified payroll credits reduced our store operating expenses by $19.8 million on our consolidated statement of earnings. After netting the qualified U.S. payroll tax credits against our payroll tax payable, a receivable of $149.3 million was included in prepaid expenses and other current assets as of December 27, 2020. During the first fiscal quarter of fiscal 2021, we deferred $76.5 million of qualified payroll tax payments, and as of December 27, 2020, deferred payroll tax payments of $227.5 million were included in other long-term liabilities on our consolidated balance sheets.
Restructuring
In fiscal 2020, we announced a plan to optimize our North America store portfolio, primarily in dense metropolitan markets by blending store formats to better cater to changing customer tastes and preferences. As of December 27, 2020, we expect the total number of closures to be approximately 800 stores in the U.S. and Canada. As of December 27, 2020, we have identified 713 stores for closure under our restructuring plans, and as a result we recorded approximately $72.2 million to restructuring and impairments on our consolidated statement of earnings. Of this total, $42.6 million related to the impairment of store assets for which either a triggering event occurred and the assets were determined not to be recoverable or the store was permanently closed. An additional $29.6 million was associated with accelerated amortization of right-of-use (“ROU”) lease assets due to planned store closures prior to the end of contractual lease terms. For impaired store asset groups, we estimated the fair values using an income approach incorporating internal projections of revenue growth and operating expenses that are considered Level 3 fair value measurements, as well as applicable discount rates and market lease rates. The application of these projections and fair value measurements did not have a significant impact on our final impairment decisions given that we plan to fully exit the majority of these identified stores over the next 9 to 12 months.
We expect total future restructuring costs, which are attributable to our Americas segment, to be approximately $100 million to $120 million. These restructuring costs include accelerated amortization or impairments of ROU assets due to planned store closures prior to the end of contractual lease terms ($90 million to $100 million), store impairment and disposal costs not previously recorded as part of our ongoing store impairment process ($10 million to $15 million), with the remaining amount related to employee termination costs. As we have previously recorded impairment charges for stores that may be identified for
closure under our plans, and because store closure decisions are still subject to change, the final costs associated with these store closures may vary from these estimates. These costs will depend on the asset carrying value and remaining lease term of the specific stores identified. Future restructuring costs are expected to be incurred primarily over the next 9 to 12 months as stores are specifically identified for closure or, in the case of lease exit costs, either when a store ceases operations or when a reduced lease term is reasonably certain due to expected, early lease termination.
As of December 27, 2020, restructuring liabilities totaling $24.4 million were included in current and non-current operating lease liability for the remaining outstanding rent liabilities due to landlords. The associated expense was recognized in fiscal 2020 or during the first quarter of fiscal 2021 for stores that were either closed or reasonably certain to close in fiscal 2021. Additionally, $14.9 million of accrued employee termination costs is included in accrued payroll and benefits. Cash payments were immaterial for the first quarter of fiscal 2021.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected credit losses on financial assets, including receivables and available-for-sale securities. The new methodology requires entities to estimate and recognize expected credit losses each reporting period. The guidance was adopted during the first quarter of fiscal 2021 under the modified retrospective approach which included a $2.2 million transition adjustment to opening shareholders' retained deficit on our consolidated statements of equity upon adoption.
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates but do not expect a significant impact to our consolidated financial statements.
Note 2: 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 7, 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, product and distribution costs, 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 and swap 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 4, 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 product and distribution costs 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 product and distribution costs when the hedged exposure affects net earnings.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the underlying transactions are no longer probable of occurring, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings. There was no such significant cash flow hedge dedesignations in the periods presented.
