UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
x ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 1, 20173, 2021
or
¨ ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-20322
Starbucks Corporation
(Exact Name of Registrant as Specified in its Charter)
|
| | | | |
| Washington | | 91-1325671 |
| (State of Incorporation) | | (IRS Employer ID) |
2401 Utah Avenue South, Seattle, Washington 98134
(206) 447-1575
(Address of principal executive offices,office, zip code, telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
|
| | | | | | | |
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, $0.001 par value per share | SBUX | Nasdaq Global Select Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | x | Accelerated filer | ¨
| Non-accelerated filer | ¨
| Smaller reporting company | ☐ |
| | | |
Large accelerated filer | x | Accelerated filer | ¨
|
Non-accelerated filer | ¨ (Do not check if a smaller reporting company)
| Smaller reporting company | ¨
|
| | Emerging growth company | ¨
☐ | | | | | | |
If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No x
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on April 2, 2017March 28, 2021 as reported on the NASDAQNasdaq Global Select Market was $82$129.3 billion. As of November 10, 2017,12, 2021, there were 1,422.81,173.2 million shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on March 21, 201816, 2022 have been incorporated by reference into Part III of this Annual Report on Form 10-K.
STARBUCKS CORPORATION
Form 10-K
For the Fiscal Year Ended October 1, 20173, 2021
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| | | | | | | |
| PART I |
| Item 1 | | |
| Item 1A | | |
| Item 1B | | |
| Item 2 | | |
| Item 3 | | |
| Item 4 | | |
| PART II |
| Item 5 | | |
| Item 6 | | |
| Item 7 | | |
| Item 7A | | |
| Item 8 | | |
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| | |
| Item 9 | | |
| Item 9A | | |
| Item 9B | | |
PART IIIItem 9C | | |
| PART III |
| Item 10 | | |
| Item 11 | | |
| Item 12 | | |
| Item 13 | | |
| Item 14 | | |
| PART IV |
| Item 15 | | |
| Item 16 | | |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.Operations.” Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I
Item 1. Business
General
In this Annual Report on Form 10-K (“10-K” or “Report”) for the fiscal year ended October 3, 2021 (“fiscal 2021”), Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 75 countries.84 markets. Formed in 1985, Starbucks Corporation’s common stock trades on the NASDAQNasdaq Global Select Market (“NASDAQ”Nasdaq”) under the symbol “SBUX.” We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of high-quality food items including snack offerings, through company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels, such as licensed stores as well as grocery and foodservice accounts.through our Global Coffee Alliance with Nestlé S.A. (“Nestlé”). In addition to our flagship Starbucks Coffee brand, we sell goods and services under the following brands: Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La BoulangeEthos, Starbucks Reserve and Ethos.Princi.
Our primary objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world. To achieveWe believe our work to create a company that is profit-, people- and planet-positive, along with our ability to successfully execute strategies that support this wework, contribute to our primary objective.
Profit-Positive
Our profit-positive efforts are continuing the disciplinedaligned with our global long-term “Growth at Scale” agenda to deliver consistent revenue and income growth, through focus and discipline. We believe incremental investments in our brand, principally to support our people- and planet-positive work, will deliver long-term targeted revenue and income growth. This includes expansion of our global store base, adding stores in both existing, developed markets such as the U.S., and in newer, higher growth markets such as China, as well as optimizing the mix of company-operated and licensed stores in each market.around the world. In addition, by leveraging the experienceexperiences gained through our traditional store model,stores and elsewhere, we continue to drive beverage, equipment, process and technology innovation. We strive to regularly offer consumers new, innovative coffee and other products in a variety of forms, across new categories, diverse channels and alternative store formats. We are committed to further investments in our partners (employees) and our industry-leading digital platform as well as environmental, social and governance issues underscoring our mission and values. Our disciplined capital allocation methodology, which prioritizes high-return investments as well as share repurchases and competitive dividends, rounds out our “Growth at Scale” agenda and our profit-positive vision.
People-Positive
Our people-positive vision is to cultivate an inclusive environment where everyone belongs. This includes empowering our partners with opportunities to pursue their aspirations while living our mission and values, acting with empathy and compassion and sharing in our success. This enables our partners to deliver an elevated Starbucks Experience to our customers every day. We also believestrive to develop long-lasting trust and make tangible differences in the communities where we serve by investing in humanity and the well-being of everyone we connect with, advancing initiatives that support diversity, equity and inclusion through education, pay equity, hiring commitments and meaningful community involvement, including donations.
Planet-Positive
Our planet-positive vision is to give back more than we take from the planet. This includes reducing our Starbucks Global Social Impact strategy, commitments relatedenvironmental impacts, such as expanding reusable packaging, conserving water, shifting to renewable energy and eliminating landfill waste, and committing to the sustainability of high-quality coffee and other raw materials. Sustainability of our raw materials, especially coffee, is paramount to our business operations. We are committed to ethically sourcing high-quality coffee, contributing positivelytea and cocoa, donating disease-resistant coffee trees to farmers, providing farmers access to low-interest loans and sharing the expertise of our agronomists with all coffee farmers, among other things.
Human Capital Management
As a company, Starbucks mission is not only to deliver outstanding financial results by offering exceptional and unique products and services, but to also create a strong connection with the communities where we operate. We believe the strength of our workforce is one of the significant contributors to our success as a global brand that leads with purpose as part of our people-positive vision. This is largely attributed to our partners who strive every day to create a welcoming and inclusive environment. Therefore, one of our core strategies is to invest in and support our partners to differentiate our brand, products and services in the competitive specialty coffee market, including the following areas of focus:
Oversight and Management
We recognize the diversity of customers, partners and communities, and believe in creating an inclusive and equitable environment that represents a broad spectrum of backgrounds and cultures. Working under these principles, our Partner
Resources Organization is tasked with managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, performance management and professional development. Our Board of Directors and Board committees provide oversight on certain human capital matters, including our Inclusion and Diversity programs and initiatives. As noted in its charter, our Compensation and Management Development Committee is responsible for periodically reviewing Starbucks partner resource programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices and strategies. Our Audit and Compliance Committee works closely with the Risk Management Committee, led by Starbucks cfo and general counsel, to monitor and mitigate current and emerging labor and human capital management risks. Furthermore, our Nominating and Corporate Governance Committee, in consultation with management, including our chief partner officer and chief inclusion and diversity officer, annually evaluates the effectiveness of our social responsibility policies, goals and programs, which also include partner-related issues. These reports and recommendations to the communitiesBoard and its committees are part of the broader framework that guides how Starbucks should attract, retain and develop a skilled workforce that aligns with our values and strategies.
We regularly conduct anonymous surveys to seek feedback from our partners on a variety of topics, including confidence in company leadership, competitiveness of our compensation and benefits package, career growth opportunities and recommendations on how we docan remain an employer of choice. The results are shared with our partners and reviewed by senior leadership, who analyze areas of progress or deterioration and prioritize actions and activities in response to this feedback to drive meaningful improvements in partner engagement. Our management and cross-functional teams also work closely to evaluate human capital management issues such as partner retention, workplace safety, harassment and bullying, as well as to implement measures to mitigate these risks.
Diversity, Equity and Inclusion
We are committed to creating a welcoming and inclusive environment. We believe it is our responsibility to advance racial and social equity, and we are committed to furthering that work with intention, transparency and accountability. In 2021, we published our third Civil Rights Assessment that evaluated our ongoing efforts related to diversity, equity and inclusion and how they support our mission and values. The report addressed our progress over time and provides recommendations for how we can better advance diversity, equity and inclusion on behalf of our partners, customers and communities.
We continue to welcome our partners, customers, civil rights and community leaders, along with our chief inclusion and diversity officer, to advise us along this journey.
Starbucks has made specific racial equity commitments based on our principles of being intentional, transparent and accountable at all levels:
•Being intentional in cultivating a culture of inclusion, with a focus on partner retention and development.
◦Launching a mentorship program connecting black, indigenous and people of color (“BIPOC”) partners to senior leaders, beginning with a cohort of leaders, senior vice president and above, as well as BIPOC directors in corporate and retail roles.
◦Investing in strategic partnerships with professional organizations that focus on the development of BIPOC talent, providing additional development opportunities for our BIPOC partners.
•Being transparent in our approach to Inclusion and Diversity goal setting and progress.
◦Publicly sharing workforce diversity data.
◦Setting annual Inclusion and Diversity goals based on retention rates and progress towards achieving BIPOC representation. Our goal is for at least 30% of all corporate roles and at least 40% of all retail and manufacturing roles to be held by BIPOC partners by 2025.
•Holding ourselves accountable at the highest levels of the organization.
◦Incorporating metrics focused on building inclusive and diverse teams into our executive compensation programs beginning in fiscal 2021.
◦Joining the Board Diversity Action Alliance to act alongside other companies similarly committed to increasing racially and ethnically diverse representation on corporate boards of directors.
◦Publicizing self-identified race/ethnicity of each member of our board of directors.
Total Rewards
We have demonstrated a history of investing in our workforce by offering competitive salaries and wages by continuously assessing the current business environment and labor market. We have consistently made enhancements in wages in order to attract talent to support our growth strategy and beingto elevate the customer experience. To foster a stronger sense of ownership and
align the interests of partners with shareholders, restricted stock units are provided to eligible non-executive partners under our broad-based stock incentive programs. Furthermore, we offer comprehensive, locally relevant and innovative benefits to all eligible partners. In the U.S., our largest and most mature market, these include:
•Comprehensive health insurance coverage is offered to partners working an average of 20 hours or more each week.
•100% upfront tuition coverage is offered through the Starbucks College Achievement Plan for partners to earn a first-time bachelor's degree online at Arizona State University.
•100% paid parental leave is available to new parents that welcome a child through birth, adoption or foster placement and work an average of 20 hours or more each week.
•A Partner and Family Sick Time program is provided and allows partners to accrue paid sick time based on hours worked and use that time for themselves or family members in need of care.
•Care@Work benefit provides partners with backup care benefits for children and adults at a small cost to partners, as well as free unlimited senior care planning services. This benefit includes up to 30 days of backup care services through the end of fiscal 2022, in light of the COVID-19 pandemic.
•We view mental health as a fundamental part of our humanity and provide a comprehensive suite of related programs and benefits. These include a free subscription to Headspace, an online application that enables guided mediation, and 20 free mental health therapy or coaching sessions annually with Lyra.
Outside of the U.S., we have provided other innovative benefits to help address market-specific needs, such as providing interest-free loans to our U.K. partners to help cover rental deposits, mental health services in Canada, and in China, a monthly housing subsidy for full-time Starbucks baristas and shift supervisors, as well as comprehensive health insurance coverage for parents of partners.
Role-based Support
To help our partners succeed in their roles, we emphasize continuous training and development opportunities. These include, but are not limited to, safety and security protocols, updates on new products and service offerings and deployment of technologies. Training provided through our Pour Over sessions, which are a series of inspiring talks with thought leaders to help partners understand how to bring the Starbucks Experience to life, include a wide variety of topics such as achievable goal setting, giving and receiving constructive feedback and effective engagement with customers and communities. To help further promote an inclusive culture and to better serve our customers, we encourage U.S.-based partners to enroll in the To Be Welcoming courses we created in partnership with Arizona State University to address different forms of bias and discrimination.
Pay Equity
To be an employer of choice are contributorsand maintain the strength of our workforce, we consistently assess the current business environment and labor market to refine our compensation and benefits programs and other resources available to our objective.partners.
In this Annual Report on Form 10-K (“10-K” or “Report”)We previously achieved and currently maintain 100 percent pay equity in the U.S. for the fiscal year ended October 1, 2017 (“fiscal 2017”), Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
Segment Financial Information
women and men and people of all races for partners performing similar work. We have four reportable operating segments: 1) Americas, which is inclusivealso achieved gender pay equity in China and Canada, two of our largest markets outside of the U.S., Canada, and Latin America; 2) China/Asia Pacific (“CAP”); 3) Europe, Middle East,we made a commitment to achieve gender pay equity in all company-operated markets. Further, we have formulated pay-equity principles which provide equal footing, transparency and Africa (“EMEA”) and 4) Channel Development. We also have several non-reportable operating segments, including Teavana retail stores and Seattle's Best Coffee,accountability as well as certain developing businesses such as Siren Retail, which includes the Starbucks ReserveTM Roastery & Tasting Rooms, certain Starbucks ReserveTM locations and Princi operations. Collectively, the combined group of non-reportable operating segments will be referredbest practices that help address known, systemic barriers to as All Other Segments. Revenues from our reportable segments and All Other Segments as a percentage of total net revenues for fiscal 2017 were as follows: Americas (70%), CAP (14%), EMEA (5%), Channel Development (9%) and All Other Segments (2%).global pay equity.
Our Americas, CAP, and EMEA segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are still in the early stages of development and require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. The Americas, CAP and EMEA segments also include certain foodservice accounts, primarily in Canada, Japan and the U.K.
Our Channel Development segment includes roasted whole bean and ground coffees, premium Tazo® teas, Starbucks- and Tazo-branded single-serve products, a variety of ready-to-drink beverages, such as Frappuccino®, Starbucks Doubleshot® and Starbucks Refreshers® beverages and other branded products sold worldwide through channels such as grocery stores, warehouse clubs, specialty retailers, convenience stores and U.S. foodservice accounts.
Starbucks segment information is included in Note 16, Segment Reporting, to the consolidated financial statements included in Item 8 of Part II of this 10-K.
Revenue Components
We generate nearly all of our revenues through company-operated stores, licensed stores, consumer packaged goods (“CPG”) and foodservice operations.
Company-operated and Licensed Store Summary as of October 1, 2017
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Americas | | As a% of Total Americas Stores | | CAP | | As a% of
Total
CAP
Stores | | EMEA | | As a% of Total EMEA Stores | | All Other Segments | | As a% of Total All Other Segments Stores | | Total | | As a% of Total Stores |
| Company-operated stores | 9,413 |
| | 57 | % | | 3,070 |
| | 41 | % | | 502 |
| | 17 | % | | 290 |
| | 89 | % | | 13,275 |
| | 49 | % |
| Licensed stores | 7,146 |
| | 43 | % | | 4,409 |
| | 59 | % | | 2,472 |
| | 83 | % | | 37 |
| | 11 | % | | 14,064 |
| | 51 | % |
| Total | 16,559 |
| | 100 | % | | 7,479 |
| | 100 | % | | 2,974 |
| | 100 | % | | 327 |
| | 100 | % | | 27,339 |
| | 100 | % |
The mix of company-operated versus licensed stores in a given market will vary based on several factors, including our ability to access desirable local retail space, the complexity and expected ultimate size of the market for Starbucks and our ability to leverage the support infrastructure within a geographic region.
Company-operated Stores
Revenue from company-operated stores accounted for 79% of total net revenues during fiscal 2017. Our retail objective is to be the leading retailer and brand of coffee and tea in each of our target markets by selling the finest quality coffee, tea and related products, as well as complementary food and snack offerings, and by providing each customer with a unique Starbucks Experience. The Starbucks Experience is built upon superior customer service and a seamless digital experience as well as clean and well-maintained stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty.
Our strategy for expanding our global retail business is to increase our market share in a disciplined manner, by selectively opening additional stores in new and existing markets, as well as increasing sales in existing stores, to support our long-term strategic objective to maintain Starbucks standing as one of the most recognized and respected brands in the world. Store growth in specific existing markets will vary due to many factors, including expected financial returns, the maturity of the market, economic conditions, consumer behavior and local business practices.
Company-operated store data for the year-ended October 1, 2017:
|
| | | | | | | | | | | | | | | | | |
| | Stores Open as of | | | | | | | | | | Stores Open as of |
| | Oct 2, 2016 | | Opened | | Closed | | Transfers | | Net | | Oct 1, 2017 |
| Americas: | | | | | | | | | | | |
| U.S. | 7,880 |
| | 372 |
| | (30 | ) | | — |
| | 342 |
| | 8,222 |
|
| Canada | 1,035 |
| | 45 |
| | (8 | ) | | 11 |
| | 48 |
| | 1,083 |
|
| Brazil | 104 |
| | 5 |
| | (1 | ) | | — |
| | 4 |
| | 108 |
|
| Total Americas | 9,019 |
| | 422 |
| | (39 | ) | | 11 |
| | 394 |
| | 9,413 |
|
China/Asia Pacific(1): | | | | | | | | | | | |
| China | 1,272 |
| | 285 |
| | (17 | ) | | — |
| | 268 |
| | 1,540 |
|
| Japan | 1,140 |
| | 90 |
| | (12 | ) | | — |
| | 78 |
| | 1,218 |
|
| Thailand | 273 |
| | 39 |
| | — |
| | — |
| | 39 |
| | 312 |
|
| Singapore | 126 |
| | 10 |
| | (3 | ) | | (133 | ) | | (126 | ) | | — |
|
| Total China/Asia Pacific | 2,811 |
| | 424 |
| | (32 | ) | | (133 | ) | | 259 |
| | 3,070 |
|
| EMEA: | | | | | | | | | | | |
| U.K. | 366 |
| | 14 |
| | (21 | ) | | (14 | ) | | (21 | ) | | 345 |
|
| All Other | 157 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | 157 |
|
| Total EMEA | 523 |
| | 16 |
| | (23 | ) | | (14 | ) | | (21 | ) | | 502 |
|
| All Other Segments: | | | | | | | | | | | |
| Teavana | 355 |
| | — |
| | (67 | ) | | — |
| | (67 | ) | | 288 |
|
| Evolution Fresh | 2 |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
|
| Siren Retail | 1 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
|
| Total All Other Segments | 358 |
| | 1 |
| | (69 | ) | | — |
| | (68 | ) | | 290 |
|
| Total company-operated | 12,711 |
|
| 863 |
|
| (163 | ) |
| (136 | ) |
| 564 |
|
| 13,275 |
|
(1) China/Asia Pacific store data includes the transfer of 133 Singapore company-operated retail stores to licensed stores as a result of the sale to Maxim's Caterers Limited in the fourth quarter of fiscal 2017.
Starbucks® company-operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses and in select rural and off-highway locations. We are continuing the expansion of our stores, inclusive of Drive Thru formats that provide a higher degree of access and convenience, and alternative store formats, which are focused on an elevated Starbucks Experience for our customers.
Retail sales mix by product type for company-operated stores:
|
| | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 |
| Beverages | 73 | % | | 74 | % | | 73 | % |
| Food | 20 | % | | 19 | % | | 19 | % |
| Packaged and single-serve coffees and teas | 3 | % | | 3 | % | | 3 | % |
Other(1) | 4 | % | | 4 | % | | 5 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
| |
(1)
| “Other” primarily consists of sales of serveware, ready-to-drink beverages and coffee-making equipment, among other items. |
Stored Value Cards
The Starbucks Card, our branded stored value card program, is designed to provide customers with a convenient payment method, support gifting and increase the frequency of store visits by cardholders, in part through the related Starbucks Rewards™ (previously My Starbucks Rewards®)loyalty program where available, as discussed below. Stored value cards are issued to customers when they initially load them with an account balance. They can be obtained in our company-operated and most licensed stores in North America, China, Japan, Latin America, and many of our markets in our CAP and EMEA segments. Stored value cards can also be obtained on-line, via the Starbucks® Mobile App, and through other U.S. and international retailers. Customers may access their card balances by utilizing their stored value card or the Starbucks® Mobile App in participating stores, which also include certain Teavana ™ locations. Using the Mobile Order and Pay functionality of the Starbucks® Mobile App, customers can also place orders in advance for pick-up at certain participating locations in the U.S. and Canada. In nearly all markets, including the U.S. and Canada, customers who register their cards are automatically enrolled in the Starbucks Rewards™ program. Registered members can receive various benefits depending on factors such as the number of reward points (“Stars”) earned. Refer to Note 1, Summary of Significant Accounting Policies, included in Item 8 of Part II of this 10-K, for further discussion of our stored value cards and loyalty program.Licensed Stores
Revenues from our licensed stores accounted for 11% of total net revenues in fiscal 2017. Licensed stores generally have a lower gross margin and a higher operating margin than company-operated stores. Under the licensed model, Starbucks receives a reduced share of the total store revenues, but this is more than offset by the reduction in our share of costs as these are primarily incurred by the licensee.
In our licensed store operations, we leverage the expertise of our local partners and share our operating and store development experience. Licensees provide improved, and at times the only, access to desirable retail space. Most licensees are prominent retailers with in-depth market knowledge and access. As part of these arrangements, we sell coffee, tea, food and related products to licensees for resale to customers and receive royalties and license fees from the licensees. We also sell certain equipment, such as coffee brewers and espresso machines, to our licensees for use in their operations. Employees working in licensed retail locations are required to follow our detailed store operating procedures and attend training classes similar to those given to employees in company-operated stores. For Starbucks® and Teavana™ stores within certain international markets, we also use traditional franchising and include these stores in the results of operations from our other licensed stores.
Licensed store data for the year-ended October 1, 2017:
|
| | | | | | | | | | | | | | | | | |
| | Stores Open as of | | | | | | | | | | Stores Open as of |
| | Oct 2, 2016 | | Opened | | Closed | | Transfers | | Net | | Oct 1, 2017 |
| Americas: | | | | | | | | | | | |
| U.S. | 5,292 |
| | 477 |
| | (61 | ) | | — |
| | 416 |
| | 5,708 |
|
| Mexico | 563 |
| | 71 |
| | (2 | ) | | — |
| | 69 |
| | 632 |
|
| Latin America | 369 |
| | 66 |
| | (6 | ) | | — |
| | 60 |
| | 429 |
|
| Canada | 364 |
| | 32 |
| | (8 | ) | | (11 | ) | | 13 |
| | 377 |
|
| Total Americas | 6,588 |
| | 646 |
| | (77 | ) | | (11 | ) | | 558 |
| | 7,146 |
|
China/Asia Pacific(1): | | | | | | | | | | | |
| China | 1,110 |
| | 310 |
| | (24 | ) | | — |
| | 286 |
| | 1,396 |
|
| Korea | 952 |
| | 164 |
| | (8 | ) | | — |
| | 156 |
| | 1,108 |
|
| Taiwan | 392 |
| | 33 |
| | (5 | ) | | — |
| | 28 |
| | 420 |
|
| Philippines | 293 |
| | 32 |
| | (1 | ) | | — |
| | 31 |
| | 324 |
|
| Indonesia | 260 |
| | 62 |
| | (5 | ) | | — |
| | 57 |
| | 317 |
|
| Malaysia | 226 |
| | 24 |
| | (2 | ) | | — |
| | 22 |
| | 248 |
|
| All Other | 399 |
| | 76 |
| | (12 | ) | | 133 |
| | 197 |
| | 596 |
|
| Total China/Asia Pacific | 3,632 |
| | 701 |
| | (57 | ) | | 133 |
| | 777 |
| | 4,409 |
|
| EMEA: | | | | | | | | | | | |
| U.K. | 532 |
| | 69 |
| | (9 | ) | | 14 |
| | 74 |
| | 606 |
|
| Turkey | 314 |
| | 80 |
| | (7 | ) | | — |
| | 73 |
| | 387 |
|
| United Arab Emirates | 148 |
| | 21 |
| | (5 | ) | | — |
| | 16 |
| | 164 |
|
| Germany | 161 |
| | 6 |
| | (11 | ) | | — |
| | (5 | ) | | 156 |
|
| Saudi Arabia | 92 |
| | 32 |
| | — |
| | — |
| | 32 |
| | 124 |
|
| Kuwait | 95 |
| | 24 |
| | (1 | ) | | — |
| | 23 |
| | 118 |
|
| Russia | 107 |
| | 11 |
| | (3 | ) | | — |
| | 8 |
| | 115 |
|
| Spain | 96 |
| | 23 |
| | (6 | ) | | — |
| | 17 |
| | 113 |
|
| All Other | 574 |
| | 132 |
| | (17 | ) | | — |
| | 115 |
| | 689 |
|
| Total EMEA | 2,119 |
| | 398 |
| | (59 | ) | | 14 |
| | 353 |
| | 2,472 |
|
| All Other Segments: | | | | | | | | | | | |
| Teavana | 34 |
| | 4 |
| | (1 | ) | | — |
| | 3 |
| | 37 |
|
| Seattle's Best Coffee | 1 |
| | — |
| | (1 | ) | | — |
| | (1 | ) | | — |
|
| Total All Other Segments | 35 |
| | 4 |
| | (2 | ) | | — |
| | 2 |
| | 37 |
|
| Total licensed | 12,374 |
|
| 1,749 |
|
| (195 | ) |
| 136 |
|
| 1,690 |
|
| 14,064 |
|
(1) China/Asia Pacific store data includes the transfer of 133 Singapore company-operated retail stores to licensed stores as a result of the sale to Maxim's Caterers Limited in the fourth quarter of fiscal 2017.
Consumer Packaged Goods
Revenues from sales of consumer packaged goods comprised 8% of total net revenues in fiscal 2017. Our consumer packaged goods business includes both domestic and international sales of packaged coffee and tea as well as a variety of ready-to-drink beverages and single-serve coffee and tea products to grocery, warehouse clubs and specialty retail stores. It also includes revenues from product sales to and licensing revenues from manufacturers that produce and market Starbucks-, Seattle’s Best Coffee- and Tazo-branded products through licensing agreements.
Foodservice
Revenues from foodservice accounts comprised 2% of total net revenues in fiscal 2017. We sell Starbucks® and Seattle’s Best Coffee® roasted whole bean and ground coffees, a selection of premium Tazo® teas, Starbucks VIA® Ready Brew, and other coffee and tea-related products to institutional foodservice companies that service business and industry, education, healthcare, office coffee distributors, hotels, restaurants, airlines and other retailers. We also sell our Seattle’s Best Coffee® through arrangements with national accounts. The majority of the sales in this channel come through national broadline distribution networks with SYSCO Corporation, U.S. Foodservice and other distributors.
Product Supply
Starbucks is committed to selling the finest whole bean coffees and coffee beverages. To ensure compliance with our rigorous coffee standards, we control coffee purchasing, roasting and packaging and the global distribution of coffee used in our operations. We purchase green coffee beans from multiple coffee-producing regions around the world and custom roast them to our exacting standards for our many blends and single origin coffees.
The price of coffee is subject to significant volatility. Although most coffee trades in the commodity market, high-altitude arabica coffee of the quality sought by Starbucks tends to trade on a negotiated basis at a premium above the “C” coffee commodity price. Both the premium and the commodity price depend upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions. Price is also impacted by trading activities in the arabica coffee futures market, including hedge funds and commodity index funds. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies.
We buy coffee using fixed-price and price-to-be-fixed purchase commitments, depending on market conditions, to secure an adequate supply of quality green coffee. 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. Total green coffee purchase commitments as of October 1, 2017 were $1.2 billion, comprised of $860 million under fixed-price contracts and an estimated $336 million under price-to-be-fixed contracts. As of October 1, 2017, none of our price-to-be-fixed contracts were effectively fixed through the use of futures contracts. All price-to-be-fixed contracts as of October 1, 2017 were at the Company’s option to fix the base “C” coffee commodity price component. Total purchase commitments, together with existing inventory, are expected to provide an adequate supply of green coffee through fiscal 2018.
We depend upon our relationships with coffee producers, outside trading companies and exporters for our supply of green coffee. We believe, based on relationships established with our suppliers, the risk of non-delivery on such purchase commitments is remote.
To help ensure the future supply of high-quality green coffee and to reinforce our leadership role in the coffee industry, Starbucks operates eight farmer support centers. The farmer support centers are staffed with agronomists and sustainability experts who work with coffee farming communities to promote best practices in coffee production designed to improve both coffee quality, yields and agronomy support to address climate and other impacts.
In addition to coffee, we also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated stores. We believe, based on relationships established with our dairy suppliers, that the risk of non-delivery of sufficient fluid milk to support our stores is remote.
Products other than whole bean coffees and coffee beverages sold in Starbucks® stores include tea and a number of ready-to-drink beverages that are purchased from several specialty suppliers, usually under long-term supply contracts. Food products, such as pastries, breakfast sandwiches and lunch items, are purchased from national, regional and local sources. Our food program continues to develop, and we expect the amount of food products purchased to impact our operations. We also purchase a broad range of paper and plastic products, such as cups and cutlery, from several companies to support the needs of our retail stores as well as our manufacturing and distribution operations. We believe, based on relationships established with these suppliers and manufacturers, that the risk of non-delivery of sufficient amounts of these items is remote.
Competition
Our primary competitors for coffee beverage sales are specialty coffee shops offering premium and artisanal products and experiences. In almost all markets in which we do business, there are numerous competitors in the specialty coffee beverage business. We believe that our customers choose among specialty coffee retailers primarily on the basis of product quality, service and convenience, as well as price. We continue to experience direct competition from large competitors in the U.S. quick-service restaurant sector and the U.S. ready-to-drink coffee beverage market, in addition to well-established companies in many international markets. We also compete with restaurants and other specialty retailers for prime retail locations and qualified personnel to operate both new and existing stores.
Our coffee and tea products sold through our Channel Development segment compete directly against specialty coffees and teas sold through grocery stores, warehouse clubs, specialty retailers, convenience stores and U.S. foodservice accounts and compete indirectly against all other coffees and teas on the market.
Trademarks, Copyrights, Patents and Domain Names
Starbucks owns and has applied to register numerous trademarks and service marks in the U.S. and in other countries throughout the world. Some of our trademarks, including Starbucks, the Starbucks logo, Starbucks Reserve, Tazo, Seattle’s Best Coffee, Teavana, Frappuccino, Starbucks VIA and La Boulange are of material importance. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
We own numerous copyrights for items such as product packaging, promotional materials, in-store graphics and training materials. We also hold patents on certain products, systems and designs. In addition, Starbucks has registered and maintains numerous Internet domain names, including “Starbucks.com,” “Starbucks.net,” “Tazo.com,” “Seattlesbest.com” and “Teavana.com.”
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. Additionally, as Starbucks Cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Card, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Employees
3, 2021, Starbucks employed approximately 277,000383,000 people worldwide as of October 1, 2017.worldwide. In the U.S., Starbucks employed approximately 185,000245,000 people, with approximately 175,000235,000 in company-operated stores and the remainder in corporate support, facilities, store development, and roasting, manufacturing, warehousing and distribution operations. Approximately 92,000138,000 employees were employed outside of the U.S., with approximately 89,000135,000 in company-operated stores and the remainder in regional support operations. The number of Starbucks employeespartners represented by unions is not significant. We believe our current relations withefforts in managing our employees are good.workforce have been effective, evidenced by a strong Starbucks culture and a good relationship between the company and our partners.
Information about our Executive Officers of the Registrant
| | | | | | | | | | | | | | |
| Name | | Age | | Position |
| Kevin R. Johnson | | 61 | | president and chief executive officer |
| John Culver | | 61 | | group president, North America, and chief operating officer |
| Michael Conway | | 55 | | group president, International and Channel Development |
| Rachel A. Gonzalez | | 52 | | executive vice president and general counsel |
| Rachel Ruggeri | | 52 | | executive vice president, chief financial officer |
| Angela Lis | | 54 | | executive vice president, chief partner officer |
| Gina Woods | | 48 | | executive vice president, Public Affairs and Social Impact |
| | | | |
Name | | Age | | Position |
Howard Schultz | | 64 | | executive chairman |
Kevin R. Johnson | | 57 | | president and chief executive officer |
Rosalind G. Brewer | | 55 | | group president, Americas and chief operating officer |
Cliff Burrows | | 58 | | group president, Siren Retail |
John Culver | | 57 | | group president, International and Channels (1)
|
Scott Maw | | 50 | | executive vice president, chief financial officer |
Paul Mutty | | 58 | | senior vice president, interim general counsel |
(1) Channels includes various business groups, including channel development and certain emerging brands, including Seattle's Best Coffee and Evolution Fresh.
Howard Schultz is the founder of Starbucks Corporation and has served as executive chairman since April 2017. Mr. Schultz has served as chairman of the board of directors since Starbucks inception in 1985, and in January 2008, he reassumed the role of president and chief executive officer. He served as chief executive officer until April 2017 and served as president until March 2015. From June 2000 to February 2005, Mr. Schultz also held the title of chief global strategist. From November 1985 to June 2000, he served as chairman of the board and chief executive officer. From November 1985 to June 1994, Mr. Schultz also served as president. From January 1986 to July 1987, Mr. Schultz was the chairman of the board, chief executive officer and president of Il Giornale Coffee Company, a predecessor to the Company. From September 1982 to December 1985, Mr. Schultz was the director of retail operations and marketing for Starbucks Coffee Company, a predecessor to the Company.
Kevin R. Johnson has served as president and chief executive officer since April 2017 and has been a Starbucks director since March 2009. Mr. Johnson served as president and chief operating officer from March 2015 to April 2017. Mr. Johnson served as Chief Executive Officer of Juniper Networks, Inc., a leading provider of high-performance networking products and services, from September 2008 to December 2013. He also served on the Board of Directors of Juniper Networks from September 2008 throughto February 2014. Prior to joining Juniper Networks, Mr. Johnson served as President, Platforms and Services Division for Microsoft Corporation, a worldwide provider of software, services and solutions. Mr. Johnson was a member of Microsoft’s Senior Leadership Team and held a number ofseveral senior executive positions over the course of his 16 years at Microsoft. Prior to joining Microsoft in 1992, Mr. Johnson worked in International Business Machine Corp.’s systems integration and consulting business.
Rosalind G. Brewer has served as group president, Americas and chief operating officer since October 2017, and has been a director of Starbucks since March 2017. Ms. Brewer served as President and Chief Executive Officer of Sam's Club, a membership-only retail warehouse club and a division of Walmart, from February 2012 to February 2017. Previously, Ms. Brewer was Executive Vice President and President of Walmart's East Business Unit from February 2011 to January 2012; Executive Vice President and President of Walmart South from February 2010 to February 2011; Senior Vice President and Division President of the Southeast Operating Division from March 2007 to January 2010; and Regional General Manager, Georgia Operations, from 2006 to February 2007. Prior to joining Walmart, Ms. Brewer was President of Global Nonwovens Division for Kimberly-Clark Corporation, a global health and hygiene products company, from 2004 to 2006 and held various management positions at Kimberly-Clark Corporation from 1984 to 2006. She serves as the Chair of the Board of Trustees for Spelman College and formerly served on the Board of Directors for Lockheed Martin Corporation and Molson Coors Brewing Company.
Cliff Burrowsjoined Starbucks in April 2001 and has served as group president, Siren Retail, since September 2016, which includes the Starbucks ReserveTM Roastery & Tasting Rooms, Starbucks Reserve brand and products and Princi operations. Mr. Burrows also oversees Global Coffee and the Teavana brand. From July 2015 to September 2016, he served as group president, U.S. and Americas. From February 2014 to June 2015, he served as group president, U.S., Americas and Teavana. From May 2013 to February 2014, he served as group president, Americas and U.S., EMEA (Europe, Middle East and Africa) and Teavana. Mr. Burrows served as president, Starbucks Coffee Americas and U.S. from October 2011 to May 2013 and as president, Starbucks Coffee U.S. from March 2008 to October 2011. He served as president, EMEA from April 2006 to March 2008. He served as vice president and managing director, U.K. prior to April 2006. Prior to joining Starbucks, Mr. Burrows served in various management positions with Habitat Designs Limited, a furniture and housewares retailer.
John Culverjoined Starbucks in August 2002 and has served as group president, North America and chief operating officer since July 2021. From July 2018 to July 2021, Mr. Culver served as group president, International, Channel Development and Global Coffee & Tea. From October 2017 to July 2018, Mr. Culver served as group president, International and Channels, since October 2017.Channels. From September 2016 to October 2017, he served as group president, Starbucks Global Retail. From May 2013 to September 2016, he served as group president, China, Asia Pacific, Channel Development and Emerging Brands. Mr. Culver served as president, Starbucks Coffee China and Asia Pacific from October 2011 to May 2013. From December 2009 to October 2011, he served as president, Starbucks Coffee International. Mr. Culver served as executive vice president; president, Global Consumer Products, Foodservice and Seattle’s Best Coffee from February 2009 to September 2009, and then as president, Global Consumer Products and Foodservice from October 2009 to November 2009. He previously served as senior vice president; president, Starbucks Coffee Asia Pacific from January 2007 to February 2009, and vice president; general manager, Foodservice from August 2002 to January 2007. Mr. Culver serves on the Board of Directors of Kimberly-Clark Corporation and Columbia Sportswear Company.
Scott Maw Michael Conwayjoined Starbucks in August 2011March 2013 and was named group president, International and Channel Development in June 2021, where he is responsible for leading Starbucks retail growth and operations in over 80 markets across Asia Pacific, Europe, Middle East and Africa, Latin America and the Caribbean and growth for the Global Channel Development business, which consists of consumer packaged goods, ready-to-drink businesses and strategic partnerships, including those with Nestlé, PepsiCo and other key business partners. Prior to this, he served as executive vice president and president, International Licensed Markets, from March 2020 to June 2021. He also served as executive vice president and president, Starbucks Canada, executive vice president and president for Starbucks Licensed Stores business for the United States and Latin America and executive vice president and president of Starbucks Global Channel Development from December 2014 to March 2020. He currently serves on the Board of Directors of McCormick & Company, Incorporated.
Rachel A. Gonzalez has served as executive vice president, general counsel, law and corporate affairs since joining Starbucks in April 2018. From April 2018 to March 2021, she also served as secretary. Prior to joining Starbucks, Ms. Gonzalez served as executive vice president and chief administrative officer of Sabre Corporation, a technology provider to the travel industry, from May 2017 to April 2018 and as Sabre’s executive vice president and general counsel from September 2014 to May 2017. From March 2013 to September 2014, Ms. Gonzalez served as executive vice president, general counsel and corporate secretary of Dean Foods Company, a food and beverage company, and as its executive vice president, general counsel designate from November 2012 to March 2013. She served as chief counsel, corporate and securities of Dean Foods from 2008 to 2012. From 2006 to 2008, Ms. Gonzalez served as senior vice president and group counsel for Affiliated Computer Services, Inc., an information technology service provider. Prior to that, Ms. Gonzalez was a partner with the law firm of Morgan, Lewis & Bockius LLP, where she focused on corporate finance, mergers and acquisitions, Securities and Exchange Commission (“SEC”) compliance and corporate governance. Ms. Gonzalez currently serves on the Board of Directors of Dana Incorporated.
Rachel Ruggeri joined Starbucks in 2001 as a member of the accounting team and was named executive vice president and chief financial officer in February 2021. In this leadership role, Rachel is responsible for the global finance function for Starbucks, which includes developing and executing the financial strategies that enable the long-term growth of the Company. Prior to her promotion in 2021, she served as senior vice president of Americas with responsibility for the retail portfolio across the segment, including company-operated and licensed stores from June 2020 to January 2021. From September 2016 to June 2020, she held various leadership roles in finance both internal and external to Starbucks, including Chief Financial Officer of Continental Mills from July 2018 to May 2020 and prior to that she was senior vice president of Finance at Starbucks in support of the Americas and Global Retail from September 2016 to June 2018. She was also a vice president of Finance from December 2010 to September 2016 supporting Corporate Financial Planning & Analysis and the U.S. Retail business.
Angela Lis joined Starbucks in 1992 as a part-time barista and has served as executive vice president, chief financialpartner officer since February 2014.November 2020. From September 2016 to October 2012 to February 2014, he2020, Ms. Lis served as senior vice president, Corporate Financepartner resources. In this role she was responsible for talent and as corporate controller from August 2011 to October 2012.partner strategies that drive our global retail operations business. Prior to joining Starbucks, Mr. Mawthis role, she served as chief financial officera vice president of SeaBright Insurance Companypartner resources for corporate business functions and global supply chain from February 2010December 2012 to August 2011. From October 2008 to February 2010, Mr. Maw served as chief financial officerSeptember 2016. During her tenure at Starbucks, Ms. Lis has led partner resources business partners across the globe. She has supported both retail and all non-retail business units and was instrumental in the startup of the Consumer Banking division of JPMorgan Chase & Co., having held a similar position at Washington Mutual Bank prior to its acquisition by Chase. From 1994 to 2003, he served in various finance leadership positions at General Electric Company. Mr. Maw serves on the Board of Directors of Avista Corporation.our Channel Development business.
Paul MuttyGina Woods joined Starbucks in September 19982005 and haswas named executive vice president of Public Affairs and Social Impact in January 2021. In this role, she leads global communications, partner (employee) communications and events, government affairs and public policy, community impact, people-positive, integrated reputation communications, storytelling and content creation, Seattle’s hometown strategy and entertainment partnerships. From July 2018 to January 2021, she served as senior vice president, interim general counsel since August 2017. From July 2011 to July 2017, he served as senior vice president, deputy general counselReputation Marketing for Public Affairs, and assistant secretary. Mr. Muttyshe previously served as vice president, assistant general counselEntertainment & Executive Communications from June 2002September 2013 to July 20112018.
Segment Financial Information
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. In the fourth quarter of fiscal 2021, certain changes were made to our management team, and our operating segment reporting structure was re-aligned as director,a result. Specifically, we realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment. Additionally, we renamed the Americas operating segment to the North America operating segment, comprised of our company-operated and licensed stores in the U.S. and Canada.We also made certain other immaterial changes between our International operating segment and Corporate and Other.
We have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America and Caribbean; and 3) Channel Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate counselexpenses are reported within Corporate and Other. Revenues from September 1998our reportable operating segments as a percentage of total net revenues for fiscal 2021 were as follows: North America (70%), International (24%) and Channel Development (6%).
Our North America and International segments include both company-operated and licensed stores. Our North America segment is our most mature business and has achieved significant scale. Certain markets within our International operations are in various stages of development and may require more extensive support, relative to June 2002. Mr. Muttytheir current levels of revenue and operating income, than our North America operations.
Our Channel Development segment includes roasted whole bean and ground coffees, Seattle’s Best Coffee®, Starbucks- and Teavana-branded single-serve products, a variety of ready-to-drink beverages, such as Frappuccino® and Starbucks Doubleshot®, foodservice products and other branded products sold worldwide outside of our company-operated and licensed stores. A large portion of our Channel Development business operates under a licensed model of the Global Coffee Alliance with Nestlé, while our global ready-to-drink businesses operate under collaborative relationships with PepsiCo, Inc., Tingyi-Ashi Beverages Holding Co., Ltd., Arla Foods amba and others.
Revenue Components
We generate the majority of our revenues through company-operated stores and licensed stores.
Company-operated and Licensed Store Summary as of October 3, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | As a% of
Total
North America Stores | | International | | As a% of
Total
International Stores | | | | | Total | | As a% of Total Stores |
| Company-operated stores | 9,861 | | | 59 | % | | 7,272 | | | 43 | % | | | | | 17,133 | | | 51 | % |
| Licensed stores | 6,965 | | | 41 | % | | 9,735 | | | 57 | % | | | | | 16,700 | | | 49 | % |
| Total | 16,826 | | | 100 | % | | 17,007 | | | 100 | % | | | | | 33,833 | | | 100 | % |
The mix of company-operated versus licensed stores in a given market generally varies based on several factors, including our ability to access desirable local retail space, the complexity, profitability and expected ultimate size of the market for Starbucks and our ability to leverage the support infrastructure within a geographic region.