To mitigate the price uncertainty of a portion of our future purchases, including 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 product and distribution costs 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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Net Gains/(Losses)
Included in AOCI
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Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months
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Outstanding Contract/Debt Remaining Maturity
(Months)
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Dec 27, 2020
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Sep 27, 2020
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Cash Flow Hedges:
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Coffee
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$
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7.4
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$
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(2.5)
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$
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1.0
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12
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Cross-currency swaps
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5.6
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5.2
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—
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47
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Dairy
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0.4
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0.5
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0.4
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8
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Foreign currency - other
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(15.4)
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5.3
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(6.4)
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33
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Interest rates
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(73.5)
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(90.6)
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(1.2)
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142
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Net Investment Hedges:
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Cross-currency swaps
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17.9
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32.6
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—
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105
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Foreign currency
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16.0
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16.0
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—
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0
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Foreign currency debt
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(47.4)
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(37.1)
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—
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39
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Pre-tax 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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Gains/(Losses)
Recognized in
OCI Before Reclassifications
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Gains/(Losses) Reclassified from
AOCI to Earnings
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Location of gain/(loss)
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Dec 27, 2020
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Dec 29, 2019
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Dec 27, 2020
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Dec 29, 2019
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Cash Flow Hedges:
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Coffee
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$
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12.0
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$
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11.0
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$
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0.7
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$
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—
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Product and distribution costs
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Cross-currency swaps
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(3.4)
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6.2
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1.0
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(0.2)
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Interest expense
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(4.8)
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5.6
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Interest income and other, net
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Dairy
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2.5
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(0.1)
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2.6
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—
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Product and distribution costs
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Foreign currency - other
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(25.9)
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(4.7)
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—
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1.7
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Licensed stores revenues
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—
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(0.3)
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Product and distribution costs
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Interest rates
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22.5
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20.0
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(0.6)
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0.8
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Interest expense
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Net Investment Hedges:
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Cross-currency swaps
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(16.5)
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10.7
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3.2
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3.3
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Interest expense
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Foreign currency debt
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(13.7)
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13.0
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—
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—
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Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings (in millions):
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Gains/(Losses) Recognized in Earnings
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Location of gain/(loss) recognized in earnings
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Quarter Ended
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Dec 27, 2020
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Dec 29, 2019
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Non-Designated Derivatives:
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Diesel fuel and other commodities
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Interest income and other, net
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$
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1.2
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$
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0.9
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Foreign currency - other
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Interest income and other, net
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(0.8)
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3.4
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Fair Value Hedges:
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Interest rate swap
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Interest expense
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0.4
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(10.9)
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Long-term debt (hedged item)
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Interest expense
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2.9
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4.2
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Notional amounts of outstanding derivative contracts (in millions):
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Dec 27, 2020
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Sep 27, 2020
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Coffee
|
$
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109
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$
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63
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Cross-currency swaps
|
854
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870
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Dairy
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44
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61
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Diesel fuel and other commodities
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11
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5
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Foreign currency - other
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1,000
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1,140
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Interest rate swap
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1,750
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1,750
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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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Derivative Assets
|
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Balance Sheet Location
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|
Dec 27, 2020
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Sep 27, 2020
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Designated Derivative Instruments:
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Coffee
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Prepaid expenses and other current assets
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|
$
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13.6
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$
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2.6
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|
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|
|
|
Cross-currency swaps
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Other long-term assets
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|
17.3
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|
37.7
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Dairy
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Prepaid expenses and other current assets
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|
1.7
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2.1
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Foreign currency - other
|
Prepaid expenses and other current assets
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|
1.8
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|
8.6
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Other long-term assets
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0.3
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|
|
3.8
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|
|
|
|
|
|
|
Interest rate swap
|
Other long-term assets
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|
35.9
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|
|
45.8
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Non-designated Derivative Instruments:
|
|
|
|
|
|
Diesel fuel and other commodities
|
Prepaid expenses and other current assets
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|
0.9
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|
|
—
|
|
Foreign currency
|
Prepaid expenses and other current assets
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|
6.7
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|
2.3
|
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Derivative Liabilities
|
|
Balance Sheet Location
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Designated Derivative Instruments:
|
|
|
|
|
|
Coffee
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
1.4
|
|
Other long-term liabilities
|
|
—
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|
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0.1
|
|
Cross-currency swaps
|
Other long-term liabilities
|
|
9.9
|
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|
7.3
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|
Dairy
|
Accrued liabilities
|
|
1.3
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|
1.4
|
|
Foreign currency - other
|
Accrued liabilities
|
|
10.3
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|
1.6
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|
Other long-term liabilities
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|
10.7
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2.6
|
|
Interest rates
|
Other long-term liabilities
|
|
46.8
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|
69.3
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|
|
Non-designated Derivative Instruments:
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|
|
Diesel fuel and other commodities
|
Accrued liabilities
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|
0.2
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|
1.7
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Foreign currency
|
Accrued liabilities
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1.4
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1.2
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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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Carrying amount of hedged item
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount
|
|
Dec 27, 2020
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|
Sep 27, 2020
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|
Dec 27, 2020
|
|
Sep 27, 2020
|
Location on the balance sheet
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|
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Long-term debt
|
$
|
782.7
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|
|
$
|
785.6
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|
|
$
|
32.7
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|
|
$
|
35.6
|
|
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 10, Equity.