Company-operated Stores
Revenue from company-operated stores accounted for 85% of total net revenues during fiscal 2021. Our retail objective is to be the leading retailer and brand of coffee and tea in each of our target markets by selling the finest quality coffee, tea and related products, as well as complementary food offerings, and by providing each customer with a unique Starbucks Experience. The Starbucks Experience is built upon superior customer service, convenience and a seamless digital experience as well as safe, clean and well-maintained stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty.
Our strategy for expanding our global retail business is to increase our category share in a disciplined manner, by selectively opening additional stores in new and existing markets, as well as increasing sales in existing stores, to support our long-term strategic objective to maintain Starbucks standing as one of the most recognized and respected brands in the world. Store growth in specific existing markets will vary due to many factors, including expected financial returns, the maturity of the market, economic conditions, consumer behavior and local business practices.
Company-operated store data for the fiscal year-ended October 3, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stores Open as of | | | | | | | | | | Stores Open as of |
| | Sep 27, 2020 | | Opened | | Closed | | Transfers | | Net | | Oct 3, 2021 |
| North America: | | | | | | | | | | | |
| U.S. | 8,941 | | | 449 | | | (424) | | | (19) | | | 6 | | | 8,947 | |
| Canada | 1,159 | | | 30 | | | (277) | | | (4) | | | (251) | | | 908 | |
| Siren Retail | 9 | | | 1 | | | (4) | | | — | | | (3) | | | 6 | |
| Total North America | 10,109 | | | 480 | | | (705) | | | (23) | | | (248) | | | 9,861 | |
| International: | | | | | | | | | | | |
| China | 4,704 | | | 697 | | | (43) | | | — | | | 654 | | | 5,358 | |
| Japan | 1,464 | | | 95 | | | (13) | | | — | | | 82 | | | 1,546 | |
| | | | | | | | | | | |
| U.K. | 288 | | | 15 | | | (5) | | | — | | | 10 | | | 298 | |
| All Other | 67 | | | — | | | — | | | (2) | | | (2) | | | 65 | |
| Siren Retail | 5 | | | — | | | — | | | — | | | — | | | 5 | |
| Total International | 6,528 | | | 807 | | | (61) | | | (2) | | | 744 | | | 7,272 | |
| Total company-operated | 16,637 | | | 1,287 | | | (766) | | | (25) | | | 496 | | | 17,133 | |
Starbucks® company-operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses and rural and off-highway locations. We are continuing the expansion of our stores, particularly drive-thru formats that provide a higher degree of access and convenience, and alternative store formats, which are designed to provide a more streamlined customer experience in dense metropolitan areas.
Prior to the global COVID-19 pandemic, approximately 80% of Starbucks transactions in U.S. company-operated stores were “on-the-go” occasions. This has previously ledprompted us to reexamine our U.S. store footprint and evolve our retail presence over time
through targeted store renovations, relocations and new stores. We have since introduced new store formats, such as Starbucks® Pickup, Starbucks Now stores and curbside pickup, to enhance the “on-the-go” customer experience and improve operating efficiency across Starbucks® stores in certain major metropolitan areas in the United States. New store formats are suitable for customers who prefer to order ahead and pay through the Starbucks® Mobile App for pick-up. In our major international markets, we continue to invest in technology and establish partnerships with third parties with relevant expertise to increase digital adoption to provide convenience and elevate the customer experience. In China, the introduction of Starbucks NowTM stores is intended to enable a seamless integration of physical and digital customer touchpoints. Orders may be placed in advance through the Starbucks legal department's EMEA region,Mobile App or Starbucks DeliversTM and can be conveniently picked up by customers and delivery providers in these express retail format locations. These strategies align closely with rapidly evolving customer preferences, including higher levels of mobile ordering, more contactless pick-up experiences and reduced in-store congestion, all of which naturally allow for greater physical distancing. We believe our continued efforts to transform our store portfolio and elevate technology will enhance the customer experience and position Starbucks for long-term growth.
Retail sales mix by product type for company-operated stores: | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 |
| Beverages | 74 | % | | 75 | % | | 74 | % |
| Food | 21 | % | | 20 | % | | 20 | % |
Other(1) | 5 | % | | 5 | % | | 6 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
(1)“Other” primarily consists of sales of packaged and single-serve coffees and teas, serveware and ready-to-drink beverages, among other items.
Stored Value Cards and Loyalty Program
The Starbucks Card, our branded stored value card program, is designed to provide customers with a convenient payment method, support gifting and increase the frequency of store visits by cardholders, in part through the related Starbucks® Rewards loyalty program where available, as discussed below. Stored value cards are issued to customers when they initially load them with an account balance. They can be obtained in our company-operated and most licensed stores in North America, China, Japan and many of our markets in our International segment. Stored value cards can also be obtained online, via the Starbucks® Mobile App and through other U.S. and international retailers. Customers may access their card balances by utilizing their stored value card or the Starbucks® Mobile App in participating stores. In nearly all markets, including the U.S. and Canada, customers who register their Starbucks Cards are automatically enrolled in the Starbucks Rewards program. Registered members can receive various benefits depending on factors such as the number of reward points (“Stars”) earned. In addition to using their Starbucks Cards, Starbucks® Rewards members can earn Stars by paying with cash, credit or debit cards, or selected mobile wallets at company-operated stores in the U.S. and Canada. Using the Mobile Order and Pay functionality of the Starbucks® Mobile App, customers can also place orders in advance for pick-up at certain participating locations in several markets. Refer to Note 1, Summary of Significant Accounting Policies and Estimates, included in Item 8 of Part II of this 10-K, for further discussion of our stored value cards and loyalty program. Licensed Stores
Revenues from our licensed stores accounted for 9% of total net revenues in fiscal 2021. Licensed stores generally have a lower gross margin and a higher operating margin than company-operated stores. Under the licensed model, Starbucks receives a margin on branded products and supplies sold to the licensed store operator along with a royalty on retail sales. Licensees are responsible for operating costs and capital investments, which more than offset the lower revenues we receive under the licensed store model.
In our licensed store operations, we seek to leverage the expertise of our local partners and share our operating and store development experience. Licensees provide improved, and at times the only, access to desirable retail space. Most licensees are prominent retailers with in-depth market knowledge and access. As part of these arrangements, we sell coffee, tea, food and related products to licensees for resale to customers and receive royalties and license fees from the licensees. We also sell certain equipment, such as coffee brewers and espresso machines, to our licensees for use in their operations. Licensee employees working in licensed retail locations are required to follow our detailed store operating procedures and attend training classes similar to those given to employees in company-operated stores. In a limited number of international markets, we also use traditional franchising and include these stores in the results of operations from our other licensed stores.
Licensed store data for the fiscal year-ended October 3, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stores Open as of | | | | | | | | | | Stores Open as of |
| | Sep 27, 2020 | | Opened | | Closed | | Transfers | | Net | | Oct 3, 2021 |
| North America: | | | | | | | | | | | |
| U.S. | 6,387 | | | 191 | | | (100) | | | 19 | | | 110 | | | 6,497 | |
| Canada | 444 | | | 48 | | | (28) | | | 4 | | | 24 | | | 468 | |
Total North America(1) | 6,831 | | | 239 | | | (128) | | | 23 | | | 134 | | | 6,965 | |
| International: | | | | | | | | | | | |
| Korea | 1,468 | | | 166 | | | (23) | | | — | | | 143 | | | 1,611 | |
| Mexico | 752 | | | 7 | | | (13) | | | — | | | (6) | | | 746 | |
| U.K. | 737 | | | 68 | | | (14) | | | — | | | 54 | | | 791 | |
| Latin America | 662 | | | 35 | | | (6) | | | — | | | 29 | | | 691 | |
| Turkey | 530 | | | 36 | | | (7) | | | — | | | 29 | | | 559 | |
| Taiwan | 501 | | | 28 | | | (6) | | | — | | | 22 | | | 523 | |
| Indonesia | 458 | | | 29 | | | — | | | — | | | 29 | | | 487 | |
| Thailand | 405 | | | 26 | | | (6) | | | — | | | 20 | | | 425 | |
| Philippines | 396 | | | 5 | | | — | | | — | | | 5 | | | 401 | |
| All Other | 3,283 | | | 313 | | | (97) | | | 2 | | | 218 | | | 3,501 | |
Total International(1) | 9,192 | | | 713 | | | (172) | | | 2 | | | 543 | | | 9,735 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total licensed | 16,023 | | | 952 | | | (300) | | | 25 | | | 677 | | | 16,700 | |
(1)North America and International licensed stores as of September 27, 2020, have been recast as a result of our fiscal 2021 operating segment reporting structure realignment.
Other Revenues
Other revenues primarily are recorded in our Channel Development segment and include sales of packaged coffee, tea and ready-to-drink beverages to customers outside of our company-operated and licensed stores, as well as royalties received from Nestlé under the Global Coffee Alliance and other collaborative partnerships.
Product Supply
Starbucks Law & Corporate Affairs business operations,is committed to selling the finest whole bean coffees and coffee beverages. To help ensure compliance with our rigorous coffee standards, we generally control substantially all coffee purchasing, roasting and packaging and the global commercial, litigation, regulatory, technology, real estatedistribution of coffee used in our operations. Nestlé controls distribution of certain finished goods through the Global Coffee Alliance. We purchase green coffee beans from multiple coffee-producing regions around the world and licensing legal teams. Priorcustom roast them to joiningour exacting standards for our many blends and single origin coffees.
The price of coffee is subject to significant volatility. Although most coffee trades in the commodity market, high-altitude arabica coffee of the quality sought by Starbucks Mr. Mutty served as executive vice presidenttends to trade on a negotiated basis at a premium above the “C” coffee commodity price. Both the premium and the commodity price depend upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather, water supply quality and availability throughout the coffee production chain, natural disasters, crop disease and pests, general counsel for SP Investments, Inc., from May 1996increase in farm inputs and costs of production, inventory levels and political and economic conditions. Climate change may further exacerbate many of these factors. Price is also impacted by trading activities in the arabica coffee futures market, including hedge funds and commodity index funds. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to September 1998. Mr. Mutty was formerly with the Seattle law firminfluence prices of Riddell, Williams, Bullitt & Walkinshaw, where he was a corporate attorney from 1986 to 1996 and was a partner from 1992 to 1996.
Global Social Impactgreen coffee through agreements establishing export quotas or by restricting coffee supplies.
We buy coffee using fixed-price and price-to-be-fixed purchase commitments, depending on market conditions, to secure an adequate supply of quality green coffee. We also utilize forward contracts, futures contracts and collars to hedge "C" price exposure under our price-to-be-fixed green coffee contracts and our long-term forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are committednot yet available. Total purchase commitments, together with existing inventory, are expected to being a deeply responsible companyprovide an adequate supply of green coffee through fiscal 2022.
We depend upon our relationships with coffee producers, outside trading companies and exporters for our supply of green coffee. We believe, based on relationships established with our suppliers, the risk of non-delivery on such purchase commitments is remote.
To help ensure the future supply of high-quality green coffee and to reinforce our leadership role in the coffee industry, Starbucks operates ten farmer support centers, including our China Farmer Support Center located in the Yunnan Province of this high-growth market. Farmer support centers are staffed with agronomists and sustainability experts who work with coffee farming communities whereto promote best practices in coffee production designed to improve both coffee quality and yields and agronomy support to address climate change and other impacts.
In addition to coffee, we also purchase significant amounts of dairy and plant-based dairy-free alternative products, particularly fluid milk, oat milk and almond milk, to support the needs of our company-operated stores. We believe, based on relationships established with our dairy and plant-based dairy-free suppliers, that the risk of non-delivery of sufficient fluid milk and plant-based dairy-free alternatives to support our stores generally is remote.
Products other than whole bean coffees and coffee beverages sold in Starbucks® stores include tea and a number of ready-to-drink beverages that are purchased from several specialty suppliers, usually under long-term supply contracts. Food products, such as pastries, breakfast sandwiches and lunch items, are purchased from national, regional and local sources. We also purchase a broad range of paper and plastic products, such as cups and cutlery, from several companies to support the needs of our retail stores as well as our manufacturing and distribution operations. Consistent with our planet-positive vision, we are also expanding our use of reusable packaging to reduce landfill waste. We believe, based on relationships established with these suppliers and manufacturers, that the risk of non-delivery of sufficient amounts of these items generally is remote.
During fiscal 2021, we began to experience certain supply shortages and transportation delays largely attributable to impacts of the COVID-19 pandemic as well as changes in customer demand and behaviors. While we expect these shortages and delays may continue into fiscal 2022, we view them to be temporary and do business. not believe they will have a material impact to our long-term growth and profitability.
Competition
Our focus isprimary competitors for coffee beverage sales are specialty coffee retailers and shops. We believe that our customers choose among specialty coffee retailers and shops primarily on ethically sourcing high-qualitythe basis of product quality, brand reputation, service and convenience, as well as price. We continue to experience direct competition from large competitors in the quick-service restaurant sector and the ready-to-drink coffee reducingbeverage market, in addition to both well-established and start-up companies in many international markets. We also compete with restaurants and other specialty retailers for prime retail locations and qualified personnel to operate both new and existing stores.
Our coffee and tea products sold through our environmental impactsChannel Development segment compete directly against specialty coffees and contributing positivelyteas sold through grocery stores, warehouse clubs, specialty retailers, convenience stores and foodservice accounts and compete indirectly against all other coffees and teas on the market.
Trademarks, Copyrights, Patents and Domain Names
Starbucks owns and has applied to communities aroundregister numerous trademarks and service marks in the U.S. and in other countries throughout the world. Some of our trademarks, including Starbucks, Global Social Impact strategythe Starbucks logo, Starbucks Reserve, Seattle’s Best Coffee, Teavana and commitmentsFrappuccino are integralof material importance. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
We own numerous copyrights for items such as product packaging, promotional materials, in-store graphics and training materials. We also hold patents on certain products, systems and designs which have an average remaining useful life of approximately two years. In addition, Starbucks has registered and maintains numerous Internet domain names, including “Starbucks.com,” “Starbucks.net,” “Starbucksreserve.com,” “Seattlesbest.com” and “Teavana.com.”
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our overall business strategy.fiscal second quarter typically experiences lower revenues and operating income. The COVID-19 pandemic has had an impact on consumer behaviors and customer traffic; however, it is not yet certain that these changes will sustain and cause other than temporary changes in the seasonal fluctuations of our business. Additionally, as Starbucks Cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Card, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Government Regulation
As a company with global operations, we believeare subject to the laws and regulations of the United States and the multiple foreign jurisdictions in which we deliver benefitsoperate as well as the rules, reporting obligations and interpretations of all such requirements and obligations by various governing bodies, which may differ among jurisdictions. In addition, changes to such laws, regulations, rules, reporting obligations and related compliance obligations could result in significant costs but are not expected to have a material effect on our stakeholders, including employees, business partners, customers, suppliers, shareholders, community memberscapital expenditures, results of operations and others. For an overview of Starbucks Global Social Impact strategy and commitments, please visit www.starbucks.com/responsibility.competitive position as compared to prior periods.
Available Information
Starbucks Annual Report on Form 10-K reports, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”),SEC, are publicly available free of charge on the Investor Relations section of our website at investor.starbucks.com or at www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also use our website as a tool to disclose important information about the company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance policies, code of ethics and Board committee charters and policies are also posted on the Investor Relations section of Starbucks website at investor.starbucks.com.website. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report Starbucks files with, or furnishes to, the SEC.
Item 1A. Risk Factors
You should carefully consider the risks described below.below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Conditions and Results of Operations section, the Quantitative and Qualitative Disclosures About Market Risk section, and the consolidated financial statements and related notes. If any of the risks and uncertainties described in the cautionary factors described below actually occurs,occur or continue to occur, our business, financial condition and results of operations and the trading price of our common stock could be materially and adversely affected. The considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well. Moreover, the risks below are not the only risks we operate in a very competitiveface and rapidly changing environment. New factorsadditional risks not currently known to us or that we presently deem immaterial may emerge from time toor become material at any time and itmay negatively impact our business, reputation, financial condition, results of operations or the trading price of our common stock.
Risks Related to Macroeconomic Conditions
•Our financial condition and results of operations have been and are expected to continue to be adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has had, and is not possiblecontinuing to have, a significant impact on our business and results of operations. At the peak of the COVID-19 outbreak, many of our company-operated and licensed stores were closed. For stores that remained open, same-store sales declined due to modified operating hours and reduced customer traffic. While nearly all of our company-operated and licensed stores have reopened, we expect that our operations will continue to be impacted by the continuing effects of COVID-19, including resurgences and variants of the virus. It remains difficult to predict the full impact of the COVID-19 pandemic on the broader economy and how consumer behavior may change, and whether such change is temporary or permanent. Social distancing, telecommunicating and reductions in travel may become the new normal. In addition, the COVID-19 pandemic has required and may continue to require us to make controversial decisions about precautionary measures, such as vaccinations, showing proof of vaccinations and face coverings, that could impact our results, including by impacting our brand, our employee retention and satisfaction, and the willingness of customers to buy our products. All of these conditions could fundamentally impact the way we work and the services we provide, and could have continuing adverse effects on our results of operations, cash flows and financial condition. As a result, we may incur additional impairment charges to our inventory, store and corporate assets—and our ability to realize the benefits from deferred tax assets may become limited—any of which may have a significant or material impact on our financial results.
Prolonged volatility or significant disruption of global financial markets due in part to the COVID-19 pandemic could have a negative impact on our ability to access capital markets and other funding sources, on acceptable terms or at all theseand impede our ability to comply with debt covenants.
•Our financial condition and results of operations are subject to, and may be adversely affected by, a number of other factors, many of which are also largely outside our control.
In addition to the COVID-19 pandemic, our operating results have been in the past and will continue to be subject to a number of other factors, many of which are largely outside our control. Any one or more of the factors listed below or described elsewhere in this risk factors section could have a material adverse impact on our business, financial condition and/or results of operations.operations:
•increases in real estate costs in certain domestic and international markets;
•inflationary pressures;
•disruptions to our supply chain;
•changes in governmental rules and approaches to taxation;
•fluctuations in foreign currency exchange rates;
•adverse outcomes of litigation;
•severe weather or other natural or man-made disasters affecting a large market or several closely located markets that may temporarily but significantly affect our retail business in such markets;
•changes in climate, including changes to the frequency of severe weather events, that impact the price and availability or cost of goods and services, energy and other materials throughout our supply chain; and
•especially in our largest markets, including the U.S. and China, labor discord or disruption, geopolitical events, war, terrorism (including incidents targeting us), political instability, acts of public violence, boycotts, increasing anti-American sentiment in certain markets, hostilities and social unrest and other health pandemics that lead to avoidance of public places or restrictions on public gatherings such as in our stores.
•Economic conditions in the U.S. and international markets could adversely affect our business and financial results.
As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to changes in or uncertainty about macro-economic conditions. Our customers may have or in the future have less money for discretionary purchases and may stop or reduce their purchases of our products or trade downswitch to Starbucks or competitors' lower pricedcompetitors’ lower-priced products as a result of various factors, including job losses, foreclosures, bankruptcies, increased fuel and energy costs, higher interest rates,inflation, higher taxes, reduced access to credit, changes in federal economic policy, the COVID-19 pandemic and economic uncertainty. These factorsrecent international trade disputes. Due to the COVID-19 pandemic or other global health events, we may also resultexperience a reduction and/or increased volatility in demand for our products, which may be caused by, among other things: store closures or modified operating hours and business model, reduced customer traffic due to illness, quarantine or government or self-imposed restrictions placed on our stores’ operations, impacts caused by precautionary measures such as those related to face coverings and vaccinations, and changes in consumer spending behaviors (e.g. continued practice of social distancing, decrease in consumer confidence in general macroeconomic conditions and a general downturndecrease in the restaurant industry.consumer discretionary spending). Decreases in customer traffic and/or average value per transaction will negatively impact our financial performance as reduced revenues without a corresponding decrease in expenses result in sales de-leveraging, which createscosts would put downward pressure on margins and alsowould negatively impacts comparable store sales, net revenues, operating income and earnings per share.impact our financial results. There is also a risk that if negative economic conditions or uncertainty, as a result of the COVID-19 pandemic or otherwise, persist for a long period of time or worsen, consumers may make long-lasting changes to their discretionary purchasing behavior, including less frequent discretionary purchases on a more permanent basis.basis or there may be a general downturn in the restaurant industry. These and other macroeconomic factors could have an adverse effect on our sales, profitability or development plans, which could harm our results of operations and financial condition.
•Failure to meet market expectations for our financial performance and fluctuations in the stock market as a whole will likely adversely affect the market price and volatility of our stock.
Failure to meet market expectations going forward, particularly with respect to our operational and financial results and related guidance, environmental performance and shareholder returns, will likely result in a decline and/or increased volatility in the market price of our stock. In addition, price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that may be unrelated to our financial performance.
Risks Related to Brand Relevance and Brand Execution
•Our success depends substantially on the value of our brands and failure to preserve their value either through our actions or those of our business partners, could have a negative impact on our financial results.
We believe we have built an excellent reputation globally for the quality of our products, for delivery of a consistently positive consumer experience and for our corporateglobal social responsibilityand environmental impact programs. The Starbucks brand is recognized throughout most of the world, and we have received high ratings in global brand value studies. To be successful in the future, particularly outside of the U.S., where the Starbucks brand and our other brands are less well-known, we believe we must preserve, grow and leverage the value of our brands across all sales channels. Brand value is based in part on consumer perceptions on a variety of subjective qualities.
Business incidents, whether isolated or recurring and whether originating from us or our business partners, that erode consumer trust can significantly reduce brand value, potentially trigger boycotts of our stores or result in civil or criminal liability and can have a negative impact on our financial results. Such incidents include actual or perceived breaches of privacy or violations of domestic or international privacy laws, contaminated food, product recalls, store employees or other food handlers infected with communicable diseases, such as COVID-19, or other potential incidents discussed in this risk factors section. The impact of
such incidents may be exacerbated if they receive considerable publicity, including rapidly through social or digital media (including for malicious reasons) or result in litigation. Consumer demand for our products and our brand equity could diminish significantly if we, our employees, licensees or other business partners fail to preserve the quality of our products, act or are perceived to act in an unethical, illegal, racially-biased, unequal or socially irresponsible manner, including with respect to the sourcing, content or sale of our products, service and treatment of customers at Starbucks stores, treatment of employees, or the use of customer data for general or direct marketing or other purposes. Furthermore, if we are not effective in addressing our social and environmental program goals, including our people- and planet-positive work, or achieving relevant sustainability goals, consumer trust in our brand may suffer. Additionally, if we fail to comply with laws and regulations, take controversial positions or actions or fail to deliver a consistently positive consumer experience in each of our markets, including by failing to invest in the right balance of wages and benefits to attract and retain employees that represent the brand well or to foster an inclusive and diverse environment, our brand value may be diminished.
The ongoing relevance of our brand may depend on the success of our people- and planet-positive initiatives, which require company-wide coordination and alignment. We are working to manage risks and costs to us, our licensees and our supply chain of any effects of climate change as well as diminishing energy and water resources. These risks include any increased public focus, including by governmental and nongovernmental organizations, on these and other environmental sustainability matters, including packaging and waste, animal health and welfare, deforestation and land use. These risks may also include any increased pressure to make commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risks.
•If our business partners and third-party providers do not satisfactorily fulfill their responsibilities and commitments, it could damage our brand and our financial results could suffer.
Our global business strategy, including our plans for new stores, foodservice, branded products and other initiatives, relies significantly on a variety of business partners, including licensee and joint venture relationships, particularly in our international markets, and third partythird-party manufacturers, distributors and retailers, particularly infor our internationalentire global Channel Development business. Licensees, retailers and foodservice operators are often authorized to use our logos and provide branded food, beverage and other products directly to customers. We believe our customers expect the same quality of service regardless of whether they visit a licensed or company-operated store, so we provide training and support to, and monitor the operations of, certain of these licensees and other business partners, butpartners. However, the product quality and service they deliver may still be diminished by any number of factors beyond our control, including financial pressures theyconstraints caused by the COVID-19 pandemic and other factors. We do not have direct control over our business partners, including in their adherence to additional sanitation protocols and guidelines as a result of the COVID-19 pandemic, and may face. We believe customers expect the same quality of products and service from our licensees as they do from us and we strive to ensure customers receive the same quality of products and service experience whether they visit a company-operated store or a licensed store. not have visibility into their practices.
We also source our food, beverage and other products from a wide variety of domestic and international business partners, in our supply chain operations, and in certain cases such products are produced or sourced by our licensees directly. And although foodservice operators are authorized to use our logos and provide branded products as part of their foodservice business, we do not monitor the quality of non-Starbucks products served in those locations.
Business incidents, whether isolated or recurring and whether originating from us or our business partners, that erode consumer trust, such as actual or perceived breaches of privacy or violations of domestic or international privacy laws, contaminated food, store employees or other food handlers infected with communicable diseases, product recalls or other potential incidents discussed in this risk factors section, particularly if the incidents receive considerable publicity, including rapidly through social or digital media, or result in litigation, and failure to respond appropriately to these incidents, can significantly reduce brand value, result in civil and criminal liability and have a negative impact on our financial results. Consumer demand for our products and our brand equity could diminish significantly if we or our licensees or other business partners fail to preserve the quality of our products, are perceived to act in an unethical or socially irresponsible manner, including with respect to the sourcing, content or sale of our products or the use of customer data, fail to comply with laws and regulations or fail to deliver a consistently positive consumer experience in each of our markets, including by failing to invest in the right balance of wages and benefits to attract and retain employees that represent the brand well. Additionally, inconsistent uses of our brand and other of our intellectual property assets, as well as failure to protect our intellectual property, including from unauthorized uses of our brand or other of our intellectual property assets, can erode consumer trust and our brand value and have a material negative impact on our financial results.
•Incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions about the health effects of consuming our products, could harm our business.
Instances or reports, whether true or not, of unclean water supply or food-safety issues, such as food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, either during growing, manufacturing, packaging, storing or preparation, have in the past severely injured the reputations of companies in the food and beverage processing, grocery and quick-service restaurant sectors and could affect us as well.sectors. Any report linking us to the use of unclean water, food or beverage-borne illnesses, tampering, adulteration, contamination, mislabeling or other food or beverage-safety issuessuch instances could damage our brand value and severely hurt our sales of our food and beverage products andcould possibly lead to product liability claims, litigation (including class actions) and/or damages.temporary store closures. Clean water is critical to the preparation of coffee, tea and other beverages, as well as ice for our cold beverages, and our ability to ensure aadequate supplies of clean water supplyand ice to our stores can be limited, particularly in some international locations. We are also continuing to incorporate more products in our food and beverage lineup that require freezing or refrigeration, including produce (suchwhich increases the risk of food safety related incidents if correct temperatures are not maintained due to mechanical malfunction or human error.
We also face risk by relying on third-party food suppliers to provide and transport ingredients and finished products to our stores. While we monitor the operations of certain of these business partners, the product quality and service they deliver may be diminished by any number of factors beyond our control and it may be difficult to detect contamination or other defects in these products. There is greater risk from those we do not monitor, or do not monitor as fruitsclosely. Furthermore, due to the COVID-19 pandemic, there are stricter health regulations and vegetables inguidelines and increased public concern over food safety standards and controls. Potential food safety incidents, whether at our salads and juices), dairy products (such as milk and cheeses), non-dairy alternative products (such as soymilk and almondmilk) and meats. stores or involving our business partners, could lead to wide public exposure, which could materially harm our business.
Additionally, we are evolving our product lineup to include more local or smaller suppliers for some of our products who may not have as rigorous quality and safety systems and protocols as larger or more national suppliers. If customers become ill from food or beverage-borne illnesses, tampering, adulteration, contamination, mislabeling or other food or beverage-safety issues, we could be forced to temporarily close some stores and/or supply chain facilities,suppliers, especially in light of the heightened safety protocols as well as recall products.a result of the COVID-19 pandemic. In addition, instances of food or beverage-safety issues, even those involving solely the restaurants or stores of competitors or of suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), could adversely affect our sales on a regional or global basis by resulting in negative publicity about us or the foodservice industry in general, adversely affect our sales on a regional or global basis.general. A decrease in customer traffic as a result of food-safety concerns or negative publicity, or as a result of a temporary closure of any of our stores, product recalls, viral-contaminated food or beverage claims or other food or beverage-safety claims or litigation, could materially harm our business and results of operations.
Some•We may not be successful in implementing important strategic initiatives or effectively managing growth, which may have an adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations or that they will generate expected returns, which may result in an adverse impact on our business and financial results. These strategic initiatives, which include our profit-, people- and planet-positive visions, are designed to create growth, improve our results of operations and drive long-term shareholder value, and include:
•being an employer of choice and investing in employees to deliver a superior customer experience;
•building our leadership position around coffee;
•driving convenience, brand engagement and digital relationships through our mobile, loyalty, delivery and digital capabilities both domestically and internationally;
•simplifying store administrative tasks to allow store partners to better engage with customers;
•increasing the scale of the Starbucks store footprint with disciplined global expansion and introducing flexible and unique store formats, including the accelerated development of alternative store formats (such as Starbucks® Pickup stores, Starbucks Now stores and curbside pickup) especially in light of the COVID-19 pandemic;
•adjusting rapidly to changing customer preferences and behaviors in light of the COVID-19 pandemic;
•moving to a more licensed store model in some markets and a more company-owned model in other markets;
•creating new occasions in stores across all dayparts with new product offerings, including our growing lunch food and beverage product lineup;
•continuing the global growth of our Channel Development business through our supply, distribution and licensing agreements with Nestlé and other Channel Development business partners;
•delivering continued growth in our cold beverage business;
•working to address the potential effects of climate change and the sustainability of our business; and
•reducing our operating costs, particularly general and administrative expenses.
In addition to other factors listed in this risk factors section, factors that may adversely affect the successful implementation of these initiatives, which could have a material adverse impact on our business and financial results, include the following:
•imposition of additional taxes by jurisdictions, such as on certain types of beverages or based on number of employees;
•construction cost increases associated with new store openings and remodeling of existing stores; delays in store openings for reasons beyond our control, such as potential shortages of materials and labor and delays in permits, or a lack of desirable real estate locations available for lease at reasonable rates, either of which could keep us from meeting annual store opening targets in the U.S. and internationally;
•governmental regulations or other health guidelines concerning operations of stores, including due to the COVID-19 pandemic or other public health emergencies;
•not successfully scaling our supply chain infrastructure as our product offerings increase and as we continue to expand, including our emphasis on a broad range of high-quality food offerings;
•not successfully adapting to customer or market factors affecting our supply chain as we work to address sustainability and climate change; and
•the deterioration in our credit ratings, which could limit the availability of additional financing and increase the cost of obtaining financing to fund our initiatives.
Effectively managing growth can be challenging, particularly as we expand in international markets where we must balance the need for flexibility and a degree of autonomy for local management against the need for consistency with our goals, policies and standards. If we are not successful in implementing our strategic initiatives, or, in the event we undertake large acquisitions, integrations and divestitures, we may be required to evaluate whether certain assets, including goodwill and other intangibles, have become impaired. In the event we record an impairment charge, it could have a material impact on our financial results.
•Evolving consumer preferences and tastes may adversely affect our business.
Our continued success depends on our ability to attract and retain customers. Our financial results could be adversely affected by a shift in consumer spending away from outside-the-home food and beverages (such as the disruption caused by online commerce that results in reduced foot traffic to “brick & mortar” retail stores); lack of customer acceptance of new products (including due to price increases necessary to cover the costs of new products or higher input costs), brands (such as the global expansion of the Starbucks brand) and platforms (such as features of our mobile technology, changes in our loyalty rewards programs and our delivery services initiatives); or customers reducing their demand for our current offerings as new products are introduced. In addition, some of our products contain caffeine, dairy products, sugar and other compounds and allergens, the health effects of which are the subject of public and regulatory scrutiny, including the suggestion that excessive consumption of caffeine, dairy products, sugar and other compounds can leadlinkages to a variety of adverse health effects. Particularly in the U.S., there is increasing consumer awareness of health risks, including obesity, due in part to increased publicity and attention from health organizations, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food and beverage products. While we have a variety of beverage and food items, including items that are coffee-free and have reduced calories,
an unfavorable report on the health effects of caffeine or other compounds present in our products, whether accurate or not, potential imposition of additional taxes on certain types of beverages,food and beverage components, or negative publicity or litigation arising from certain health risks could significantly reduce the demand for our beverages and food products and could materially harm our business and results of operations. Furthermore, our financial results have been and could continue to be adversely affected by the impact of the COVID-19 pandemic, which has resulted in a disruption of customer routines, changes to employer “work-from-home” policies, reduced business and recreational travel and changes in consumer behavior and the ability or willingness to spend discretionary income on our products.
•We may not be successful in our marketing, promotional and advertising plans and pricing strategies
Our continued success depends in part on our ability to adjust our marketing, promotional and advertising plans and pricing strategy to respond quickly and effectively to shifting economic and competitive conditions as well as evolving customer preferences. We operate in a complex and costly marketing, promotional and advertising environment. Our marketing, promotional and advertising programs may not be successful in reaching our customers in the way we intend. Our success depends in part on whether the allocation of our advertising, promotional and marketing resources across different channels, including digital marketing, allows us to reach our customers effectively and efficiently, and in ways that are meaningful to them. If the advertising, promotional and marketing programs or our pricing strategies are not successful, or are not as successful as those of our competitors, our sales and market share could decrease.
Finally, customers are focusing more on sustainability and the environmental impacts of operations. An inability to meet customer expectations with respect to these issues could adversely affect our financial results.
Risks Related to Cybersecurity and Data Privacy
•Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject us to substantial negative financial consequences and civil or criminal penalties.
Complex local, state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These privacy and data protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations and enforcement. In addition, our legal and regulatory obligations in jurisdictions outside the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations or to increase penalties significantly. Complying with these laws and regulations can be costly and can impede the development and offering of new products and services.
For example, Europe’s General Data Protection Regulation (“GDPR”) and the U.K. General Data Protection Regulation (which implements the GDPR into U.K. law), impose stringent data protection requirements and provide for significant penalties for noncompliance. Additionally, California enacted legislation, the California Consumer Privacy Act (“CCPA”). The CCPA requires, among other things, covered companies to provide new disclosures to California consumers and allows such consumers new abilities to opt-out of certain sales of personal data. The CCPA also provides for civil penalties for violations as well as a private right of action for data breaches that may increase data breach litigation. Further, the California Privacy Rights Act, which was passed in November 2020 and is fully effective in January 2023, significantly modifies the CCPA. These modifications will require us to incur additional costs and expenses in our effort to comply. Virginia and Colorado recently
enacted similar data privacy legislation that will take effect in 2023, andseveral other states and countries are considering expanding or passing privacy laws in the near term.
In June 2021, the European Commission finalized recommendations in relation to cross border data transfers and published new versions of the Standard Contractual Clauses. The new requirements will require us to incur costs and expenses in order to comply and may impact the transfer of personal data throughout our organization and to third parties.
Our failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our brand reputation, any of which could have a material adverse effect on our operations, financial performance and business.
•The unauthorized access, use, theft or destruction of customer or employee personal, financial or other data or of Starbucks proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.
OurMany of our information technology systems such as(whether cloud-based or hosted in proprietary servers), including those we useused for our point-of-sale, web and mobile platforms, including online and mobile payment systems, delivery services and rewards programs and for administrative functions, including human resources, payroll, accounting and internal and external communications, as well as the information technology systems of our third party business partners and service providers, can contain personal, financial or other information that is entrusted to us by our customers and employees. OurMany of our information technology systems also contain Starbucks proprietary and other confidential information related to our business, such as business plans and product development initiatives and designs.designs, and confidential information about third parties, such as licensees and business partners. Similar to many other retail companies and because of the prominence of our brand, we have experienced frequentare consistently subject to attempts to compromise our information technology systems.systems from both internal and external sources. The number and frequency of these attempts varies from year to year but could be exacerbated to some extent by an increase in our digital operations, including our efforts to comply with state and local mandates in response to COVID‑19. In addition, we provide some customer and employee data, as well as Starbucks proprietary information and other confidential information important to our business, to third parties where necessary to conduct our business, including licensees and business partners. Individuals performing work for Starbucks and such third parties also may possess some of this data, including on personally-owned digital devices. To the extent we, or a third party or such an individual were to experience a material breach of our or such third party’stheir information technology systems that resultresults in the unauthorized access, theft, use, destruction or destructionother compromises of customers'customers’ or employees'employees’ data or thatconfidential information of the Company stored in or transmitted through such systems, including through cyber-attacks or other external or internal methods, it could result in a material loss of revenues from the potential adverse impact to our reputation and brand, a decrease in our ability to retain customers or attract new customersones, the imposition of potentially significant costs (including loss of data or payment for recovery of data) and liabilities, loss of business, loss of business partners and licensees and the potential disruption to our supply chain, business and plans. Unauthorized access, theft, use, destruction or other compromises may occur through a variety of methods, including attacks using malicious code, those taking advantage of vulnerabilities in software, hardware or other infrastructure (including systems used by our supply chain), those using techniques aimed at convincing those with access to such data or information to share passwords or otherwise allow access through deceit or otherwise and those taking advance of inadequate account security practices.
Such security breaches also could result in a violation of applicable U.S. and international privacy, cyber and other laws or trigger U.S. state data breach notification laws, and subject us to private consumer, business partner or licensee or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. For example, the European Union adopted a new regulation that becomes effective in May 2018, called the General Data Protection Regulation (“GDPR”), which requires companies to meet new requirements regarding the handling of personal data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet GDPR requirements could result in penalties of up to 4% of worldwide revenue. Our reputation and brand and our ability to attract new customers could also be adversely impacted if we fail, or are perceived to have failed, to properly respond to these incidents. Such failure to properly respond could also result in similar exposure to liability.
Significant capital investments and other expenditures could also be required to investigate security incidents, remedy the problem andcybersecurity problems, recuperate lost data, prevent future breaches, includingcompromises and adapt systems and practices to react to the changing threat environment. These include costs associated with notifying affected individuals and other agencies, additional security technologies, trainings, personnel, experts and credit monitoring services for those whose data has been breached. These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred, including by interfering with the pursuit of other important business strategies and initiatives, and may not meaningfully limit the success of future attempts to breach our information technology systems.
Media or other reports of existing or perceived security vulnerabilities in our systems or those of our third partythird-party business partners or service providers even if no breach has been attempted or has occurred, can also adversely impact our brand and reputation and materially impact our business. Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches ofcompromise information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time. We continue to make significant investments in technology, third partythird-party services and personnel to develop and implement systems and processes that are designed to anticipate cyber-attacks and to prevent or minimize breaches of our information technology systems or data loss, but these security measures cannot provide assurance that we will be successful in preventing such breaches or data loss.
•We rely heavily on information technology in our operations and growth initiatives, and any material failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate and grow our business and could adversely affect our financial results.
We rely heavily on information technology systems across our operations for numerous purposes including for administrative functions, point-of-sale processing and payment in our stores and online, management of our supply chain, Starbucks Cards, online business, delivery services, mobile technology, including mobile payments and ordering apps, reloads and loyalty functionality and various other processes and transactions, and many of these systems are interdependent on one another for their functionality. Additionally, the success of several of our initiatives to drive growth, including our priorityability to increase digital relationships with our customers to drive incremental traffic and spend, is highly dependent on our technology systems. Our abilityFurthermore, due to effectively manage our business, launch digital and other initiatives, and coordinate the production, distribution, administration and salesocial distancing measures put in place as a result of the COVID-19 pandemic, we accelerated the transformation of our products depends significantlystore portfolio by expanding convenience-led formats, which depend heavily on the reliability, integrity and capacity of these systems.our mobile ordering capabilities. We also rely on third partythird-party providers and platforms for some of these information technology systems and support. Additionally, our systems hardware, software and services provided by third partythird-party service providers are not fully redundant within a market or across our markets. Although we have operational safeguards in place, they may not be effective in preventing the failure of these systems or platforms to operate effectively and be available. Such failures may be caused by various factors, including power outages, climate change-related impacts, catastrophic events, physical theft, computer and network failures, inadequate or
ineffective redundancy, problems with transitioning to upgraded or replacement systems or platforms, flaws in third partythird-party software or services, errors or improper use by our employees or third party service providers, or a breach in the security of these systems or platforms, including through cyber-attacks such as those that result in the blockage of our or our third-party business partners’ or service providers’ systems and platforms and those discussed in more detail in this risk factors section. If our incident response, disaster recovery and business continuity plans do not resolve these issues in an effective and timely manner they could result in an interruption in our operations and could cause material negative impacts to our product availability and sales, the efficiency of our operations and our financial results. In addition, remediation of any problems with our systems could result in significant, unplanned expenses.
Risks Related to Intellectual Property
•We may not be successful in implementing important strategic initiativesable to adequately protect our intellectual property or effectively managing growth,adequately ensure that we are not infringing the intellectual property of others, which may have an adverse impactcould harm the value of our brand and our business.
The success of our business depends on our businesscontinued ability to use our existing trademarks and financial results.
There is no assurance that we will be ableservice marks in order to implement important strategic initiativesincrease brand awareness and further develop our branded products in accordance with our expectations, which may result in an adverse impactboth domestic and international markets. We rely on our business and financial results. These strategic initiatives are designed to create growth, improve our resultsa combination of operations and drive long-term shareholder value, and include:
being an employer of choice and investing in employees to deliver a superior customer experience;
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• | building our leadership position around coffee, including through the development of Starbucks Reserve™Roasteries and Starbucks Reserve™ stores;
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driving convenience and brand engagement through our mobile, loyalty and digital capabilities;
increasing the scale of the Starbucks store footprint with disciplined global expansion and introducing flexible and unique store formats;
moving to a more licensed store model in some markets and a more company-owned model in other markets;
creating new occasions in stores across all dayparts with new product offerings, including our growing lunch food and beverage product lineup;
continuing the global growth of our Channel Development business; and
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• | delivering continued growth in our tea business through the Teavana brand in our Starbucks® retail stores and other channels and internationally.
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In addition to other factors listed in this risk factors section, factors that may adversely affect the successful implementation of these initiatives, which could adversely impact our business and financial results, include the following:
increases in labor costs, both domestically and internationally, such as general market and minimum wage levels and investing in competitive compensation, increased health care and workers’ compensation insurance coststrademarks, copyrights, service marks, trade secrets, patents and other benefitsintellectual property rights to attractprotect our brand and retain high quality employees with the right skill sets, whether due to regulatory mandates, changing industry practices or our expansion into new channels or technology dependent operations;branded products.
increasing competition in channels in which we operate or seek to operate from newWe have registered certain trademarks and existing large competitors that sell high-quality specialty coffee beverages;
continuing disruption in retail caused by on-line commerce, resulting in reduced foot traffic to “brick & mortar” retail stores;
consumers shifting categories of where they spend their discretionary income away from outside-the-home food and beverage;
construction cost increases associated with new store openings and remodeling of existing stores; delays in store openings for reasons beyond our control or a lack of desirable real estate locations available for lease at reasonable rates, either of which could keep us from meeting annual store opening targetshave other trademark registrations pending in the U.S. and internationally;certain foreign jurisdictions. The trademarks that we currently use have not been registered in all of the countries outside of the U.S. in which we do business or may do business in the future and may never be registered in all of these countries. It may be costly and time consuming to protect our intellectual property, and the steps we have taken to protect our intellectual property in the U.S. and foreign countries may not be adequate. In addition, the steps we have taken may not adequately ensure that we do not infringe the intellectual property of others, and third parties may claim infringement by us in the future. Any claim of infringement, whether or not it has merit, could be time-consuming, result in costly litigation and harm our business. In addition, we cannot ensure that licensees will not take actions that hurt the value of our intellectual property.
not successfully scalingRisks Related to Labor and Supply Chain
• Our reliance on key business partners may adversely affect our supply chain infrastructure asbusiness and operations.
The growth of our product offerings increase and as we continue to expand, including our emphasisbusiness relies on a broad range of high-quality food offerings;
the ability of our licensee partners to implement our growth platforms and product innovation;
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• | lack of customer acceptance of new products (including due to price increases necessary to cover the costs of new products or higher input costs), brands (such as the global expansion of the Teavana brand in our Starbucks® retail stores and other channels) and platforms (such as mobile technology), or customers reducing their demand for our current offerings as new products are introduced;
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innovations as well as on the degree to which we are able to enter into, maintain, develop and are able to negotiate appropriate terms and conditions of, and enforce, commercial and other agreements;
not successfully consummating favorable strategic transactionsagreements and the performance of our business partners under such agreements. Our international licensees may face capital constraints or integrating acquired businesses; and
the deterioration in our credit ratings, which couldother factors that may limit the availability of additional financingspeed at which they are able to expand and increasedevelop in a certain market. Our Channel Development business is heavily reliant on Nestlé, which has the cost of obtaining financingright to fundsell and distribute our initiatives.
Additionally,packaged goods and foodservice products to retailers and operators, with few exceptions. If Nestlé fails to perform its distribution and marketing commitments under our agreements and/or fails to support, protect and grow our brand in Channel Development, our Channel Development business is also in part dependent on the levelcould be adversely impacted for a period of supporttime, present long-term challenges to our retail business partners provide our products, and in some markets there are only a few retailers. If our retail business partners do not provide sufficient
levels of support for our products, which is at their discretion, it couldbrand, limit our ability to grow our Channel Development business. Also,business and have a material adverse impact on our business and financial results. Additionally, the growth of our Channel Development business is in part dependent on the level of discretionary support provided by our retail and licensed store businesses.
There are generally a relatively small number of licensee partners own a large number of licensed stores.operating in specific markets. If such licensee partnersthey are not able to access sufficient funds or financing, or are otherwise unable or unwilling to successfully operate and grow their businesses it could
have a material adverse effect on our results in the markets. Our business partners may be materially adversely impacted by the COVID-19 pandemic and may not have sufficient financial support and capital to remain financially solvent and may not have the ability to meet their development goals and targets.
Due to the COVID-19 pandemic, our financial results have been and could continue in the future to be adversely affected by the disruption to the operations of our business partners, including their licensed stores, itlicensee relationships, third-party manufacturers, distributors and retailers, through the effects of business and facilities closures, reductions in operating hours, social, economic, political or labor instability in affected areas, transportation delays, travel restrictions and changes in operating procedures, including for additional cleaning and safety protocols.
•Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
The availability and prices of coffee beans and other commodities are subject to significant volatility. We purchase, roast and sell high-quality whole bean arabica coffee beans and related coffee products. The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a premium above the “C” price. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the “C” coffee commodity price increase the price of high-quality arabica coffee and also impact our ability to enter into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore price, at which the base “C” coffee commodity price component will be fixed has not yet been established.
The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, such as weather, climate change, water supply quality and availability throughout the coffee production chain, natural disasters, crop disease and pests, general increase in farm inputs and costs of production, inventory levels, political and economic conditions and the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities can also influence coffee prices. For example, drought conditions in Brazil have and, given continued drought conditions, are predicted to continue to impact coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality arabica coffee beans could have a material adverse impact on our profitability. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or due to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have a material adverse impact on our business operations and financial performance.
We also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated retail stores. Additionally, and although less significant to our operations than coffee or dairy, other commodities, including tea and those related to food and beverage inputs, such as cocoa, produce, baking ingredients, meats, eggs and energy, as well as the processing of these inputs, are important to our operations. Increases in the cost of dairy products and other commodities, or lack of availability, whether due to supply shortages, delays or interruptions in processing, or otherwise, especially in international markets, could have a material adverse impact on our profitability. Similarly, increases in the cost of, or lack of availability, whether due to supply shortages, delays or interruptions in the processing of plant-based alternatives could have a material adverse impact on our profitability.
•Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability.
Any material interruption in our supply chain, such as material interruption of roasted coffee supply due to the casualty loss of any of our roasting plants, interruptions in service by our third-party logistic service providers or common carriers that ship goods within our distribution channels, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, pandemics, social or labor unrest, labor shortages, natural disasters or political disputes and military conflicts that cause a material disruption in our supply chain could have a negative material impact on our business and our profitability. Additionally, our food, beverage and other products are sourced from a wide variety of domestic and international business partners in our supply chain operations, and in certain cases are produced or sourced by our licensees directly. We rely on these suppliers to provide high quality products and to comply with applicable laws. Our ability to find qualified suppliers who meet our standards and supply products in a timely and efficient manner is a significant challenge as we increase our fresh and prepared food offerings, especially with respect to goods sourced from outside the U.S. and from countries or regions with diminished infrastructure, developing or failing economies or which are experiencing political instability or social unrest. For certain products, we may rely on one or very few suppliers. A supplier's failure to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws is beyond our control. These issues could have a material negative impact on our business and profitability.
•Changes in the availability of and the cost of labor could adversely affect our resultsbusiness.
Our business could be adversely impacted by increases in labor costs, including wages and benefits, which, in a retail business such as ours, are two of our most significant costs, both domestically and internationally, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers’ compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the markets in which they operate their licensed stores.
Effectively managingright skill sets and increased wages, benefits and costs related to the COVID-19 pandemic. The growth can be challenging, particularly as we continue to expand into new channels outside the retail store model, increaseof our focus on our Channel Development business grow our Teavana brand in our Starbucks® retail stores and other channels, and expand into new markets internationally where we must balance the need for flexibility and a degree of autonomy for local management against the need for consistency with our goals, philosophy and standards. Growth can make it increasingly difficult to ensure a consistent supply of high-quality raw materials, to locate and hire sufficient numbers of key employees, to maintain an effective system of internal controls for a globally dispersed enterprise and to train employees worldwide to deliver a consistently high qualityhigh-quality product and customer experience.experience, which could materially harm our business and results of operations. Furthermore, if we are not successful in implementing these strategic initiatives, such as large acquisitionshave experienced, and integrations, wecould continue to experience, a shortage of labor for store positions, including due to concerns around COVID-19 and other factors, which could decrease the pool of available qualified talent for key functions. Such labor shortages could be further exacerbated by expanded COVID-19 vaccination requirements. In addition, our wages and benefits programs may be requiredinsufficient to evaluate whether certain assets,attract and retain the best talent. Additionally, while the number of partners represented by unions is not significant, if a significant portion of our employees were to become unionized, our labor costs could increase and our business could be negatively affected by other requirements and expectations that could increase our costs, change our employee culture, decrease our flexibility and disrupt our business. Further, our responses to any union organizing efforts could negatively impact how our brand is perceived and have adverse effects on our business, including goodwill and other intangibles, have become impaired. In the event we record an impairment charge, it could have a material impact on our financial results.
•The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results.
Much of our future success depends on the continued availability and service of senior management personnel. The loss of any of our executive officers or other key senior management personnel could harm our business. Our success also depends substantially on the contributions and abilities of our retail store employees on whom we rely to give customers a superior in-store experience and elevate our brand. Accordingly, our performance depends on our ability to recruit and retain high quality management personnel and other employees to work in and manage our stores, both domestically and internationally. Our ability to attract and retain corporate, retail and other personnel is also acutely impacted in certain international and domestic markets where the competition for a relatively small number of qualified employees is intense or in markets where large high-tech companies are able to offer more competitive salaries and benefits. Additionally, there is intense competition for qualified technology systems developers necessary to develop and implement new technologies for our growth initiatives, including increasing our digital relationships with customers. If we are unable to recruit, retain and motivate employees sufficiently to maintain our current business and support our projected growth, our business and financial performance may be adversely affected.
Risks Related to Competition
•We face intense competition in each of our channels and markets, which could lead to reduced profitability.
The specialty coffee market is intensely competitive, including with respect to product quality, innovation, service, convenience, such as delivery service and mobile ordering, and price, and we face significant and increasing competition in all of these areas in each of our channels and markets. Accordingly, we do not have leadership positions in all channels and markets. In the U.S., the ongoing focus by large competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages could lead to decreases in customer traffic to Starbucks® stores and/or average value per transaction adversely affecting our sales and results of operations. Similarly, continued competition from well-established competitors, or competition from large new entrants or well-funded smaller companies, in our domestic and international markets could hinder growth and adversely affect our sales and results of operations in those markets. Additionally, someMany small competitors also continue to open coffee specialty stores in many of our competitors aremarkets across the world, which in the aggregate may also lead to significant decreases of customer traffic to our suppliers, which may resultstores in their ability to offer competing products at a lower price than we do.those markets. Increased competition globally in the U.S. packaged coffee and tea and single-serve and ready-to-drink coffee beverage markets, including from new and large entrants to this market, could adversely affect the profitability of the Channel Development segment. In addition, not all of our competitors may seek to establish environmental or sustainability goals at a comparable level to ours, which could result in lower supply chain or operating costs for our competitors. We may incur increased costs associated with reducing carbon dioxide and other greenhouse gas emissions, reducing the use of plastic or imposing performance obligations on our suppliers that could increase financial obligations for us and our business partners and could affect our profitability. Additionally, if we are unable to respond to consumer demand for healthy beverages and foods, or our competitors respond more effectively, this could have a negative effect on our business. Furthermore, declines in general consumer demand for specialty coffee products for any reason, including due to consumer preference for other products, or flattening demand for our products, changed customer daily routines or traffic to stores as a result of the COVID-19 pandemic, or changed customer spending behaviors due to challenging economic conditions, could have a negative effect on our business, including from price discounting we may havebusiness.
Risks Related to undertake.Operating a Global Business
•We are highly dependent on the financial performance of our AmericasNorth America operating segment.
Our financial performance is highly dependent on our AmericasNorth America operating segment, as itwhich comprised approximately 70% of consolidated total net revenues in fiscal 2017.2021. If the AmericasNorth America operating segment revenue trends slow or decline, or does not successfully recover in the post COVID-19 environment, especially in our U.S. and Canada markets,market, our other segments may be unable to make up any significant shortfall and our business and financial results could be adversely affected. And because the AmericasNorth America segment is relatively mature and produces the large majority of our operating cash flows, such a slowdown or decline could result in reduced cash flows for funding the expansion of our international businessbusinesses and other initiatives and for returning cash to shareholders.
•We are increasingly dependent on the success of certain international markets in order to achieve our growth targets.
Our future growth increasingly depends on the growth and sustained profitability of certain international markets. Some or all of our international market business units (“MBUs”), which we generally define by the countries in which they operate, may not be successful in their operations or in achieving expected growth, which ultimately requires achieving consistent, stable net revenues and earnings. The performance of these international operations may be adversely affected by economic downturns in one or more of the countries in which our large MBUs operate. The broader CAP market is now one of our two significant profit engines driving our global returns, along with our North American business. In particular, both our China and Japan MBUs contribute meaningfully to both consolidated and CAP net revenues and earnings and China in particular is a significant market for our growth. A decline in performance of one or more of our significant international MBUs could have a material adverse impact on our consolidated results.
The International segment is a significant profit center driving our global returns, along with our North America segment. In particular, our China MBU contributes meaningfully to both consolidated and International net revenues and operating income. China is currently our fastest growing market, our second largest market overall and 100% company-owned. Due to the significance of our China market for our profit and growth, we are exposed to risks in China, including the risks mentioned elsewhere and the following:
•the effects of current U.S.-China relations, including rounds of tariff increases and retaliations and increasing restrictive regulations, potential boycotts and increasing anti-Americanism;
•escalating U.S.-China tension and increasing political sensitivities in China;
•the effects of the COVID-19 pandemic and related governmental regulations and restrictions on our operations in China;
•entry of new competitors to the specialty coffee market in China;
•changes in economic conditions in China and potential negative effects to the growth of its middle class, wages, labor, inflation, discretionary spending and real estate and supply chain costs;
•ongoing government regulatory reform, including relating to public health, food safety, tariffs and tax, sustainability and responses to climate change, which result in regulatory uncertainty as well as potential significant increases in compliance costs; and
•food-safety related matters, including compliance with food-safety regulations and ability to ensure product quality and safety.
Additionally, some factors that will be critical to the success of our international operations overall are different than those affecting our U.S. stores and licensees. Tastes naturally vary by region, and consumers in some MBUs may not embrace our products to the same extent as consumers in the U.S. or other international markets. Occupancy costs and store operating expenses can be higher internationally than in the U.S. due to higher rents for prime store locations or costs of compliance with country-specific regulatory requirements. Because many of our international operations are in an early phase of development, operating expenses as a percentage of related revenues are often higher compared to more developed operations, suchoperations.
•We face risks as a global business that could adversely affect our financial performance.
We operate in the U.S. Additionally, our international joint venture partners or licensees may face capital constraints or other factors that may limit the speed at which they are able to expand and develop in a certain market.
84 markets globally. Our international operations are also subject to additional inherent risks of conducting business abroad, such as:
•foreign currency exchange rate fluctuations, or requirements to transact in specific currencies;
•changes or uncertainties in economic, legal, regulatory, social and political conditions in our markets, as well as negative effects on U.S. businesses due to increasing anti-American sentiment in certain markets;
•interpretation and application of laws and regulations, including tax, tariffs, labor, merchandise, anti-bribery and privacy laws and regulations;
•restrictive actions of foreign or U.S. governmental authorities affecting trade and foreign investment, especially during periods of heightened tension between the U.S. and such foreign governmental authorities, including protective measures such as export and customs duties and tariffs, government intervention favoring local competitors and restrictions on the level of foreign ownership;
•import or other business licensing requirements;
•the enforceability of intellectual property and contract rights;
•limitations on the repatriation of funds and foreign currency exchange restrictions due to current or new U.S. and international regulations;
•in developing economies, the growth rate in the portion of the population achieving sufficient levels of disposable income may not be as fast as we forecast;
•difficulty in staffing, developing and managing foreign operations and supply chain logistics, including ensuring the consistency of product quality and service, due to governmental actions affecting supply chain logistics, distance, language and cultural differences, as well as challenges in recruiting and retaining high quality employees in local markets;
•local laws that make it more expensive and complex to negotiate with, retain or terminate employees;
•local regulations, health guidelines and safety protocols related to the COVID-19 pandemic affecting our operations; and
•delays in store openings for reasons beyond our control, competition with locally relevant competitors or a lack of desirable real estate locations available for lease at reasonable rates, any of which could keep us from meeting annual store opening targets and, in turn, negatively impact net revenues, operating income and earnings per share; and
disruption in energy supplies affecting our markets.share.
Moreover, many of the foregoing risks are particularly acute in developing countries, which are important to our long-term growth prospects.
Risks Related to Governmental and Regulatory Changes
Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
We purchase, roast and sell high-quality whole bean arabica coffee beans and related coffee products. The price of coffee is subject to significant volatility and has and may again increase significantly due to one or more of the factors described below. The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a premium above the “C” price. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the “C” coffee commodity price do increase the price of high-quality arabica coffee and also impact our ability to enter into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore price, at which the base “C” coffee commodity price component will be fixed has not yet been established. These are known as price-to-be-fixed contracts. The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, such as weather (including the potential effects of climate change), natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions, as well as the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality arabica coffee beans could have an adverse impact on our profitability. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have an adverse impact on our profitability.
We also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated retail stores. Additionally, and although less significant to our operations than coffee or dairy, other commodities, including but not limited to tea and those related to food and beverage inputs, such as cocoa, produce, baking ingredients, meats, eggs and energy, as well as the processing of these inputs, are important to our operations. Increases in the cost of dairy products and other commodities, or lack of availability, whether due to supply shortages, delays or interruptions in processing, or otherwise, especially in international markets, could have an adverse impact on our profitability.
Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control.
Our operating results have been in the past and will continue to be subject to a number of factors, many of which are largely outside our control. Any one or more of the factors listed below or described elsewhere in this risk factors section could adversely impact our business, financial condition and/or results of operations:
increases in real estate costs in certain domestic and international markets;
adverse outcomes of litigation;
severe weather or other natural or man-made disasters affecting a large market or several closely located markets that may temporarily but significantly affect our retail business in such markets; and
especially in our larger or fast growing markets, labor discord or disruption, geopolitical events, war, terrorism (including incidents targeting us), political instability, boycotts, increasing anti-American sentiment in certain markets, social unrest, and natural disasters, including health pandemics that lead to avoidance of public places or restrictions on public gatherings such as in our stores.
Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability.
Any material interruption in our supply chain, such as material interruption of roasted coffee supply due to the casualty loss of any of our roasting plants, interruptions in service by our third party logistic service providers or common carriers that ship goods within our distribution channels, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, or natural disasters that cause a material disruption in our supply chain could negatively impact our business and our profitability.
Additionally, our food, beverage and other products are sourced from a wide variety of domestic and international business partners in our supply chain operations, and in certain cases are produced or sourced by our licensees directly. We rely on these suppliers and vendors to provide high quality products and to comply with applicable laws. Our ability to find qualified suppliers and vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced from outside the U.S., especially countries or regions with diminished infrastructure, developing or failing economies or experiencing political instability or social unrest, and as we increase our fresh and prepared food offerings. For certain products, we may rely on one or very few suppliers or vendors. A vendor's or supplier's failure to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws is beyond our control. These issues, especially for those products for which we rely on one or few suppliers or vendors, could negatively impact our business and profitability.
Failure to meet market expectations for our financial performance and fluctuations in the stock market as a whole will likely adversely affect the market price and volatility of our stock.
Failure to meet market expectations going forward, particularly with respect to operating margins, earnings per share, comparable store sales, operating cash flows, and net revenues, will likely result in a decline and/or increased volatility in the market price of our stock. In addition, price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that may be unrelated to our financial performance.
The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results.
Much of our future success depends on the continued availability and service of senior management personnel. The loss of any of our executive officers or other key senior management personnel could harm our business. We must continue to recruit, retain and motivate management and other employees sufficiently, both to maintain our current business and to execute our strategic initiatives, some of which involve ongoing expansion in business channels outside of our traditional company-operated store model. Our success also depends substantially on the contributions and abilities of our retail store employees whom we rely on to give customers a superior in-store experience and elevate our brand. Accordingly, our performance depends on our ability to recruit and retain high quality employees to work in and manage our stores, both domestically and internationally. Our ability to attract and retain both corporate and retail personnel is also acutely impacted in certain international and domestic markets where the competition for a relatively small number of qualified employees is intense or in markets where large high-tech companies are able to offer more competitive salaries and benefits. If we are unable to recruit, retain and motivate employees sufficiently to maintain our current business and support our projected growth, our business and financial performance may be adversely affected.
•Failure to comply with applicable laws and changing legal and regulatory requirements could harm our business and financial results.
Our policies and procedures are designed to comply with all applicable laws, accounting and reporting requirements, tax rules and other regulations and requirements, including those imposed by the SEC, NASDAQ,Nasdaq and foreign countries, as well as applicable trade, labor, healthcare, food and beverage, sanitation, safety, environmental, labeling, anti-bribery and corruption and merchandise laws. Such laws and regulations are complex and often subject to differing interpretations, which can lead to unintentional or unknown instances of non-compliance. Changes in applicable environmental laws and regulations, including
increased or additional regulations and associated costs to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or impose additional costs on commercial water use, may result in increased compliance costs, capital expenditures, incremental investments and other financial obligations for us and our business partners, which could affect our profitability. Furthermore, due to the COVID‑19 pandemic, we are subject to additional domestic and foreign governmental regulations and health guidelines, as well as any other voluntary safety protocols.
In addition, our business is subject to complex and rapidly evolving U.S. and international laws and regulations regarding data privacy and data protection, and companies are under increased regulatory scrutiny relating to these matters. The Federal Trade Commission and many state attorneys general are also interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The interpretation and application of existing laws and regulations regarding data privacy and data protection are in flux and authorities around the world are considering a number of additional legislative and regulatory proposals in this area. Current and future data privacy and data protection laws and regulations (including the European Union’s GDPR and the CCPA, discussed in more detail in this risk factors section)section, and other applicable international and U.S. privacy laws), foodor new interpretations of existing laws and beverage, labeling, anti-briberyregulations, may limit our ability to collect and corruptionuse data, require us to otherwise modify our data processing practices and merchandise laws. policies or result in the possibility of fines, litigation or orders, which may have an adverse effect on our business and results of operations. The burdens imposed by these and other laws and regulations that may be enacted, or new interpretations of existing and future laws and regulations, may also require us to incur substantial costs in reaching compliance in a manner adverse to our business.
The complexity of the regulatory environment in which we operate and the related costcosts of compliance are both increasing due to additional or changing legal and regulatory requirements, our ongoing expansion into new markets and new channels and the fact that foreign laws occasionally conflict with domestic laws. In addition to potential damage to our reputation and brand, failure by us or our business partners to comply with the various applicable laws and regulations, as well as changes in laws and regulations or the manner in which they are interpreted or applied, may result in litigation, civil and criminal liability, damages, fines and penalties, increased cost of regulatory compliance and restatements of our financial statements and have an adverse impact on our business and financial results.
| |
Item 1B. | Unresolved Staff Comments |
Item 1B. Unresolved Staff Comments
None.
Item 2.Properties
The significantmaterial properties used by Starbucks in connection with its roasting, manufacturing, warehousing, distribution and corporate administrative operations, serving all segments, are as follows:
|
| | | | | | | | | | |
| Location | Approximate Size
in Square Feet | | Purpose |
Rancho Cucamonga, CAYork, PA | 265,0001,957,000 |
| | ManufacturingRoasting, warehousing and distribution |
Washington, DCSeattle, WA | 130,0001,288,000 |
| | Warehouse and distributionCorporate administrative |
Augusta, GA | 131,000 |
| | Manufacturing |
| Minden, NV (Carson Valley) | 360,0001,080,000 |
| | Roasting, warehousing and distribution |
| Lebanon, TN | 680,000 | | | Warehousing and distribution |
| Kent, WA | 510,000 | | | Roasting and distribution |
York, PAAuburn, WA | 2,098,000491,000 |
| | Roasting,Warehousing and distribution and warehouse |
Gaston, SC (Sandy Run)Shanghai, China | 117,000175,000 |
| | Roasting and distribution |
Lebanon, TN | 680,000 |
| | Warehouse and distribution |
Auburn, WA | 491,000 |
| | Warehouse and distribution |
Kent, WA | 510,000 |
| | Roasting and distribution |
Seattle, WA | 1,241,000 |
| | Corporate administrative |
Shanghai, China | 121,000 |
| | Corporate administrative |
Amsterdam, Netherlands | 97,000 |
| | Roasting and distribution |
Samutprakarn, Thailand | 81,000 |
| | Warehouse and distribution |
We own most of our roasting facilities and lease the majority of our warehousing and distribution locations. As of October 1, 2017,3, 2021, Starbucks had 13,275had 17,133 company-operated stores,almost all of which are leased. We also lease space in various locations worldwide for regional, district and other administrative offices, training facilities and storage. In addition to the locations listed above, we hold inventory at various locations managed by third-party warehouses. We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business.
Item 3.Legal Proceedings
See Note 1516, Commitments and Contingencies, to the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding certain legal proceedings in which we are involved. | |
Item 4. | Mine Safety Disclosures |
Item 4.Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
SHAREHOLDER INFORMATION
MARKET INFORMATION AND DIVIDEND POLICY
Starbucks common stock is traded on NASDAQ,Nasdaq, under the symbol “SBUX.”
The following table shows the quarterly high and low sale prices per share of Starbucks common stock as reported by NASDAQ for each quarter during the last two fiscal years and the quarterly cash dividend declared per share of our common stock during the periods indicated:
|
| | | | | | | | | | | |
| | High | | Low | | Cash Dividends
Declared |
| Fiscal 2017: | | | | | |
| Fourth Quarter | $ | 59.66 |
| | $ | 52.58 |
| | $ | 0.30 |
|
| Third Quarter | 64.87 |
| | 57.38 |
| | 0.25 |
|
| Second Quarter | 59.00 |
| | 53.81 |
| | 0.25 |
|
| First Quarter | 59.54 |
| | 50.84 |
| | 0.25 |
|
| Fiscal 2016: | | | | | |
| Fourth Quarter | $ | 58.84 |
| | $ | 52.90 |
| | $ | 0.25 |
|
| Third Quarter | 61.64 |
| | 54.01 |
| | 0.20 |
|
| Second Quarter | 61.79 |
| | 52.63 |
| | 0.20 |
|
| First Quarter | 64.00 |
| | 54.81 |
| | 0.20 |
|
As of November 10, 2017,12, 2021, we had approximately 18,10018,000 shareholders of record. This does not include persons whose stock is in nominee or “street name” accounts through brokers.
Future decisions to pay comparable cash dividends continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant.
ISSUER PURCHASES OF EQUITY SECURITIES
Shares under our ongoing share repurchase program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or through privately negotiated transactions. The following table provides information regardingtiming, manner, price and amount of repurchases of our common stock during the quarter ended October 1, 2017:
|
| | | | | | | | | | | | | |
| | | Total
Number of
Shares
Purchased | | Average
Price
Paid per
Share | | Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(2) | | Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs(3) |
Period(1) | | | | | | | | |
| July 3, 2017 — July 30, 2017 | | 2,168,233 |
| | $ | 58.03 |
| | 2,168,233 |
| | 93,238,695 |
|
| July 31, 2017 — August 27, 2017 | | 4,804,970 |
| | 53.87 |
| | 4,804,970 |
| | 88,433,725 |
|
| August 28, 2017 — October 1, 2017 | | 8,116,314 |
| | 54.41 |
| | 8,116,314 |
| | 80,317,411 |
|
| Total | | 15,089,517 |
| | $ | 54.76 |
| | 15,089,517 |
| | |
| |
(1)
| Monthly information is presented by reference to our fiscal months during the fourth quarter of fiscal 2017. |
| |
(2)
| Share repurchases are conducted under our ongoing share repurchase program announced in September 2001, which has no expiration date. |
| |
(3)
| This column includes the total remaining number of shares authorized for repurchase under the Company's ongoing share repurchase program. Shares under our ongoing share repurchase program maywill be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, or through privately negotiated transactions. The timing, manner, price and amount of repurchases will be |
determined at the Company'sour discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. During the fiscal year ended October 3, 2021, there was no share repurchase activity. As of October 3, 2021, 48.9 million shares remained available for repurchase under current authorizations. Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022.
Performance Comparison Graph
The following graph depicts the total return to shareholders from September 30, 2012October 2, 2016, through October 1, 2017,3, 2021, relative to the performance of the Standard & Poor’s 500 Index, the NASDAQ Composite Index and the Standard & Poor’s 500 Consumer Discretionary Sector, a peer group that includes Starbucks. All indices shown in the graph have been reset to a base of 100 as of September 30, 2012,October 2, 2016, and assume an investment of $100 on that date and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Oct 2, 2016 | | Oct 1, 2017 | | Sep 30, 2018 | | Sep 29, 2019 | | Sep 27, 2020 | | Oct 3, 2021 |
| Starbucks Corporation | $ | 100.00 | | | $ | 100.98 | | | $ | 109.35 | | | $ | 173.26 | | | $ | 168.68 | | | $ | 229.83 | |
| S&P 500 | 100.00 | | | 118.61 | | | 139.85 | | | 145.80 | | | 167.89 | | | 218.27 | |
| NASDAQ Composite | 100.00 | | | 123.68 | | | 154.82 | | | 155.63 | | | 219.37 | | | 285.75 | |
| S&P Consumer Discretionary | 100.00 | | | 114.52 | | | 151.78 | | | 155.36 | | | 200.25 | | | 238.59 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 30, 2012 | | Sep 29, 2013 | | Sep 28, 2014 | | Sep 27, 2015 | | Oct 2, 2016 | | Oct 1, 2017 |
| Starbucks Corporation | $ | 100.00 |
| | $ | 154.67 |
| | $ | 152.47 |
| | $ | 238.48 |
| | $ | 225.70 |
| | $ | 227.92 |
|
| S&P 500 | 100.00 |
| | 119.34 |
| | 142.89 |
| | 142.02 |
| | 163.93 |
| | 194.44 |
|
| NASDAQ Composite | 100.00 |
| | 123.38 |
| | 148.79 |
| | 154.52 |
| | 178.82 |
| | 220.25 |
|
| S&P Consumer Discretionary | 100.00 |
| | 131.84 |
| | 147.36 |
| | 166.78 |
| | 182.85 |
| | 209.40 |
|
| |
Item 6. | Selected Financial Data |
The following selected financial data is derived from the consolidated financial statements. All per-share data has been retroactively adjusted to give effect to the two-for-one stock split discussed in Note 1, Summary of Significant Accounting Policies, included in Item 8 of Part II of this 10-K. The data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and the consolidated financial statements and notes.6. [Reserved]Financial Information (in millions, except per share data):
|
| | | | | | | | | | | | | | | | | | | | |
| | As of and for the Fiscal Year Ended (1) | Oct 1,
2017
(52 Wks) | | Oct 2,
2016
(53 Wks) | | Sep 27,
2015
(52 Wks) | | Sep 28,
2014
(52 Wks) | | Sep 29,
2013
(52 Wks) |
| |
| | Results of Operations | | | | | | | | | |
| | Net revenues: | | | | | | | | | |
| | Company-operated stores | $ | 17,650.7 |
| | $ | 16,844.1 |
| | $ | 15,197.3 |
| | $ | 12,977.9 |
| | $ | 11,793.2 |
|
| | Licensed stores | 2,355.0 |
| | 2,154.2 |
| | 1,861.9 |
| | 1,588.6 |
| | 1,360.5 |
|
| | CPG, foodservice and other | 2,381.1 |
| | 2,317.6 |
| | 2,103.5 |
| | 1,881.3 |
| | 1,713.1 |
|
| | Total net revenues | $ | 22,386.8 |
| | $ | 21,315.9 |
| | $ | 19,162.7 |
| | $ | 16,447.8 |
| | $ | 14,866.8 |
|
| | Operating income/(loss)(2) | $ | 4,134.7 |
| | $ | 4,171.9 |
| | $ | 3,601.0 |
| | $ | 3,081.1 |
| | $ | (325.4 | ) |
| | Net earnings including noncontrolling interests(2) | 2,884.9 |
| | 2,818.9 |
| | 2,759.3 |
| | 2,067.7 |
| | 8.8 |
|
| | Net earnings/(loss) attributable to noncontrolling interests | 0.2 |
| | 1.2 |
| | 1.9 |
| | (0.4 | ) | | 0.5 |
|
| | Net earnings attributable to Starbucks(2) | 2,884.7 |
| | 2,817.7 |
| | 2,757.4 |
| | 2,068.1 |
| | 8.3 |
|
| | EPS — diluted(2) | 1.97 |
| | 1.90 |
| | 1.82 |
| | 1.35 |
| | 0.01 |
|
| | Cash dividends declared per share | 1.050 |
| | 0.850 |
| | 0.680 |
| | 0.550 |
| | 0.445 |
|
| | Net cash provided by operating activities | 4,174.3 |
| | 4,575.1 |
| | 3,749.1 |
| | 607.8 |
| | 2,908.3 |
|
| | Capital expenditures (additions to property, plant and equipment) | 1,519.4 |
| | 1,440.3 |
| | 1,303.7 |
| | 1,160.9 |
| | 1,151.2 |
|
| | Balance Sheet | | | | | | | | | |
| | Total assets(3) | $ | 14,365.6 |
| | $ | 14,312.5 |
| | $ | 12,404.1 |
| | $ | 10,745.0 |
| | $ | 11,509.8 |
|
| | Long-term debt (including current portion) | 3,932.6 |
| | 3,585.2 |
| | 2,335.3 |
| | 2,041.3 |
| | 1,293.2 |
|
| | Shareholders’ equity | 5,450.1 |
| | 5,884.0 |
| | 5,818.0 |
| | 5,272.0 |
| | 4,480.2 |
|
| |
(1)
| Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 2, 2016 included 53 weeks, with the 53rd week falling in our fourth fiscal quarter.
|
| |
(2)
| Fiscal 2013 results include a pretax charge of $2,784.1 million resulting from the conclusion of our arbitration with Kraft Foods Global, Inc. The impact of this charge to net earnings attributable to Starbucks and diluted EPS, net of the related tax benefit, was $1,713.1 million and $1.12 per share, respectively. |
| |
(3)
| Total assets for fiscal 2013 through fiscal 2016 have been adjusted for the adoption of new accounting guidance related to the reclassification of debt issuance costs as discussed in Note 1, Summary of Significant Accounting Policies. |
Comparable Store Sales:
|
| | | | | | | | | | | | | | | |
| | Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 | | Sep 28,
2014 | | Sep 29,
2013 |
| |
| | Percentage change in comparable store sales(1) | | | | | | | | | |
| | Americas | | | | | | | | | |
| | Sales growth | 3 | % | | 6 | % | | 7 | % | | 6 | % | | 7 | % |
| | Change in transactions | — | % | | 1 | % | | 3 | % | | 2 | % | | 5 | % |
| | Change in ticket | 4 | % | | 5 | % | | 4 | % | | 3 | % | | 2 | % |
| | China/Asia Pacific(2) | | | | | | | | | |
| | Sales growth | 3 | % | | 3 | % | | 9 | % | | 7 | % | | 9 | % |
| | Change in transactions | 1 | % | | 1 | % | | 8 | % | | 6 | % | | 7 | % |
| | Change in ticket | 1 | % | | 2 | % | | 1 | % | | — | % | | 2 | % |
| | EMEA(3) | | | | | | | | | |
| | Sales growth | 1 | % | | — | % | | 4 | % | | 5 | % | | — | % |
| | Change in transactions | (1 | )% | | 1 | % | | 2 | % | | 3 | % | | 2 | % |
| | Change in ticket | 1 | % | | — | % | | 1 | % | | 2 | % | | (2 | )% |
| | Consolidated | | | | | | | | | |
| | Sales growth | 3 | % | | 5 | % | | 7 | % | | 6 | % | | 7 | % |
| | Change in transactions | — | % | | 1 | % | | 3 | % | | 3 | % | | 5 | % |
| | Change in ticket | 3 | % | | 4 | % | | 4 | % | | 3 | % | | 2 | % |
| |
(1)
| Includes only Starbucks® company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates. For fiscal year 2016, comparable store sales percentages were calculated excluding the 53rd week.
|
| |
(2)
| Beginning in December of fiscal 2016, comparable store sales include the results of the 1,009 company-operated stores acquired as part of the acquisition of Starbucks Japan in the first quarter of fiscal 2015. |
| |
(3)
| Company-operated stores represent 17% of the EMEA segment store portfolio as of October 1, 2017. |
Store Count Data:
|
| | | | | | | | | | | | | | | |
| | As of and for the Fiscal Year Ended | Oct 1,
2017
(52 Wks) | | Oct 2,
2016
(53 Wks) | | Sep 27,
2015
(52 Wks) | | Sep 28,
2014
(52 Wks) | | Sep 29,
2013
(52 Wks) |
| |
| | Net stores opened/(closed) and transferred during the year: | | | | | | | | | |
| | Americas(1) | | | | | | | | | |
| | Company-operated stores | 394 |
| | 348 |
| | 276 |
| | 317 |
| | 276 |
|
| | Licensed stores | 558 |
| | 456 |
| | 336 |
| | 381 |
| | 404 |
|
| | China/Asia Pacific (2) | | | | | | | | | |
| | Company-operated stores | 259 |
| | 359 |
| | 1,320 |
| | 250 |
| | 239 |
|
| | Licensed stores | 777 |
| | 622 |
| | (482 | ) | | 492 |
| | 349 |
|
| | EMEA(3) | | | | | | | | | |
| | Company-operated stores | (21 | ) | | (214 | ) | | (80 | ) | | (9 | ) | | (29 | ) |
| | Licensed stores | 353 |
| | 494 |
| | 302 |
| | 180 |
| | 129 |
|
| | All Other Segments (4) | | | | | | | | | |
| | Company-operated stores | (68 | ) | | (17 | ) | | 6 |
| | 12 |
| | 343 |
|
| | Licensed stores | 2 |
| | (6 | ) | | (1 | ) | | (24 | ) | | (10 | ) |
| | Total | 2,254 |
| | 2,042 |
| | 1,677 |
| | 1,599 |
| | 1,701 |
|
| | Stores open at year end: | | | | | | | | | |
| | Americas (1) | | | | | | | | | |
| | Company-operated stores | 9,413 |
| | 9,019 |
| | 8,671 |
| | 8,395 |
| | 8,078 |
|
| | Licensed stores | 7,146 |
| | 6,588 |
| | 6,132 |
| | 5,796 |
| | 5,415 |
|
| | China/Asia Pacific(2) | | | | | | | | | |
| | Company-operated stores | 3,070 |
| | 2,811 |
| | 2,452 |
| | 1,132 |
| | 882 |
|
| | Licensed stores | 4,409 |
| | 3,632 |
| | 3,010 |
| | 3,492 |
| | 3,000 |
|
| | EMEA(3) | | | | | | | | | |
| | Company-operated stores | 502 |
| | 523 |
| | 737 |
| | 817 |
| | 826 |
|
| | Licensed stores | 2,472 |
| | 2,119 |
| | 1,625 |
| | 1,323 |
| | 1,143 |
|
| | All Other Segments(4) | | | | | | | | | |
| | Company-operated stores | 290 |
| | 358 |
| | 375 |
| | 369 |
| | 357 |
|
| | Licensed stores | 37 |
| | 35 |
| | 41 |
| | 42 |
| | 66 |
|
| | Total | 27,339 |
| | 25,085 |
| | 23,043 |
| | 21,366 |
| | 19,767 |
|
| |
(1)
| Americas store data includes the closure of 132 Target Canada licensed stores in the second quarter of fiscal 2015. |
| |
(2)
| China/Asia Pacific store data has been adjusted for the transfer of certain company-operated stores to licensed stores in the fourth quarter of fiscal 2014. China/Asia Pacific store data also includes the transfer of 1,009 Japan stores from licensed stores to company-operated as a result of the acquisition of Starbucks Japan in the first quarter of fiscal 2015 and the transfer of 133 Singapore stores from company-operated stores to licensed stores in the fourth quarter of fiscal 2017. |
| |
(3)
| EMEA store data has been adjusted for the transfer of certain company-operated stores to licensed stores in the second and fourth quarters of fiscal 2014. EMEA store data also includes the transfer of 144 Germany company-operated retail stores to licensed stores as a result of the sale to AmRest Holdings SE in the third quarter of fiscal 2016. |
| |
(4)
| All Others Segments data includes 337 Teavana™ stores acquired in the second quarter of fiscal 2013 and the net closure of 64 Teavana-branded stores in fiscal 2017.
|
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations General
Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 1, 2017 included 52 weeks. The fiscal year ended on October 2, 2016 included 53 weeks, with the extra week falling in our fourth fiscal quarter, and the fiscal year ended on September 27, 2015 included 52 weeks. Comparable store sales percentages below are calculated excluding the 53rd week. All references to store counts, including data for new store openings, are reported net of related store closures, unless otherwise noted. Fiscal year 2021 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter. Fiscal years 2020 and 2019 included 52 weeks. For fiscal 2021, comparable store sales percentages were calculated excluding the extra week in the fourth quarter of fiscal 2021.
The discussion of our financial condition and results of operations for the year ended September 29, 2019, included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) can be found in the Annual Report on Form 10-K for the year ended September 27, 2020. The fiscal 2021 Latin America and Caribbean licensed store market resegmentation did not have a material impact to prior year North America and International operating segment business trends and operating margins.
Overview
In the fourth quarter of fiscal 2021, certain changes were made to our management team, and our operating segment reporting structure was realigned as a result. We realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment. Additionally, we renamed the Americas operating segment to the North America operating segment, since it is comprised of our company-operated and licensed stores in the U.S. and Canada. We also made certain other immaterial changes between our International operating segment and Corporate and Other. Concurrent with the change in reportable segments, we revised our prior period financial information to be consistent with the current period presentation. There was no impact on consolidated net revenues, total operating expenses, operating income or net earnings per share as a result of these changes.
We have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America and the Caribbean; and 3) Channel Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other.
Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics:
•New store openings and store count
•Comparable store sales
•Operating margin
Starbucks results for fiscal 2021 demonstrate the overall strength and resilience of our brand. Consolidated revenues increased 24% to $29.1 billion in fiscal 2021 compared to $23.5 billion in fiscal 2020, primarily due to business recovery from the COVID-19 pandemic. Also contributing to the increase was $576 million of incremental revenue attributable to the extra week in fiscal 2021.
For the North America segment, comparable store sales increased 22% for fiscal 2021 compared to a decline of 12% in fiscal 2020. Comparable store sales for our U.S. market increased 21% for fiscal 2021 compared to a decline of 12% in fiscal 2020. The U.S. market also had a 7% increase in two-year comparable store sales(1). We lapped higher costs attributable to COVID-19 in the prior year, including catastrophe pay programs for company-operated store partners (employees), net of qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the Canada Emergency Wage Subsidy (“CEWS”). In fiscal 2020, we announced a restructuring 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 the fiscal year ended October 3, 2021, we had substantially completed our restructuring plan, which resulted in the closure of 807 stores in the U.S. and Canada. Costs incurred related to the restructuring efforts were recorded as restructuring and impairments on our consolidated statements of earnings. In October 2021, we announced plans to deliver retail wage increases across the U.S. in fiscal 2022. This investment, combined with industry-leading benefits, supports Starbucks aspiration to remain an employer of choice that can attract and retain the high-quality talent necessary to support our continued growth.
For the International segment, comparable store sales increased by 16% for fiscal 2021 compared to a decline of 19% in fiscal 2020. Comparable store sales for our China market increased 17%, inclusive of a 3% adverse impact from lapping the prior-year value-added tax (“VAT”) benefit. Key markets in the International segment continued to experience pandemic-related restrictions that significantly impacted customer mobility during the year. Although nearly all company-operated stores in these markets remained open, the modified operating protocols had an adverse impact to comparable store sales and operating results.
Revenue for our Channel Development segment decreased $331 million, or 17%, when compared with fiscal 2020. This was largely due to the transition of certain single-serve product activities to Nestlé beginning in the fourth quarter of fiscal 2020. This was partially offset by growth in our ready-to-drink business. We expect Channel Development to return to more normalized reported revenue growth levels in fiscal 2022, as the fourth quarter of fiscal 2021 is the last quarter lapping these transition related activities.
During fiscal 2021, we began to experience certain supply shortages and transportation delays largely attributable to impacts of the COVID-19 pandemic as well as changes in customer demand and behaviors. While we expect these shortages and delays may continue into fiscal 2022, we view them to be temporary and do not believe they will have a material impact to our long-term growth and profitability. Absent significant and prolonged COVID-19 relapses or global economic disruptions, and based on the current trend of our business operations and our focused efforts to elevate customer experiences, enhance digital capabilities and drive beverage innovation, we are confident in the strength of our brand and the durability of long-term “Growth at Scale” strategy to deliver consistent revenue and income growth. We anticipate the planned wage investment in the U.S., along with increased supply chain costs primarily related to inflationary pressures that began in the latter half of the fiscal year, will have an impact to operating margin in fiscal 2022. However, these should be meaningfully offset by benefits from pricing decisions and leverage from revenue growth and productivity efficiency.