Note 3: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis (in millions):
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Fair Value Measurements at Reporting Date Using
|
|
Balance at
December 27, 2020
|
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Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
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Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
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|
|
|
|
|
|
Cash and cash equivalents
|
$
|
5,028.1
|
|
|
$
|
5,028.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments:
|
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|
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|
|
Available-for-sale debt securities
|
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|
|
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|
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|
|
Certificates of deposit
|
1.6
|
|
|
—
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|
|
1.6
|
|
|
—
|
|
Commercial paper
|
71.8
|
|
|
—
|
|
|
71.8
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|
|
—
|
|
Corporate debt securities
|
78.5
|
|
|
—
|
|
|
78.5
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|
|
—
|
|
|
|
|
|
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|
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|
Mortgage and other asset-backed securities
|
16.7
|
|
|
—
|
|
|
16.7
|
|
|
—
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|
State and local government obligations
|
1.0
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities
|
169.6
|
|
|
—
|
|
|
169.6
|
|
|
—
|
|
Marketable equity securities
|
65.9
|
|
|
65.9
|
|
|
—
|
|
|
—
|
|
Total short-term investments
|
235.5
|
|
|
65.9
|
|
|
169.6
|
|
|
—
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
Derivative assets
|
24.7
|
|
|
14.6
|
|
|
10.1
|
|
|
—
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
5.7
|
|
|
—
|
|
|
—
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
82.6
|
|
|
—
|
|
|
82.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Mortgage and other asset-backed securities
|
9.8
|
|
|
—
|
|
|
9.8
|
|
|
—
|
|
State and local government obligations
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
U.S. government treasury securities
|
90.2
|
|
|
90.2
|
|
|
—
|
|
|
—
|
|
Total long-term investments
|
190.9
|
|
|
90.2
|
|
|
95.0
|
|
|
5.7
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Derivative assets
|
53.5
|
|
|
—
|
|
|
53.5
|
|
|
—
|
|
Total assets
|
$
|
5,532.7
|
|
|
$
|
5,198.8
|
|
|
$
|
328.2
|
|
|
$
|
5.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
13.2
|
|
|
$
|
0.8
|
|
|
$
|
12.4
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
67.4
|
|
|
—
|
|
|
67.4
|
|
|
—
|
|
Total liabilities
|
$
|
80.6
|
|
|
$
|
0.8
|
|
|
$
|
79.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Balance at
September 27, 2020
|
|
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
|
$
|
4,350.9
|
|
|
$
|
4,350.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
Certificates of deposit
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
Commercial paper
|
66.8
|
|
|
—
|
|
|
66.8
|
|
|
—
|
|
Corporate debt securities
|
123.6
|
|
|
—
|
|
|
123.6
|
|
|
—
|
|
Foreign government obligations
|
8.5
|
|
|
—
|
|
|
8.5
|
|
—
|
|
Mortgage and other asset-backed securities
|
15.8
|
|
|
—
|
|
|
15.8
|
|
|
—
|
|
Total available-for-sale debt securities
|
216.3
|
|
|
—
|
|
|
216.3
|
|
|
—
|
|
Marketable equity securities
|
64.9
|
|
|
64.9
|
|
|
—
|
|
|
—
|
|
Total short-term investments
|
281.2
|
|
|
64.9
|
|
|
216.3
|
|
|
—
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
Derivative assets
|
15.6
|
|
|
3.6
|
|
|
12.0
|
|
|
—
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
5.7
|
|
|
—
|
|
|
—
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
82.6
|
|
|
—
|
|
|
82.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Mortgage and other asset-backed securities
|
19.3
|
|
|
—
|
|
|
19.3
|
|
|
—
|
|
State and local government obligations
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
U.S. government treasury securities
|
94.9
|
|
|
94.9
|
|
|
—
|
|
|
—
|
|
Total long-term investments
|
206.1
|
|
|
94.9
|
|
|
105.5
|
|
|
5.7
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
Derivative assets
|
87.3
|
|
|
—
|
|
|
87.3
|
|
|
—
|
|
Total assets
|
$
|
4,941.1
|
|
|
$
|
4,514.3
|
|
|
$
|
421.1
|
|
|
$
|
5.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
7.3
|
|
|
$
|
1.9
|
|
|
$
|
5.4
|
|
|
$
|
—
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
79.3
|
|
|
0.1
|
|
|
79.2
|
|
|
—
|
|
Total liabilities
|
$
|
86.6
|
|
|
$
|
2.0
|
|
|
$
|
84.6
|
|
|
$
|
—
|
|
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 27, 2020 and September 27, 2020.
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, ROU assets, goodwill and other intangible assets and other assets. These assets are measured at fair value if determined to be impaired. During our first quarter of fiscal 2021, we recorded asset impairment charges, primarily related to restructuring efforts for our North America store portfolio. See Note 1, Summary of Significant Accounting Policies, for further discussion.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 7, Debt. There were no material fair value adjustments during the quarters ended December 27, 2020 and December 29, 2019.
Note 4: Inventories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Coffee:
|
|
|
|
Unroasted
|
$
|
625.8
|
|
|
$
|
664.7
|
|
Roasted
|
226.9
|
|
|
223.5
|
|
Other merchandise held for sale
|
282.0
|
|
|
293.9
|
|
Packaging and other supplies
|
336.8
|
|
|
369.3
|
|
Total
|
$
|
1,471.5
|
|
|
$
|
1,551.4
|
|
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 27, 2020, we had committed to purchasing green coffee totaling $809 million under fixed-price contracts and an estimated $554 million under price-to-be-fixed contracts. We expect to take physical delivery for these contracts. A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures. 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 and continuous monitoring, the risk of non-delivery on these purchase commitments is remote.
Note 5: Supplemental Balance Sheet and Statement of Earnings Information (in millions):
Prepaid Expenses and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Income tax receivable
|
$
|
332.6
|
|
|
$
|
356.9
|
|
Government subsidies receivable
|
149.3
|
|
|
155.1
|
|
Other prepaid expenses and current assets
|
252.5
|
|
|
227.5
|
|
Total prepaid expenses and current assets
|
$
|
734.4
|
|
|
$
|
739.5
|
|
Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Land
|
$
|
46.2
|
|
|
$
|
46.0
|
|
Buildings
|
597.4
|
|
|
586.8
|
|
Leasehold improvements
|
8,231.7
|
|
|
8,262.6
|
|
Store equipment
|
2,817.0
|
|
|
2,800.3
|
|
Roasting equipment
|
805.6
|
|
|
796.6
|
|
Furniture, fixtures and other
|
1,274.7
|
|
|
1,285.7
|
|
Work in progress
|
335.8
|
|
|
377.3
|
|
Property, plant and equipment, gross
|
14,108.4
|
|
|
14,155.3
|
|
Accumulated depreciation
|
(7,930.5)
|
|
|
(7,913.9)
|
|
Property, plant and equipment, net
|
$
|
6,177.9
|
|
|
$
|
6,241.4
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Accrued occupancy costs
|
$
|
79.9
|
|
|
$
|
76.9
|
|
Accrued dividends payable
|
529.7
|
|
|
—
|
|
Accrued capital and other operating expenditures
|
629.2
|
|
|
677.2
|
|
Self-insurance reserves
|
221.2
|
|
|
243.9
|
|
Accrued business taxes
|
156.9
|
|
|
162.7
|
|
Total accrued liabilities
|
$
|
1,616.9
|
|
|
$
|
1,160.7
|
|
Store Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Dec 27, 2020
|
|
Dec 29, 2019
|
|
|
|
|
Wages and benefits
|
$
|
1,606.2
|
|
|
$
|
1,598.0
|
|
|
|
|
|
Occupancy costs
|
628.1
|
|
|
618.7
|
|
|
|
|
|
Other expenses
|
633.0
|
|
|
604.8
|
|
|
|
|
|
Total store operating expenses
|
$
|
2,867.3
|
|
|
$
|
2,821.5
|
|
|
|
|
|
Note 6: Other Intangible Assets and Goodwill
Indefinite-Lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Dec 27, 2020
|
|
Sep 27, 2020
|
Trade names, trademarks and patents
|
$
|
95.4
|
|
|
$
|
95.0
|
|
Finite-Lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Sep 27, 2020
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Acquired and reacquired rights
|
$
|
1,157.3
|
|
|
$
|
(845.3)
|
|
|
$
|
312.0
|
|
|
$
|
1,116.1
|
|
|
$
|
(765.0)
|
|
|
$
|
351.1
|
|
Acquired trade secrets and processes
|
27.6
|
|
|
(22.7)
|
|
|
4.9
|
|
|
27.6
|
|
|
(22.0)
|
|
|
5.6
|
|
Trade names, trademarks and patents
|
125.1
|
|
|
(37.1)
|
|
|
88.0
|
|
|
124.8
|
|
|
(32.1)
|
|
|
92.7
|
|
Licensing agreements
|
16.9
|
|
|
(15.9)
|
|
|
1.0
|
|
|
16.6
|
|
|
(15.0)
|
|
|
1.6
|
|
Other finite-lived intangible assets
|
23.7
|
|
|
(18.6)
|
|
|
5.1
|
|
|
22.8
|
|
|
(16.7)
|
|
|
6.1
|
|
Total finite-lived intangible assets
|
$
|
1,350.6
|
|
|
$
|
(939.6)
|
|
|
$
|
411.0
|
|
|
$
|
1,307.9
|
|
|
$
|
(850.8)
|
|
|
$
|
457.1
|
|
Amortization expense for finite-lived intangible assets was $61.2 million for the quarter ended December 27, 2020 and $54.1 million for the quarter ended December 29, 2019, respectively.