(1)Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY20) * (1 + % change in comparable store sales in FY21)) - 1. Two-year comparable store sales for the U.S. of 7% = ((1 + (-12%)) * (1 + 21%)) - 1.
Financial Highlights
•Total net revenues increased 5%24% to $22.4$29.1 billion in fiscal 20172021 compared to $21.3$23.5 billion in fiscal 2016. Excluding $412.42020, including $576 million fromattributable to the extra week ofin fiscal 2016, net revenues grew 7%.2021.
Global comparable store sales grew 3% driven by a 3% increase in average ticket.
•Consolidated operating income decreasedincreased to $4.1$4.9 billion in fiscal 20172021 compared to operating income of $4.2$1.6 billion in fiscal 2016.2020. Fiscal 20172021 operating margin was 18.5%16.8% compared to 19.6%6.6% in fiscal 2016.2020. Operating margin compression in fiscal 2017expansion was primarily driven by increased partner (employee)due to sales leverage from business recovery and digital investments, largelylapping higher COVID-19 related costs in the Americas segment, restructuringprior year, mainly catastrophe and impairment chargesservice pay for store partners, net of temporary subsidies from the U.S. and certain foreign governments, as well as pricing in North America in the absence of the 53rd week,current year. These increases were partially offset by sales leverage.enhancements in retail store partner wages and benefits and, to a lesser extent, increased supply chain costs due to accelerated inflationary pressures in the latter half of fiscal 2021.
| |
• | Restructuring and impairment charges for fiscal 2017 were $153.5 million and primarily related to our strategic changes in our Teavana business including a partial goodwill impairment, store asset impairments, costs associated with early closure of stores and severance. Additional amounts incurred related to an impairment of our Switzerland retail business and asset impairments of certain Starbucks® company-operated stores in Canada.
|
Earnings•Diluted earnings per share (“EPS”) for fiscal 20172021 increased to $1.97,$3.54, compared to EPS of $1.90$0.79 in fiscal 2016, which benefited $0.06 per share from the extra week in fiscal 2016.2020. The increase was primarily driven by growthlapping the adverse impacts of COVID-19 in comparable store sales, improved sales leverage andprior year. Also contributing to the increase was a $0.56 gain net of estimated taxes on the saledivestiture of Singapore retail operations, partially offset by restructuringour South Korea joint venture and impairment charges.
Cash flows from operations were $4.2 billion$0.10 related to the extra week in fiscal 2017 compared to $4.6 billion in fiscal 2016. The change was primarily due to the timing of our cash payments for income taxes.2021.
•Capital expenditures were $1.5 billion infor both fiscal 2017 compared to $1.4 billion in2021 and fiscal 2016.2020.
•We returned $3.5$2.1 billion to our shareholders in fiscal 20172021 through dividends. We returned $3.6 billion in fiscal 2020 through share repurchases and dividends compareddividends. We temporarily suspended our share repurchase program in March 2020. Due to $3.2 billion in fiscal 2016.
Overview
Starbucks results for fiscal 2017 continued to demonstrate the strength of our global business model, and our ability to successfully make disciplined investments in our business recovery and restoration of certain leverage metrics, we have resumed our partners. Consolidated total net revenues increased 5% to $22.4 billion, primarily driven by incremental revenues from 2,320 net new store openings over the past 12 months and a 3% growth in global comparable store sales, partially offset by the absence of the 53rd week. Consolidated operating income declined $37 million, or 1%, to $4.1 billion. Operating margin declined 110 basis points to 18.5%, primarily due to increased partner investments, largelyshare repurchase program in the Americas segment, restructuring and impairment chargesand the absence of the 53rd week, partially offset by sales leverage. Earnings per share of $1.97 increased 4% over the prior year earnings per share of $1.90.
Americas revenue grew by 6% to $15.7 billion, primarily driven by incremental revenues from 952 net new store openings over the last 12 months and comparable store sales growth of 3%, partially offset by the absence of the 53rd week. The success of our premium food offerings coupled with innovation across our coffee and tea beverage platforms drove the increase in comparable store sales. Operating income declined $79 million to $3.7 billion and operating margin at 23.4% declined by 190 basis points from a year ago, primarily due to increased investments in our store partners, a product mix shift largely towards food, and the absence of the 53rd week. These were partially offset by sales leverage.
In our China/Asia Pacific segment, revenues grew by 10% to $3.2 billion, primarily driven by incremental revenues from the opening of 1,036 net new stores over the past 12 months and a 3% increase in comparable store sales, partially offset by the absence of the 53rd week and unfavorable foreign currency translation. Operating income grew 21% to $765 million, while operating margin expanded 210 basis points to 23.6%. The overall margin expansion was primarily due to the transition to China's new value added tax structure in fiscal 2016 and higher income from our joint venture operations. We now operate 7,479 stores in 15 countries in our China/Asia Pacific segment making this the second largest reportable segment.
We continue to execute on our strategy of repositioning the EMEA segment to a predominantly licensed model. As a result of this strategy, EMEA revenues declined $111 million to $1.0 billion, or 10%, primarily driven by the absence of revenue related to the sale of our Germany retail operations in the thirdfirst quarter of fiscal 2016 and unfavorable foreign currency translation. Partially offsetting the decrease were incremental revenues from the opening of 339 net new licensed stores over the past 12 months. Operating margin declined 200 basis points to 11.5% primarily due to a partial impairment of goodwill related to our Switzerland retail business, sales deleverage in certain company-operated stores and unfavorable foreign currency exchange. These decreases were partially offset by sales leverage driven by the shift in the portfolio towards more licensed stores.2022.
Channel Development segment revenues grew by 4% to $2.0 billion, primarily driven by increased sales through our international channels and sales of packaged coffee, foodservice and single-serve products. When excluding the revenue of the 53rd week in fiscal 2016, segment revenues grew by 6%. Operating income grew $86 million, or 11%, to $893 million. Operating margin increased 270 basis points to 44.5%, primarily driven by lower coffee costs, leverage on cost of sales and higher income from our North American Coffee Partnership joint venture.
Fiscal 2018 — The View Ahead
Turning to fiscal 2018, we expect continued growth through thoughtful long-term investments that create value and reward shareholders. These results are expected to be driven by our 6 operational priorities, which include:
Accelerate U.S. Comparable Store Sales
Drive Innovation in Food and Beverage
Accelerate the Power and Momentum of our Digital Platform
Enable Long-Term Growth in China
Elevate the Starbucks Experience through Siren Retail
Gain Share of At-Home Coffee
These priorities are our main focus to grow our core business with new customer acquisition through store growth, digital engagement and innovation, while we continue to foster long-term customer relationships. To successfully achieve these priorities, we will undertake a number of initiatives, including the pending transaction to acquire full ownership of our joint venture in East China and converting our Taiwan and Singapore markets to fully licensed operations. We are in the process of exiting certain activities including closing Teavana™ retail stores and certain Starbucks company-operated stores in Canada, the pending sale of our Tazo brand and related assets, and aggressively rationalizing merchandise in our U.S. retail stores. These strategic actions will enable us to focus on businesses and products with the highest growth potential and greatest prospect for returns. We expect revenue growth to be in the high single digits for the underlying business in fiscal 2018 driven by comparable store sales and the opening of approximately 2,300 net new Starbucks stores globally. An additional 2 to 3 points of revenue growth is expected related to the aforementioned strategic initiatives.
Diluted earnings per share for fiscal 2018 is expected to grow in excess of 40% when compared to fiscal 2017, largely due to the anticipated gain associated with the pending acquisition of East China.
Capital expenditures in fiscal 2018 are expected to be approximately $2.0 billion, primarily for investments in our new and existing stores, our developing Siren Retail business and our supply chain and corporate facilities.
During the fiscal year, our expected strong operational performance combined with the prudent leveraging of our balance sheet will enable us to return significant value to shareholders through share repurchases and dividends.
Acquisitions and Divestitures
See Note 2, Acquisitions, Divestitures and Divestitures,Strategic Alliance, to the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding acquisitions and divestitures.
RESULTS OF OPERATIONS — FISCAL 20172021 COMPARED TO FISCAL 20162020
Consolidated results of operations (in millions):
Revenues | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | % Change |
| Net revenues: | | | | | |
| Company-operated stores | $ | 24,607.0 | | | $ | 19,164.6 | | | 28.4 | % |
| Licensed stores | 2,683.6 | | | 2,327.1 | | | 15.3 | |
| Other | 1,770.0 | | | 2,026.3 | | | (12.6) | |
| Total net revenues | $ | 29,060.6 | | | $ | 23,518.0 | | | 23.6 | % |
|
| | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | % Change |
| | (52 Weeks Ended) | | (53 Weeks Ended) | |
| Net revenues: | | | | | |
| Company-operated stores | $ | 17,650.7 |
| | $ | 16,844.1 |
| | 4.8 | % |
| Licensed stores | 2,355.0 |
| | 2,154.2 |
| | 9.3 |
|
| CPG, foodservice and other | 2,381.1 |
| | 2,317.6 |
| | 2.7 |
|
| Total net revenues | $ | 22,386.8 |
| | $ | 21,315.9 |
| | 5.0 | % |
Total net revenues increased $1.1$5.5 billion, or 5%24%, over fiscal 2016,2020, primarily driven by increaseddue to higher revenues from company-operated stores ($807 million)5.4 billion). The growth in company-operated store revenuesrevenue was primarily driven by a 20% increase in comparable store sales ($3.8 billion), attributable to a 9% increase in comparable transactions and a 10% increase in average ticket, the incremental revenues from 768524 net new Starbucks® company-operated store openings, or a 3% increase, over the past 12 months ($869 million) and a 3% increase in comparable store sales ($496 million), attributable to a 3% increase in average ticket. Partially offsetting these incremental revenues was the absence of the 53rd week ($324782 million), the absenceimpact of sales from the conversion of certain company-operated stores to licensed storesextra week in fiscal 2021 ($121496 million) and the impact of unfavorablefavorable foreign currency translation ($70359 million).
Licensed storestores revenue growthof $357 million also contributed to the increase in total net revenue ($201 million), primarily due to increasedrevenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($260270 million), largely due to the opening of 1,552 net new Starbucks® licensed stores and improved comparable store sales, partially offset by the absenceimpact of the 53rdextra week in fiscal 2021 ($4157 million) and unfavorablethe impact of favorable foreign currency translation ($2728 million).
CPG, foodservice and otherOther revenues increased $64decreased $256 million, primarily driven by increased sales throughthe transition of certain single-serve product activities to Nestlé. Partially offsetting this decrease was growth in our international channels, primarily associated with our European and North American regionsready-to-drink business ($35 million), increased sales of U.S. packaged coffee ($32 million), foodservice ($3043 million) and premium single-serve productsthe impact of the extra fiscal week in fiscal 2021 ($23 million). Increased sales were partially offset by the absence of the 53rd week ($47 million)
Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Oct 3,
2021 | | Sep 27,
2020 |
| | | | | As a % of Total Net Revenues |
| Product and distribution costs | $ | 8,738.7 | | | $ | 7,694.9 | | | 30.1 | % | | 32.7 | % |
| Store operating expenses | 11,930.9 | | | 10,764.0 | | | 41.1 | | | 45.8 | |
| Other operating expenses | 359.5 | | | 430.3 | | | 1.2 | | | 1.8 | |
| Depreciation and amortization expenses | 1,441.7 | | | 1,431.3 | | | 5.0 | | | 6.1 | |
| General and administrative expenses | 1,932.6 | | | 1,679.6 | | | 6.7 | | | 7.1 | |
| Restructuring and impairments | 170.4 | | | 278.7 | | | 0.6 | | | 1.2 | |
| | | | | | | |
| Total operating expenses | 24,573.8 | | | 22,278.8 | | | 84.6 | | | 94.7 | |
| Income from equity investees | 385.3 | | | 322.5 | | | 1.3 | | | 1.4 | |
| Operating income | $ | 4,872.1 | | | $ | 1,561.7 | | | 16.8 | % | | 6.6 | % |
| Store operating expenses as a % of related revenues | | | | | 48.5 | % | | 56.2 | % |
Product and an unfavorable revenue deduction adjustment pertaining to periods prior to fiscal 2017 ($13 million).
Operating Expenses
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of Total Net Revenues |
| Cost of sales including occupancy costs | $ | 9,038.2 |
| | $ | 8,511.1 |
| | 40.4 | % | | 39.9 | % |
| Store operating expenses | 6,493.3 |
| | 6,064.3 |
| | 29.0 |
| | 28.4 |
|
| Other operating expenses | 553.8 |
| | 545.4 |
| | 2.5 |
| | 2.6 |
|
| Depreciation and amortization expenses | 1,011.4 |
| | 980.8 |
| | 4.5 |
| | 4.6 |
|
| General and administrative expenses | 1,393.3 |
| | 1,360.6 |
| | 6.2 |
| | 6.4 |
|
Restructuring and impairments
| 153.5 |
| | — |
| | 0.7 |
| | — |
|
| Total operating expenses | 18,643.5 |
| | 17,462.2 |
| | 83.3 |
| | 81.9 |
|
| Income from equity investees | 391.4 |
| | 318.2 |
| | 1.7 |
| | 1.5 |
|
| Operating income | $ | 4,134.7 |
| | $ | 4,171.9 |
| | 18.5 | % | | 19.6 | % |
| Store operating expenses as a % of related revenues | | | | | 36.8 | % | | 36.0 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 11.7 | % | | 12.2 | % |
Cost of sales including occupancydistribution costs as a percentage of total net revenues increased 50decreased 260 basis points, primarily due to sales leverage driven by a product mix shift (approximately 70 basis points) largely towards premium foodlapping the severe impact of the COVID-19 pandemic in the Americas segment,prior year and pricing in North America in the current year. These decreases were partially offset by leverage on costincreased supply chain costs due to accelerated inflationary pressures in the latter half of sales and occupancy costs (approximately 30 basis points).
fiscal 2021.
Store operating expenses as a percentage of total net revenues increased 60decreased 470 basis points. Store operating expenses as a percentage of company-operated store revenues increased 80decreased 770 basis points, primarily driven bydue to sales leverage from business recovery and lapping higher partner and digital investments, largelyCOVID-19 related costs in the Americas segmentprior year, mainly catastrophe and service pay for store partners, net of temporary subsidies from the U.S. and certain foreign governments (approximately 150190 basis points), and labor efficiencies (approximately 110 basis points). These decreases were partially offset by sales leverageenhancements in retail store partner wages and benefits (approximately 90140 basis points).
Other operating expenses decreased $71 million, primarily due to lower Global Coffee Alliance transaction costs, inclusive of lapping integration costs for the Global Coffee Alliance and a change of a related accrual estimate in fiscal 2021.
Depreciation and amortization expenses as a percentage of total net revenues decreased 10 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 50110 basis points, primarily due to lower performance-based compensation (approximately 20 basis points).sales leverage.
General and administrative expenses as a percentage of total net revenues decreased 20 basis points,increased $253 million, primarily driven by lowerdue to higher performance-based compensation, (approximately 30 basis points)recognizing the strength of the Company's overall recovery from pandemic-related business impacts ($111 million), incremental strategic investments in technology ($89 million), increased partner wages and employment taxes, includingbenefits ($26 million) and the impact of the extra week in fiscal 2021 ($22 million).
Restructuring and impairment expenses decreased $108 million, primarily due to lower asset impairment related to our North America store portfolio optimization ($65 million), lapping of higher employment taxes resultingthe intangible asset impairment from a multiple year audit in the prior year (approximately 20 basis points). These were partially offset by increased salaries($22 million) and benefits related to digital platforms, technology infrastructure and innovations.lower severance costs.
Restructuring and impairments charges in fiscal 2017 were primarily the result of our strategic changes in Teavana. We recorded $130 million of restructuring–related costs, including a partial goodwill impairment of $69 million, store asset impairments, and costs related to early store closure obligations and severance. Additionally, we recorded $18 million of partial goodwill impairment relating to our Switzerland retail business.
Income from equity investees increased $73$63 million, primarily due to higher income from our CAP joint venture operations, primarily Chinaand South Korea, as well as our North American Coffee Partnership.
The combinationPartnership joint venture ($30 million) and growth in our South Korea joint venture prior to divestiture ($22 million). We expect lower income from equity method investments in the future as a result of these changes resulted in an overall decrease in operating margin of 110 basis points in fiscal 2017 when compared to fiscal 2016.
Other Income and Expenses
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of Total Net Revenues |
| Operating income | $ | 4,134.7 |
| | $ | 4,171.9 |
| | 18.5 | % | | 19.6 | % |
| Interest income and other, net | 275.3 |
| | 108.0 |
| | 1.2 |
| | 0.5 |
|
| Interest expense | (92.5 | ) | | (81.3 | ) | | (0.4 | ) | | (0.4 | ) |
| Earnings before income taxes | 4,317.5 |
| | 4,198.6 |
| | 19.3 |
| | 19.7 |
|
| Income tax expense | 1,432.6 |
| | 1,379.7 |
| | 6.4 |
| | 6.5 |
|
| Net earnings including noncontrolling interests | 2,884.9 |
| | 2,818.9 |
| | 12.9 |
| | 13.2 |
|
| Net earnings attributable to noncontrolling interests | 0.2 |
| | 1.2 |
| | — |
| | — |
|
| Net earnings attributable to Starbucks | $ | 2,884.7 |
| | $ | 2,817.7 |
| | 12.9 | % | | 13.2 | % |
| Effective tax rate including noncontrolling interests | | | | | 33.2 | % | | 32.9 | % |
Interest income and other, net increased $167 million, primarily driven by gains from the sale of our
Singapore retail operations ($84 million)South Korea joint venture (see Note 2); however, we do not expect this transaction to have a material impact on future revenue and our investment in Square, Inc. warrants ($41 million). Also contributing favorably was higher income recognized on unredeemed stored value card balances ($44 million).Interest expense increased $11 million primarily related to additional interest incurred on long-term debt issued in February 2016, May 2016 and March 2017, partially offset by lower interest expense from the repayment of our December 2016 notes.
The effective tax rate for fiscal 2017 was 33.2% compared to 32.9% for fiscal 2016. The increase in the effective tax rate was primarily due to unfavorability from non-deductible goodwill impairment charges recorded in the third quarter of fiscal 2017 (approximately 70 basis points), and the lapping of the release of certain tax reserves in the third quarter of fiscal 2016, primarily related to statute closures (approximately 30 basis points). The increase was partially offset by the largely non-taxable gain on the sale of our Singapore retail operations in the fourth quarter of fiscal 2017 (approximately 70 basis points).
Segment Information
Results of operations by segment (in millions):
Americas
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of Americas Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 13,996.4 |
| | $ | 13,247.4 |
| | 89.4 | % | | 89.5 | % |
| Licensed stores | 1,617.3 |
| | 1,518.5 |
| | 10.3 |
| | 10.3 |
|
| Foodservice and other | 39.0 |
| | 29.5 |
| | 0.2 |
| | 0.2 |
|
| Total net revenues | 15,652.7 |
| | 14,795.4 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 5,720.3 |
| | 5,271.9 |
| | 36.5 |
| | 35.6 |
|
| Store operating expenses | 5,320.2 |
| | 4,909.3 |
| | 34.0 |
| | 33.2 |
|
| Other operating expenses | 128.5 |
| | 96.0 |
| | 0.8 |
| | 0.6 |
|
| Depreciation and amortization expenses | 615.0 |
| | 590.1 |
| | 3.9 |
| | 4.0 |
|
| General and administrative expenses | 201.4 |
| | 186.1 |
| | 1.3 |
| | 1.3 |
|
| Restructuring and impairments | 4.1 |
| | — |
| | — | % | | — | % |
| Total operating expenses | 11,989.5 |
| | 11,053.4 |
| | 76.6 |
| | 74.7 |
|
| Operating income | $ | 3,663.2 |
| | $ | 3,742.0 |
| | 23.4 | % | | 25.3 | % |
| Store operating expenses as a % of related revenues | | | | | 38.0 | % | | 37.1 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 7.8 | % | | 6.2 | % |
Revenues
Americas total net revenues for fiscal 2017 increased $857 million, or 6%, over fiscal 2016, primarily due to increased revenues from company-operated stores (contributing $749 million) and licensed stores (contributing $99 million).
The increase in company-operated store revenues was driven by incremental revenues from 383 net new Starbucks® company-operated store openings over the past 12 months ($585 million) and a 3% increase incomparable store sales ($426 million), attributable to a 4% increase in average ticket, partially offset by the absence of the 53rd week ($258 million)
The increase in licensed store revenues was primarily driven by increased product sales to and royalty revenues from our licensees ($127 million), primarily resulting from the opening of 569 net new Starbucks® licensed stores over the past 12 months and improved comparable store sales, partially offset by the absence of the 53rd week ($31 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 90 basis points, primarily due to a product mix shift (approximately 70 basis points) largely towards premium food.
Store operating expenses as a percentage of total net revenues increased 80 basis points. As a percentage of company-operated store revenues, store operating expenses increased 90 basis points, primarily driven by increased partner and digital investments (approximately 180 basis points), partially offset by sales leverage on salaries and benefits (approximately 80 basis points).
Other operating expenses as a percentage of total net revenues increased 20 basis points. Excluding the impact of company-operated store revenues, other operating expenses increased 160 basis points, primarily due to lapping a settlement received in the fourth quarter of fiscal 2016 related to the closure of Target Canada stores in fiscal 2015 (approximately 120 basis points).
General and administrative expenses as a percentage of total net revenues were flat, primarily driven by higher salaries and benefits (approximately 10 basis points), offset by sales leverage.
Restructuring and impairment charges of $4 million related to asset impairments of certain company-operated stores in Canada.
The combination of these changes resulted in an overall decrease in operating margin of 190 basis points in fiscal 2017 when compared to fiscal 2016.
China/Asia Pacific
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of China/Asia Pacific
Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 2,906.0 |
| | $ | 2,640.4 |
| | 89.7 | % | | 89.8 | % |
| Licensed stores | 327.4 |
| | 292.3 |
| | 10.1 |
| | 9.9 |
|
| Foodservice and other | 6.8 |
| | 6.1 |
| | 0.2 |
| | 0.2 |
|
| Total net revenues | 3,240.2 |
| | 2,938.8 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 1,393.9 |
| | 1,296.7 |
| | 43.0 |
| | 44.1 |
|
| Store operating expenses | 845.5 |
| | 779.4 |
| | 26.1 |
| | 26.5 |
|
| Other operating expenses | 74.6 |
| | 70.3 |
| | 2.3 |
| | 2.4 |
|
| Depreciation and amortization expenses | 202.2 |
| | 180.6 |
| | 6.2 |
| | 6.1 |
|
| General and administrative expenses | 156.0 |
| | 130.3 |
| | 4.8 |
| | 4.4 |
|
| Total operating expenses | 2,672.2 |
| | 2,457.3 |
| | 82.5 |
| | 83.6 |
|
| Income from equity investees | 197.0 |
| | 150.1 |
| | 6.1 |
| | 5.1 |
|
| Operating income | $ | 765.0 |
| | $ | 631.6 |
| | 23.6 | % | | 21.5 | % |
| Store operating expenses as a % of related revenues | | | | | 29.1 | % | | 29.5 | % |
| Other operating expenses as a % of non-company-operated store revenues | | | | | 22.3 | % | | 23.6 | % |
Revenues
China/Asia Pacific total net revenues for fiscal 2017 increased $301 million, or 10%, over fiscal 2016, primarily from higher company-operated store revenues ($266 million), driven by incremental revenues from 392 net new company-operated store openings over the past 12 months ($293 million). Also contributing was a 3% increase in comparable store sales ($67 million), partially offset by the absence of the 53rd week ($52 million) and unfavorable foreign currency translation ($40 million).
Licensed store revenues increased $35 million, primarily driven by increased product sales to and royalty revenues from licensees ($39 million), primarily resulting from the opening of 644 net new licensed stores over the past 12 months, partially offset the absence of the 53rd week ($4 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues decreased 110 basis points, primarily driven by favorability from the transition to China's new value added tax structure (approximately 120 basis points).
Store operating expenses as a percentage of total net revenues decreased 40 basis points. As a percentage of company-operated store revenues, store operating expenses decreased 40 basis points, primarily due to sales leverage on salaries and benefits (approximately 30 basis points) and lower performance-based compensation in Japan (approximately 10 basis points).
Other operating expenses as a percentage of total net revenues decreased 10 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 130 basis points, primarily due to lower performance-based compensation (approximately 80 basis points) and lapping of investments in regional leadership and training conferences in the prior year (approximately 50 basis points).
General and administrative expenses as a percentage of total revenues increased 40 basis points, primarily due to continued focus and investment in product quality and innovation (approximately 40 basis points).
Income from equity investees increased $47 million, driven by higher income from our joint venture operations, primarily in East China and South Korea. Favorability in both regions was attributable to comparable store sales growth and the addition of net new licensed stores over the past 12 months. East China also benefited from the new value added tax structure.trends.
The combination of these changes resulted in an overall increase in operating margin of 2101,020 basis points in fiscal 20172021 when compared to fiscal 2016.2020.
Other Income and Expenses | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Oct 3,
2021 | | Sep 27,
2020 |
| | | | | As a % of Total Net Revenues |
| Operating income | $ | 4,872.1 | | | $ | 1,561.7 | | | 16.8 | % | | 6.6 | % |
| Net gain resulting from divestiture of certain operations | 864.5 | | | — | | | 3.0 | | | — | |
| Interest income and other, net | 90.1 | | | 39.7 | | | 0.3 | | | 0.2 | |
| Interest expense | (469.8) | | | (437.0) | | | (1.6) | | | (1.9) | |
| Earnings before income taxes | 5,356.9 | | | 1,164.4 | | | 18.4 | | | 5.0 | |
| Income tax expense | 1,156.6 | | | 239.7 | | | 4.0 | | | 1.0 | |
| Net earnings including noncontrolling interests | 4,200.3 | | | 924.7 | | | 14.5 | | | 3.9 | |
| Net earnings/(loss) attributable to noncontrolling interests | 1.0 | | | (3.6) | | | — | | | — | |
| Net earnings attributable to Starbucks | $ | 4,199.3 | | | $ | 928.3 | | | 14.5 | % | | 3.9 | % |
| Effective tax rate including noncontrolling interests | | | | | 21.6 | % | | 20.6 | % |
EMEANet gain resulting from divestiture of certain operations increased $865 million due to the sale of our ownership interest in our South Korea joint venture.
Interest income and other, net increased $50 million, primarily due to additional income from certain investments and net favorable fair value adjustments from derivatives used to manage our commodity price fluctuation risk.
Interest expense increased $33 million primarily due to additional interest incurred on long-term debt issued in March 2020 and May 2020.
The effective tax rate for fiscal 2021 was 21.6% compared to 20.6% for fiscal 2020. The increase was due to the foreign rate differential on our jurisdictional mix of earnings (approximately 380 basis points) as well as higher pre-tax income in fiscal 2021, which resulted in lower rate benefits from several discrete items, including stock-based compensation excess tax benefits (approximately 380 basis points), the release of income tax reserves upon expiration of statute of limitations (approximately 150 basis points) and the remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 80 basis points). These unfavorable drivers were partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 990 basis points). See Note 14, Income Taxes, for further discussion. |
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of EMEA
Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 551.0 |
| | $ | 732.0 |
| | 54.4 | % | | 65.1 | % |
| Licensed stores | 407.7 |
| | 339.5 |
| | 40.2 |
| | 30.2 |
|
| Foodservice | 55.0 |
| | 53.4 |
| | 5.4 |
| | 4.7 |
|
| Total net revenues | 1,013.7 |
| | 1,124.9 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 533.5 |
| | 565.0 |
| | 52.6 |
| | 50.2 |
|
| Store operating expenses | 214.1 |
| | 260.6 |
| | 21.1 |
| | 23.2 |
|
| Other operating expenses | 59.1 |
| | 57.0 |
| | 5.8 |
| | 5.1 |
|
| Depreciation and amortization expenses | 31.3 |
| | 40.8 |
| | 3.1 |
| | 3.6 |
|
| General and administrative expenses | 41.7 |
| | 51.4 |
| | 4.1 |
| | 4.6 |
|
| Restructuring and impairments | 17.9 |
| | — |
| | 1.8 |
| | — |
|
| Total operating expenses | 897.6 |
| | 974.8 |
| | 88.5 |
| | 86.7 |
|
| Income from equity investees | — |
| | 1.5 |
| | — |
| | 0.1 |
|
| Operating income | $ | 116.1 |
| | $ | 151.6 |
| | 11.5 | % | | 13.5 | % |
| Store operating expenses as a % of related revenues | | | | | 38.9 | % | | 35.6 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 12.8 | % | | 14.5 | % |
RevenuesSegment Information
EMEAResults of operations by segment (in millions):
North America (1) | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Oct 3,
2021 | | Sep 27,
2020 |
| | | | | As a % of North America
Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 18,737.3 | | | $ | 14,778.8 | | | 91.6 | % | | 90.7 | % |
| Licensed stores | 1,702.2 | | | 1,509.9 | | | 8.3 | | | 9.3 | |
| Other | 8.4 | | | 7.5 | | | — | | | — | |
| Total net revenues | 20,447.9 | | | 16,296.2 | | | 100.0 | | | 100.0 | |
| Product and distribution costs | 5,453.8 | | | 4,564.4 | | | 26.7 | | | 28.0 | |
| Store operating expenses | 9,359.5 | | | 8,488.0 | | | 45.8 | | | 52.1 | |
| Other operating expenses | 166.0 | | | 154.6 | | | 0.8 | | | 0.9 | |
| Depreciation and amortization expenses | 753.9 | | | 762.0 | | | 3.7 | | | 4.7 | |
| General and administrative expenses | 300.0 | | | 268.0 | | | 1.5 | | | 1.6 | |
| Restructuring and impairments | 155.4 | | | 257.5 | | | 0.8 | | | 1.6 | |
| Total operating expenses | 16,188.6 | | | 14,494.5 | | | 79.2 | | | 88.9 | |
| | | | | | | |
| Operating income | $ | 4,259.3 | | | $ | 1,801.7 | | | 20.8 | % | | 11.1 | % |
| | | | | | | |
(1)North America licensed store revenues, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the fiscal year ended September 27, 2020, have been restated to conform with current period presentation.
Revenues
North America total net revenues for fiscal 2017 decreased $111 million,2021 increased $4.2 billion, or 10%25%, over fiscal 2016. The decrease was primarily due to a decline22% increase in company-operatedcomparable store sales ($3.1 billion) driven by a 13% increase in average ticket and a 7% increase in transactions and the impact of the extra week in fiscal 2021 ($427 million). Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores, including stores related to our restructuring plan ($394 million), higher product and equipment sales to and royalty revenues from our licensees ($151 million) primarily due to lapping the severe impact of the COVID-19 pandemic in the prior year and favorable foreign currency translation ($76 million).
Operating Margin
North America operating income for fiscal 2021 increased 136% to $4.3 billion, compared to $1.8 billion in fiscal 2020. Operating margin increased 970 basis points to 20.8%, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies provided by the CARES Act and CEWS (approximately 180 basis points). Also contributing to the margin improvements were pricing (approximately 130 basis points), lower restructuring expenses (approximately 80 basis points) and benefits from the closure of lower-performing stores (approximately 60 basis points). These increases were partially offset by enhancements in retail store partner wages and benefits (approximately 150 basis points) and, to a lesser extent, increased supply chain costs due to accelerated inflationary pressures in the latter half of fiscal 2021.
International (1) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Oct 3,
2021 | | Sep 27,
2020 | | |
| | | | | As a % of International Total Net Revenues | | |
| Net revenues: | | | | | | | | | |
| Company-operated stores | $ | 5,869.7 | | | $ | 4,385.8 | | | 84.8 | % | | 83.8 | % | | |
| Licensed stores | 981.4 | | | 817.2 | | | 14.2 | | | 15.6 | | | |
| Other | 70.5 | | | 27.6 | | | 1.0 | | | 0.5 | | | |
| Total net revenues | 6,921.6 | | | 5,230.6 | | | 100.0 | | | 100.0 | | | |
| Product and distribution costs | 2,187.3 | | | 1,729.1 | | | 31.6 | | | 33.1 | | | |
| Store operating expenses | 2,571.4 | | | 2,276.0 | | | 37.2 | | | 43.5 | | | |
| Other operating expenses | 147.3 | | | 153.6 | | | 2.1 | | | 2.9 | | | |
| Depreciation and amortization expenses | 544.7 | | | 518.4 | | | 7.9 | | | 9.9 | | | |
| General and administrative expenses | 360.5 | | | 286.4 | | | 5.2 | | | 5.5 | | | |
| Restructuring and impairments | — | | | (1.2) | | | — | | | — | | | |
| Total operating expenses | 5,811.2 | | | 4,962.3 | | | 84.0 | | | 94.9 | | | |
| Income from equity investees | 135.3 | | | 102.3 | | | 2.0 | | | 2.0 | | | |
| Operating income | $ | 1,245.7 | | | $ | 370.6 | | | 18.0 | % | | 7.1 | % | | |
(1)International licensed store revenues, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the fiscal year ended September 27, 2020, have been restated to conform with current period presentation.
Revenues
International total net revenues for fiscal 2021 increased $1.7 billion, or 32%, primarily due to a 16% increase in comparable store sales ($181697 million), driven by the shift to more licensed storesa 14% increase in the region ($121 million), which includes the absence of revenues related to the sale of our Germany retail operationstransactions and a 1% increase in the third quarter of fiscal 2016.average ticket. Also contributing to this increase were 746 net new Starbucks® company-operated stores, or an 11% increase, over the declinepast 12 months ($388 million). Additionally, there was unfavorablefavorable foreign currency translation ($43310 million), the impact of the extra week in fiscal 2021 ($127 million) and the absence of the 53rd week ($11 million).
Licensed store revenues increased $68 million, driven by higher product sales to and royalty revenues from our licensees ($95121 million), resulting from the opening of 339 net new licensed stores and the transfer of 14 company-operated stores to licensed stores over the past 12 months. These increases were partially offset by unfavorable foreign currency translation ($24 million) and the absence of the 53rd week ($6 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 240 basis points, primarily due to unfavorable foreign currency transactions (approximately 140 basis points) and the shift in the composition of our store portfolio to more licensed stores, which have a lower gross margin (approximately 100 basis points).
Store operating expenses as a percentage of total net revenues decreased 210 basis points. As a percentage of company-operated store revenues, store operating expenses increased 330 basis points, primarily due to sales deleverage in certain company-operated stores(approximately 320 basis points) andlapping the impact of a tax settlement (approximately 100 basis points), partially offset by the shiftCOVID-19 pandemic in the portfolio towards more licensed stores (approximately 140prior year.
Operating Margin
International operating income for fiscal 2021 increased 236% to $1.2 billion, compared to $371 million in fiscal 2020. Operating margin increased 1,090 basis points).
Other operating expenses as a percentage of total net revenues increased 70 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 170 basis points to 18.0%, primarily due to sales leverage driven by lapping the shift to more licensed storessevere impact of the COVID-19 pandemic in the prior year as well as higher temporary government subsidies (approximately 170 basis points).
Depreciation and amortization expenses as a percentage of total net revenues decreased 50labor efficiencies (approximately 110 basis points, primarily duepoints). Also contributing to this increase was lapping temporary royalty relief provided to licensees in the shift in portfolio towards more licensed storesprior year (approximately 5060 basis points).
Restructuring and impairment charges in fiscal 2017 relate to a partial goodwill impairment recorded in our Switzerland company-operated retail reporting unit, which we fully acquired in the fourth quarter
efforts for our Switzerland retail business are not expected to fully recover the reporting unit's carrying value given the sustained nature of these and other external factors. As a result, we recorded a goodwill impairment charge of $18 million in the third quarter of fiscal 2017.
The combination of these changes resulted in an overall decrease in operating margin of 200 basis points in fiscal 2017 when compared to fiscal 2016.
Channel Development
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Oct 1,
2017 | | Oct 2,
2016 |
| | (52 Weeks Ended) | | (53 Weeks Ended) | | |
| | | | | | As a % of Channel Development
Total Net Revenues |
| Net revenues: | | | | | | | |
| CPG | $ | 1,543.7 |
| | $ | 1,488.2 |
| | 76.9 | % | | 77.0 | % |
| Foodservice | 464.9 |
| | 444.3 |
| | 23.1 |
| | 23.0 |
|
| Total net revenues | 2,008.6 |
| | 1,932.5 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales | 1,074.3 |
| | 1,042.6 |
| | 53.5 |
| | 54.0 |
|
| Other operating expenses | 222.2 |
| | 228.5 |
| | 11.1 |
| | 11.8 |
|
| Depreciation and amortization expenses | 2.2 |
| | 2.8 |
| | 0.1 |
| | 0.1 |
|
| General and administrative expenses | 10.9 |
| | 17.9 |
| | 0.5 |
| | 0.9 |
|
| Total operating expenses | 1,309.6 |
| | 1,291.8 |
| | 65.2 |
| | 66.8 |
|
| Income from equity investees | 194.4 |
| | 166.6 |
| | 9.7 |
| | 8.6 |
|
| Operating income | $ | 893.4 |
| | $ | 807.3 |
| | 44.5 | % | | 41.8 | % |
Discussion of our Channel Development segment results reflects the impact of an unfavorable revenue deduction adjustment recorded in the second quarter of fiscal 2017. While this adjustment was immaterial, the discussion below quantifies the impact to provide a better understanding of our results for fiscal 2017. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Oct 3,
2021 | | Sep 27,
2020 | | |
| | | | | As a % of Channel Development
Total Net Revenues | | |
| Net revenues | $ | 1,593.6 | | | $ | 1,925.0 | | | | | | | |
| Product and distribution costs | 1,011.2 | | | 1,338.1 | | | 63.5 | | | 69.5 | | | |
| Other operating expenses | 31.3 | | | 108.2 | | | 2.0 | | | 5.6 | | | |
| Depreciation and amortization expenses | 1.2 | | | 1.2 | | | 0.1 | | | 0.1 | | | |
| General and administrative expenses | 10.8 | | | 10.5 | | | 0.7 | | | 0.5 | | | |
| Total operating expenses | 1,054.5 | | | 1,458.0 | | | 66.2 | | | 75.7 | | | |
| Income from equity investees | 250.0 | | | 220.2 | | | 15.7 | | | 11.4 | | | |
| Operating income | $ | 789.1 | | | $ | 687.2 | | | 49.5 | % | | 35.7 | % | | |
Revenues
Channel Development total net revenues for fiscal 2017 increased $762021 decreased $331 million, or 4%17%, overcompared to fiscal 2016. CPG revenue growth was driven by increased sales through our international channels,2020, primarily associated with our European and North American regionsdue to the transition of certain single-serve product activities to Nestlé ($35 million), U.S. packaged coffee ($32348 million) and premium single-serve productsthe lapping of higher transition activities related to the Global Coffee Alliance in the prior year ($2385 million). Higher foodservice sales were primarily the result of a change to a direct distribution model and recognizing the benefit of full revenue from premium single-serve product sales. Increased salesThese were partially offset by the absence of the 53rd week ($40 million) and an unfavorable revenue deduction adjustment pertaining to prior periods ($13 million).
Operating Expenses
Cost of sales as a percentage of total net revenues decreased 50 basis points, primarily driven by lower coffee costs (approximately 90 basis points) and leverage on cost of sales (approximately 60 basis points), partially offset by a shift toward lower margin products (approximately 100 basis points) and the revenue deduction adjustment pertaining to prior periods (approximately 30 basis points).
Other operating expenses as a percentage of total net revenues decreased 70 basis points, primarily driven by lower performance-based compensation (approximately 40 basis points).
General and administrative expenses as a percentage of total net revenues decreased 40 basis points, primarily driven by lower performance-based compensation (approximately 20 basis points) and salaries and benefits (approximately 10 basis points).
Income from equity investees increased $28 million for fiscal 2017, due to higher income from our North American Coffee Partnership joint venture, driven by increased sales of Frappuccino® and Starbucks Doubleshot® beverages as well as new product launches over the past 12 months.
The combination of these changes contributed to an overall increase in operating margin of 270 basis points in fiscal 2017 when compared to fiscal 2016.
All Other Segments
|
| | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | % Change |
| | (52 Weeks Ended) | | (53 Weeks Ended) | |
| Net revenues: | | | | | |
| Company-operated stores | $ | 197.3 |
| | $ | 224.3 |
| | (12.0 | )% |
| Licensed stores | 2.6 |
| | 3.9 |
| | (33.3 | ) |
| CPG, foodservice and other | 271.7 |
| | 296.1 |
| | (8.2 | ) |
| Total net revenues | 471.6 |
| | 524.3 |
| | (10.1 | ) |
| Cost of sales including occupancy costs | 308.0 |
| | 316.5 |
| | (2.7 | ) |
| Store operating expenses | 113.5 |
| | 115.0 |
| | (1.3 | ) |
| Other operating expenses | 68.2 |
| | 91.4 |
| | (25.4 | ) |
| Depreciation and amortization expenses | 10.1 |
| | 13.3 |
| | (24.1 | ) |
| General and administrative expenses | 14.6 |
| | 26.5 |
| | (44.9 | ) |
| Restructuring and impairments | 131.5 |
| | — |
| | nm |
|
| Total operating expenses | 645.9 |
| | 562.7 |
| | 14.8 |
|
| Operating loss | $ | (174.3 | ) | | $ | (38.4 | ) | | 353.9 | % |
All Other Segments primarily includes Teavana-branded stores, Seattle’s Best Coffee, as well as certain developing businesses such as Siren Retail. The increase in the operating loss in the fourth quarter of fiscal 2017 compared to the fourth quarter of fiscal 2016 was primarily due to restructuring and impairment charges related to our strategy to close Teavana™ retail stores and focus on Teavana™ tea within Starbucks® stores. We recorded $69 million for the partial impairment of goodwill and $60 million in restructuring-related costs, including asset impairments, costs associated with the early closure of stores and their related obligations, and severance.
RESULTS OF OPERATIONS — FISCAL 2016 COMPARED TO FISCAL 2015
Consolidated results of operations (in millions):
Revenues
|
| | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | %
Change |
| | (53 Weeks Ended) | | (52 Weeks Ended) | |
| Net revenues: | | | | | |
| Company-operated stores | $ | 16,844.1 |
| | $ | 15,197.3 |
| | 10.8 | % |
| Licensed stores | 2,154.2 |
| | 1,861.9 |
| | 15.7 |
|
| CPG, foodservice and other | 2,317.6 |
| | 2,103.5 |
| | 10.2 |
|
| Total net revenues | $ | 21,315.9 |
| | $ | 19,162.7 |
| | 11.2 | % |
Total net revenues increased $2.2 billion, or 11%, over fiscal 2015, primarily due to increased revenues from company-operated stores (contributing $1.6 billion). The growth in company-operated store revenues was primarily driven by 5% growth in comparable store salesour ready-to-drink business ($793 million), incremental revenues from 693 net new Starbucks® company-operated store openings over the past 12 months ($724 million), the impact of the extra week in fiscal 2016 ($324 million) and incremental revenues from the impact of our ownership change in Starbucks Japan ($105 million). Partially offsetting these increases was the absence of revenue from the conversion of certain company-operated stores to licensed stores ($151 million) and the impact of unfavorable foreign currency translation ($99 million).