Estimated future amortization expense as of December 27, 2020 (in millions):
|
|
|
|
|
|
Fiscal Year
|
Total
|
2021 (excluding the quarter ended December 27, 2020)
|
$
|
165.4
|
|
2022
|
190.8
|
|
2023
|
19.7
|
|
2024
|
19.1
|
|
2025
|
13.2
|
|
Thereafter
|
2.8
|
|
Total estimated future amortization expense
|
$
|
411.0
|
|
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 27, 2020
|
$
|
496.5
|
|
|
$
|
3,065.0
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,597.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(1)
|
1.0
|
|
|
108.6
|
|
|
—
|
|
|
—
|
|
|
109.6
|
|
Goodwill balance at December 27, 2020
|
$
|
497.5
|
|
|
$
|
3,173.6
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,706.8
|
|
(1)“Other” consists of changes in the goodwill balance resulting from foreign currency translation.
Note 7: 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 27, 2020, we had $299.7 million of borrowings outstanding under the program, net of unamortized discount, of which the majority matures in the second quarter of fiscal 2021.
Additionally, we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within our Japanese market:
•A ¥10 billion, or $96.5 million, facility is currently set to mature on March 26, 2021. Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.
•A ¥10 billion, or $96.5 million, facility is currently set to mature on October 29, 2021. Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.
•A ¥5 billion, or $48.2 million, facility is currently set to mature on December 30, 2021. Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.
As of December 27, 2020, we had ¥20 billion , or $192.9 million, of borrowings outstanding under these credit facilities.
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 27, 2020
|
|
Sep 27, 2020
|
|
Stated Interest Rate
|
Effective Interest Rate(1)
|
Issuance
|
Amount
|
Estimated Fair Value
|
|
Amount
|
Estimated Fair Value
|
|
November 2020 notes(2)
|
$
|
—
|
|
$
|
—
|
|
|
$
|
500.0
|
|
$
|
501.5
|
|
|
2.200
|
%
|
2.228
|
%
|
February 2021 notes
|
500.0
|
|
500.6
|
|
|
500.0
|
|
502.3
|
|
|
2.100
|
%
|
2.293
|
%
|
February 2021 notes
|
250.0
|
|
250.3
|
|
|
250.0
|
|
251.1
|
|
|
2.100
|
%
|
1.600
|
%
|
May 2022 notes
|
500.0
|
|
506.3
|
|
|
500.0
|
|
506.5
|
|
|
1.300
|
%
|
1.334
|
%
|
June 2022 notes
|
500.0
|
|
515.0
|
|
|
500.0
|
|
517.5
|
|
|
2.700
|
%
|
2.819
|
%
|
March 2023 notes
|
1,000.0
|
|
1,056.5
|
|
|
1,000.0
|
|
1,058.8
|
|
|
3.100
|
%
|
3.107
|
%
|
October 2023 notes(3)
|
750.0
|
|
814.0
|
|
|
750.0
|
|
817.5
|
|
|
3.850
|
%
|
2.859
|
%
|
March 2024 notes(4)
|
820.1
|
|
828.7
|
|
|
806.4
|
|
794.4
|
|
|
0.372
|
%
|
0.462
|
%
|
August 2025 notes
|
1,250.0
|
|
1,416.7
|
|
|
1,250.0
|
|
1,414.5
|
|
|
3.800
|
%
|
3.721
|
%
|
June 2026 notes
|
500.0
|
|
540.7
|
|
|
500.0
|
|
542.6
|
|
|
2.450