Licensed store revenue growth contributed $292 million to the increase in total net revenues, primarily resulting from higher product sales to and royalty revenues from our licensees ($285 million), largely due to the opening of 1,372 net new Starbucks® licensed stores, the transfer of 200 company-operated stores to licensed stores over the past 12 months and improved comparable store sales, as well as the impact of the extra week in fiscal 2016 ($41 million). Partially offsetting these
increases was the impact of unfavorable foreign currency translation ($33 million) and a decrease in licensed store revenues resulting from the impact of our ownership change in Starbucks Japan ($6 million).
CPG, foodservice and other revenues increased $214 million, primarily due to higher sales of premium single-serve products ($106 million), the impact of the extra week in fiscal 2016 ($47 million), and increased foodservice sales ($34 million) and U.S. packaged coffee ($32 million).
Operating Expenses
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of Total Net Revenues |
| Cost of sales including occupancy costs | $ | 8,511.1 |
| | $ | 7,787.5 |
| | 39.9 | % | | 40.6 | % |
| Store operating expenses | 6,064.3 |
| | 5,411.1 |
| | 28.4 |
| | 28.2 |
|
| Other operating expenses | 545.4 |
| | 522.4 |
| | 2.6 |
| | 2.7 |
|
| Depreciation and amortization expenses | 980.8 |
| | 893.9 |
| | 4.6 |
| | 4.7 |
|
| General and administrative expenses | 1,360.6 |
| | 1,196.7 |
| | 6.4 |
| | 6.2 |
|
| Total operating expenses | 17,462.2 |
| | 15,811.6 |
| | 81.9 |
| | 82.5 |
|
| Income from equity investees | 318.2 |
| | 249.9 |
| | 1.5 |
| | 1.3 |
|
| Operating income | $ | 4,171.9 |
| | $ | 3,601.0 |
| | 19.6 | % | | 18.8 | % |
| Store operating expenses as a % of related revenues | | | | | 36.0 | % | | 35.6 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 12.2 | % | | 13.2 | % |
Cost of sales including occupancy costs as a percentage of total net revenues decreased 70 basis points, primarily driven by leverage on cost of sales and occupancy costs (approximately 70 basis points) and lower commodity costs (approximately 50 basis points).
Store operating expenses as a percentage of total net revenues increased 20 basis points. Store operating expenses as a percentage of company-operated store revenues increased 40 basis points, primarily driven by increased investments in partners (employees) and digital platforms (approximately 80 basis points), partially offset by sales leverage (approximately 30 basis points).
Other operating expenses as a percentage of total net revenues decreased 10 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 100 basis points, primarily due to a settlement in the fourth quarter of fiscal 2016 related to the closure of Target Canada stores in the prior year (approximately 50 basis points), the lapping of impairment of certain assets in the Americas segment in the prior year (approximately 20 basis points) and improved collection results (approximately 20 basis points).
General and administrative expenses as a percentage of total net revenues increased 20 basis points, primarily driven by higher salaries and benefits (approximately 30 basis points).
Income from equity investees as a percentage of total net revenues increased 20 basis points due to higher income from our joint venture operations, primarily from our North American Coffee Partnership and our joint ventures in China and South Korea.
The combination of these changes resulted in an overall increase in operating margin of 80 basis points over fiscal 2015.
Other Income and Expenses
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of Total Net Revenues |
| Operating income | $ | 4,171.9 |
| | $ | 3,601.0 |
| | 19.6 | % | | 18.8 | % |
| Gain resulting from acquisition of joint venture | — |
| | 390.6 |
| | — |
| | 2.0 |
|
| Loss on extinguishment of debt | — |
| | (61.1 | ) | | — |
| | (0.3 | ) |
| Interest income and other, net | 108.0 |
| | 43.0 |
| | 0.5 |
| | 0.2 |
|
| Interest expense | (81.3 | ) | | (70.5 | ) | | (0.4 | ) | | (0.4 | ) |
| Earnings before income taxes | 4,198.6 |
| | 3,903.0 |
| | 19.7 |
| | 20.4 |
|
| Income tax expense | 1,379.7 |
| | 1,143.7 |
| | 6.5 |
| | 6.0 |
|
| Net earnings including noncontrolling interests | 2,818.9 |
| | 2,759.3 |
| | 13.2 |
| | 14.4 |
|
| Net earnings attributable to noncontrolling interests | 1.2 |
| | 1.9 |
| | — |
| | — |
|
| Net earnings attributable to Starbucks | $ | 2,817.7 |
| | $ | 2,757.4 |
| | 13.2 | % | | 14.4 | % |
| Effective tax rate including noncontrolling interests | | | | | 32.9 | % | | 29.3 | % |
During the first quarter of fiscal 2015, we recorded a gain of $391 million as a result of remeasuring our preexisting 39.5% ownership interest in Starbucks Japan to fair value upon acquisition.
During the fourth quarter of fiscal 2015, we recorded a loss of $61 million related to the redemption of our $550 million of 6.250% Senior Notes (the “2017 notes”), which were originally scheduled to mature in August 2017. The loss primarily relates to the optional redemption premium outlined in the 2017 notes indenture, as well as the derecognition of the capitalized issuance costs and unamortized discount.
Interest income and other, net increased $65 million, primarily due to higher income recognized on unredeemed stored value card balances ($21 million), net favorable foreign exchange fluctuations ($11 million) and gains on our trading securities portfolio ($8 million).
Interest expense increased $11 million primarily due to interest on the long-term debt we issued in February and May 2016.
Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as discrete items that may occur in any given year, but are not consistent from year to year. The effective tax rate for fiscal 2016 was 32.9% compared to 29.3% for fiscal 2015. The increase in the rate for fiscal 2016 was primarily due to the 3.7% impact of the gain in the prior year associated with the remeasurement of our preexisting 39.5% ownership interest in Starbucks Japan upon acquisition, which was almost entirely non-taxable.
Segment Information
Results of operations by segment (in millions):
Americas
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of Americas Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 13,247.4 |
| | $ | 11,925.6 |
| | 89.5 | % | | 89.7 | % |
| Licensed stores | 1,518.5 |
| | 1,334.4 |
| | 10.3 |
| | 10.0 |
|
| Foodservice and other | 29.5 |
| | 33.4 |
| | 0.2 |
| | 0.3 |
|
| Total net revenues | 14,795.4 |
| | 13,293.4 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 5,271.9 |
| | 4,845.0 |
| | 35.6 |
| | 36.4 |
|
| Store operating expenses | 4,909.3 |
| | 4,387.9 |
| | 33.2 |
| | 33.0 |
|
| Other operating expenses | 96.0 |
| | 122.8 |
| | 0.6 |
| | 0.9 |
|
| Depreciation and amortization expenses | 590.1 |
| | 522.3 |
| | 4.0 |
| | 3.9 |
|
| General and administrative expenses | 186.1 |
| | 192.1 |
| | 1.3 |
| | 1.4 |
|
| Total operating expenses | 11,053.4 |
| | 10,070.1 |
| | 74.7 |
| | 75.8 |
|
| Operating income | $ | 3,742.0 |
| | $ | 3,223.3 |
| | 25.3 | % | | 24.2 | % |
| Store operating expenses as a % of related revenues | | | | | 37.1 | % | | 36.8 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 6.2 | % | | 9.0 | % |
Revenues
Americas total net revenues for fiscal 2016 increased $1.5 billion, or 11%, primarily due to increased revenues from company-operated stores (contributing $1.3 billion) and licensed stores (contributing $184 million).
The increase in company-operated store revenues was driven by a 6% increase in comparable store sales ($730 million), incremental revenues from 348 net new Starbucks® company-operated store openings over the past 12 months ($48152 million) and the impact of the extra week in fiscal 20162021 ($258 million). Partially offsetting these increases was unfavorable foreign currency translation ($91 million), primarily driven by the strengthening of the U.S. dollar against the Canadian dollar.
The increase in licensed store revenues was primarily due to higher product sales to and royalty revenues from our licensees ($150 million), resulting from the opening of 456 net new licensed stores over the past 12 months and improved comparable store sales, as well as the impact of the extra week in fiscal 2016 ($3121 million).
Operating ExpensesMargin
Cost of sales including occupancy costs as a percentage of total net revenues decreased 80Channel Development operating income for fiscal 2021 increased 15% to $789 million, compared to $687 million in fiscal 2020. Operating margin increased 1,380 basis points primarily driven by leverage on cost of sales and occupancy costs (approximately 50 basis points) and lower commodity costs (approximately 40 basis points).
Store operating expenses as a percentage of total net revenues increased 20 basis points. As a percentage of company-operated store revenues, store operating expenses increased 30 basis points, primarily driven by increased investments in store partners and digital platforms (approximately 100 basis points), partially offset by sales leverage on salaries and benefits (approximately 80 basis points).
Other operating expenses as a percentage of total net revenues decreased 30 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 280 basis points, primarily due to a settlement in the fourth quarter of fiscal 2016 related to the closure of Target Canada stores in the prior year (approximately 140 basis points)49.5%, the lapping of impairment of certain assets in the region (approximately 60 basis points) and improved collection results (approximately 40 basis points).
The combination of these changes resulted in an overall increase in operating margin of 110 basis points over fiscal 2015.
China/Asia Pacific
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of China/Asia Pacific
Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 2,640.4 |
| | $ | 2,127.3 |
| | 89.8 | % | | 88.8 | % |
| Licensed stores | 292.3 |
| | 264.4 |
| | 9.9 |
| | 11.0 |
|
| Foodservice and other | 6.1 |
| | 4.2 |
| | 0.2 |
| | 0.2 |
|
| Total net revenues | 2,938.8 |
| | 2,395.9 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 1,296.7 |
| | 1,071.5 |
| | 44.1 |
| | 44.7 |
|
| Store operating expenses | 779.4 |
| | 609.8 |
| | 26.5 |
| | 25.5 |
|
| Other operating expenses | 70.3 |
| | 62.2 |
| | 2.4 |
| | 2.6 |
|
| Depreciation and amortization expenses | 180.6 |
| | 150.7 |
| | 6.1 |
| | 6.3 |
|
| General and administrative expenses | 130.3 |
| | 120.8 |
| | 4.4 |
| | 5.0 |
|
| Total operating expenses | 2,457.3 |
| | 2,015.0 |
| | 83.6 |
| | 84.1 |
|
| Income from equity investees | 150.1 |
| | 119.6 |
| | 5.1 |
| | 5.0 |
|
| Operating income | $ | 631.6 |
| | $ | 500.5 |
| | 21.5 | % | | 20.9 | % |
| Store operating expenses as a % of related revenues | | | | | 29.5 | % | | 28.7 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 23.6 | % | | 23.2 | % |
Revenues
China/Asia Pacific total net revenues for fiscal 2016 increased $543 million, or 23%, largely due to increased revenues from company-operated stores (contributing $513 million). The increase in company-operated store revenues was primarily due to the openingtransfer of 359 net new company-operated stores over the past 12 months ($246 million) and incremental revenues from the impact of our ownership in Starbucks Japan ($105 million). Also contributing was a 3% increase in comparable store sales ($61 million), the impactcertain single-serve product activities to Nestlé as part of the extra week in fiscal 2016 ($52 million) and favorable foreign currency translation ($49 million).
Licensed store revenues increased $28 million, primarily due to increased product sales to and royalty revenues from licensees ($47 million), resulting from the opening of 622 net new licensed store openings over the past 12 months, partially offset by unfavorable foreign currency translation ($15 million) and a decrease in licensed store revenues resulting from the impact of our ownership change in Starbucks Japan ($6 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues decreased 60 basis points, primarily due to the impact of our ownership change in Starbucks JapanGlobal Coffee Alliance (approximately 30730 basis points) and favorability from changeslapping higher transition costs for the Global Coffee Alliance and a change in estimate relating to certain business tax structuresa transaction cost accrual in China (30fiscal 2021 (approximately 380 basis points).
Store operating expenses as a percentage of total net revenues increased 100 basis points. As a percentage of company-operated store revenues, store operating expenses increased 80 basis points, primarily driven by higher partner and digital investments and payroll-related expenditures (approximately 90 basis points) and the impact of our ownership change in Starbucks Japan (approximately 40 basis points), partially offset by sales leverage on salaries and benefits (approximately 60 basis points).
Other operating expenses as a percentage of total net revenues decreased 20 basis points. Excluding the impact of company-operated store revenues, other operating expenses increased 40 basis points, primarily due to higher payroll-related expenditures (approximately 140 basis points), investments in digital platforms (approximately 80 basis points) and the impact of our ownership change in Starbucks Japan (approximately 60 basis points), partially offset by sales leverage (approximately 220 basis points).
General and administrative expenses as a percentage of total revenues decreased 60 basis points, primarily due to sales leverage on salaries and benefits (approximately 40 basis points).
Income from equity investees as a percentage of total net revenues increased 10 basis points, primarily due to higher income from our joint venture operations, primarily in China and South Korea (approximately 70 basis points and 60 basis points,
respectively), partially offset by the shift in composition of our store portfolio to more company-operated stores (approximately 50 basis points) and the impact of our ownership change in Starbucks Japan (approximately 50 basis points).
The combination of these changes resulted in an overall increase in operating margin of 60 basis points over fiscal 2015.
EMEA
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of EMEA
Total Net Revenues |
| Net revenues: | | | | | | | |
| Company-operated stores | $ | 732.0 |
| | $ | 911.2 |
| | 65.1 | % | | 74.9 | % |
| Licensed stores | 339.5 |
| | 257.2 |
| | 30.2 |
| | 21.1 |
|
| Foodservice | 53.4 |
| | 48.3 |
| | 4.7 |
| | 4.0 |
|
| Total net revenues | 1,124.9 |
| | 1,216.7 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales including occupancy costs | 565.0 |
| | 582.5 |
| | 50.2 |
| | 47.9 |
|
| Store operating expenses | 260.6 |
| | 308.7 |
| | 23.2 |
| | 25.4 |
|
| Other operating expenses | 57.0 |
| | 51.8 |
| | 5.1 |
| | 4.3 |
|
| Depreciation and amortization expenses | 40.8 |
| | 52.0 |
| | 3.6 |
| | 4.3 |
|
| General and administrative expenses | 51.4 |
| | 56.6 |
| | 4.6 |
| | 4.7 |
|
| Total operating expenses | 974.8 |
| | 1,051.6 |
| | 86.7 |
| | 86.4 |
|
| Income from equity investees | 1.5 |
| | 3.1 |
| | 0.1 |
| | 0.3 |
|
| Operating income | $ | 151.6 |
| | $ | 168.2 |
| | 13.5 | % | | 13.8 | % |
| Store operating expenses as a % of related revenues | | | | | 35.6 | % | | 33.9 | % |
Other operating expenses as a % of non-company-operated store revenues
| | | | | 14.5 | % | | 17.0 | % |
Revenues
EMEA total net revenues for fiscal 2016 decreased $92 million, or 8%. The decrease was primarily due to a decline in company-operated store revenues ($179 million), which was largely due to the shift to more licensed stores in the region ($132 million) and includes the absence of revenues related to the sale of our Germany retail operations, and unfavorable foreign currency translation ($69 million). These decreases were partially offset by the impact of the extra week in fiscal 2016 ($18 million).
Licensed store revenues increased $82 million, or 32%, primarily due to higher product sales to and royalty revenues from our licensees ($89 million), resulting from the opening of 294 net new licensed stores and the transfer of 200 company-operated stores to licensed stores over the past 12 months. Also contributing was the impact of the extra week in fiscal 2016 ($6 million). These increases were partially offset by unfavorable foreign currency translation ($12 million).
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 230 basis points, primarily due to the shift in composition of our store portfolio in the region to more licensed stores (approximately 140 basis points), sales deleverage at certain company-owned stores (approximately 80 basis points) and foreign currency transactions (approximately 50 basis points).
Store operating expenses as a percentage of total net revenues decreased 220 basis points. As a percentage of company-operated store revenues, store operating expenses increased 170 basis points, primarily due to costs associated with the sale of our Germany retail operations and a decrease in company-operated store sales as a result of the shift to more licensed stores in the region (approximately 70 basis points). Sales deleverage at certain company-owned stores, largely related to salaries and benefits, also contributed unfavorably (approximately 70 basis points).
Other operating expenses as a percentage of total net revenues increased 80 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 250 basis points, primarily due to sales leverage driven by the shift to more licensed stores in the region (approximately 250 basis points).
Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points, primarily due to the shift in the composition of our store portfolio in the region to more licensed stores (approximately 40 basis points).
Income from equity investees as a percentage of total net revenues decreased 20 basis points as a result of the sale of our ownership interest in our Spanish joint venture, Starbucks Coffee España, S.L., in the first quarter of fiscal 2016 (approximately 20 basis points).
The combination of these changes resulted in an overall decrease in operating margin of 30 basis points over fiscal 2015.
Channel Development
|
| | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | Oct 2,
2016 | | Sep 27,
2015 |
| | (53 Weeks Ended) | | (52 Weeks Ended) | | |
| | | | | | As a % of Channel Development
Total Net Revenues |
| Net revenues: | | | | | | | |
| CPG | $ | 1,488.2 |
| | $ | 1,329.0 |
| | 77.0 | % | | 76.8 | % |
| Foodservice | 444.3 |
| | 401.9 |
| | 23.0 |
| | 23.2 |
|
| Total net revenues | 1,932.5 |
| | 1,730.9 |
| | 100.0 |
| | 100.0 |
|
| Cost of sales | 1,042.6 |
| | 974.8 |
| | 54.0 |
| | 56.3 |
|
| Other operating expenses | 228.5 |
| | 210.5 |
| | 11.8 |
| | 12.2 |
|
| Depreciation and amortization expenses | 2.8 |
| | 2.7 |
| | 0.1 |
| | 0.2 |
|
| General and administrative expenses | 17.9 |
| | 16.2 |
| | 0.9 |
| | 0.9 |
|
| Total operating expenses | 1,291.8 |
| | 1,204.2 |
| | 66.8 |
| | 69.6 |
|
| Income from equity investees | 166.6 |
| | 127.2 |
| | 8.6 |
| | 7.3 |
|
| Operating income | $ | 807.3 |
| | $ | 653.9 |
| | 41.8 | % | | 37.8 | % |
Revenues
Channel Development total net revenues for fiscal 2016 increased $202 million, or 12%, over the prior year, primarily driven by higher sales of premium single-serve products ($101 million). The impact of the extra week in fiscal 2016 ($40 million), increased foodservice sales ($33 million) and U.S. packaged coffee sales ($28 million) also contributed.
Operating Expenses
Cost of sales as a percentage of total net revenues decreased 230 basis points, primarily due to lower coffee costs (approximately 140 basis points) and leverage on cost of sales (approximately 100 basis points).
Other operating expenses as a percentage of total net revenues decreased 40 basis points, primarily driven by sales leverage on marketing expenses and salaries and benefits (approximately 30 basis points).
Income from equity investees as a percentage of total revenues increased 130 basis points, driven by higher income Strong performance from our North American Coffee Partnership joint venture (approximately 120 basis points) also contributed.
Corporate and Other (1) | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | %
Change |
| Net revenues: | | | | | |
| | | | | |
| | | | | |
| Other | $ | 97.5 | | | $ | 66.2 | | | 47.3 | % |
| Total net revenues | 97.5 | | | 66.2 | | | 47.3 | |
| Product and distribution costs | 86.4 | | | 63.3 | | | 36.5 | |
| | | | | |
| Other operating expenses | 14.9 | | | 13.9 | | | 7.2 | |
| Depreciation and amortization expenses | 141.9 | | | 149.7 | | | (5.2) | |
| General and administrative expenses | 1,261.3 | | | 1,114.7 | | | 13.2 | |
| Restructuring and impairments | 15.0 | | | 22.4 | | | (33.0) | |
| Total operating expenses | 1,519.5 | | | 1,364.0 | | | 11.4 | |
| | | | | |
| Operating loss | $ | (1,422.0) | | | $ | (1,297.8) | | | 9.6 | % |
(1)Corporate and other general and administrative expenses and operating loss for the fiscal year ended September 27, 2020, have been restated to conform with current period presentation.
Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.
Corporate and Other operating loss increased to $1.4 billion for fiscal 2021, or 10%, compared to $1.3 billion in fiscal 2020. This increase was primarily driven by incremental investments in technology ($81 million) and higher performance-based compensation, due to increased sales volume of Starbucks Doubleshot® and bottled Frappuccino® beverages and new product launches, partially offset by increased marketing costs (approximately 150 basis points)better than expected business recovery ($57 million).
The combination of these changes contributed to an overall increase in operating margin of 400 basis points over fiscal 2015.
All Other Segments
|
| | | | | | | | | | |
| Fiscal Year Ended | Oct 2,
2016 | | Sep 27,
2015 | | % Change |
| | (53 Weeks Ended) | | (52 Weeks Ended) | |
| Net revenues: | | | | | |
| Company-operated stores | $ | 224.3 |
| | $ | 233.2 |
| | (3.8 | )% |
| Licensed stores | 3.9 |
| | 5.9 |
| | (33.9 | )% |
| CPG, foodservice and other | 296.1 |
| | 286.7 |
| | 3.3 |
|
| Total net revenues | 524.3 |
| | 525.8 |
| | (0.3 | ) |
| Cost of sales including occupancy costs | 316.5 |
| | 316.5 |
| | — |
|
| Store operating expenses | 115.0 |
| | 104.7 |
| | 9.8 |
|
| Other operating expenses | 91.4 |
| | 76.5 |
| | 19.5 |
|
| Depreciation and amortization expenses | 13.3 |
| | 16.3 |
| | (18.4 | ) |
| General and administrative expenses | 26.5 |
| | 36.6 |
| | (27.6 | ) |
| Total operating expenses | 562.7 |
| | 550.6 |
| | 2.2 |
|
| Operating loss | $ | (38.4 | ) | | $ | (24.8 | ) | | 54.8 | % |
All Other Segments primarily includes Teavana, Seattle’s Best Coffee, Evolution Fresh, as well as certain developing businesses such as Siren Retail.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Investment Overview
Our cash and investments were $3.2$6.9 billion and $3.4$4.8 billion as of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, respectively. We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (domestic and foreign), mortgage and asset-backed securities, agency obligations, and state and local government obligations.commercial paper. As of October 1, 2017,3, 2021, approximately $2.1$2.9 billion of cash and investments werewas held in foreign subsidiaries.
Borrowing capacity
Credit Facilities and Commercial Paper
Our total contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of fiscal 2021.
Revolving Lines of Credit
During the firstfourth quarter of fiscal 2018,2021, we replaced our $1.5 billion 2016 credit facility with a new $2.0 billion unsecured 5-year revolving credit facility (the “2018 credit facility”) and aour $1.0 billion unsecured 364-Day credit facility (the “364-day credit facility”), which are available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases. with a new $3.0 billion unsecured 5-year revolving credit facility (the “2021 credit facility”).
The 2018Our 2021 credit facility, of which $150 million may be used for issuances of letters of credit, is currently set to mature on October 25, 2022.September 16, 2026. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $500 million.$1.0 billion. Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the credit facility), in each case plus an applicable margin. The applicable margin is based on the better of (i) the Company'sCompany’s long-term credit ratings assigned by Moody'sMoody’s and Standard & Poor'sPoor’s rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in the five-year credit agreement.agencies. The current applicable margin is 0.565% for Eurocurrency Rate Loans and 0.00% (nil) for Base Rate Loans.
The 364-day2021 credit facility of which no amount maycontains alternative interest rate provisions specifying rate calculations to be used for issuancesat such time LIBOR ceases to be available as a benchmark due to reference rate reform. The “Base Rate” of lettersinterest is the highest of credit, is currently set to mature on October 24, 2018. We have(i) the option, subject to negotiationFederal Funds Rate plus 0.025%, (ii) Bank of America’s prime rate, and agreement with(iii) the related banks, to increase the maximum commitment amount by an additional $500 million. Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, for U.S. dollar-denominated loans under certain circumstances, a BaseEurocurrency Rate (as defined in the credit facility), in each case plus an applicable margin.1.025%. The applicable margin2021 credit facility is 0.585%available for Eurocurrency Rate Loans and 0.00% (nil) for Base Rate Loans.
Both credit facilities contain provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses.general corporate purposes. As of October 1, 2017,3, 2021, we were in compliancehad no borrowings under the 2021 credit facility.
Commercial Paper
with all applicable 2016 credit facility covenants. No amounts were outstanding under our 2016 credit facility as
During the first quarter of fiscal 2018, we increasedUnder our commercial paper program, from $1 billion to $3 billion, allowing us towe may issue unsecured commercial paper notes up to thisa maximum aggregate amount outstanding at any time. Individualtime of $3.0 billion, with individual maturities that may vary but cannotnot exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under ourthe 2021 credit facilitiesfacility discussed above. 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 October 1, 2017,3, 2021, we had no amounts outstanding under our commercial paper program.
Credit Facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities which are available for working capital needs and capital expenditures within our Japanese market.
•A ¥5 billion, or $44.9 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%.
•A ¥10 billion, or $89.9 million, facility is currently set to mature on March 26, 2022. 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 0.350%.
As of October 3, 2021, we had no borrowings outstanding under our former commercial paper program.these credit facilities.
In March 2017, we issued Japanese yen-denominated long-term debt in an underwritten registered public offering. The 7-year 0.372% Senior Notes (the “2024 notes”) due March 2024 were issued with a face value of ¥85 billion, or $758.3 million, as of July 2, 2017. We will use the net proceeds from the offering to enhance our sustainability programs around coffee supply chain management through eligible sustainability projects. Interest on the 2024 notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. Additionally, in the first quarter of fiscal 2017, our $400 million of 0.875% Senior Notes (the “2016 notes”) were repaid.
See Note 9, Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for details of the components of our long-term debt. The indentures under which all of our Senior Notes were issued require usOur ability to maintain compliance with certain covenants, including limits on futureincur new liens and conduct sale and leaseback transactions on certain material properties.properties is subject to compliance with terms of the indentures under which the long-term notes were issued. As of October 1, 2017,3, 2021, we were in compliance with all applicable covenants.
Use of Cash
We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including capital expenditures,investing in new product innovations, related marketing supportways to serve our customers and partner and digital investments, returnsupporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases as well as otherand investing in new business opportunities related to our core and developing businesses such as Siren Retail.businesses. Further, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our growth“Growth at Scale” agenda. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy. As discussed in Note 15, Commitments and Contingencies, to the consolidated financial statements included in Item 8 of Part II of this 10-K, we committed to purchase the remaining 50% ownership interest in our East China joint venture for approximately $1.3 billion. This transaction is expected to close by early calendar year 2018, primarily through the use of cash and investments held in foreign subsidiaries. We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for the foreseeable future. SignificantHowever, significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future.
We consider the majority of undistributed earnings In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases. If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances.
We regularly review our cash positions and our determination of partial indefinite reinvestment of foreign subsidiaries and equity investees asearnings. In the event we determine that all or another portion of October 1, 2017 to besuch foreign earnings are no longer indefinitely reinvested, and, accordingly, no U.S. income andwe may be subject to additional foreign withholding taxes have been provided on such earnings.and U.S. state income taxes, which could be material. We havecurrently do not nor do we anticipate the need to, repatriatefor repatriated funds to the U.S. to satisfy domestic liquidity needs; however,needs. See Note 14, Income Taxes, for further discussion. During the fourth quarter of fiscal 2021, we replaced our $2.0 billion 2018 credit facility and our $1.0 billion 364-day credit facility with a new $3.0 billion 2021 credit facility. The 2021 credit facility was not drawn on in the event that we needfiscal 2021 and is currently set to repatriate all or a portion of our foreign cash to the U.S., we would be subject to additional U.S. income taxes, which could be material. We do not believe it is practicable to calculate the potential tax impact of repatriation, as there is a significant amount of uncertainty around the calculation, including the availability and amount of foreign tax credits at the time of repatriation, tax rates in effect and other indirect tax consequences associated with repatriation.mature on September 16, 2026.
During each of the first three quarters of fiscal 2016,2020, we declared and paid a cash dividend to shareholders of $0.20$0.41 per share. In the fourth quarter of fiscal 2016On September 30, 2020, and for each of the first three quarters of fiscal 20172021, we declared and paid a cash dividend of $0.25$0.45 per share. Dividends are generally paid in the quarter following the declaration date. Cash returned to shareholders through dividends in
fiscal 20172021 and 20162020 totaled $1,450.4 million$2.1 billion and $1,178.0 million,$1.9 billion, respectively. InDuring the fourth quarter of fiscal 2017,2021, we declared a cash dividend of $0.30$0.49 per share to be paid on December 1, 2017November 26, 2021, with an expected payout of approximately $429.5$578.1 million.
During fiscal years 2017In March 2019, we entered into accelerated share repurchase agreements (“ASR agreements”) with third-party financial institutions totaling $2.0 billion, effective March 22, 2019. We made a $2.0 billion up-front payment to the financial institutions and 2016,received an initial delivery of 22.2 million shares of our common stock. In June 2019, we received an additional 3.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $76.50.
Outside of the ASR agreements noted above, we repurchased 37.5 million and 34.936.6 million shares of common stock respectively, or $2.1for $3.1 billion on the open market during the fiscal year ended September 29, 2019. In total, we repurchased 139.6 million shares at a total cost of $10.1 billion for the fiscal year ended September 29, 2019.
Our Board of Directors approved an increase of 120 million and $2.0 billion, respectively, under our ongoing share repurchase program. At October 1, 2017, the number of remaining40 million shares authorized for repurchase underto our ongoing share repurchase program totaled 80.3 million.
during the fiscal first quarter of 2019 and fiscal second quarter of 2020, respectively. We temporarily suspended our share repurchase program in March 2020. Prior to the suspension, we repurchased 20.3 million shares of common stock for $1.7 billion on the open market during the year ended September 27, 2020. As of October 3, 2021, 48.9 million shares remained available for repurchase under current authorizations. Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022.
Other than normal operating expenses, cash requirements for fiscal 20182022 are expected to consist primarily of capital expenditures for investments in our new and existing stores, our developing Siren Retail business and our supply chain and corporate facilities. Total capital expenditures for fiscal 20182022 are expected to be approximately $2 billion.
The following table summarizes current and long-term material cash requirements as of October 3, 2021, which we expect to fund primarily with operating cash flows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Material Cash Requirements |
| Total | | Less than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
Operating lease obligations(1) | $ | 10,129.9 | | | $ | 1,504.6 | | | $ | 2,751.5 | | | $ | 2,169.1 | | | $ | 3,704.7 | |
| | | | | | | | | |
| Debt obligations | | | | | | | | | |
| Principal payments | 14,713.8 | | | 1,000.0 | | | 2,513.8 | | | 1,750.0 | | | 9,450.0 | |
| Interest payments | 6,639.0 | | | 457.1 | | | 840.7 | | | 730.1 | | | 4,611.1 | |
Purchase obligations(2) | 1,800.2 | | | 1,202.6 | | | 533.9 | | | 63.7 | | | — | |
Other obligations(3) | 368.4 | | | 54.6 | | | 92.6 | | | 136.5 | | | 84.7 | |
| Total | $ | 33,651.3 | | | $ | 4,218.9 | | | $ | 6,732.5 | | | $ | 4,849.4 | | | $ | 17,850.5 | |
(1)Amounts include direct lease obligations, excluding any taxes, insurance and other related expenses.
(2)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on Starbucks and that specify all significant terms. Green coffee purchase commitments comprise 96% of total purchase obligations.
(3)Other obligations include other long-term liabilities primarily consisting of long-term income taxes payable, asset retirement obligations and equity investment capital commitments.
Cash Flows
Cash provided by operating activities was $4.2$6.0 billion for fiscal 2017,2021, compared to $4.6$1.6 billion for fiscal 2016.2020. The change was primarily due to higher net earnings and lapping the timing of our cash payments for income taxes.U.S. federal tax payment related to the Nestlé transaction in fiscal 2020.
Cash used byin investing activities totaled $0.9$0.3 billion for fiscal 2017,2021, compared to $2.2$1.7 billion for fiscal 2016.2020. The change was primarily due todriven by net proceeds from the liquidation of a significant portiondivestiture of our offshore investment portfolioownership interest in anticipationour South Korea joint venture and higher maturities and calls of the acquisitioninvestments. This was partially offset by a decrease in sales of the remaining 50% ownership share of our East China joint venture.investments and higher capital contributions to equity method investments.
Cash used byin financing activities for fiscal 20172021 totaled $3.0$3.7 billion, compared to $1.8cash provided by financing activities of $1.7 billion for fiscal 2016.2020. The change was primarily due to lower net proceeds from borrowing activities and higher debt repayments, partially offset by the issuancetemporary suspension of long-term debt, the repayment of the 2016 notes and an increase in cash returned to shareholders through dividend payments andour share repurchases.
Contractual Obligations
The following table summarizes our contractual obligations and borrowings as of October 1, 2017, and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods (in millions):repurchase program.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
Contractual Obligations (1) | Total | | Less than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
Operating lease obligations(2) | $ | 8,613.5 |
| | $ | 1,213.1 |
| | $ | 2,210.2 |
| | $ | 1,875.0 |
| | $ | 3,315.2 |
|
| Financing lease obligations | 59.1 |
| | 4.1 |
| | 8.2 |
| | 7.9 |
| | 38.9 |
|
| Debt obligations | | | | | | | | | |
| Principal payments | 3,955.3 |
| | — |
| | 350.0 |
| | 1,250.0 |
| | 2,355.3 |
|
| Interest payments | 868.9 |
| | 83.6 |
| | 185.6 |
| | 172.9 |
| | 426.8 |
|
Purchase obligations(3) | 1,310.1 |
| | 848.1 |
| | 380.1 |
| | 73.6 |
| | 8.3 |
|
Other obligations(4) | 134.7 |
| | 20.3 |
| | 28.1 |
| | 18.8 |
| | 67.5 |
|
| Total | $ | 14,941.6 |
| | $ | 2,169.2 |
| | $ | 3,162.2 |
| | $ | 3,398.2 |
| | $ | 6,212.0 |
|
| |
| Income tax liabilities for uncertain tax positions for which we are not able to make a reasonably reliable estimate of the amount and period of related future payments were excluded. As of October 1, 2017, we excluded $207.3 million of gross unrecognized tax benefits for uncertain tax positions, which includes accrued interest and penalties. |
| |
(2)
| Amounts include direct lease obligations, excluding any taxes, insurance and other related expenses. |
| |
(3)
| Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on Starbucks and that specify all significant terms. Green coffee purchase commitments comprise 91% of total purchase obligations. |
| |
(4)
| Other obligations include other long-term liabilities primarily consisting of asset retirement obligations and hedging instruments. |
Starbucks currently expects to fund these commitments primarily with operating cash flows generated in the normal course of business.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements relate to operating lease and purchase commitments detailed in the footnotes to the consolidated financial statements included in Item 8 of Part II of this 10-K.COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
Commodity price risk represents Starbucks primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impacts our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details see Product Supply in Item 1, as well as Risk Factors in Item 1A of this 10-K.
FINANCIAL RISK MANAGEMENT
Market risk is defined as the risk of losses due to changes in commodity prices, foreign currency exchange rates, equity security prices and interest rates. We manage our exposure to various market-based risks according to a market price risk management policy. Under this policy, market-based risks are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions. The market price risk management policy governs how hedging instruments may be used to mitigate risk. Risk limits are set annually and prohibit speculative trading activity. We also monitor and limit the amount of associated counterparty credit risk, which we consider to be low. We use interest rate swap agreements and treasury locks to primarily hedge against changes in benchmark interest rates related to anticipated debt issuances. We also use cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our fixed-rate debt and foreign exchange exposure of net investments in Japan. Excluding interest rate hedging instruments, cross currency swaps and foreign currency debt, hedging instruments generally do not have maturities in excess of three years. Refer to Note 1, Summary of Significant Accounting Policies, and Note 3, Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our hedging instruments. The sensitivity analyses disclosed below provide only a limited, point-in-time view of the market risk of the financial instruments discussed. The actual impact of the respective underlying rates and price changes on the financial instruments may differ significantly from those shown in the sensitivity analyses.
Commodity Price Risk
We purchase commodity inputs, primarily coffee, dairy products, diesel, cocoa, sugar and other commodities, that are used in our operations and are subject to price fluctuations that impact our financial results. We use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts for coffee purchases, and financial derivatives to manage our commodity price risk exposure.
The following table summarizes the potential impact as of October 1, 20173, 2021 to Starbucks future net earnings and other comprehensive income (“OCI”) from changes in commodity prices. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions):
|
| | | | | | | | | | | | | | | |
| | Increase/(Decrease) to Net Earnings | | Increase/(Decrease) to OCI |
| | 10% Increase in Underlying Rate | | 10% Decrease in
Underlying Rate | | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate |
| Commodity hedges | $ | 6 |
| | $ | (6 | ) | | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Increase/(Decrease) to Net Earnings | | Increase/(Decrease) to OCI |
| | 10% Increase in Underlying Rate | | 10% Decrease in
Underlying Rate | | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate |
| Commodity hedges | $ | — | | | $ | — | | | $ | 53 | | | $ | (53) | |
Foreign Currency Exchange Risk
The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the U.S., we have transactions in other currencies, primarily the Chinese renminbi, Japanese yen, Canadian dollar, Chinese renminbi, British pound, South Korean won and euro. To reduce cash flow volatility from foreign currency fluctuations, we enter into derivative instruments to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, intercompany borrowing and lending activities and certain other transactions in currencies other than the functional currency of the entity that enters into the arrangements, as well as the translation risk of certain balance sheet items. See Note 3, Derivative Financial Instruments,The volatility in the foreign exchange market may lead to significant fluctuation in foreign currency exchange rates and adversely impact our financial results in the case of weakening foreign currencies relative to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion.U.S. dollar.
The following table summarizes the potential impact as of October 1, 20173, 2021 to Starbucks future net earnings and other comprehensive income from changes in the fair value of these derivative financial instruments due to a change in the value of the U.S. dollar as compared to foreign exchange rates. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions):
|
| | | | | | | | | | | | | | | |
| | Increase/(Decrease) to Net Earnings | | Increase/(Decrease) to OCI |
| | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate | | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate |
| Foreign currency hedges | $ | 23 |
| | $ | (23 | ) | | $ | 119 |
| | $ | (119 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Increase/(Decrease) to Net Earnings | | Increase/(Decrease) to OCI |
| | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate | | 10% Increase in
Underlying Rate | | 10% Decrease in
Underlying Rate |
| Foreign currency hedges | $ | 43 | | | $ | (43) | | | $ | 139 | | | $ | (139) | |
Equity Security Price Risk
We have minimal exposure to price fluctuations on equity mutual funds and equity exchange-traded funds within our tradingmarketable equity securities portfolio. TradingMarketable equity securities are recorded at fair value and approximates a portion of our liability under our Management Deferred Compensation Plan (“MDCP”). Gains and losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings.
We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of October 1, 20173, 2021 and determined that such a change would not have a significant impact on the fair value of these instruments.
Interest Rate Risk
Long-term Debt
We utilize short-term and long-term financing and may use interest rate hedges to manage our overall interest expense related to our existing fixed-rate debt, as well as to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances. See Note 3, Derivative Financial Instruments and Note 9, Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our interest rate hedge agreements and details of the components of our long-term debt, respectively, as of October 1, 2017.3, 2021. The following table summarizes the impact of a change in interest rates as of October 1, 20173, 2021 on the fair value of Starbucks debt (in millions): | | | | | | | | | | | | | | | | | |
| | | Change in Fair Value |
| Fair Value | | 100 Basis Point Increase in Underlying Rate | | 100 Basis Point Decrease in Underlying Rate |
| |
Long-term debt(1) | $ | 16,014 | | | $ | 1,216 | | | $ | (1,216) | |
(1)Amount disclosed is net of $13 million change in the fair value of our designated interest rate swap. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge. |
| | | | | | | | | | | | | | |
| | | | | | Change in Fair Value |
| | Stated Interest Rate | | Fair Value | | 100 Basis Point Increase in Underlying Rate | | 100 Basis Point Decrease in Underlying Rate |
| | |
| 2018 notes | 2.000 | % | | $ | 352 |
| | $ | (4 | ) | | $ | 4 |
|
| 2021 notes | 2.100 | % | | $ | 751 |
| | $ | (24 | ) | | $ | 24 |
|
| 2022 notes | 2.700 | % | | $ | 508 |
| | $ | (22 | ) | | $ | 22 |
|
2023 notes(1) | 3.850 | % | | $ | 806 |
| | $ | — |
| | $ | — |
|
| 2024 notes | 0.372 | % | | $ | 760 |
| | $ | (47 | ) | | $ | 47 |
|
| 2026 notes | 2.450 | % | | $ | 481 |
| | $ | (37 | ) | | $ | 37 |
|
| 2045 notes | 4.300 | % | | $ | 381 |
| | $ | (63 | ) | | $ | 63 |
|
| |
(1)
| Amount disclosed is net of ($42 million) change in the fair value of our designated interest rate swap. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge. |
Available-for-Sale Debt Securities
Our available-for-sale securities comprise a diversified portfolio consisting mainly of investment-grade debt securities. The primary objective of these investments is to preserve capital and liquidity. Available-for-sale securities are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income. We do not hedge the interest rate exposure on our available-for-sale securities.investments. We performed a sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as of October 1, 20173, 2021 and determined that such a change would not have a significant impact on the fair value of these instruments.
APPLICATION OF CRITICAL ACCOUNTING POLICIESESTIMATES
Critical accounting policiesestimates are those that management believes are boththe most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.uncertain, especially in light of the current economic environment due to the COVID-19 pandemic. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.
Our significant accounting policiesestimates are discussed in additional detail in Note 1, Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K. We believe that of our significant accounting policies, the following policies involve a higher degree of judgment and/or complexity. We consider financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the past fourfive fiscal years, we have not made any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below:
Property, Plant and Equipment and Other Finite-Lived Assets
We evaluate property, plant and equipment, operating lease right-of-use (“ROU”) assets and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The adjusted carrying amount of the asset becomes its new cost basis and is depreciated over the asset's remaining useful life.
Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level.level, which is inclusive of property, plant and equipment and lease ROU assets. The fair value of a store’s assets is estimated using a discounted cash flow model. For other long-lived assets, fair value is determined using an approach that is appropriate based on the relevant facts and circumstances, which may include discounted cash flows, comparable transactions or comparable company analyses.
Our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount rate. For company-operated stores, estimates of revenue growth and operating expenses are based on internal projections and consider the store’s historical performance, the local market economics and the business environment impacting the store’s performance. The discount rate is selected based on what we believe a buyer would assume when determining a purchase price for the store. The fair value of a store’s ROU asset is estimated considering what a market participant would pay to lease the asset for its highest and best use. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.
In fiscal 2020, we announced a restructuring plan to optimize our North America store portfolio, primarily in dense metropolitan markets, by developing new store formats to better cater to changing customer tastes and preferences. As of October 3, 2021, 807 stores in the U.S. and Canada were identified for closure, and substantially all were closed under the plan. During fiscal 2017, there were no significant changes in anyyears 2021 and 2020, we recorded approximately $155.4 million and $254.7 million, respectively, to restructuring and impairments on our consolidated statements of our estimates or assumptions, aside from thoseearnings. These totals included $53.1 million and $151.0 million, respectively, related to impairment and disposition of company-operated store assets and $89.5 million and $87.7 million, respectively, primarily associated with accelerated amortization of ROU lease assets and other lease costs due to store closures prior to the long-term strategy assumptionsend of contractual lease terms. We expect total future restructuring costs under this plan, which are attributable to our Teavana-branded retail stores, which had a significant impact on the outcome of our impairment calculations. However, as we periodically reassess estimated future cash flows and asset fair values, changes in our estimates and assumptions may cause usNorth America segment, to realize materialbe immaterial.
Asset impairment charges are discussed in Note 1, Summary of Significant Accounting Policies, to the future.consolidated financial statements included in Item 8 of Part II of this 10-K. Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.
When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, inclusive of the sizecarrying value of the reporting unit'sunit’s goodwill, the significance of the excess of the reporting unit'sunit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new store concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, including assumptions regarding business recovery post COVID-19, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance. The discount rate is selected based
on the estimated cost of capital for a market participant to operate the reporting unit in the region. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion.
Our goodwill impairment assessments were not significantly altered as a result of the COVID-19 pandemic. We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as the U.S. and China, we do not anticipate incurring significant goodwill impairment in the next 12 months. Our fiscal 2021 annual goodwill impairment testing, which was completed in the third fiscal quarter, resulted in an estimated fair value of our reporting units where a quantitative assessment was performed, was in excess of carrying value of approximately $74 billion. When assessing indefinite-lived intangible assets for impairment, where we perform a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the intangible asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group'sgroup’s forecasted growth, including assumptions regarding business recovery post COVID-19, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our
ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion. We do not anticipate recording significant impairment charges in the next 12 months.
The partial goodwill impairments of the Teavana and Switzerland reporting unitsDefinite-lived intangible asset impairment charges are discussed in Note 8, Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K.Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future; however, we do not expect changes from recently enacted tax laws to be material to the consolidated financial statements.
In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of operations. In projecting future taxable income, we consider historical results and incorporate assumptions about the amount of future state, federal and foreign pretaxpre-tax operating income adjusted for items that do not have tax consequences. Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss).
In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, includingsuch as the timing and amount of deductions taken and the allocation of income between tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available. As discussed in Note 1314, Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, there iswe do not expect a reasonable possibility that oursignificant amount of the Company’s gross unrecognized tax benefit liability willbenefits to be adjusted within 12 months due torecognized by the expirationend of fiscal 2022 for reasons such as a lapse of the statute of limitations and/or resolution of examinations with taxing authorities.tax authorities. We have generated income in certain foreign jurisdictions that has not beenmay be subject to additional foreign withholding taxes and U.S. state income taxes. We intend to reinvest theseregularly review our plans for reinvestment or repatriation of unremitted foreign earnings. The possibility exists that foreign earnings for the foreseeable future.declared as indefinitely reinvested may be repatriated as our plans are based on our estimated working and other capital needs in jurisdictions where our earnings are generated. While we do not expect to repatriate cash to the U.S. to satisfy domestic liquidity needs, if these amounts were distributed to the U.S., in the form of dividends or otherwise, we wouldmay be subject to additional foreign withholding taxes and U.S. state income taxes, which could be material. Determination
Our income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. Deferred tax asset valuation allowances and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Although we believe that the judgments and estimates discussed herein are reasonable, actual results, including forecasted business performance could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K for a detailed description of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commodity Prices, Availability and General Risk Conditions” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Risk Management” in Item 7 of this Report.
| |
Item 8. | Financial Statements and Supplementary Data |
Item 8. Financial Statements and Supplementary Data STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 |
| Net revenues: | | | | | |
| Company-operated stores | $ | 24,607.0 | | | $ | 19,164.6 | | | $ | 21,544.4 | |
| Licensed stores | 2,683.6 | | | 2,327.1 | | | 2,875.0 | |
| Other | 1,770.0 | | | 2,026.3 | | | 2,089.2 | |
| Total net revenues | 29,060.6 | | | 23,518.0 | | | 26,508.6 | |
| Product and distribution costs | 8,738.7 | | | 7,694.9 | | | 8,526.9 | |
| Store operating expenses | 11,930.9 | | | 10,764.0 | | | 10,493.6 | |
| Other operating expenses | 359.5 | | | 430.3 | | | 371.0 | |
| Depreciation and amortization expenses | 1,441.7 | | | 1,431.3 | | | 1,377.3 | |
| General and administrative expenses | 1,932.6 | | | 1,679.6 | | | 1,824.1 | |
| Restructuring and impairments | 170.4 | | | 278.7 | | | 135.8 | |
| Total operating expenses | 24,573.8 | | | 22,278.8 | | | 22,728.7 | |
| Income from equity investees | 385.3 | | | 322.5 | | | 298.0 | |
| Operating income | 4,872.1 | | | 1,561.7 | | | 4,077.9 | |
| | | | | |
| Net gain resulting from divestiture of certain operations | 864.5 | | | — | | | 622.8 | |
| | | | | |
| Interest income and other, net | 90.1 | | | 39.7 | | | 96.5 | |
| Interest expense | (469.8) | | | (437.0) | | | (331.0) | |
| Earnings before income taxes | 5,356.9 | | | 1,164.4 | | | 4,466.2 | |
| Income tax expense | 1,156.6 | | | 239.7 | | | 871.6 | |
| Net earnings including noncontrolling interests | 4,200.3 | | | 924.7 | | | 3,594.6 | |
| Net earnings/(loss) attributable to noncontrolling interests | 1.0 | | | (3.6) | | | (4.6) | |
| Net earnings attributable to Starbucks | $ | 4,199.3 | | | $ | 928.3 | | | $ | 3,599.2 | |
| Earnings per share — basic | $ | 3.57 | | | $ | 0.79 | | | $ | 2.95 | |
| Earnings per share — diluted | $ | 3.54 | | | $ | 0.79 | | | $ | 2.92 | |
| Weighted average shares outstanding: | | | | | |
| Basic | 1,177.6 | | | 1,172.8 | | | 1,221.2 | |
| Diluted | 1,185.5 | | | 1,181.8 | | | 1,233.2 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 |
| Net revenues: | | | | | |
| Company-operated stores | $ | 17,650.7 |
| | $ | 16,844.1 |
| | $ | 15,197.3 |
|
| Licensed stores | 2,355.0 |
| | 2,154.2 |
| | 1,861.9 |
|
| CPG, foodservice and other | 2,381.1 |
| | 2,317.6 |
| | 2,103.5 |
|
| Total net revenues | 22,386.8 |
| | 21,315.9 |
| | 19,162.7 |
|
| Cost of sales including occupancy costs | 9,038.2 |
| | 8,511.1 |
| | 7,787.5 |
|
| Store operating expenses | 6,493.3 |
| | 6,064.3 |
| | 5,411.1 |
|
| Other operating expenses | 553.8 |
| | 545.4 |
| | 522.4 |
|
| Depreciation and amortization expenses | 1,011.4 |
| | 980.8 |
| | 893.9 |
|
| General and administrative expenses | 1,393.3 |
| | 1,360.6 |
| | 1,196.7 |
|
| Restructuring and impairments | 153.5 |
| | — |
| | — |
|
| Total operating expenses | 18,643.5 |
| | 17,462.2 |
| | 15,811.6 |
|
| Income from equity investees | 391.4 |
| | 318.2 |
| | 249.9 |
|
| Operating income | 4,134.7 |
| | 4,171.9 |
| | 3,601.0 |
|
| Gain resulting from acquisition of joint venture | — |
| | — |
| | 390.6 |
|
| Loss on extinguishment of debt | — |
| | — |
| | (61.1 | ) |
| Interest income and other, net | 275.3 |
| | 108.0 |
| | 43.0 |
|
| Interest expense | (92.5 | ) | | (81.3 | ) | | (70.5 | ) |
| Earnings before income taxes | 4,317.5 |
| | 4,198.6 |
| | 3,903.0 |
|
| Income tax expense | 1,432.6 |
| | 1,379.7 |
| | 1,143.7 |
|
| Net earnings including noncontrolling interests | 2,884.9 |
| | 2,818.9 |
| | 2,759.3 |
|
| Net earnings attributable to noncontrolling interests | 0.2 |
| | 1.2 |
| | 1.9 |
|
| Net earnings attributable to Starbucks | $ | 2,884.7 |
| | $ | 2,817.7 |
| | $ | 2,757.4 |
|
| Earnings per share — basic | $ | 1.99 |
| | $ | 1.91 |
| | $ | 1.84 |
|
| Earnings per share — diluted | $ | 1.97 |
| | $ | 1.90 |
| | $ | 1.82 |
|
| Weighted average shares outstanding: | | | | | |
| Basic | 1,449.5 |
| | 1,471.6 |
| | 1,495.9 |
|
| Diluted | 1,461.5 |
| | 1,486.7 |
| | 1,513.4 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 |
| Net earnings including noncontrolling interests | $ | 4,200.3 | | | $ | 924.7 | | | $ | 3,594.6 | |
| Other comprehensive income/(loss), net of tax: | | | | | |
| Unrealized holding gains/(losses) on available-for-sale securities | (3.4) | | | 8.3 | | | 10.5 | |
| Tax (expense)/benefit | 0.7 | | | (1.8) | | | (2.3) | |
| Unrealized gains/(losses) on cash flow hedging instruments | 283.8 | | | (126.3) | | | (14.1) | |
| Tax (expense)/benefit | (43.6) | | | 31.3 | | | 3.4 | |
| Unrealized gains/(losses) on net investment hedging instruments | 63.1 | | | 38.7 | | | (39.8) | |
| Tax (expense)/benefit | (16.0) | | | (9.8) | | | 10.1 | |
| Translation adjustment and other | 188.2 | | | 206.9 | | | (146.2) | |
| Tax (expense)/benefit | 2.2 | | | 1.5 | | | 2.5 | |
| Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, translation adjustment and other | 41.8 | | | (20.1) | | | 1.3 | |
| Tax expense/(benefit) | (5.0) | | | 5.2 | | | 1.6 | |
| Other comprehensive income/(loss) | 511.8 | | | 133.9 | | | (173.0) | |
| Comprehensive income including noncontrolling interests | 4,712.1 | | | 1,058.6 | | | 3,421.6 | |
| Comprehensive income/(loss) attributable to noncontrolling interests | 1.0 | | | (3.6) | | | (4.6) | |
| Comprehensive income attributable to Starbucks | $ | 4,711.1 | | | $ | 1,062.2 | | | $ | 3,426.2 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 |
| Net earnings including noncontrolling interests | $ | 2,884.9 |
| | $ | 2,818.9 |
| | $ | 2,759.3 |
|
| Other comprehensive income/(loss), net of tax: | | | | | |
| Unrealized holding gains/(losses) on available-for-sale securities | (9.5 | ) | | 3.5 |
| | 1.4 |
|
| Tax (expense)/benefit | 2.9 |
| | (1.3 | ) | | (0.5 | ) |
| Unrealized gains/(losses) on cash flow hedging instruments | 53.2 |
| | (109.6 | ) | | 47.6 |
|
| Tax (expense)/benefit | (12.6 | ) | | 27.5 |
| | (16.8 | ) |
| Unrealized gains/(losses) on net investment hedging instruments | 20.1 |
| | — |
| | 4.3 |
|
| Tax (expense)/benefit | (7.4 | ) | | — |
| | (1.6 | ) |
| Translation adjustment and other | (38.3 | ) | | 85.5 |
| | (222.7 | ) |
| Tax (expense)/benefit | (2.4 | ) | | 19.0 |
| | 6.0 |
|
| Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment | (67.2 | ) | | 78.2 |
| | (65.9 | ) |
| Tax expense/(benefit) | 14.0 |
| | (11.8 | ) | | 23.5 |
|
| Other comprehensive income/(loss) | (47.2 | ) | | 91.0 |
| | (224.7 | ) |
| Comprehensive income including noncontrolling interests | 2,837.7 |
| | 2,909.9 |
| | 2,534.6 |
|
| Comprehensive income/(loss) attributable to noncontrolling interests | 0.2 |
| | 1.2 |
| | (29.2 | ) |
| Comprehensive income attributable to Starbucks | $ | 2,837.5 |
| | $ | 2,908.7 |
| | $ | 2,563.8 |
|
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
|
| | | | | | | |
| | Oct 1,
2017 | | Oct 2,
2016 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,462.3 |
| | $ | 2,128.8 |
|
| Short-term investments | 228.6 |
| | 134.4 |
|
| Accounts receivable, net | 870.4 |
| | 768.8 |
|
| Inventories | 1,364.0 |
| | 1,378.5 |
|
| Prepaid expenses and other current assets | 358.1 |
| | 347.4 |
|
| Total current assets | 5,283.4 |
| | 4,757.9 |
|
| Long-term investments | 542.3 |
| | 1,141.7 |
|
| Equity and cost investments | 481.6 |
| | 354.5 |
|
| Property, plant and equipment, net | 4,919.5 |
| | 4,533.8 |
|
| Deferred income taxes, net | 795.4 |
| | 885.4 |
|
| Other long-term assets | 362.8 |
| | 403.3 |
|
| Other intangible assets | 441.4 |
| | 516.3 |
|
| Goodwill | 1,539.2 |
| | 1,719.6 |
|
| TOTAL ASSETS | $ | 14,365.6 |
| | $ | 14,312.5 |
|
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 782.5 |
| | $ | 730.6 |
|
| Accrued liabilities | 1,934.5 |
| | 1,999.1 |
|
| Insurance reserves | 215.2 |
| | 246.0 |
|
| Stored value card liability | 1,288.5 |
| | 1,171.2 |
|
| Current portion of long-term debt | — |
| | 399.9 |
|
| Total current liabilities | 4,220.7 |
| | 4,546.8 |
|
| Long-term debt | 3,932.6 |
| | 3,185.3 |
|
| Other long-term liabilities | 755.3 |
| | 689.7 |
|
| Total liabilities | 8,908.6 |
| | 8,421.8 |
|
| Shareholders’ equity: | | | |
| Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,431.6 and 1,460.5 shares, respectively | 1.4 |
| | 1.5 |
|
| Additional paid-in capital | 41.1 |
| | 41.1 |
|
| Retained earnings | 5,563.2 |
| | 5,949.8 |
|
| Accumulated other comprehensive loss | (155.6 | ) | | (108.4 | ) |
| Total shareholders’ equity | 5,450.1 |
| | 5,884.0 |
|
| Noncontrolling interests | 6.9 |
| | 6.7 |
|
| Total equity | 5,457.0 |
| | 5,890.7 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 14,365.6 |
| | $ | 14,312.5 |
|
| | | | | | | | | | | |
| Oct 3,
2021 | | Sep 27,
2020 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 6,455.7 | | | $ | 4,350.9 | |
| Short-term investments | 162.2 | | | 281.2 | |
| Accounts receivable, net | 940.0 | | | 883.4 | |
| Inventories | 1,603.9 | | | 1,551.4 | |
| Prepaid expenses and other current assets | 594.6 | | | 739.5 | |
| Total current assets | 9,756.4 | | | 7,806.4 | |
| Long-term investments | 281.7 | | | 206.1 | |
| Equity investments | 268.5 | | | 478.7 | |
| Property, plant and equipment, net | 6,369.5 | | | 6,241.4 | |
| Operating lease, right-of-use asset | 8,236.0 | | | 8,134.1 | |
| Deferred income taxes, net | 1,874.8 | | | 1,789.9 | |
| Other long-term assets | 578.5 | | | 568.6 | |
| Other intangible assets | 349.9 | | | 552.1 | |
| Goodwill | 3,677.3 | | | 3,597.2 | |
| TOTAL ASSETS | $ | 31,392.6 | | | $ | 29,374.5 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 1,211.6 | | | $ | 997.9 | |
| Accrued liabilities | 1,973.2 | | | 1,160.7 | |
| Accrued payroll and benefits | 772.3 | | | 696.0 | |
| Income taxes payable | 348.0 | | | 98.2 | |
| Current portion of operating lease liability | 1,251.3 | | | 1,248.8 | |
| Stored value card liability and current portion of deferred revenue | 1,596.1 | | | 1,456.5 | |
| Short-term debt | — | | | 438.8 | |
| Current portion of long-term debt | 998.9 | | | 1,249.9 | |
| Total current liabilities | 8,151.4 | | | 7,346.8 | |
| Long-term debt | 13,616.9 | | | 14,659.6 | |
| Operating lease liability | 7,738.0 | | | 7,661.7 | |
| Deferred revenue | 6,463.0 | | | 6,598.5 | |
| Other long-term liabilities | 737.8 | | | 907.3 | |
| Total liabilities | 36,707.1 | | | 37,173.9 | |
| Shareholders’ deficit: | | | |
| Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,180.0 and 1,173.3 shares, respectively | 1.2 | | | 1.2 | |
| Additional paid-in capital | 846.1 | | | 373.9 | |
| Retained deficit | (6,315.7) | | | (7,815.6) | |
| Accumulated other comprehensive income/(loss) | 147.2 | | | (364.6) | |
| Total shareholders’ deficit | (5,321.2) | | | (7,805.1) | |
| Noncontrolling interests | 6.7 | | | 5.7 | |
| Total deficit | (5,314.5) | | | (7,799.4) | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT) | $ | 31,392.6 | | | $ | 29,374.5 | |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 |
| OPERATING ACTIVITIES: | | | | | |
| Net earnings including noncontrolling interests | $ | 2,884.9 |
| | $ | 2,818.9 |
| | $ | 2,759.3 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 1,067.1 |
| | 1,030.1 |
| | 933.8 |
|
| Deferred income taxes, net | 95.1 |
| | 265.7 |
| | 21.2 |
|
| Income earned from equity method investees | (310.2 | ) | | (250.2 | ) | | (190.2 | ) |
| Distributions received from equity method investees | 186.6 |
| | 223.3 |
| | 148.2 |
|
| Gain resulting from acquisition/sale of equity in joint ventures and certain retail operations | (93.5 | ) | | (6.1 | ) | | (394.3 | ) |
| Loss on extinguishment of debt | — |
| | — |
| | 61.1 |
|
| Stock-based compensation | 176.0 |
| | 218.1 |
| | 209.8 |
|
| Excess tax benefit on share-based awards | (77.5 | ) | | (122.8 | ) | | (132.4 | ) |
| Goodwill Impairments | 87.2 |
| | — |
| | — |
|
| Other | 68.9 |
| | 45.1 |
| | 53.8 |
|
| Cash provided by changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (96.8 | ) | | (55.6 | ) | | (82.8 | ) |
| Inventories | 14.0 |
| | (67.5 | ) | | (207.9 | ) |
| Accounts payable | 46.4 |
| | 46.9 |
| | 137.7 |
|
| Stored value card liability | 130.8 |
| | 180.4 |
| | 170.3 |
|
| Other operating assets and liabilities | (4.7 | ) | | 248.8 |
| | 261.5 |
|
| Net cash provided by operating activities | 4,174.3 |
| | 4,575.1 |
| | 3,749.1 |
|
| INVESTING ACTIVITIES: | | | | | |
| Purchases of investments | (674.4 | ) | | (1,585.7 | ) | | (567.4 | ) |
| Sales of investments | 1,054.5 |
| | 680.7 |
| | 600.6 |
|
| Maturities and calls of investments | 149.6 |
| | 27.9 |
| | 18.8 |
|
| Acquisitions, net of cash acquired | — |
| | — |
| | (284.3 | ) |
| Additions to property, plant and equipment | (1,519.4 | ) | | (1,440.3 | ) | | (1,303.7 | ) |
| Net proceeds from sale of equity in joint ventures and certain retail operations | 85.4 |
| | 69.6 |
| | 8.9 |
|
| Other | 54.3 |
| | 24.9 |
| | 6.8 |
|
| Net cash used by investing activities | (850.0 | ) | | (2,222.9 | ) | | (1,520.3 | ) |
| FINANCING ACTIVITIES: | | | | | |
| Proceeds from issuance of long-term debt | 750.2 |
| | 1,254.5 |
| | 848.5 |
|
| Repayments of long-term debt | (400.0 | ) | | — |
| | (610.1 | ) |
| Cash used for purchase of non-controlling interest | — |
| | — |
| | (360.8 | ) |
| Proceeds from issuance of common stock | 150.8 |
| | 160.7 |
| | 191.8 |
|
| Excess tax benefit on share-based awards | 77.5 |
| | 122.8 |
| | 132.4 |
|
| Cash dividends paid | (1,450.4 | ) | | (1,178.0 | ) | | (928.6 | ) |
| Repurchase of common stock | (2,042.5 | ) | | (1,995.6 | ) | | (1,436.1 | ) |
| Minimum tax withholdings on share-based awards | (82.8 | ) | | (106.0 | ) | | (75.5 | ) |
| Other | (4.4 | ) | | (8.4 | ) | | (18.1 | ) |
| Net cash used by financing activities | (3,001.6 | ) | | (1,750.0 | ) | | (2,256.5 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 10.8 |
| | (3.5 | ) | | (150.6 | ) |
| Net increase/(decrease) in cash and cash equivalents | 333.5 |
| | 598.7 |
| | (178.3 | ) |
| CASH AND CASH EQUIVALENTS: | | | | | |
| Beginning of period | 2,128.8 |
| | 1,530.1 |
| | 1,708.4 |
|
| End of period | $ | 2,462.3 |
| | $ | 2,128.8 |
| | $ | 1,530.1 |
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest, net of capitalized interest | $ | 96.6 |
| | $ | 74.7 |
| | $ | 69.5 |
|
| Income taxes, net of refunds | $ | 1,389.1 |
| | $ | 878.7 |
| | $ | 1,072.2 |
|
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 |
| OPERATING ACTIVITIES: | | | | | |
| Net earnings including noncontrolling interests | $ | 4,200.3 | | | $ | 924.7 | | | $ | 3,594.6 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 1,524.1 | | | 1,503.2 | | | 1,449.3 | |
| Deferred income taxes, net | (146.2) | | | (25.8) | | | (1,495.4) | |
| Income earned from equity method investees | (347.3) | | | (280.7) | | | (250.6) | |
| Distributions received from equity method investees | 336.0 | | | 227.7 | | | 216.8 | |
| | | | | |
| Net gain resulting from divestiture of certain operations | (864.5) | | | — | | | (622.8) | |
| | | | | |
| Stock-based compensation | 319.1 | | | 248.6 | | | 308.0 | |
| Goodwill impairments | — | | | — | | | 10.5 | |
| Non-cash lease cost | 1,248.6 | | | 1,197.6 | | | — | |
| Loss on retirement and impairment of assets | 226.2 | | | 454.4 | | | 142.6 | |
| Other | (6.0) | | | 24.5 | | | 45.3 | |
| Cash provided by/(used in) changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (43.0) | | | (2.7) | | | (197.7) | |
| Inventories | (49.8) | | | (10.9) | | | (173.0) | |
| Prepaid expenses and other current assets | 251.1 | | | (317.5) | | | 922.0 | |
| Income taxes payable | 286.1 | | | (1,214.6) | | | 1,237.1 | |
| Accounts payable | 189.9 | | | (210.8) | | | 31.9 | |
| | | | | |
| Deferred revenue | (6.1) | | | 31.0 | | | (30.5) | |
| Operating lease liability | (1,488.1) | | | (1,231.4) | | | — | |
| Other operating assets and liabilities | 358.7 | | | 280.5 | | | (141.1) | |
| Net cash provided by operating activities | 5,989.1 | | | 1,597.8 | | | 5,047.0 | |
| INVESTING ACTIVITIES: | | | | | |
| Purchases of investments | (432.0) | | | (443.9) | | | (190.4) | |
| Sales of investments | 143.2 | | | 186.7 | | | 298.3 | |
| Maturities and calls of investments | 345.5 | | | 73.7 | | | 59.8 | |
| | | | | |
| Additions to property, plant and equipment | (1,470.0) | | | (1,483.6) | | | (1,806.6) | |
| Net proceeds from the divestiture of certain operations | 1,175.0 | | | — | | | 684.3 | |
| Other | (81.2) | | | (44.4) | | | (56.2) | |
| Net cash used in investing activities | (319.5) | | | (1,711.5) | | | (1,010.8) | |
| FINANCING ACTIVITIES: | | | | | |
| Repayments of commercial paper | (296.5) | | | — | | | — | |
| Proceeds from issuance of short-term debt | 215.1 | | | 1,406.6 | | | — | |
| Repayments of short-term debt | (349.8) | | | (967.7) | | | — | |
| Proceeds from issuance of long-term debt | — | | | 4,727.6 | | | 1,996.0 | |
| Repayments of long-term debt | (1,250.0) | | | — | | | (350.0) | |
| | | | | |
| | | | | |
| Proceeds from issuance of common stock | 246.2 | | | 298.8 | | | 409.8 | |
| | | | | |
| Cash dividends paid | (2,119.0) | | | (1,923.5) | | | (1,761.3) | |
| Repurchase of common stock | — | | | (1,698.9) | | | (10,222.3) | |
| Minimum tax withholdings on share-based awards | (97.0) | | | (91.9) | | | (111.6) | |
| Other | — | | | (37.7) | | | (17.5) | |
| Net cash provided by/(used in) financing activities | (3,651.0) | | | 1,713.3 | | | (10,056.9) | |
| Effect of exchange rate changes on cash and cash equivalents | 86.2 | | | 64.7 | | | (49.0) | |
| Net increase/(decrease) in cash and cash equivalents | 2,104.8 | | | 1,664.3 | | | (6,069.7) | |
| CASH AND CASH EQUIVALENTS: | | | | | |
| Beginning of period | 4,350.9 | | | 2,686.6 | | | 8,756.3 | |
| End of period | $ | 6,455.7 | | | $ | 4,350.9 | | | $ | 2,686.6 | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the period for: | | | | | |
| Interest, net of capitalized interest | $ | 501.1 | | | $ | 396.9 | | | $ | 299.5 | |
| Income taxes | $ | 756.3 | | | $ | 1,699.1 | | | $ | 470.1 | |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income/(Loss) | | Shareholders’
Equity | | Noncontrolling
Interests | | Total |
| | Shares | | Amount | |
| Balance, September 28, 2014 | 749.5 |
| | $ | 0.7 |
| | $ | 39.4 |
| | $ | 5,206.6 |
| | $ | 25.3 |
| | $ | 5,272.0 |
| | $ | 1.7 |
| | $ | 5,273.7 |
|
| Net earnings/(loss) | — |
| | — |
| | — |
| | 2,757.4 |
| | — |
| | 2,757.4 |
| | 1.9 |
| | 2,759.3 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | — |
| | (193.6 | ) | | (193.6 | ) | | (31.1 | ) | | (224.7 | ) |
| Stock-based compensation expense | — |
| | — |
| | 211.7 |
| | — |
| | — |
| | 211.7 |
| | — |
| | 211.7 |
|
| Exercise of stock options/vesting of RSUs, including tax benefit of $131.3 | 14.6 |
| | — |
| | 224.4 |
| | — |
| | — |
| | 224.4 |
| | — |
| | 224.4 |
|
| Sale of common stock, including tax benefit of $0.2 | 0.6 |
| | — |
| | 23.5 |
| | — |
| | — |
| | 23.5 |
| | — |
| | 23.5 |
|
| Repurchase of common stock | (29.0 | ) | | — |
| | (459.6 | ) | | (972.2 | ) | | — |
| | (1,431.8 | ) | | — |
| | (1,431.8 | ) |
| Cash dividends declared, $0.680 per share | — |
| | — |
| | — |
| | (1,016.2 | ) | | — |
| | (1,016.2 | ) | | — |
| | (1,016.2 | ) |
| Two-for-one stock split | 749.4 |
| | 0.8 |
| | — |
| | (0.8 | ) | | — |
| | — |
| | — |
| | — |
|
| Noncontrolling interest resulting from acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 411.1 |
| | 411.1 |
|
| Purchase of noncontrolling interest | — |
| | — |
| | 1.7 |
| | — |
| | (31.1 | ) | | (29.4 | ) | | (381.7 | ) | | (411.1 | ) |
| Balance, September 27, 2015 | 1,485.1 |
| | $ | 1.5 |
| | $ | 41.1 |
| | $ | 5,974.8 |
| | $ | (199.4 | ) | | $ | 5,818.0 |
| | $ | 1.8 |
| | $ | 5,819.8 |
|
| Net earnings/(loss) | — |
| | — |
| | — |
| | 2,817.7 |
| | — |
| | 2,817.7 |
| | 1.2 |
| | 2,818.9 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | — |
| | 91.0 |
| | 91.0 |
| | — |
| | 91.0 |
|
| Stock-based compensation expense | — |
| | — |
| | 219.6 |
| | — |
| | — |
| | 219.6 |
| | — |
| | 219.6 |
|
| Exercise of stock options/vesting of RSUs, including tax benefit of $124.3 | 9.8 |
| | — |
| | 153.0 |
| | — |
| | — |
| | 153.0 |
| | — |
| | 153.0 |
|
| Sale of common stock, including tax benefit of $0.2 | 0.5 |
| | — |
| | 26.5 |
| | — |
| | — |
| | 26.5 |
| | — |
| | 26.5 |
|
| Repurchase of common stock | (34.9 | ) | | — |
| | (399.1 | ) | | (1,596.5 | ) | | — |
| | (1,995.6 | ) | | — |
| | (1,995.6 | ) |
| Cash dividends declared, $0.850 per share | — |
| | — |
| | — |
| | (1,246.2 | ) | | — |
| | (1,246.2 | ) | | — |
| | (1,246.2 | ) |
| Noncontrolling interest resulting from acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3.7 |
| | 3.7 |
|
| Balance, October 2, 2016 | 1,460.5 |
|
| $ | 1.5 |
|
| $ | 41.1 |
|
| $ | 5,949.8 |
|
| $ | (108.4 | ) |
| $ | 5,884.0 |
|
| $ | 6.7 |
|
| $ | 5,890.7 |
|
| Net earnings/(loss) | — |
| | — |
| | — |
| | 2,884.7 |
| | — |
| | 2,884.7 |
| | 0.2 |
| | 2,884.9 |
|
| Other comprehensive income/(loss) | — |
| | — |
| | — |
| | — |
| | (47.2 | ) | | (47.2 | ) | | — |
| | (47.2 | ) |
| Stock-based compensation expense | — |
| | — |
| | 177.9 |
| | — |
| | — |
| | 177.9 |
| | — |
| | 177.9 |
|
| Exercise of stock options/vesting of RSUs, including tax benefit of $77.4 | 8.1 |
| | — |
| | 117.0 |
| | — |
| | — |
| | 117.0 |
| | — |
| | 117.0 |
|
| Sale of common stock, including tax benefit of $0.2 | 0.5 |
| | — |
| | 28.7 |
| | — |
| | — |
| | 28.7 |
| | — |
| | 28.7 |
|
| Repurchase of common stock | (37.5 | ) | | (0.1 | ) | | (323.6 | ) | | (1,755.4 | ) | | — |
| | (2,079.1 | ) | | — |
| | (2,079.1 | ) |
| Cash dividends declared, $1.05 per share | — |
| | — |
| | — |
| | (1,515.9 | ) | | — |
| | (1,515.9 | ) | | — |
| | (1,515.9 | ) |
| Balance, October 1, 2017 | 1,431.6 |
|
| $ | 1.4 |
|
| $ | 41.1 |
|
| $ | 5,563.2 |
|
| $ | (155.6 | ) |
| $ | 5,450.1 |
|
| $ | 6.9 |
|
| $ | 5,457.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained
Earnings/(Deficit) | | Accumulated
Other
Comprehensive
Income/(Loss) | | Shareholders’
Equity/(Deficit) | | Noncontrolling
Interests | | Total |
| | Shares | | Amount | |
| Balance, September 30, 2018 | 1,309.1 | | | $ | 1.3 | | | $ | 41.1 | | | $ | 1,457.4 | | | $ | (330.3) | | | $ | 1,169.5 | | | $ | 6.3 | | | $ | 1,175.8 | |
| Cumulative effect of adoption of new accounting guidance | — | | | — | | | — | | | 495.6 | | | — | | | 495.6 | | | — | | | 495.6 | |
| Net earnings/(loss) | — | | | — | | | — | | | 3,599.2 | | | — | | | 3,599.2 | | | (4.6) | | | 3,594.6 | |
| Other comprehensive income/(loss) | — | | | — | | | — | | | — | | | (173.0) | | | (173.0) | | | — | | | (173.0) | |
| Stock-based compensation expense | — | | | — | | | 311.3 | | | — | | | — | | | 311.3 | | | — | | | 311.3 | |
| Exercise of stock options/vesting of RSUs | 14.7 | | | — | | | 264.9 | | | — | | | — | | | 264.9 | | | — | | | 264.9 | |
| Sale of common stock | 0.4 | | | — | | | 33.4 | | | — | | | — | | | 33.4 | | | — | | | 33.4 | |
| Repurchase of common stock | (139.6) | | | (0.1) | | | (609.6) | | | (9,521.8) | | | — | | | (10,131.5) | | | — | | | (10,131.5) | |
| Cash dividends declared, $1.49 per share | — | | | — | | | — | | | (1,801.6) | | | — | | | (1,801.6) | | | — | | | (1,801.6) | |
| Net distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (0.5) | | | (0.5) | |
| Balance, September 29, 2019 | 1,184.6 | | | $ | 1.2 | | | $ | 41.1 | | | $ | (5,771.2) | | | $ | (503.3) | | | $ | (6,232.2) | | | $ | 1.2 | | | $ | (6,231.0) | |
| Cumulative effect of adoption of new accounting guidance | — | | | — | | | — | | | 12.5 | | | 4.8 | | | 17.3 | | | — | | | 17.3 | |
| Net earnings/(loss) | — | | | — | | | — | | | 928.3 | | | — | | | 928.3 | | | (3.6) | | | 924.7 | |
| Other comprehensive income/(loss) | — | | | — | | | — | | | — | | | 133.9 | | | 133.9 | | | — | | | 133.9 | |
| Stock-based compensation expense | — | | | — | | | 252.1 | | | — | | | — | | | 252.1 | | | — | | | 252.1 | |
| Exercise of stock options/vesting of RSUs | 8.5 | | | — | | | 169.9 | | | — | | | — | | | 169.9 | | | — | | | 169.9 | |
| Sale of common stock | 0.5 | | | — | | | 37.2 | | | — | | | — | | | 37.2 | | | — | | | 37.2 | |
| Repurchase of common stock | (20.3) | | | — | | | (126.4) | | | (1,548.6) | | | — | | | (1,675.0) | | | — | | | (1,675.0) | |
| Cash dividends declared, $1.23 per share | — | | | — | | | — | | | (1,436.6) | | | — | | | (1,436.6) | | | (0.2) | | | (1,436.8) | |
| Noncontrolling interest resulting from divestiture | — | | | — | | | — | | | — | | | — | | | — | | | 8.3 | | | 8.3 | |
| Balance, September 27, 2020 | 1,173.3 | | | $ | 1.2 | | | $ | 373.9 | | | $ | (7,815.6) | | | $ | (364.6) | | | $ | (7,805.1) | | | $ | 5.7 | | | $ | (7,799.4) | |
| Cumulative effect of adoption of new accounting guidance | — | | | — | | | — | | | (2.2) | | | — | | | (2.2) | | | — | | | (2.2) | |
| Net earnings/(loss) | — | | | — | | | — | | | 4,199.3 | | | — | | | 4,199.3 | | | 1.0 | | | 4,200.3 | |
| Other comprehensive income/(loss) | — | | | — | | | — | | | — | | | 511.8 | | | 511.8 | | | — | | | 511.8 | |
| Stock-based compensation expense | — | | | — | | | 322.8 | | | — | | | — | | | 322.8 | | | — | | | 322.8 | |
| Exercise of stock options/vesting of RSUs | 6.3 | | | — | | | 107.0 | | | — | | | — | | | 107.0 | | | — | | | 107.0 | |
| Sale of common stock | 0.4 | | | — | | | 42.4 | | | — | | | — | | | 42.4 | | | — | | | 42.4 | |
| | | | | | | | | | | | | | | |
| Cash dividends declared, $2.29 per share | — | | | — | | | — | | | (2,697.2) | | | — | | | (2,697.2) | | | — | | | (2,697.2) | |
| | | | | | | | | | | | | | | |
| Balance, October 3, 2021 | 1,180.0 | | | $ | 1.2 | | | $ | 846.1 | | | $ | (6,315.7) | | | $ | 147.2 | | | $ | (5,321.2) | | | $ | 6.7 | | | $ | (5,314.5) | |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | |
| Note 1 | | |
| Note 2 | | |
| Note 3 | | |
| Note 4 | | |
| Note 5 | | |
| Note 6 | | |
| Note 7 | | |
| Note 8 | | |
| Note 9 | | |
| Note 10 | | |
| Note 11 | | |
| Note 12 | | |
| Note 13 | | |
| Note 14 | | |
| Note 15 | | |
| Note 16 | | |
| Note 17 | | |
| | |
Note 1 | | |
Note 2 | | |
Note 3 | | |
Note 4 | | |
Note 5 | | |
Note 6 | | |
Note 7 | | |
Note 8 | | |
Note 9 | | |
Note 10 | | |
Note 11 | | |
Note 12 | | |
Note 13 | | |
Note 14 | | |
Note 15 | | |
Note 16 | | |
Note 17 | | |
Note 18 | | |
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended October 1, 2017, October 2, 2016 and 3, 2021, September 27, 20152020 and September 29, 2019
Note 1: Summary of Significant Accounting Policies and Estimates
Description of Business
We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh and prepared food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and nationalfoodservice. The grocery and foodservice accounts.business is primarily through our Global Coffee Alliance with Nestlé established in August 2018.
In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. In the fourth quarter of fiscal 2021, certain changes were made to our management team, and our operating segment reporting structure was realigned as a result. We realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment. We renamed the Americas operating segment to the North America operating segment, since it is comprised of our company-operated and licensed stores in the U.S. and Canada. We also made certain other immaterial changes between our International operating segment and Corporate and Other. Certain prior period information for our North America and International operating segments and our Corporate and Other reportable segment has been reclassified to conform to the current year presentation. There was no impact on consolidated net revenues, total operating expenses, operating income or net earnings per share as a result of these changes.
We have fourthree reportable operating segments: 1) Americas,North America, which is inclusive of the U.S., Canada, and Latin America;Canada; 2) China/International, which is inclusive of China, Japan, Asia Pacific, (“CAP”); 3) Europe, Middle East and Africa, (“EMEA”)Latin America and 4)the Caribbean; and 3) Channel Development. We also have several non-reportableNon-reportable operating segments including Teavana, Seattle's Best Coffee andsuch as Evolution Fresh as well as certain developing businesses such as Siren Retail, which includes the Starbucks ReserveTM Roastery & Tasting Rooms, Starbucks Reserve brand and productsunallocated corporate expenses are reported within Corporate and Princi operations, which are combined and referred to as All Other Segments. Unallocated corporate operating expenses, which pertain primarily to corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment, are presented as a reconciling item between total segment operating results and consolidated financial results.Other.
Additional details on the nature of our business and our reportable operating segments are included in Note 1617, Segment Reporting. Principles of Consolidation
Our consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly-owned subsidiaries and investees that we control. Investments in entities that we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Investments in entities in which we do not have the ability to exercise significant influence are accounted for under the cost method. Intercompany transactions and balances have been eliminated.
Fiscal Year End
Our fiscal year ends on the Sunday closest to September 30. Fiscal year 2017 and 2015 included 52 weeks. Fiscal year 20162021 included 53 weeks, with the 53rd53rd week falling in the fourth fiscal quarter. Fiscal years 2020 and 2019 included 52 weeks.
Estimates and Assumptions
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include, but are not limited to, estimates for inventory reserves, asset and goodwill impairments, assumptions underlying self-insurance reserves, income from unredeemed stored value cards, stock-based compensation forfeiture rates, future asset retirement obligations and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the global COVID-19 pandemic.
Restructuring
In fiscal 2020, we announced a restructuring plan to optimize our North America store portfolio, primarily in dense metropolitan markets by developing new store formats to better cater to changing customer tastes and preferences. As of October 3, 2021, 807 stores in the U.S. and Canada had been identified for closure, and substantially all were closed under the plan. During fiscal years 2021 and 2020, we recorded approximately $155.4 million and $254.7 million, respectively, to restructuring and impairments on our consolidated statements of earnings. These totals included $53.1 million and $151.0 million, respectively, related to disposal and impairment of company-operated store assets and $89.5 million and $87.7 million, respectively, primarily associated with accelerated amortization of ROU lease assets and other lease costs due to store closures prior to the end of contractual lease terms. Company-operated store asset impairments were the result of either a triggering event that occurred where the assets were determined not to be recoverable or the store was permanently closed. 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 charges given that we have closed substantially all of these identified stores. As of October 3, 2021, we expect total future restructuring costs under this plan, which are attributable to our North America segment, to be immaterial.
Restructuring-related accrued employee termination costs included in accrued payroll and benefits on the consolidated balance sheets were immaterial as of October 3, 2021 and September 27, 2020. Additionally on the consolidated balance sheets, other accrued restructuring costs included in accrued liabilities were immaterial as of October 3, 2021 and there were no other accrued restructuring costs outstanding as of September 27, 2020. Cash payments relating to these liabilities were immaterial for the fiscal years ended October 3, 2021 and September 27, 2020.
Cash and Cash Equivalents
We consider all highly liquid instruments with maturities of three months or less at the time of purchase, as well as credit card receivables for sales to customers in our company-operated stores that generally settle within two to five business days, to be cash equivalents. We maintain cash and cash equivalent balances with financial institutions that exceed federally-insured limits. We have not experienced any losses related to these balances, and we believe credit risk to be minimal.
Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which creates book overdrafts. Book overdrafts are presented as a current liability in accrued liabilities on our consolidated balance sheets.
Investments
Available-for-sale Debt Securities
Our short-term and long-term investments consist primarily of investment-grade debt securities, all of which are classified as available-for-sale. Available-for-sale debt securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at the time of purchase to be used to fund operations within one year are classified as short-term. All other available-for-sale securities are classified as long-term. We evaluate our available-for-sale securities for other than temporaryother-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. We review several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the intent to sell or will more likely than not be required to sell before the securities' anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis.
TradingMarketable Equity Securities
We also have a tradingmarketable equity securities portfolio, which is comprised of marketable equity mutual funds and equity exchange-traded funds. TradingMarketable equity securities are recorded at fair value and approximates a portion of our liability under our Management Deferred Compensation Plan (“MDCP”). Gains or losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings.
Equity and Cost Method Investments
Equity investments are accounted for usingunder the equity method of accounting if the investment gives us the abilitywe are able to exercise significant influence, but not control, over an investee. Equity method investments are included within long-term investments on our consolidated balance sheets. Our share of the earnings or losses as reported by equity methodthe investees areis classified as income from equity investees on our consolidated statements of earnings.
Equity investments for which we do not have the ability to exercise significant influence are accounted for using the cost method of accounting and are recorded in long-term investments on our consolidated balance sheets. Under the cost method, The investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments.
We evaluate our equity and cost method investmentsevaluated for impairment annually and when facts and circumstances indicate that the carrying value of such investments may not be recoverable. We review several factors to determine whether the loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the investee, and whether we have the intent to sell or will more likely than not be required to sell before the investment’s anticipated recovery. If a decline in fair value is determined to be other than temporary,other-than-temporary, an impairment charge is recorded in interest income and other, net on our consolidated statements of earnings.