|
%
|
2.511
|
%
|
March 2027 notes
|
500.0
|
|
529.0
|
|
|
500.0
|
|
528.9
|
|
|
2.000
|
%
|
2.058
|
%
|
March 2028 notes
|
600.0
|
|
688.0
|
|
|
600.0
|
|
679.5
|
|
|
3.500
|
%
|
3.529
|
%
|
November 2028 notes
|
750.0
|
|
888.4
|
|
|
750.0
|
|
886.0
|
|
|
4.000
|
%
|
3.958
|
%
|
August 2029 notes
|
1,000.0
|
|
1,161.1
|
|
|
1,000.0
|
|
1,147.1
|
|
|
3.550
|
%
|
3.840
|
%
|
March 2030 notes
|
750.0
|
|
791.6
|
|
|
750.0
|
|
778.0
|
|
|
2.250
|
%
|
3.084
|
%
|
November 2030 notes
|
1,250.0
|
|
1,344.1
|
|
|
1,250.0
|
|
1,325.9
|
|
|
2.550
|
%
|
2.582
|
%
|
June 2045 notes
|
350.0
|
|
428.9
|
|
|
350.0
|
|
412.4
|
|
|
4.300
|
%
|
4.348
|
%
|
December 2047 notes
|
500.0
|
|
582.7
|
|
|
500.0
|
|
546.6
|
|
|
3.750
|
%
|
3.765
|
%
|
November 2048 notes
|
1,000.0
|
|
1,287.7
|
|
|
1,000.0
|
|
1,222.8
|
|
|
4.500
|
%
|
4.504
|
%
|
August 2049 notes
|
1,000.0
|
|
1,288.6
|
|
|
1,000.0
|
|
1,215.5
|
|
|
4.450
|
%
|
4.447
|
%
|
March 2050 notes
|
500.0
|
|
553.3
|
|
|
500.0
|
|
517.1
|
|
|
3.350
|
%
|
3.362
|
%
|
November 2050 notes
|
1,250.0
|
|
1,436.5
|
|
|
1,250.0
|
|
1,332.2
|
|
|
3.500
|
%
|
3.528
|
%
|
Total
|
15,520.1
|
|
17,408.7
|
|
|
16,006.4
|
|
17,498.7
|
|
|
|
|
Aggregate debt issuance costs and unamortized premium/(discount), net
|
(129.3)
|
|
|
|
(132.5)
|
|
|
|
|
|
Hedge accounting fair value adjustment(3)
|
32.7
|
|
|
|
35.6
|
|
|
|
|
|
Total
|
$
|
15,423.5
|
|
|
|
$
|
15,909.5
|
|
|
|
|
|
(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 interest rate risk prior to the debt issuance.
(2)November 2020 notes were repaid in the first quarter of fiscal 2021.
(3)Amount includes the change in fair value due to changes in benchmark interest rates related to our October 2023 notes. Refer to Note 2, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
(4)Japanese yen-denominated long-term debt.
The following table summarizes our long-term debt maturities as of December 27, 2020 by fiscal year (in millions):
|
|
|
|
|
|
Fiscal Year
|
Total
|
|
|
2021
|
$
|
750.0
|
|
2022
|
1,000.0
|
|
2023
|
1,000.0
|
|
2024
|
1,570.1
|
|
2025
|
1,250.0
|
|
Thereafter
|
9,950.0
|
|
Total
|
$
|
15,520.1
|
|
Note 8: Leases
For the quarter ended December 27, 2020, we recognized accelerated lease right-of-use ("ROU") asset amortization costs of $29.6 million, which was recognized within restructuring and impairments on the consolidated statements of earnings.
The components of lease costs (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Dec 27, 2020
|
|
Dec 29, 2019
|
|
|
Operating lease costs(1)
|
$
|
409.4
|
|
|
$
|
373.1
|
|
|
|
Variable lease costs
|
222.4
|
|
|
228.8
|
|
|
|
Short-term lease costs
|
8.7
|
|
|
8.3
|
|
|
|
Total lease costs
|
$
|
640.5
|
|
|
$
|
610.2
|
|
|
|
(1)Operating lease costs were net of immaterial amounts of sublease income and rent concessions.