We account for equity investments for which we do not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price or impairments as permitted by the measurement alternative. Investments for which the measurement alternative has been elected are assessed for impairment quarterly, or if a triggering event indicates impairment may be present. Any adjustments as a result of price changes or impairments are recorded in interest income and other, net on our consolidated statements of earnings.
Fair Value
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following:
Level 1: The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of these instruments. For tradingequity and U.S. government treasury securities and commodity futures contracts, we use quoted prices in active markets for identical assets to determine fair value.
Level 2: When quoted prices in active markets for identical assets are not available, we determine the fair value of our available-for-sale securities and our over-the-counter forward contracts, collars and swaps based upon factors such as the quoted market price of similar assets or a discounted cash flow model using readily observable market data, which may include interest rate curves and forward and spot prices for currencies and commodities, depending on the nature of the investment. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities.
Level 3: We determine the fair value of our auction rate securities using an internally-developed valuation model, using inputs that include interest rate curves, credit and liquidity spreads and effective maturity.
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and cost methodother investments and other assets. We determine the fair value of these items using Level 3 inputs, as described in the related sections below.
Derivative Instruments
We manage our exposure to various risks within our consolidated financial statements according to a market price risk management policy. Under this policy, we may engage in transactions involving various derivative instruments to hedge interest rates, commodity prices and foreign currency denominatedcurrency-denominated revenue streams, inventory purchases, assets and liabilities and investments in certain foreign operations. In order to manage our exposure to these risks, we use various types of derivative instruments including forward contracts, commodity futures contracts, collars and swaps. Forward contracts and commodity futures contracts are agreements to buy or sell a quantity of a currency or commodity at a predetermined future date and at a predetermined rate or price. A collar is a strategy that uses a combination of a purchased call option and a sold put option with equal premiums to hedge a portion of anticipated cash flows, or to limit the range of possible gains or losses on an underlying asset or liability to a specific range. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. We do not enter into derivative instruments for speculative purposes.
We record all derivatives on our consolidated balance sheets at fair value.value and typically do not offset derivative assets and liabilities. Excluding interest rate hedging instruments, cross-currency swaps and foreign currency debt hedging instruments, we generally do not enter into derivative instruments with maturities longer than three years or offset derivative assets and liabilities in our consolidated balance sheets.years. However, we are allowed to net settle transactions with respective counterparties for certain derivative contracts, inclusive of interest rate swaps and foreign currency forwards, with a single, net amount payable by one party to the other. We also enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. As of October 1, 20173, 2021 and October 2, 2016, we received and posted $5.8 million and $19.5 million, respectively, ofSeptember 27, 2020, cash collateral related to the derivative instrumentsheld under collateral security arrangements. As of October 1, 2017arrangements was $44.7 million and October 2, 2016, the$34.9 million, respectively, and is included in other long-term liabilities on our consolidated balance sheets. The potential effects of netting arrangements with our derivative contracts, excluding the effects of collateral, would benot have had a reduction to both derivative assets and liabilities of $7.4 million and $9.4 million, respectively, resulting in net derivative assets of $30.4 million and net derivative liabilities of $31.1 million as of October 1, 2017, and net derivative assets of $24.7 million and net derivative liabilities of $80.2 million as of October 2, 2016.material impact on our consolidated balance sheets.
By using these derivative instruments, we expose ourselves to potential credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. We minimize this credit risk by entering into transactions with carefully selected, credit-worthy counterparties and distribute contracts among several financial institutions to reduce the concentration of credit risk.
Cash Flow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the derivative's gain or loss is reported as a component of other comprehensive income (“OCI”) and recorded in accumulated other comprehensive income (“AOCI”) on our consolidated balance sheets. The gain or loss is subsequently reclassified into net earnings when the hedged exposure affects net earnings.
To the extent that the changeearnings, in the fair value ofsame line item as the contract corresponds to the change in the value of the anticipated transaction using forward rates on a monthly basis, the hedge is considered effective and is recognized as described above. The remaining change in fair value of the contract represents the ineffective portion, which is immediately recorded in interest income and other, netunderlying hedged item on our consolidated statements of earnings.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge by matching the terms of the contract to the underlying transaction.hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. Once established, cash flow hedges generally remain designated as such until the hedged item impacts net earnings, or the anticipated transaction is no longer likely to occur. For de-designated cash flow hedges or forin which the transactions that are no longer likely to occur, the related accumulated derivative gains or losses are recognized in interest income and other, net or interest expense on our consolidated statements of earnings based on the nature of the underlying transaction.
Net Investment Hedges
For derivative instruments that are designated and qualify as a net investment hedge, the effective portion of the derivative's, or qualifying non-derivative instrument’s gain or loss is reported as a component of OCI and recorded in AOCI. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated.
To the extent that the change in the fair value
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the changes in fair value of the derivative instrumentsinstrument and the offsetting changes in fair valuesvalue of the underlying hedged item due to changes in the hedged risk are recorded in interest income and other, net or interest expense on our consolidated statements of earnings.
Derivatives Not Designated As Hedging Instruments
We also enter into certain foreign currency forward contracts, commodity futures contracts, collars and swaps that are not designated as hedging instruments for accounting purposes. The changechanges in the fair valuevalues of these contracts isare immediately recognized in interest income and other, net on our consolidated statements of earnings.
Normal Purchase Normal Sale
We enter into fixed-price and price-to-be-fixed green coffee purchase commitments, which are described further at in Note 5, Inventories. For both fixed-price and price-to-be-fixed purchase commitments, we expect to take delivery of green coffee and to utilize the coffee in a reasonable period of time and in the conductordinary course of normal business. Accordingly,Since these types of purchase commitments qualify asfor the normal purchases andpurchase normal sale exemption, they are not recorded at fair valueas derivative instruments on our consolidated balance sheets. Refer to Note 3, Derivative Financial Instruments, and Note 5, Inventories, for further discussion of our derivative instruments and green coffee purchase commitments. Receivables, net of Allowance for Doubtful AccountsCredit Losses
Our receivables are mainly comprised of receivables for product and equipment sales to and royalties from our licensees, as well as receivables from our consumer packaged goods (“CPG”)Global Coffee Alliance and foodservice businessother Channel Development customers. The primary indicators of the credit quality of our receivables are aging, payment history, economic sector information and outside credit monitoring, and are assessed on a quarterly basis. Our credit loss exposure is mainly concentrated in our accounts receivable portfolio. Our allowance for doubtful accountscredit losses is calculated using a loss-rate method based on historical experience, customercurrent market conditions and reasonable forecasts. We also assessed incremental risks due to COVID-19 on our licensees’ financial viability. For the year ended October 3, 2021, we did not observe a significant deterioration of our receivable portfolio that required a significant increase in our allowance for credit risk and application of the specific identification method.losses. As of October 1, 2017 and October 2, 2016,3, 2021, our allowance for credit losses was $25.6 million. As of September 27, 2020, prior to adoption of the new estimated credit losses methodology, our allowance for doubtful accounts was $9.8 million$27.1 million.
To assist certain international licensed partners with their business recovery from the impact of the COVID-19 pandemic, we provided payment extensions for their outstanding receivables to help them dedicate their capital to further develop stores and $9.4 million, respectively.build the brand. During the third quarter of fiscal 2020, we also temporarily waived royalty payments from our international licensees and did not recognize royalty revenues associated with these accounts. Normal royalty billings and collections resumed during the fourth quarter of fiscal 2020. We do not believe the terms and forms of these financial relief actions changed our revenue recognition policy or had a significant impact on future collectability.
Inventories
Inventories are stated at the lower of cost (primarily moving average cost) or market.net realizable value. We record inventory reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method. As of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, inventory reserves were $38.4$36.6 million and $39.648.4 million, respectively.
Property, Plant and Equipment
Property, plant and equipment which includes assets under capital leases, areis carried at cost less accumulated depreciation. Cost includes all direct costs necessary to acquire and prepare assets for use, including internal labor and overhead in some cases. Depreciation is computed using the straight-line method over estimated useful lives of the assets, generally ranging from 2 to 15 years for equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years. For leases with renewal periods at our option, we generally use the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of the appropriate estimated useful lives.
The portion of depreciation expense related to production and distribution facilities is included in cost of sales including occupancyproduct and distribution costs on our consolidated statements of earnings. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are disposed of, whether through retirement or sale, the net gain or loss is recognized in
net earnings. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell.
We evaluate property, plant and equipment for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The fair value of the asset is estimated using a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections. Property, plant and equipment assets and ROU assets related to the store lease are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level.
We recognized net disposition and impairment charges of $46.9$153.1 million, $25.1$294.9 million and $12.5$108.0 million in fiscal 2017, 2016,2021, 2020 and 2015,2019, respectively. Additionally, we recognizedOf the total net impairment and disposition charges, of $56.1$53.1 million, $24.1$151.0 million and $25.8$7.3 million in fiscal 2017, 2016,2021, 2020 and 2015,2019, respectively, of which $39.9 million in fiscal 2017 were restructuring related and recorded in restructuring and impairment expenses. For fiscal 2021 and 2020, we evaluated COVID-19 business recovery trends and their estimated impacts on future revenue growth and profitability for assessing impairment of our company-operated retail store and related operating lease ROU assets. As a result, we recorded $44.4 million and $59.6 million of impairment losses within store operating expenses on our consolidated statements of earnings during the years ended October 3, 2021 and September 27, 2020, respectively. Unless it is restructuring related, the nature of the underlying asset that is impaired or disposed of will determine the operating expense line on which the related impact is recorded on our consolidated statements of earnings. For assets within
Leases
The majority of our leases are operating leases for our company-operated retail operations, net impairmentstore locations. We also lease, among other things, roasting, distribution and disposition chargeswarehouse facilities and office space for corporate administrative purposes.
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 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 inwithin 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 alloperating 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. During fiscal 2021, the COVID-19-related rent concessions we received for stores, primarily in our International segment, were immaterial. During fiscal 2020, we received $27.6 million of COVID-19-related rent concessions for stores in our International segment generally correlating with the temporary period our stores were closed. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we elected to treat COVID-19-related rent concessions as variable rent. Rent concessions were recognized as an offset to our rent expense within store operating expenses on our consolidated statement of earnings. See Note 10, Leases, for additional details. Additionally, for the years ended October 3, 2021 and September 27, 2020, we recognized accelerated amortization of ROU lease assets and other assets, these charges arelease costs of $89.5 million and $87.7 million, respectively, due to planned store closures prior to the end of contractual lease terms, which were recorded in costrestructuring and impairments on the consolidated statement of sales including occupancy costs, other operating expenses or general and administrative expenses.earnings. Goodwill
We evaluate goodwill for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant number of store closures, that would indicate that impairment may exist. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit. Fair value is the price a willing buyer would pay for the reporting unit and is typically calculated using a discounted cash flow model. For certain reporting units, where deemed appropriate, we may also utilize a market approach for estimating fair value. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value.
As part of our ongoing operations, we may close certain stores within a reporting unit containing goodwill due to underperformance of the store or inability to renew our lease, among other reasons. We may abandon certain assets associated with a closed store, including leasehold improvements and other non-transferable assets. When a portion of a reporting unit that constitutes a business is to be disposed of, goodwill associated with the business is included in the carrying amount of the business in determining any loss on disposal. Our evaluation of whether the portion of a reporting unit being disposed of constitutes a business occurs on the date of abandonment. Although an operating store meets the accounting definition of a business prior to abandonment, it does not constitute a business on the closure date because the remaining assets on that date do not constitute an integrated set of activities (substantive processes) and assets that are capable of being managed for the purpose of providing a return to investors. As a result, when closing individual stores, we do not include goodwill in the calculation of any loss on disposal of the related assets.
As noted above, if store closures are indicative of potentialWe recorded no goodwill impairment of goodwill at the reporting unit level, we perform an evaluation of our reporting unit goodwill when such closures occur. Due to the strategic decision to close Teavana branded retail storesduring fiscal 2021 and our subsequent review of this reporting unit's fair value,fiscal 2020. In fiscal 2019, we recorded goodwill impairment charges of $69.3 million during the third quarter of fiscal 2017.
Additionally, we recorded a partial goodwill impairment of $17.9 million related to our Switzerland retail reporting unit during the third quarter of fiscal 2017, primarily due to ongoing macro economic factors. There were no material goodwill impairment charges recorded during fiscal 2016 and 2015. Refer to $10.5 million. See Note 8, Other Intangible Assets and Goodwill, for further discussions.information.Other Intangible Assets
Other intangible assets include finite-lived intangible assets, which mainly consist of acquired and reacquired rights, trade secrets, licensing agreements, contract-based patents and copyrights. These assets are amortized over their estimated useful lives and are tested for impairment using a similar methodology to our property, plant and equipment, as described above.
Indefinite-lived intangibles, which consist primarily of trade names and trademarks, are tested for impairment annually during the third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. When evaluating other intangible assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired. If we do not perform the qualitative assessment, or if we determine that it is not more likely than not that the fair value of the intangible asset group exceeds its carrying amount, we calculate the estimated fair value of the intangible asset group. Fair value is the price a willing buyer would pay for the intangible asset group and is typically calculated using an income approach, such as a relief-from-royalty model. If the carrying amount of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. In addition, we continuously monitor and may revise our intangible asset useful lives if and when facts and circumstances change.
There were no significant other intangible asset impairment charges recorded during fiscal 20172021. We recorded other intangible asset impairment charges of $22.1 million during fiscal 2020. There were no significant other intangible asset impairments charges recorded during fiscal 2019. See Note 8, 2016,Other Intangible Assets and 2015.Goodwill, for further information.
Insurance Reserves
We use a combination of insurance and self-insurance mechanisms, including a wholly-owned captive insurance entity and participation in a reinsurance treaty, to provide for the potential liabilities for certain risks, including workers’ compensation, healthcare benefits, general liability, property insurance and director and officers’ liability insurance. Liabilities associated with the risks that are retained by us are not discounted and are estimated, in part, by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.
Revenue Recognition
Consolidated revenues are presented net of intercompany eliminations for wholly-owned subsidiaries and investees controlled by us and for product sales to and royalty and other fees from licensees accounted for under the equity method. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates.
Company-operated Store Revenues
Company-operated store revenues are recognized when payment is tendered at the point of sale.sale as the performance obligation has been satisfied. Company-operated store revenues are reported net ofexcluding sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.
Licensed Store Revenues
Licensed store revenues consist of product and equipment sales, to licensees, as well as royalties and other fees paid by licensees.licensees using the Starbucks brand. Sales of coffee, tea, food and related products are generally recognized upon shipment to licensees, depending on contract terms. Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancyproduct and distribution costs on our consolidated statements of earnings.
Initial nonrefundableWe consider pre-opening services, including site evaluation and selection, store architectural/design and development fees for licensed storesand operational training, to be performance obligations that are separate from the license to operate under the Starbucks brand. These services provide distinct value to our licensees, including business and industry insight and knowledge that transfers value apart from the license. Revenues associated with pre-opening services are recognized upon substantialcompletion of the related performance of services for new market business development activities, such as initial business, real estate andobligations, generally when a store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Additional store licensing fees are recognized when new licensed stores areis opened. Royalty revenues are recognized based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized on a monthly basis when earned.
CPG, Foodservice and Other Revenues
CPG, foodservice and other revenues primarily include sales of packaged coffee and tea as well as a variety of ready-to-drink beverages and single-serve coffee and tea products to grocery, warehouse clubs and specialty retail stores, sales to our national foodservice accounts, and revenues from sales of products to and license fee revenues from manufacturers that produce and market Starbucks-, Seattle’s Best Coffee- and Tazo-branded products through licensing agreements. Sales of coffee, tea, ready-to-drink beverages and related products to grocery and warehouse club storesthe performance obligations are generally recognized when received by the customer or distributor, depending on contract terms. Revenues are recorded net of sales discounts given to customers for trade promotions and other incentives and for sales return allowances, which are determined based on historical patterns.
Revenues from sales of products to manufacturers that produce and market Starbucks-, Seattle’s Best Coffee- and Tazo-branded products through licensing agreements are generally recognized when the product is received by the manufacturer or distributor. License fee revenues from manufacturers are based on a percentage of sales and are recognized on a monthly basis when earned. National foodservice account revenues are recognized when the product is received by the customer or distributor.
Sales to customers through CPG channels and national foodservice accounts, including sales to national distributors, are recognized net of certain fees paid to the customer. We characterize these fees as a reduction of revenue unless we are able to identify a sufficiently separable benefit from the customer's purchase of our products such that we could have entered into an exchange transaction with a party other than the customer in order to receive such benefit, and we can reasonably estimate the fair value of such benefit.met.
Stored Value Cards
Stored value cards primarily Starbucks Cards, can be activated through various channels, including at our company-operated and most licensed store locations, online at StarbucksStore.comStarbucks.com or via mobile devices held by our customers and at certain other third partythird-party websites and locations, such as grocery stores, although they cannot be reloaded at these third partythird-party websites or locations. When an amount isAmounts loaded onto a stored value card at anycards are initially recorded as deferred revenue and recognized as revenue upon redemption. Historically, the majority of these locations, we recognize a corresponding liability for the full amount loaded onto the card, which is recorded within stored value card liability oncards are redeemed within one year.
In many of our consolidated balance sheets.
Stored value cards can be redeemed at company-operated and most licensed stores, as well as online. When a stored value card is redeemed at a company-operated store or online, we recognize revenue by reducingcompany-owned markets, including the stored value card liability. When a
stored value card is redeemed at a licensed store location, we reduce the corresponding stored value card liability and cash, which is reimbursed to the licensee.
There are no expiration dates onU.S., our stored value cards and in most markets, we do not have an expiration date nor do we charge service fees that cause a decrement to customer balances. While we will continue to honor allBased on historical redemption rates, a portion of stored value cards presented for payment, management may determine the likelihood ofis not expected to be redeemed and will be recognized as breakage over time in proportion to stored value card redemptions. The redemption rates are based on historical experience, is deemed to be remoteredemption patterns for certain cards due to long periods of inactivity. In these circumstances, if management also determines there is no requirement for remitting balanceseach market, including the timing and business channel in which the card was activated or reloaded, and remittance to government agencies under unclaimed property laws, unredeemed card balances may then beif applicable.
Breakage is recognized as breakage income, which is included in interest incomecompany-operated stores and other, net on ourlicensed stores revenue within the consolidated statementsstatement of earnings. InFor the fiscal 2017, 2016,years ended October 3, 2021, September 27, 2020 and 2015,September 29, 2019, we recognized breakage incomerevenue of $104.6$164.5 million, $60.5$130.3 million and $39.3$125.1 million, in company-operated store revenues, respectively, and $16.6 million, $14.3 million and $15.7 million in licensed store revenues, respectively.
Loyalty Program
In the U.S. and Canada, effective April 2016, we modified our transaction-based loyalty program, My Starbucks Rewards® to a spend-based program, Starbucks RewardsTM. For fiscal 2016, the existing transaction-based programs remain unchanged for other markets. During fiscal 2017, we launched Starbucks RewardsTM in Japan. Customers in the U.S., Canada and certain other countries who register their Starbucks Card are automatically enrolled in the Starbucks® Rewards program, which is primarily a spend-based loyalty program. They earn loyalty points (“Stars”) in a variety of ways, including with each purchase at participating Starbucks® stores and TeavanaTM when making purchases with the Starbucks-branded credit and debit cards. Starbucks® Rewards members can earn Stars by paying with cash, credit or debit cards, or selected mobile wallets at company-operated stores as well as on certain packaged coffee products purchased in select Starbucks® stores, online,the U.S. and through CPG channels.Canada. After accumulating a certain number of Stars, the customer earns a reward that can be redeemed for free product that, regardless of where the related Stars were earned within that country, will be honored at company-operated stores and certain participating licensed store locations in that same country.
Regardless of whether it is a spend or transaction-based program, weWe defer revenue associated with the estimated selling price of Stars earned by our programStarbucks® Rewards members towards free product as each Star is earned and a corresponding liability is established within stored value card liability on our consolidated balance sheets. The estimated selling price of each Star earnedin deferred revenue. This deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of Stars we do not expect to be redeemed, based on historical redemption patterns.estimated unredeemed Stars. Stars generally expire if inactive for a period ofafter six months.
When a customer redeems an earned reward, we recognize revenue for the redeemed product and reduce the related deferred revenue.
Other Revenues
Other revenues primarily include royalty revenues, sales of packaged coffee, tea and a variety of ready-to-drink beverages and single-serve coffee and tea products to customers outside of our company-operated and licensed stores. Sales of these products are generally recognized upon shipment to customers, depending on contract terms.
Other revenues also include product sales to and licensing revenue from Nestlé related to our Global Coffee Alliance. Product sales to Nestlé are generally recognized when the product is shipped whereas royalty revenues are recognized based on a percentage of reported sales.
Deferred Revenues
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 Stars associated with our loyalty program liability.program. See Note 11, Deferred Revenue, for further information. Disaggregation of Revenues
Revenues disaggregated by segment, product type and geographic area are disclosed in Note 17, Segment Reporting. Product and Distribution Costs
Product and distribution costs primarily consist of raw materials, purchased goods and packaging costs as well as operational costs of our supply chain organization, such as wages and benefits, occupancy costs and depreciation expenses, in support of sourcing, procuring, manufacturing, warehousing and transportation activities of products sold at our company-operated and licensed stores as well as through Channel Development and our other businesses. Also included are inventory and supply chain asset impairment costs.
Store Operating Expenses
Store operating expenses consist of costs incurred in our company-operated stores, primarily wages and benefits related to store partners (employees), occupancy costs and other costs that directly support the operation and sales-related activities of those stores.
General and Administrative Expenses
General and administrative expenses primarily consist of wages and benefits, professional service fees and occupancy costs for corporate headquarter and regional offices that support our corporate functions, including technology, finance, legal and partner resources.
Advertising
We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising takes place. Advertising expenses totaled $282.6$305.1 million, $248.6$258.8 million and $227.9$245.7 million in fiscal 20172021, 2020 and 2019, respectively.
Government Subsidies
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), 2016which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic 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 2015,other governments as offsets to the related operating expenses. The qualified payroll credits reduced our store operating expenses by $210.0 million and $349.6 million on our consolidated statement of earnings during fiscal 2021 and 2020, respectively. After netting the qualified credits against our payable, a receivable balance of $172.4 million and $155.1 million was included in prepaid expenses and other current assets as of October 3, 2021 and September 27, 2020, respectively. During the year ended October 3, 2021, we deferred $81.7 million of qualified payroll tax payments. As of October 3, 2021, deferred payroll tax payments of $116.4 million were included in both accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets. As of September 27, 2020, deferred payroll tax payments of $151.0 million were included in other long-term liabilities on our consolidated balance sheets.
Store Preopening Expenses
Costs incurred in connection with the start-up and promotion of new company-operated store openings are expensed as incurred.
Leases
Operating Leases
We lease retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. We recognize amortization of lease incentives, premiums and minimum rent expenses on a straight-line basis beginning on the date of initial possession, which is generally when we enter the space and begin to make improvements in preparation for intended use.
For tenant improvement allowances and rent holidays, we record a deferred rent liability within accrued liabilities, or other long-term liabilities, on our consolidated balance sheets and amortize the deferred rent over the terms of the leases as reductions to rent expense in cost of sales including occupancy costs on our consolidated statements of earnings.
For premiums paid upfront to enter a lease agreement, we record a prepaid rent asset in prepaid expenses and other non-current assets on our consolidated balance sheets and amortize the premium over the terms of the leases as additional rent expense in cost of sales including occupancy costs on our consolidated statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial possession, we record minimum rent expense on a straight-line basis over the terms of the leases in cost of sales including occupancy costs on our consolidated statements of earnings, with the adjustments to cash rent accrued as deferred rent in our consolidated balance sheets.
Certain leases provide for contingent rent, which is determined as a percentage of gross sales in excess of specified levels. We record a contingent rent liability in accrued occupancy costs within accrued liabilities on our consolidated balance sheets and the corresponding rent expense when we determine that achieving the specified levels during the fiscal year is probable.
When ceasing operations of company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, we record such expense at the time written notice is given to the landlord. In cases where terms, including termination fees, are yet to be negotiated with the landlord, we will record the expense upon signing of an agreement with the landlord. In cases where the landlord does not allow us to prematurely exit the lease, we recognize an expense equal to the present value of the remaining lease payments to the landlord less any projected sublease income at the cease-use date.
Lease Financing Arrangements
We are sometimes involved in the construction of leased buildings, primarily stores. When we qualify as the deemed owner of these buildings due to significant involvement during the construction period under build-to-suit lease accounting requirements and do not qualify for sales recognition under sales-leaseback accounting guidance, we record the cost of the related buildings in property, plant and equipment. The offsetting lease financing obligations are recorded in other long-term liabilities, with the current portion recorded in in accrued occupancy costs within accrued liabilities on our consolidated balance sheets. These assets and obligations are amortized in depreciation and amortization and interest expense, respectively, on our consolidated statements of earnings based on the terms of the related lease agreements.
Asset Retirement Obligations
We recognize a liability for the fair value of required asset retirement obligations (“ARO”) when such obligations are incurred. Our AROs are primarily associated with leasehold improvements, which, at the end of a lease, we are contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, we record an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. We estimate the liability using a number of assumptions, including store closing costs, cost inflation rates and discount rates, and accrete the liability to its projected future value over time. The capitalized asset is depreciated using the same depreciation convention as leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as a gain or loss in cost of sales including occupancy costsstore operating expense on our consolidated statements of earnings. As of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, our net ARO assets included in property, plant and equipment were $12.4$30.9 million and $9.3$30.7 million, respectively, and our net ARO liabilities included in other long-term liabilities were $70.0$116.5 million and $67.9$111.0 million, respectively.
Stock-based Compensation
We maintain several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”) or stock appreciation rights to employees, non-employee directors and consultants. We also have an employee stock purchase plan (“ESPP”). RSUs issued by us are equivalent to nonvested shares under the applicable accounting guidance. We record stock-based compensation expense based on the fair value of stock awards at the grant date and recognize the expense over the related service period following a graded vesting expense schedule. Expense for performance-based RSUs is recognized when it is probable the performance goal will be achieved. Performance goals are determined by the Board of Directors and may include measures such as earnings per share, operating income and return on invested capital. The fair value of each stock option granted is estimated on the grant date using the Black-Scholes-Merton option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our historical experience. The fair value of RSUs is based on the closing price of Starbucks common stock on the award date, less the present value of expected dividends not received during the vesting period. If applicable, our total shareholder return relative to our peer group is incorporated into the underlying assumptions using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period for each separately vesting portion of the award, and only for those awards expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations.
Foreign Currency Translation
Our international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are reported as a component of OCI and recorded in AOCI on our consolidated balance sheets.
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income taxes are recognized based on the differences between the financial statement carrying amounts and the respective tax basisbases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.
We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized. In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available.
Starbucks recognizes interest and penalties related to income tax matters in income tax expense on our consolidated statements of earnings. Accrued interest and penalties are included within the related tax liabilitybalances on our consolidated balance sheets.
Stock Split
On April 9, 2015, we effectedGlobal intangible low-taxed income (“GILTI”) provisions are applied, providing an incremental tax on foreign income. We have made a two-for-one stock split of our $0.001 par value common stock for shareholders of recordpolicy election to classify taxes due under the GILTI provision as of March 30, 2015. All share and per-share data in our consolidated financial statements and notes has been retroactively adjusted to reflect this stock split. We adjusted shareholders' equity to reflect the stock split by reclassifying an amount equal to the par value of the additional shares arising from the split from retained earnings to common stock during the second quarter of fiscal 2015, resulting in no net impact to shareholders' equity on our consolidated balance sheets.a current period expense.
Earnings per Share
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock and the effect of dilutive potential common shares outstanding during the period, calculated using the treasury stock method. Dilutive potential common shares include outstanding stock options and RSUs. Performance-based RSUs are considered dilutive when the related performance criterion has been met.
Common Stock Share Repurchases
We may repurchase shares of Starbucks common stock under a program authorized by our Board of Directors, including pursuant to a contract, instruction or written plan meeting the requirements of Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934.Act. Under applicable Washington State law, shares repurchased are retired and not displayed separately as treasury stock on the financial statements. Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital and from retained earnings once additional paid-in capital is depleted.
(deficit).
Recent Accounting Pronouncements
In August 2017, the FinancialRecently Adopted Accounting Standards Board (“FASB”) amended its guidance on the financial reporting of hedging relationships. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, expands permissible cash flow hedges on contractually specified components, and simplifies hedge documentation and effectiveness assessment. The guidance will be effective at the beginning of our first quarter of fiscal year 2020 and will require a modified retrospective approach on existing cash flow and net investment hedges. The presentation and disclosure requirements will be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In January 2017, the FASB issued guidance that simplifies the measurement of goodwill impairment. Under this new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. During the second quarter of fiscal 2017, we elected to early-adopt this guidance on a prospective basis.
In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings at the beginning of our first quarter of fiscal 2019 but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.Pronouncements
In June 2016, the FASB issued guidance onreplacing the measurement and recognition ofincurred loss impairment methodology with a new methodology that reflects current expected credit losses on most financial assets. For tradeassets, including receivables loans, and held-to-maturity debt securities, the current probable loss recognitionavailable-for-sale securities. The new methodology is being replaced by anrequires entities to estimate and recognize expected credit loss model. For available-for-sale debt securities, the recognition model on credit losses is generally unchanged, except the losses will be presented as an adjustable allowance.each reporting period. The guidance will be applied retrospectively withwas adopted during the cumulative effect recognized as of the date of adoption. The guidance will become effective at the beginning of our first quarter of fiscal 2021 but can be adopted as early asunder the beginning of our first quarter of fiscal 2020. We are currently evaluating the impact this guidance will havemodified retrospective approach and resulted in a $2.2 million transition adjustment to opening shareholders’ retained deficit on our consolidated financial statements and the timing of adoption.equity.
Recent Accounting Pronouncements Not Yet Adopted
In March 2016,2020, the FASB issued guidance related to stock-based compensation, which changesreference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting and classification of excess tax benefits and minimum tax withholdings on share-based awards. With this adoption, excess tax benefits and tax deficienciesto ease the financial reporting burden related to stock-based compensation willthe 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 prospectively reflected as a reduction of, or increase in, income tax expense in our consolidated statement of earnings instead of additional paid-in capital on our consolidated balance sheet. Additionally, within our consolidated statement of cash flows, thisapplied to applicable contract modifications through December 31, 2022. We expect to adopt the guidance will require excess tax benefitsand begin transitioning from
LIBOR to be presented as an operating activity, rather than a financing activity, in the same manner as other cash flows related to income taxes. As a result, we expect the adoption will have a significant impact on income tax expense and earnings per share, as reported in our consolidated statement of earnings and consolidated statement of cash flows. We will adopt this guidancealternative reference rates in the first quarter of fiscal 2018. If the new guidance had been adopted for fiscal years 2017, 20162022. We do not expect adoption and 2015, approximately $78 million, $125 million and $132 million, respectively, of excess net tax benefits recordedtransition to additional paid-in capital wouldalternative reference rates to have been recorded as a reduction to income tax expense. Excess tax benefits or deficiencies are based on our stock price at the time stock options are exercised or when restricted stock units vest, therefore prior year amounts are not indicative of the futurematerial impact of this guidance.
In March 2016, the FASB issued guidance for financial liabilities resulting from selling prepaid stored value products that are redeemable at third-party merchants. Under the new guidance, expected breakage amounts associated with these products must be recognized proportionately in earnings as redemption occurs. Our current accounting policy of applying the remote method to all of our stored value cards, including cards redeemable at the third-party licensed locations, will no longer be allowed. We will adopt and implement the provisions of this guidance and the new revenue recognition standard issued by the FASB, as discussed below, in the first quarter of fiscal 2019.
In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will require modified retrospective application at the beginning of our first quarter of fiscal 2020, with optional practical expedients, but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements. We expect this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets but will likely have an insignificant impact on our consolidated statements of earnings. In preparation for adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information.
In April 2015, the FASB issued guidance on the financial statement presentation of debt issuance costs. This guidance requires these costs to be presented in the balance sheet as a reduction of the related debt liability rather than as an asset. We retrospectively adopted this guidance in the first quarter of fiscal 2017, which resulted in the reclassification of $17.0 million of debt issuance costs previously presented in prepaid expenses and other current assets and other long-term assets to long-term debt in our consolidated balance sheet as of October 2, 2016. Components of our long-term debt and aggregate debt issuance costs and unamortized premium are disclosed in Note 9, Debt.In May 2014, the FASB issued guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the overall impact this guidance will have on our consolidated financial statements, as well as the expected method of adoption. Based on our continued assessment, which may identify other accounting impacts, we have determined the adoption will change the timing of recognition and classification of our stored value card breakage income, which is currently recognized using the remote method and recorded in interest income and other, net. The new guidance will require application of the proportional method and classification within total net revenues on our consolidated statements of earnings. Additionally, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We will adopt this guidance in the first quarter of fiscal 2019.
Note 2: Acquisitions, Divestitures and DivestituresStrategic Alliance
Fiscal 20172021
In the fourth quarter of fiscal 2017,2021, we sold our company-operated retail store assets50% ownership interest in Starbucks Coffee Korea Co., Ltd. where our joint venture partner, E-Mart Inc., acquired an additional 17.5% interest and operations inApfin Investment Pte Ltd, an affiliate of GIC Private Limited, which is a Singapore to Maxim's Caterers Limited, converting these operations tosovereign wealth fund, acquired the remaining 32.5%. The sale had a fully licensed market, for a totalcombined price of $119.9 million.$1.175 billion. This transaction resulted in a pre-tax gain of $83.9$864.5 million, which wasis included in interest income and other, net gain resulting from divestiture of certain operations on our consolidated statements of earnings.
Fiscal 20162019
DuringIn the third quarter of fiscal 2016, we sold our ownership interest in our Germany retail business to AmRest Holdings SE for a total of $47.3 million. This transaction converted these company-operated stores to a fully licensed market and resulted in an insignificant pre-tax gain, which was included in interest income and other, net on our condensed consolidated statements of earnings.
Fiscal 2015
During the fourth quarter of fiscal 2015,2019, we sold our company-operated retail store assetsbusiness in Thailand to Coffee Concepts Thailand, a joint-venture between Maxim's Caterers Limited and operations in Puerto Rico to Baristas Del Caribe, LLC,F&N Retail Connection Co. Ltd, converting these operationsthis operation to a fully licensed market, for a total of $8.9 million.market. This transaction resulted in an insignificant pre-tax gain, which was included in interest income and other, net on the consolidated statements of earnings.
On September 23, 2014, we entered into a tender offer bid agreement with Starbucks Coffee Japan, Ltd. (“Starbucks Japan”), at the time a 39.5% owned equity method investment, and our former joint venture partner, Sazaby League, Ltd. (“Sazaby”), to acquire the remaining 60.5% ownership interest in Starbucks Japan for approximately $876 million, through a two-step tender offer. Acquiring Starbucks Japan further leverages our existing infrastructure to continue disciplined retail store growth and expand our presence into other channels in the Japan market, such as CPG, licensing and foodservice.
The following table summarizes the final allocation of the total consideration to the fair values of the assets acquired and liabilities assumed as of October 31, 2014, which are reported within our China/Asia Pacific segment (in millions):
|
| | | | |
| Consideration: | | |
| Cash paid for Sazaby's 39.5% equity interest | | $ | 508.7 |
|
| Fair value of our preexisting 39.5% equity interest | | 577.0 |
|
| Total consideration | | $ | 1,085.7 |
|
| | | |
| Fair value of assets acquired and liabilities assumed: | | |
| Cash and cash equivalents | | $ | 224.4 |
|
| Accounts receivable, net | | 37.4 |
|
| Inventories | | 26.4 |
|
| Prepaid expenses and other current assets | | 35.7 |
|
| Property, plant and equipment | | 282.9 |
|
| Other long-term assets | | 141.4 |
|
| Other intangible assets | | 323.0 |
|
| Goodwill | | 815.6 |
|
| Total assets acquired | | 1,886.8 |
|
| Accounts payable | | (54.5 | ) |
| Accrued liabilities | | (115.9 | ) |
| Stored value card liability | | (36.5 | ) |
| Deferred income taxes | | (67.3 | ) |
| Other long-term liabilities | | (115.8 | ) |
| Total liabilities assumed | | (390.0 | ) |
| Noncontrolling interest | | (411.1 | ) |
| Total consideration | | $ | 1,085.7 |
|
Other current and long-term assets acquired primarily include various deposits, specifically lease and key money deposits. Accrued liabilities and other long-term liabilities assumed primarily include financing obligations associated with build-to-suit leases as well as asset retirement obligations.
The intangible assets are finite-lived and include reacquired rights, licensing agreements with Starbucks Japan's current licensees and Starbucks Japan's customer loyalty program. The reacquired rights to exclusively operate licensed Starbucks® retail stores in Japan were assigned a fair value of $305.0 million; these rights will be amortized on a straight-line basis through March 2021. Amortization expense for these finite-lived intangible assets for fiscal year 2017 was $48.4 million, and, as of October 1, 2017, accumulated amortization was $139.1 million. Future amortization expense is estimated to be approximately $47.0 million each year for the next three years, $24.0 million in the fourth year and $5 million thereafter.
The $815.6 million of goodwill represents the intangible assets that do not qualify for separate recognition and primarily includes the acquired customer base, the acquired workforce including store partners in the region that have strong relationships with these customers, the existing geographic retail and online presence, and the expected geographic presence in new channels. The goodwill was allocated to the China/Asia Pacific segment and is not deductible for income tax purposes. Due to foreign currency translation, the balance of goodwill related to the acquisition decreased $32.2 million to $783.4 million as of October 1, 2017.
As a result of this acquisition, we remeasured the carrying value of our preexisting 39.5% equity method investment to fair value, which resulted in a pre-tax gain of $390.6$601.9 million, thatwhich was presented separately as gainincluded in net gains resulting from acquisitiondivestiture of joint venture within other income and expensescertain operations on theour consolidated statements of earnings.
We began consolidating Starbucks Japan's resultsIn 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 and cash flows intoto fully licensed markets. These transactions did not have a material impact on our consolidated financial statements beginning after October 31, 2014. For the year ended September 27, 2015, Starbucks Japan's net revenues and net earnings included in our consolidated statement of earnings were $1.1 billion and $108.5 million, respectively.statements.
The following table provides the supplemental pro forma revenue and net earnings of the combined entity had the acquisition date of Starbucks Japan been the first day of our first quarter of fiscal 2014 rather than during our first quarter of fiscal 2015 (in millions):
|
| | | | |
| | | Pro Forma (unaudited) |
| | | Year Ended |
| | | Sep 27, 2015 |
| Revenue | | $ | 19,254.5 |
|
| Net earnings attributable to Starbucks | | 2,380.9 |
|
The amounts in the supplemental pro forma earnings for the period presented above fully eliminate intercompany transactions, apply our accounting policies and reflect adjustments for additional occupancy costs, depreciation and amortization that would have been charged assuming the same fair value adjustments to leases, property, plant and equipment and acquired intangibles had been applied on September 30, 2013, including the acquisition-related gain. These pro forma results are unaudited and are not necessarily indicative of results of operations that would have occurred had the acquisition actually occurred in the prior year period or indicative of the results of operations for any future period.
Note 3: Derivative Financial Instruments
Interest Rates
We are subject to interest rate volatility with regard to existing and future issuances of debt. From time to time, we enter into swap agreementsdesignated cash flow hedges to manage our exposure to interest rate fluctuations.
To hedge the variability in cash flows due to changes in benchmark interest rates, werates. We enter into interest rate swap agreements related to anticipated debt issuances.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. The effective portion of the derivative'sEach derivative agreement's gain or loss is recorded in accumulated other comprehensive income (“AOCI”)AOCI and is subsequently reclassified to interest expense over the life of the related debt. During fiscal 2016, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $375 million related to the $500 million and $250 million of 5-year 2.100% Senior Notes (the “2021 notes”) due February 2021 and $500 million of 10-year 2.450% Senior Notes (the “2026 notes”) due June 2026. Refer to Note 9, Debt, for details of the components of our long-term debt. We cash settled these swap agreements at the time of pricing the 2021 and 2026 notes.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 valuevalues 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 and have an insignificant impact on our consolidated statement of earnings. We entered into an interest rate swap agreement during the third quarter of fiscal 2017 related to our 3.850% Senior Notes due in October 2023 (“2023 notes”).expense. Refer to Note 9, 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 effective portion of the derivative's gain or loss isresulting gains and losses from these derivatives are recorded in AOCI and is subsequently reclassified to revenue, cost of sales including occupancyproduct and distribution costs, or interest income and other, net, respectively, when the hedged exposure affectsexposures affect net earnings.
To mitigate foreign currency transaction risk of intercompany borrowings,From time to time, we may enter into cross-currencyfinancial instruments, including, but not limited to, forward and swap contracts which are designated as cash flow hedges. Gains and losses from these swaps offset the changes in value of interest and principal payments as a result of changes in foreign exchange rates. There are no credit-risk-related contingent features associated with these swaps, although we may hold or post collateral depending upon the gain or loss position of the swap agreements.
We also enter into forward contracts or use foreign currency-denominated debt, to hedge the foreign currency exposure of our net investmentinvestments in certain international operations. The effective portion of the derivative's gain or loss isresulting gains and losses from these derivatives are recorded in AOCI and isare subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.
ToForeign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items, we enter into foreign currency forward and swap contracts that are not designated as hedging instruments.items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency denominatedcurrency-denominated payables and receivables; boththese 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 a portion of anticipated cash flowsunder our price-to-be-fixed green coffee contracts, which are described further in Note 5, Inventories.Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The effective portion of each derivative's gain or loss isresulting gains and losses are recorded in AOCI and isare subsequently reclassified to cost of sales including occupancyproduct 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 were no significant cash flow hedge de-designations in fiscal 2021. During the second and third quarters of fiscal 2020, we de-designated certain cash flow hedges due to the global COVID-19 impacts, which resulted in the release of an insignificant net gain from AOCI to our consolidated statement of earnings.