The following table includes supplemental information (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Dec 27, 2020
|
|
Dec 29, 2019
|
Cash paid related to operating lease liabilities
|
$
|
385.6
|
|
|
$
|
368.9
|
|
Operating lease liabilities arising from obtaining ROU assets
|
353.8
|
|
|
226.4
|
|
|
|
|
|
|
Dec 27, 2020
|
|
Dec 29, 2019
|
Weighted-average remaining operating lease term
|
8.8 years
|
|
9.0 years
|
Weighted-average operating lease discount rate
|
2.5
|
%
|
|
2.5
|
%
|
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. There were no material finance leases as of December 27, 2020.
Minimum future maturities of operating lease liabilities (in millions):
|
|
|
|
|
|
Fiscal Year
|
Total
|
2021 (excluding the quarter ended December 27, 2020)
|
$
|
1,173.9
|
|
2022
|
1,463.3
|
|
2023
|
1,321.2
|
|
2024
|
1,180.3
|
|
2025
|
1,030.6
|
|
Thereafter
|
3,992.3
|
|
Total lease payments
|
10,161.6
|
|
Less imputed interest
|
(1,139.5)
|
|
Total
|
$
|
9,022.1
|
|
As of December 27, 2020, we have entered into operating leases that have not yet commenced of $723.4 million, primarily related to real estate leases. These leases will commence between fiscal year 2021 and fiscal year 2027 with lease terms ranging from 3 years to 20 years.
Note 9: Deferred Revenue
Our deferred revenue primarily consists of the prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, our unredeemed stored value card liability and unredeemed loyalty points (“Stars”) associated with our loyalty program.
At December 27, 2020, the current and long-term deferred revenue related to the Nestlé was $180.3 million and $6.5 billion, respectively. During both quarters ended December 27, 2020 and December 29, 2019, we recognized $44.2 million of prepaid royalty revenue related to Nestlé.
Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions):
|
|
|
|
|
|
Quarter Ended December 27, 2020
|
Total
|
Stored value cards and loyalty program at September 27, 2020
|
$
|
1,280.5
|
|
Revenue deferred - card activations, card reloads and Stars earned
|
3,437.4
|
|
Revenue recognized - card and Stars redemptions and breakage
|
(2,980.2)
|
|
Other(1)
|
12.3
|
|
Stored value cards and loyalty program at December 27, 2020(2)
|
$
|
1,750.0
|
|
|
|
Quarter Ended December 29, 2019
|
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 balances resulting from foreign currency translation.
(2)As of December 27, 2020 and December 29, 2019, approximately $1,623.7 million and $1,460.9 million of these amounts were current, respectively.
Note 10: 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 27, 2020
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
5.7
|
|
|
$
|
(82.1)
|
|
|
$
|
11.5
|
|
|
$
|
(299.7)
|
|
|
$
|
(364.6)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
(0.4)
|
|
|
4.8
|
|
|
(22.6)
|
|
|
238.7
|
|
|
220.5
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
(1.2)
|
|
|
1.8
|
|
|
(2.4)
|
|
|
—
|
|
|
(1.8)
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
(1.6)
|
|
|
6.6
|
|
|
(25.0)
|
|
|
238.7
|
|
|
218.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
4.1
|
|
|
$
|
(75.5)
|
|
|
$
|
(13.5)
|
|
|
$
|
(61.0)
|
|
|
$
|
(145.9)
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 27, 2020
|
|
Dec 29, 2019
|
|
Gains/(losses) on available-for-sale debt securities
|
|
$
|
1.5
|
|
|
$
|
(0.2)
|
|
|
Interest income and other, net
|
Gains/(losses) on cash flow hedges
|
|
(1.1)
|
|
|
7.6
|
|
|
Please refer to Note 2, Derivative Financial Instruments for additional information.
|
Gains/(losses) on net investment hedges
|
|
3.2
|
|
|
3.3
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
10.7
|
|
|
Total before tax
|
|
|
(1.8)
|
|
|
(2.3)
|
|
|
Tax (expense)/benefit
|
|
|
$
|
1.8
|
|
|
$
|
8.4
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 27, 2020.
As of December 27, 2020, 48.9 million shares remained available for repurchase under current authorizations. We have suspended our share repurchase program until we restore certain financial leverage targets, which we currently expect to occur in late fiscal 2021.
On September 30, 2020, which was early in the first quarter of fiscal 2021, our Board of Directors approved a quarterly cash dividend to shareholders of $0.45 per share to be paid on November 27, 2020 to shareholders of record as of the close of business on November 12, 2020. In November 2020, our Board of Directors approved a quarterly cash dividend to shareholders of $0.45 per share to be paid on March 5, 2021 to shareholders of record as of the close of business on February 18, 2021.
Note 11: Employee Stock Plans
As of December 27, 2020, there were 39.4 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 11.8 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 27, 2020
|
|
Dec 29, 2019
|
|
|
|
|
Options
|
$
|
0.9
|
|
|
$
|
1.7
|
|
|
|
|
|
Restricted Stock Units (“RSUs”)
|
98.4
|
|
|
88.6
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
99.3
|
|
|
$
|
90.3
|
|
|
|
|
|
Stock option and RSU transactions from September 27, 2020 through December 27, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
Options outstanding/Nonvested RSUs, September 27, 2020
|
9.2
|
|
|
8.3
|
|
Granted
|
—
|
|
|
3.8
|
|
Options exercised/RSUs vested
|
(1.8)
|
|
|
(2.9)
|
|
Forfeited/expired
|
(0.1)
|
|
|
(0.4)
|
|
Options outstanding/Nonvested RSUs, December 27, 2020
|
7.3
|
|
|
8.8
|
|
Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 27, 2020
|
$
|
0.4
|
|
|
$
|
309.7
|
|
Note 12: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Dec 27, 2020
|
|
Dec 29, 2019
|
|
|
|
|
Net earnings attributable to Starbucks
|
$
|
622.2
|
|
|
$
|
885.7
|
|
|
|
|
|
Weighted average common shares outstanding (for basic calculation)
|
1,175.0
|
|
|
1,180.4
|
|
|
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
8.0
|
|
|
10.6
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding (for diluted calculation)
|
1,183.0
|
|
|
1,191.0
|
|
|
|
|
|
EPS — basic
|
$
|
0.53
|
|
|
$
|
0.75
|
|
|
|
|
|
EPS — diluted
|
$
|
0.53
|
|
|
$
|
0.74
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|
|
|
|
|
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 would exclude 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 be antidilutive. As of December 27, 2020 and December 29, 2019, we had no out-of-the-money stock options.
Note 13: 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. At the status conference on August 25, 2020, the trial judge granted the defendants’ motion for summary judgment, ruling that the coffee exemption regulation is a complete defense to the Plaintiff’s complaint. The Notice of Entry of Judgment from the court was served on October 6, 2020 and the Plaintiff filed a Notice of Appeal on November 20, 2020. Starbucks believes that the likelihood that the Company will ultimately incur a material loss in connection with this litigation is less than reasonably possible. 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 14: 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(1) (in millions):
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Quarter Ended
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|
|
|
Dec 27, 2020
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|
Dec 29, 2019
|
|
|
|
|
Beverage(2)
|
$
|
4,251.9
|
|
|
63
|
%
|
|
$
|
4,260.9
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
Food(3)
|
1,140.8
|
|
|
17
|
%
|
|
1,162.1
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
Other(4)
|
1,356.7
|
|
|
20
|
%
|
|
1,674.1
|
|
|
24
|
%
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|
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Total
|
$
|
6,749.4
|
|
|
100
|
%
|
|
$
|
7,097.1
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|
|
100
|
%
|
|
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|
(1)Certain prior period amounts have been reclassified to conform to current period presentation.
(2)Beverage represents sales within our company-operated stores.
(3)Food includes sales within our company-operated stores.
(4)“Other” primarily consists of packaged and single-serve coffees and teas, serveware, royalty and licensing revenues, 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
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Americas
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International
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Channel Development
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|
Corporate and Other
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Total
|
December 27, 2020
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|
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|
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Total net revenues
|
$
|
4,703.2
|
|
|
$
|
1,654.3
|
|
|
$
|
371.4
|
|
|
$
|
20.5
|
|
|
$
|
6,749.4
|
|
Depreciation and amortization expenses
|
188.9
|
|
|
140.0
|
|
|
0.2
|
|
|
37.0
|
|
|
366.1
|
|
Income from equity investees
|
—
|
|
|
26.3
|
|
|
56.4
|
|
|
—
|
|
|
82.7
|
|
Operating income/(loss)
|
813.5
|
|
|
274.8
|
|
|
180.8
|
|
|
(355.6)
|
|
|
913.5
|
|
|
|
|
|
|
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|
|
|
|
December 29, 2019
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|
|
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|
|
|
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|
Total net revenues
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$
|
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
|
|
|
|
|
|
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