To mitigate the price uncertainty of a portion of our future purchases, primarily of dairy products,including diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. GainsThe resulting gains and losses from these derivatives are recorded in interest income and other, net andto help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales including occupancyproduct 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): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 | | |
| Cash Flow Hedges: | | | | | | | | | |
| Coffee | $ | 197.8 | | | $ | (2.5) | | | $ | (1.0) | | | $ | 117.4 | | | 8 |
| Cross-currency swaps | 4.4 | | | 5.2 | | | (1.4) | | | — | | | 38 |
| Dairy | (0.4) | | | 0.5 | | | — | | | (0.4) | | | 11 |
| Foreign currency - other | 1.3 | | | 5.3 | | | 12.9 | | | (0.6) | | | 34 |
| Interest rates | (44.8) | | | (90.6) | | | 0.5 | | | (1.6) | | | 133 |
| Net Investment Hedges: | | | | | | | | | |
| Cross-currency swaps | 37.9 | | | 32.6 | | | — | | | — | | | 96 |
| Foreign currency | 16.0 | | | 16.0 | | | 16.0 | | | — | | | 0 |
| Foreign currency debt | (5.3) | | | (37.1) | | | (26.1) | | | — | | | 30 |
|
| | | | | | | | | | | | | | | | | |
| | Net Gains/(Losses)
Included in AOCI | | Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months | | Contract Remaining Maturity
(Months) |
| | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 | | |
| Cash Flow Hedges: | | | | | | | | | |
| Interest rates | $ | 17.6 |
| | $ | 20.5 |
| | $ | 30.1 |
| | $ | 3.0 |
| | 0 |
| Cross-currency swaps | (6.0 | ) | | (7.7 | ) | | (27.8 | ) | | — |
| | 86 |
| Foreign currency - other | (9.1 | ) | | (0.4 | ) | | 29.0 |
| | (5.8 | ) | | 36 |
| Coffee | (6.6 | ) | | (1.6 | ) | | (5.7 | ) | | (6.6 | ) | | 4 |
| Net Investment Hedges: | | | | | | | | | |
| Foreign currency | 16.2 |
| | 1.3 |
| | 1.3 |
| | 0.1 |
| | 0 |
| Foreign currency debt | (2.2 | ) | | — |
| | — |
| | — |
| | 79 |
PretaxPre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in other comprehensive income (“OCI”)OCI and reclassifications from AOCI to earnings (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended | | |
| | | | Gains/(Losses) Recognized in OCI Before Reclassifications | | Gains/(Losses) Reclassified from
AOCI to Earnings | | Location of gain/(loss) |
| | | | | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 | | Oct 3,
2021 | | Sep 27,
2020 | | Sep 29,
2019 | |
| Cash Flow Hedges: | | | | | | | | | | | | | | | | | | |
| Coffee | | | | | | $ | 223.5 | | | $ | (1.2) | | | $ | (1.2) | | | $ | (3.5) | | | $ | 0.5 | | | $ | (0.3) | | | Product and distribution costs |
| Cross-currency swaps | | | | | | 13.7 | | | 4.4 | | | (5.9) | | | 1.9 | | | 2.3 | | | 0.1 | | | Interest expense |
| | | | | | | | 12.7 | | | (6.1) | | | (19.8) | | | Interest income and other, net |
| Dairy | | | | | | 0.5 | | | 3.0 | | | — | | | 1.7 | | | 4.0 | | | — | | | Product and distribution costs |
| | | | | | | | — | | | (1.7) | | | — | | | Interest income and other, net(1) |
| Foreign currency - other | | | | | | (10.0) | | | (6.4) | | | 20.8 | | | 1.8 | | | 5.5 | | | 7.0 | | | Licensed stores revenues |
| | | | | | | | (7.3) | | | (8.7) | | | 4.4 | | | Product and distribution costs |
| | | | | | | | — | | | 6.1 | | | — | | | Interest income and other, net(1) |
| Interest rates | | | | | | 56.1 | | | (126.1) | | | (27.8) | | | (1.8) | | | — | | | 4.7 | | | Interest expense |
| | | | | | | | | | | (3.6) | | | — | | | — | | | Interest income and other, net |
| Net Investment Hedges: | | | | | | | | | | | | | | | | | | |
| Cross-currency swaps | | | | | | 20.5 | | | 56.8 | | | — | | | 13.4 | | | 13.3 | | | — | | | Interest expense |
| | | | | | | | | | | | | | | | | | |
| Foreign currency debt | | | | | | 42.6 | | | (18.1) | | | (39.8) | | | — | | | — | | | — | | | |
(1)As a result of the global COVID-19 impacts, we discontinued cash flow hedges during the year ended September 27, 2020. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | Gains/(Losses) Recognized in
OCI Before Reclassifications | | Gains/(Losses) Reclassified from AOCI to Earnings |
| | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 | | Oct 1,
2017 | | Oct 2,
2016 | | Sep 27,
2015 |
| Cash Flow Hedges: | | | | | | | | | | | |
| Interest rates | $ | — |
| | $ | (10.3 | ) | | $ | (6.8 | ) | | $ | 4.8 |
| | $ | 5.0 |
| | $ | 3.2 |
|
| Cross-currency swaps | 59.5 |
| | (75.7 | ) | | 11.4 |
| | 57.2 |
| | (101.1 | ) | | 46.2 |
|
| Foreign currency - other | 1.8 |
| | (25.4 | ) | | 52.0 |
| | 11.4 |
| | 19.1 |
| | 26.1 |
|
| Coffee | (8.1 | ) | | 1.7 |
| | (9.0 | ) | | (2.7 | ) | | (2.8 | ) | | (3.5 | ) |
| Net Investment Hedges: | | | | | | | | | | | |
| Foreign currency | 23.6 |
| | — |
| | 4.3 |
| | — |
| | — |
| | 7.2 |
|
| Foreign currency debt | (3.5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
PretaxPre-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): | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gains/(Losses) Recognized in Earnings |
| | Location of gain/(loss) recognized in earnings | | | | Year Ended |
| | | | | | | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Non-Designated Derivatives: | | | | | | | | | | | |
| Dairy | Interest income and other, net | | | | | | $ | — | | | $ | — | | | $ | (1.9) | |
| Diesel fuel and other commodities | Interest income and other, net | | | | | | 2.6 | | | (8.8) | | | (5.9) | |
| | | | | | | | | | | |
| Foreign currency - other | Interest income and other, net | | | | | | 7.5 | | | 0.3 | | | (8.1) | |
| Fair Value Hedges: | | | | | | | | | | | |
| Interest rate swap | Interest expense | | | | | | (0.5) | | | 28.7 | | | 54.7 | |
| Long-term debt (hedged item) | Interest expense | | | | | | 14.0 | | | (23.8) | | | (50.7) | |
|
| | | | | | | | | | | |
| | Gains/(Losses) Recognized in Earnings |
| | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Non-Designated Derivatives: | | | | | |
| Foreign currency - other | $ | 4.6 |
| | $ | (5.7 | ) | | $ | 27.1 |
|
| Dairy | — |
| | (5.5 | ) | | (3.8 | ) |
| Diesel fuel and other commodities | 1.3 |
| | (0.2 | ) | | (9.0 | ) |
| Designated Fair Value Hedging Instruments: | | | | | |
| Interest rate swap | (5.2 | ) | | — |
| | — |
|
Notional amounts of outstanding derivative contracts (in millions): | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Coffee | $ | 481 | | | $ | 63 | |
| Cross-currency swaps | 806 | | | 870 | |
| Dairy | 53 | | | 61 | |
| Diesel fuel and other commodities | 10 | | | 5 | |
| Foreign currency - other | 1,009 | | | 1,140 | |
| Interest rate swaps | 1,250 | | | 1,750 | |
|
| | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| Interest rate swap | $ | 750 |
| | $ | — |
|
| Cross-currency swaps | 514 |
| | 660 |
|
| Foreign currency - other | 901 |
| | 688 |
|
| Coffee | — |
| | 7 |
|
| Dairy | 14 |
| | 76 |
|
| Diesel fuel and other commodities | 41 |
| | 46 |
|
Fair value of outstanding derivative contracts (in millions): including the location of the asset and/or liability on the consolidated balance sheets: | | | | | | | | | | | | | | | | | |
| | | Derivative Assets |
| Balance Sheet Location | | Oct 3, 2021 | | Sep 27, 2020 |
| Designated Derivative Instruments: | | | | | |
| Coffee | Prepaid expenses and other current assets | | $ | 130.5 | | | $ | 2.6 | |
| Cross-currency swaps | Other long-term assets | | 54.7 | | | 37.7 | |
| Dairy | Prepaid expenses and other current assets | | 0.8 | | | 2.1 | |
| Foreign currency - other | Prepaid expenses and other current assets | | 8.9 | | | 8.6 | |
| Other long-term assets | | 6.9 | | | 3.8 | |
| | | | | |
| Interest rate swap | Other long-term assets | | 22.7 | | | 45.8 | |
| Non-designated Derivative Instruments: | | | | | |
| | | | | |
| Diesel fuel and other commodities | Prepaid expenses and other current assets | | 0.1 | | | — | |
| Foreign currency | Prepaid expenses and other current assets | | 7.3 | | | 2.3 | |
| | | | | |
| | | Derivative Liabilities |
| Balance Sheet Location | | Oct 3, 2021 | | Sep 27, 2020 |
| Designated Derivative Instruments: | | | | | |
| Coffee | Accrued liabilities | | $ | — | | | $ | 1.4 | |
| Other long-term liabilities | | — | | | 0.1 | |
| Cross-currency swaps | Other long-term liabilities | | 3.3 | | | 7.3 | |
| Dairy | Accrued liabilities | | 0.9 | | | 1.4 | |
| Foreign currency - other | Accrued liabilities | | 7.4 | | | 1.6 | |
| Other long-term liabilities | | 3.6 | | | 2.6 | |
| Interest rates | Other long-term liabilities | | 1.3 | | | 69.3 | |
| | | | | |
| Non-designated Derivative Instruments: | | | | | |
| Dairy | Accrued liabilities | | 0.2 | | | — | |
| Diesel fuel and other commodities | Accrued liabilities | | — | | | 1.7 | |
| Foreign currency | Accrued liabilities | | 0.1 | | | 1.2 | |
| | | | | |
The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships: | | | | | | | | | | | | | | | | | | | | | | | |
| Carrying amount of hedged item | | Cumulative amount of fair value hedging adjustment included in the carrying amount |
| Oct 3, 2021 | | Sep 27, 2020 | | Oct 3, 2021 | | Sep 27, 2020 |
| Location on the balance sheet | | | | | | | |
| Long-term debt | $ | 771.7 | | | $ | 785.6 | | | $ | 21.7 | | | $ | 35.6 | |
|
| | | | | | | | | | | | | | | |
| | Derivative Assets | | Derivative Liabilities |
| | Oct 1, 2017 | | Oct 2, 2016 | | Oct 1, 2017 | | Oct 2, 2016 |
| Designated Derivative Instruments: | | | | | | | |
| Cross-currency swaps | $ | 12.4 |
| | $ | — |
| | $ | 9.8 |
| | $ | 57.0 |
|
| Foreign currency - other | 7.7 |
| | 20.8 |
| | 20.8 |
| | 24.0 |
|
| Coffee | — |
| | 1.8 |
| | — |
| | — |
|
| Net investment hedges | 0.3 |
| | — |
| | — |
| | — |
|
| Interest rate swap | — |
| | — |
| | 3.8 |
| | — |
|
| Non-designated Derivative Instruments: | | | | | | | |
| Foreign currency | 15.8 |
| | 6.2 |
| | 1.4 |
| | 6.5 |
|
| Dairy | — |
| | 1.5 |
| | 2.4 |
| | 1.6 |
|
| Diesel fuel and other commodities | 1.6 |
| | 3.8 |
| | 0.3 |
| | 0.5 |
|
Additional disclosures related to cash flow hedge gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 1112, Equity.
Note 4: Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using |
| | Balance at
October 3, 2021 | | 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 | $ | 6,455.7 | | | $ | 6,455.7 | | | $ | — | | | $ | — | |
| Short-term investments: | | | | | | | |
| Available-for-sale debt securities | | | | | | | |
| | | | | | | |
| | | | | | | |
| Commercial paper | 63.0 | | | — | | | 63.0 | | | — | |
| Corporate debt securities | 24.7 | | | — | | | 24.7 | | | — | |
| | | | | | | |
| Mortgage and other asset-backed securities | 0.1 | | | — | | | 0.1 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total available-for-sale debt securities | 87.8 | | | — | | | 87.8 | | | — | |
| Marketable equity securities | 74.4 | | | 74.4 | | | — | | | — | |
| Total short-term investments | 162.2 | | | 74.4 | | | 87.8 | | | — | |
| Prepaid expenses and other current assets: | | | | | | | |
| Derivative assets | 147.6 | | | 131.1 | | | 16.5 | | | — | |
| Long-term investments: | | | | | | | |
| Available-for-sale debt securities | | | | | | | |
| | | | | | | |
| Auction rate securities | 6.0 | | | — | | | — | | | 6.0 | |
| | | | | | | |
| Corporate debt securities | 162.0 | | | — | | | 162.0 | | | — | |
| Foreign government obligations | 4.0 | | | — | | | 4.0 | | | — | |
| Mortgage and other asset-backed securities | 31.9 | | | — | | | 31.9 | | | — | |
| State and local government obligations | 1.5 | | | — | | | 1.5 | | | — | |
| U.S. government treasury securities | 76.3 | | | 76.3 | | | — | | | — | |
| Total long-term investments | 281.7 | | | 76.3 | | | 199.4 | | | 6.0 | |
| Other long-term assets: | | | | | | | |
| Derivative assets | 84.3 | | | — | | | 84.3 | | | — | |
| Total assets | $ | 7,131.5 | | | $ | 6,737.5 | | | $ | 388.0 | | | $ | 6.0 | |
| Liabilities: | | | | | | | |
| Accrued liabilities: | | | | | | | |
| Derivative liabilities | $ | 8.6 | | | $ | 0.3 | | | $ | 8.3 | | | $ | — | |
| Other long-term liabilities: | | | | | | | |
| Derivative liabilities | 8.2 | | | — | | | 8.2 | | | — | |
| Total liabilities | $ | 16.8 | | | $ | 0.3 | | | $ | 16.5 | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using |
| | Balance at
Oct 1, 2017 | | 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 | $ | 2,462.3 |
| | $ | 2,462.3 |
| | $ | — |
| | $ | — |
|
| Short-term investments: | | | | | | | |
| Available-for-sale securities | | | | | | | |
| Agency obligations | 7.5 |
| | — |
| | 7.5 |
| | — |
|
| Commercial paper | 2.0 |
| | — |
| | 2.0 |
| | — |
|
| Corporate debt securities | 49.4 |
| | — |
| | 49.4 |
| | — |
|
| Foreign government obligations | 7.1 |
| | — |
| | 7.1 |
| | — |
|
| U.S. government treasury securities | 81.4 |
| | 81.4 |
| | — |
| | — |
|
| Mortgage and other asset-backed securities | 2.0 |
| | — |
| | 2.0 |
| | — |
|
| Certificates of deposit | 2.3 |
| | — |
| | 2.3 |
| | — |
|
| Total available-for-sale securities | 151.7 |
| | 81.4 |
| | 70.3 |
| | — |
|
| Trading securities | 76.9 |
| | 76.9 |
| | — |
| | — |
|
| Total short-term investments | 228.6 |
| | 158.3 |
| | 70.3 |
| | — |
|
| Prepaid expenses and other current assets: | | | | | | | |
| Derivative assets | 13.4 |
| | 0.1 |
| | 13.3 |
| | — |
|
| Long-term investments: | | | | | | | |
| Available-for-sale securities | | | | | | | |
| Agency obligations | 21.8 |
| | — |
| | 21.8 |
| | — |
|
| Corporate debt securities | 207.4 |
| | — |
| | 207.4 |
| | — |
|
| Auction rate securities | 5.9 |
| | — |
| | — |
| | 5.9 |
|
| Foreign government obligations | 17.1 |
| | — |
| | 17.1 |
| | — |
|
| U.S. government treasury securities | 127.4 |
| | 127.4 |
| | — |
| | — |
|
| State and local government obligations | 7.0 |
| | — |
| | 7.0 |
| | — |
|
| Mortgage and other asset-backed securities | 155.7 |
| | — |
| | 155.7 |
| | — |
|
| Total long-term investments | 542.3 |
| | 127.4 |
| | 409.0 |
| | 5.9 |
|
| Other long-term assets: | | | | | | | |
| Derivative assets | 24.4 |
| | — |
| | 24.4 |
| | — |
|
| Total assets | $ | 3,271.0 |
| | $ | 2,748.1 |
| | $ | 517.0 |
| | $ | 5.9 |
|
| Liabilities: | | | | | | | |
| Accrued liabilities: | | | | | | | |
| Derivative liabilities | $ | 16.4 |
| | $ | 2.5 |
| | $ | 13.9 |
| | $ | — |
|
| Other long-term liabilities: | | | | | | | |
| Derivative liabilities | 22.1 |
| | — |
| | 22.1 |
| | — |
|
| Total liabilities | $ | 38.5 |
| | $ | 2.5 |
| | $ | 36.0 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using |
| | Balance at
Oct 2, 2016 | | 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 | $ | 2,128.8 |
| | $ | 2,128.8 |
| | $ | — |
| | $ | — |
|
| Short-term investments: | | | | | | | |
| Available-for-sale securities | | | | | | | |
| Agency obligations | 1.3 |
| | — |
| | 1.3 |
| | — |
|
| Commercial paper | 2.6 |
| | — |
| | 2.6 |
| | — |
|
| Corporate debt securities | 34.2 |
| | — |
| | 34.2 |
| | — |
|
| Foreign government obligations | 5.5 |
| | — |
| | 5.5 |
| | — |
|
| U.S. government treasury securities | 15.8 |
| | 15.8 |
| | — |
| | — |
|
| State and local government obligations | 0.5 |
| | — |
| | 0.5 |
| | — |
|
| Certificates of deposit | 5.8 |
| | — |
| | 5.8 |
| | — |
|
| Total available-for-sale securities | 65.7 |
| | 15.8 |
| | 49.9 |
| | — |
|
| Trading securities | 68.7 |
| | 68.7 |
| | — |
| | — |
|
| Total short-term investments | 134.4 |
| | 84.5 |
| | 49.9 |
| | — |
|
| Prepaid expenses and other current assets: | | | | | | | |
| Derivative assets | 27.7 |
| | 3.1 |
| | 24.6 |
| | — |
|
| Long-term investments: | | | | | | | |
| Available-for-sale securities | | | | | | | |
| Agency obligations | 44.4 |
| | — |
| | 44.4 |
| | — |
|
| Corporate debt securities | 459.3 |
| | — |
| | 459.3 |
| | — |
|
| Auction rate securities | 5.7 |
| | — |
| | — |
| | 5.7 |
|
| Foreign government obligations | 46.7 |
| | — |
| | 46.7 |
| | — |
|
| U.S. government treasury securities | 358.2 |
| | 358.2 |
| | — |
| | — |
|
| State and local government obligations | 57.5 |
| | — |
| | 57.5 |
| | — |
|
| Mortgage and other asset-backed securities | 169.9 |
| | — |
| | 169.9 |
| | — |
|
| Total long-term investments | 1,141.7 |
| | 358.2 |
| | 777.8 |
| | 5.7 |
|
| Other long-term assets: | | | | | | | |
| Derivative assets | 6.4 |
| | — |
| | 6.4 |
| | — |
|
| Total assets | $ | 3,439.0 |
| | $ | 2,574.6 |
| | $ | 858.7 |
| | $ | 5.7 |
|
| Liabilities: | | | | | | | |
| Accrued liabilities: | | | | | | | |
| Derivative liabilities | $ | 18.0 |
| | $ | 1.7 |
| | $ | 16.3 |
| | $ | — |
|
| Other long-term liabilities: | | | | | | | |
| Derivative liabilities | 71.6 |
| | — |
| | 71.6 |
| | — |
|
| Total | $ | 89.6 |
| | $ | 1.7 |
| | $ | 87.9 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | $ | 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.
Available-for-sale Debt Securities
Long-term investmentsinvestments generally mature within 54 years. Proceeds from sales of available-for-sale securities were $999.7$134.1 million, $680.7$177.4 million and $600.6$291.1 million for fiscal years 2017, 20162021, 2020 and 2015,2019, respectively. Realized gains and losses on sales and maturities of available-for-sale securities were not material for fiscal years 2017, 2016,2021, 2020 and 2015.2019. Gross unrealized holding gains and losses on available-for-sale securities were not material as of October 1, 20173, 2021 and October 2, 2016.September 27, 2020.
TradingMarketable Equity Securities
TradingMarketable equity securities include equity mutual funds and exchange-traded funds. Our tradingmarketable equity securities portfolio approximates a portion of our liability under our Management Deferred Compensation Plan (“MDCP”),MDCP, a defined contribution plan. Our MDCP liability was $105.9$105.2 million and $101.5$91.4 million as of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, respectively. The changes in net unrealized holding gains and losses in the tradingmarketable equity securities portfolio included in earnings for fiscal years 20172021, 2020 and 20162019 were net gains of $10.5 million and $3.6 million and a net loss of $4.5 million in fiscal year 2015.not material. Gross unrealized holding gains and losses on tradingmarketable equity securities were not material as of October 1, 20173, 2021 and October 2, 2016.September 27, 2020.
Derivative Assets and Liabilities
Derivative assets and liabilities include foreign currency forward contracts, commodity futures contracts, collars and swaps, which are described further in Note 3, Derivative Financial Instruments. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets, equity and cost methodother investments and other assets. These assets are measured at fair value if determined to be impaired. Impairment of property, plant and equipment and ROU assets is included at in Note 1, Summary of Significant Accounting Policies. Other than theWe have recognized impairments discussed in during fiscal 2021 and 2020 primarily related to our North America restructuring plan. See Note 1, Summary of Significant Accounting Policies, Note 10, Leases and Note 8, Other Intangible Assets and Goodwill and the aforementioned fair value adjustments, there were no other material fair value adjustments during fiscal 2017 and 2016.for additional discussion of these impairments.Fair Value of Other Financial Instruments
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 9, Debt. Note 5: Inventories(in millions)
|
| | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| Coffee: | | | |
| Unroasted | $ | 541.0 |
| | $ | 561.6 |
|
| Roasted | 301.1 |
| | 300.4 |
|
| Other merchandise held for sale | 301.1 |
| | 308.6 |
|
| Packaging and other supplies | 220.8 |
| | 207.9 |
|
| Total | $ | 1,364.0 |
| | $ | 1,378.5 |
|
| | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Coffee: | | | |
| Unroasted | $ | 670.3 | | | $ | 664.7 | |
| Roasted | 233.5 | | | 223.5 | |
| Other merchandise held for sale | 329.3 | | | 293.9 | |
| Packaging and other supplies | 370.8 | | | 369.3 | |
| Total | $ | 1,603.9 | | | $ | 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 October 1, 2017,3, 2021, we had committed to purchasing green coffee totaling $860$599 million under fixed-price contracts and an estimated $336$1,126 million under price-to-be-fixed contracts. As of October 1, 2017, noneA portion of our price-to-be-fixed contracts werecontacts are effectively fixed through the use of futures contracts.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 and continuous monitoring of the business environment, the risk of non-delivery on these purchase commitments is remote.
During fiscal 2020, we wrote off approximately $50 million of inventory that was expiring or expected to expire due to COVID-19 related store closures, primarily perishable food and beverage ingredients located at our stores, distribution centers and suppliers. This was included in product and distribution costs on our consolidated statement of earnings. We did not record significant write-offs related to COVID-19 during the fiscal year ended October 3, 2021.
Note 6: Equity and Cost Investments(in millions)
|
| | | | | | | |
| | Oct 1,
2017 | | Oct 2,
2016 |
| Equity method investments | $ | 432.8 |
| | $ | 305.7 |
|
| Cost method investments | 48.8 |
| | 48.8 |
|
| Total | $ | 481.6 |
| | $ | 354.5 |
|
| | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Equity method investments | $ | 216.0 | | | $ | 426.4 | |
| Other investments | 52.5 | | | 52.3 | |
| Total | $ | 268.5 | | | $ | 478.7 | |
Equity Method Investments
As of October 1, 2017,3, 2021, we had a 50% ownership interest in each of the following international equity method investees: PresidentTata Starbucks Coffee (East China);Limited (India), which operates licensed Starbucks® retail stores. Prior to its divestiture in September 2021, we had a 50% ownership interest in Starbucks Coffee Korea Co., Ltd.; President Starbucks Coffee Corporation (Taiwan) Company Limited; Additional disclosure regarding changes in our equity method investments due to acquisition or divestiture is included in Note 2, Acquisitions, Divestitures and Tata Starbucks Limited (India). These international entities operate licensed Starbucks® retail stores. We further describe the pending transactions to acquire East China and to divest Taiwan in Note 15, Commitments and Contingencies.Strategic Alliance. We also license the rights to produce and distribute Starbucks-branded products to our 50% owned joint venture, The North American Coffee Partnership with the Pepsi-Cola Company, which develops and distributes bottled Starbucks® beverages, including Frappuccino® coffee drinks, Starbucks Doubleshot® espresso drinks, Starbucks Refreshers® beverages, Iced Espresso Classics and Starbucks®Iced Espresso Classics.Coffee.
In the first quarter of fiscal 2016, we sold our 49% ownership interest in our Spanish joint venture, Starbucks Coffee España, S.L. (“Starbucks Spain”), to our joint venture partner, Sigla S.A. (Grupo Vips), for a total purchase price of $30.2 million. This transaction resulted in an insignificant pre-tax gain, which was included in interest income and other, net on our consolidated statements of earnings.
Our share of income and losses from our equity method investments is included in income from equity investees on our consolidated statements of earnings. Also included in this line item is our proportionate share of gross profit resulting from coffee and other product sales to, and royalty and license fee revenues generated from, equity investees. Revenues generated from these related partiesentities were $187.3$160.8 million, $164.2$123.9 million, and $153.4$130.7 million in fiscal years 2017, 20162021, 2020 and 2015,2019, respectively. Related product and distribution costs of sales were $109.3$92.1 million, $97.5$79.8 million, and $94.5$73.2 million in fiscal years 2017, 20162021, 2020 and 2015,2019, respectively. As of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, there were $54.3$7.9 million and $55.7$28.7 million of accounts receivable from equity investees, respectively, on our consolidated balance sheets, primarily related to product sales and royalty revenues.
Cost MethodAdditionally, we hold equity interests in other entities to support our corporate and investment strategies. The related financial statements activities were not material during the periods presented.
Other Investments
As of October 1, 2017 and October 2, 2016, we had $23 million invested inWe have equity interests ofin entities that develop and operate Starbucks® licensed stores in several global markets.markets, as well as in companies that support our strategic initiatives. We do not have the ability to acquire additional interests in some of these cost method investees at certain intervals. Depending on our total percentage ownership interest and our ability to exercise significant influence over financialthese entities and operating policies, additionaltheir fair values are not readily determinable. Therefore, we elected to measure these investments may require application of the equity method of accounting.at cost with adjustments for observable changes in price or impairment.
Note 7: Supplemental Balance Sheet and Statement of Earnings Information (in millions)
Prepaid Expenses and Other Current Assets | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Income tax receivable | $ | 20.7 | | | $ | 356.9 | |
| Government subsidies receivable | 172.4 | | | 155.1 | |
| Other prepaid expenses and current assets | 401.5 | | | 227.5 | |
| Total prepaid expenses and current assets | $ | 594.6 | | | $ | 739.5 | |
Property, Plant and Equipment, net | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Land | $ | 46.2 | | | $ | 46.0 | |
| Buildings | 587.6 | | | 586.8 | |
| Leasehold improvements | 8,637.6 | | | 8,262.6 | |
| Store equipment | 2,934.1 | | | 2,800.3 | |
| Roasting equipment | 857.2 | | | 796.6 | |
| Furniture, fixtures and other | 1,392.0 | | | 1,285.7 | |
| Work in progress | 374.1 | | | 377.3 | |
| Property, plant and equipment, gross | 14,828.8 | | | 14,155.3 | |
| Accumulated depreciation | (8,459.3) | | | (7,913.9) | |
| Property, plant and equipment, net | $ | 6,369.5 | | | $ | 6,241.4 | |
Accrued Liabilities | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| | | |
| Accrued occupancy costs | $ | 107.1 | | | $ | 76.9 | |
| Accrued dividends payable | 578.1 | | | — | |
| Accrued capital and other operating expenditures | 840.7 | | | 677.2 | |
| Self-insurance reserves | 229.3 | | | 243.9 | |
| Accrued business taxes | 218.0 | | | 162.7 | |
| Total accrued liabilities | $ | 1,973.2 | | | $ | 1,160.7 | |
Store Operating Expenses | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Wages and benefits | | $ | 6,989.3 | | | $ | 6,131.9 | | | $ | 5,941.7 | |
| Occupancy costs | | 2,561.5 | | | 2,388.0 | | | 2,411.2 | |
| Other expenses | | 2,380.1 | | | 2,244.1 | | | 2,140.7 | |
| Total store operating expenses | | $ | 11,930.9 | | | $ | 10,764.0 | | | $ | 10,493.6 | |
|
| | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| Land | $ | 46.9 |
| | $ | 46.6 |
|
| Buildings | 481.7 |
| | 458.4 |
|
| Leasehold improvements | 6,401.0 |
| | 5,892.9 |
|
| Store equipment | 2,110.7 |
| | 1,931.7 |
|
| Roasting equipment | 619.8 |
| | 605.4 |
|
| Furniture, fixtures and other | 1,514.1 |
| | 1,366.9 |
|
| Work in progress | 409.8 |
| | 271.4 |
|
| Property, plant and equipment, gross | 11,584.0 |
| | 10,573.3 |
|
| Accumulated depreciation | (6,664.5 | ) | | (6,039.5 | ) |
| Property, plant and equipment, net | $ | 4,919.5 |
| | $ | 4,533.8 |
|
Accrued Liabilities
|
| | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| Accrued compensation and related costs | $ | 524.5 |
| | $ | 510.8 |
|
| Accrued occupancy costs | 151.3 |
| | 137.5 |
|
| Accrued taxes | 226.6 |
| | 368.4 |
|
| Accrued dividends payable | 429.5 |
| | 365.1 |
|
| Accrued capital and other operating expenditures | 602.6 |
| | 617.3 |
|
| Total accrued liabilities | $ | 1,934.5 |
| | $ | 1,999.1 |
|
Note 8: Other Intangible Assets and Goodwill
Indefinite-Lived Intangible Assets | | | | | | | | | | | |
| (in millions) | Oct 3, 2021 | | Sep 27, 2020 |
| Trade names, trademarks and patents | $ | 96.4 | | | $ | 95.0 | |
| | | |
| | | |
Finite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Oct 3, 2021 | | 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 | $ | 1,141.5 | | | $ | (971.9) | | | $ | 169.6 | | | $ | 1,116.1 | | | $ | (765.0) | | | $ | 351.1 | |
| Acquired trade secrets and processes | 27.6 | | | (24.8) | | | 2.8 | | | 27.6 | | | (22.0) | | | 5.6 | |
| Trade names, trademarks and patents | 126.3 | | | (51.9) | | | 74.4 | | | 124.8 | | | (32.1) | | | 92.7 | |
| Licensing agreements | 18.8 | | | (13.5) | | | 5.3 | | | 16.6 | | | (15.0) | | | 1.6 | |
| Other finite-lived intangible assets | 24.0 | | | (22.6) | | | 1.4 | | | 22.8 | | | (16.7) | | | 6.1 | |
| Total finite-lived intangible assets | $ | 1,338.2 | | | $ | (1,084.7) | | | $ | 253.5 | | | $ | 1,307.9 | | | $ | (850.8) | | | $ | 457.1 | |
|
| | | | | | | |
| (in millions) | Oct 1, 2017 | | Oct 2, 2016 |
| Trade names, trademarks and patents | $ | 212.1 |
| | $ | 207.8 |
|
| Other indefinite-lived intangible assets | 15.1 |
| | 15.1 |
|
| Total indefinite-lived intangible assets | $ | 227.2 |
| | $ | 222.9 |
|
Additional disclosure regarding changes in ourAmortization expense for finite-lived intangible assets duewas $223.4 million, $223.7 million and $232.8 million during fiscal 2021, 2020 and 2019, respectively. During the fiscal year ended September 27, 2020, we recorded a charge of $22.1 million to acquisitions is included at Note 2, Acquisitionsrestructuring and Divestitures.impairments on our consolidated statement of earnings as the analysis indicated the carrying value of one of the assets exceeded its fair value. Our fiscal 2021 analysis indicated excess fair values over carrying values for these assets, and therefore no impairment charge was recorded.Estimated future amortization expense as of October 3, 2021 (in millions): | | | | | |
| Fiscal Year Ending | |
| 2022 | $ | 194.3 | |
| 2023 | 21.0 | |
| 2024 | 20.4 | |
| 2025 | 14.4 | |
| 2026 | 1.4 | |
| Thereafter | 2.0 | |
| Total estimated future amortization expense | $ | 253.5 | |
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America (1) | | International (1) | | Channel
Development | | Corporate and Other | | Total |
| Goodwill balance at September 29, 2019 | $ | 492.0 | | | $ | 2,963.1 | | | $ | 34.7 | | | $ | 1.0 | | | $ | 3,490.8 | |
| | | | | | | | | |
| | | | | | | | | |
Other(2) | (0.2) | | | 106.6 | | | — | | | — | | | 106.4 | |
| Goodwill balance at September 27, 2020 | $ | 491.8 | | | $ | 3,069.7 | | | $ | 34.7 | | | $ | 1.0 | | | $ | 3,597.2 | |
| | | | | | | | | |
| | | | | | | | | |
Other(2) | 1.4 | | | 78.6 | | | — | | | 0.1 | | | 80.1 | |
| Goodwill balance at October 3, 2021 | $ | 493.2 | | | $ | 3,148.3 | | | $ | 34.7 | | | $ | 1.1 | | | $ | 3,677.3 | |
(1)North America and International goodwill as of September 27, 2020 and September 29, 2019, was restated to conform with current period presentation. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Americas | | China/Asia Pacific | | EMEA | | Channel
Development | | All Other Segments | | Total |
| Goodwill balance at September 27, 2015 | $ | 211.2 |
| | $ | 804.1 |
| | $ | 57.4 |
| | $ | 23.8 |
| | $ | 478.9 |
| | $ | 1,575.4 |
|
| Acquisition/(divestiture) | — |
| | — |
| | (2.6 | ) | | — |
| | 5.3 |
| | 2.7 |
|
| Other | 0.4 |
| | 140.8 |
| | 0.3 |
| | — |
| | — |
| | 141.5 |
|
| Goodwill balance at October 2, 2016 | $ | 211.6 |
| | $ | 944.9 |
| | $ | 55.1 |
| | $ | 23.8 |
| | $ | 484.2 |
| | $ | 1,719.6 |
|
| Acquisition/(divestiture) | — |
| | (7.6 | ) | | — |
| | — |
| | — |
| | (7.6 | ) |
| Impairment | — |
| | — |
| | (17.9 | ) | | — |
| | (69.3 | ) | | (87.2 | ) |
| Other | 1.5 |
| | (87.1 | ) | | — |
| | — |
| | — |
| | (85.6 | ) |
| Goodwill balance at October 1, 2017 | $ | 213.1 |
| | $ | 850.2 |
| | $ | 37.2 |
| | $ | 23.8 |
| | $ | 414.9 |
| | $ | 1,539.2 |
|
“Other” primarily(2)"Other" consists of changes in the goodwill balance as a result ofresulting from foreign currency translation.
During the third quarter of fiscal 2017, management finalized its long-term strategy for the Teavana reporting unit. The plan emphasizes sales of premium Teavana™ tea products at Starbucks branded stores and, to a lesser extent, consumer product channels. The existing portfolio of Teavana-branded retail stores are expected to be closed over the next several quarters. This change in strategic direction triggered an impairment test first of the retail store assets and then an impairment test of the goodwill asset, which also coincided with2021, we completed our annual goodwill testing process. For goodwill, we utilized a combinationimpairment analysis. The results of incomeour analysis indicated significant excess fair values over carrying values across the different reporting units, and market approaches to determine the implied fair value of the reporting unit. These approaches used primarily unobservable inputs, including discount, sales growth and royalty rates and valuation multiples of a selection of similar publicly traded companies, which are considered Level 3 fair value measurements. We then compared the implied fair value with the carrying value and recognized atherefore no goodwill impairment charge was recorded.
Note 9: Debt
Revolving Credit Facility
During the Teavana reporting unit to $398.3 million as of October 1, 2017. The remaining intangible assets for the Teavana reporting unit of $117.2 million, consisting primarily of the indefinite-lived tradename and finite-lived tea recipes, were also tested, and no impairment losses were recorded.
The ongoing impact of the macro economic challenges we have experienced in our EMEA company-owned markets and the continued strength of the Swiss franc, when compared to the relatively inexpensive euro in surrounding countries, have posed strong headwinds to our Switzerland retail reporting unit. Our latest mitigation efforts incorporated into our Level 3 fair value
calculation for our Switzerland retail business are not expected to fully recover the reporting unit’s carrying value given the sustained nature of these and other external factors on consumer behavior and tourism. As a result, we recorded a goodwill impairment charge of $17.9 million in the thirdfourth quarter of fiscal 2017, and, as of October 1, 2017,2021, we had approximately $37 million of goodwill remaining onreplaced our condensed consolidated balance sheet associated with this reporting unit.
Finite-Lived Intangible Assets
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Acquired and reacquired rights | $ | 328.8 |
| | $ | (154.2 | ) | | $ | 174.6 |
| | $ | 361.3 |
| | $ | (114.5 | ) | | $ | 246.8 |
|
| Acquired trade secrets and processes | 27.6 |
| | (13.7 | ) | | 13.9 |
| | 27.6 |
| | (11.0 | ) | | 16.6 |
|
| Trade names, trademarks and patents | 31.5 |
| | (17.6 | ) | | 13.9 |
| | 29.4 |
| | (15.2 | ) | | 14.2 |
|
| Licensing agreements | 14.4 |
| | (3.8 | ) | | 10.6 |
| | 16.0 |
| | (2.8 | ) | | 13.2 |
|
| Other finite-lived intangible assets | 6.7 |
| | (5.5 | ) | | 1.2 |
| | 7.2 |
| | (4.6 | ) | | 2.6 |
|
| Total finite-lived intangible assets | $ | 409.0 |
| | $ | (194.8 | ) | | $ | 214.2 |
| | $ | 441.5 |
| | $ | (148.1 | ) | | $ | 293.4 |
|
Amortization expense for finite-lived intangible assets was $57.5 million, $57.3 million, and $50.0 million during fiscal 2017, 2016 and 2015, respectively.
Estimated future amortization expense as of October 1, 2017 (in millions):
|
| | | |
| Fiscal Year Ending | |
| 2018 | $ | 55.7 |
|
| 2019 | 54.5 |
|
| 2020 | 54.3 |
|
| 2021 | 31.4 |
|
| 2022 | 8.0 |
|
| Thereafter | 10.3 |
|
| Total estimated future amortization expense | $ | 214.2 |
|
Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2, Acquisitions and Divestitures.Note 9: Debt
Revolving Credit Facility and Commercial Paper Program
Our $1.5$2.0 billion unsecured 5-year revolving credit facility (the "2018 credit facility") and our $1.0 billion unsecured 364-Day credit facility (the "364-day credit facility") with various banks, of which $150 million may be used for issuances of letters ofa new $3.0 billion unsecured 5-year revolving credit facility (the "2021 credit facility"). The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases, andrepurchases.
The 2021 credit facility, of which $150 million may be used for issuances of letters of credit, is currently set to mature on November 6, 2020. Starbucks hasSeptember 16, 2026. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $750 million.$1.0 billion. Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the credit facility), in each case plus an applicable margin. The applicable margin is based on the better of (i) the Company'sCompany’s long-term credit ratings assigned by Moody'sMoody’s and Standard & Poor'sPoor’s rating agenciesagencies. The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The “Base Rate” of interest is the highest of (i) the Federal Funds Rate plus 0.025%, (ii) Bank of America’s prime rate, and (ii)(iii) the Company's fixed charge coverage ratio, pursuant to a pricing grid set forthEurocurrency Rate (as defined in the credit agreement. facility) plus 1.025%.
The current applicable margin is 0.565% for Eurocurrency Rate Loans and 0.00% (nil) for Base Rate Loans. The2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of October 1, 2017,3, 2021, we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as of October 1, 2017.3, 2021.
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 $1$3.0 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 discussed above. 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 October 1, 2017, availability3, 2021, we had no borrowings outstanding under the program.
Additionally, we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within our commercial paperJapanese market:
program was approximately $0•A ¥5 billion, (which representsor $44.9 million,facility is currently set to mature on December 30, 2021. Borrowings under the full committed credit facility amount, asare 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%.
•A ¥10 billion, or $89.9 million, facility is currently set to mature on March 26, 2022. 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 0.350%.
As of October 3, 2021, we had no amounts wereborrowings outstanding under our commercial paper program).these credit facilities. For the year ended September 27, 2020, we had ¥15 billion, or $142.3 million, outstanding under these Japanese yen-denominated credit facilities.
Long-term Debt
In March 2017, we issued Japanese yen-denominated long-term debt in an underwritten registered public offering. The 7-year 0.372% Senior Notes (the “2024 notes”) due March 2024 were issued with a face value of ¥85 billion, of which ¥81 billion has been designated to hedge the foreign currency exposure of our net investment in Japan. Interest on the 2024 notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017.
In December 2016, we repaid the $400 million of 0.875% Senior Notes (the “2016 notes”) at maturity.
In May 2016, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 10-year 2.450% Senior Notes (the “2026 notes”) due June 2026. Interest on the 2026 notes is payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2016.
In February 2016, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 5-year 2.100% Senior Notes (the “2021 notes”) due February 2021. In May 2016, we reopened this offering with the same terms and issued an additional $250 million of Senior Notes (collectively, the “2021 notes”) for an aggregate amount outstanding of $750 million. Interest on the 2021 notes is payable semi-annually on February 4 and August 4 of each year, commencing on August 4, 2016.
In July 2015, we redeemed $550 million of 6.250% Senior Notes (the “2017 notes”) originally scheduled to mature in August 2017. The redemption resulted in a charge of $61.1 million, which is presented separately as loss on extinguishment of debt within other income and expenses on our consolidated statements of earnings. This loss primarily relates to the optional redemption payment as outlined in the 2017 notes indenture, as well as non-cash expenses related to the previously capitalized original issuance costs and accelerated amortization of the unamortized discount. In connection with the redemption, we also reclassified $2.0 million from accumulated other comprehensive income to interest expense on our consolidated statements of earnings related to remaining unrecognized losses from interest rate contracts entered into in conjunction with the 2017 notes and designated as cash flow hedges.
In June 2015, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 7-year 2.700% Senior Notes (the “2022 notes”) due June 2022, and $350 million of 30-year 4.300% Senior Notes (the “2045 notes”) due June 2045. Interest on the 2022 and 2045 notes is payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2015.
Components of long-term debt including the associated interest rates and related fair values by calendar maturity (in millions, except interest rates): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 | | Stated Interest Rate | Effective Interest Rate (1) |
| Issuance | Face Value | Estimated Fair Value | | Face Value | Estimated Fair Value | |
November 2020 notes(2) | $ | — | | — | | | $ | 500.0 | | 501.5 | | | 2.200 | % | 2.228 | % |
February 2021 notes(2) | — | | — | | | 500.0 | | 502.3 | | | 2.100 | % | 2.293 | % |
February 2021 notes(2) | — | | — | | | 250.0 | | 251.1 | | | 2.100 | % | 1.600 | % |
| May 2022 notes | 500.0 | | 503.1 | | | 500.0 | | 506.5 | | | 1.300 | % | 1.334 | % |
| June 2022 notes | 500.0 | | 506.7 | | | 500.0 | | 517.5 | | | 2.700 | % | 2.819 | % |
| March 2023 notes | 1,000.0 | | 1,035.9 | | | 1,000.0 | | 1,058.8 | | | 3.100 | % | 3.107 | % |
October 2023 notes(3) | 750.0 | | 794.8 | | | 750.0 | | 817.5 | | | 3.850 | % | 2.859 | % |
March 2024 notes(4) | 763.8 | | 761.0 | | | 806.4 | | 794.4 | | | 0.372 | % | 0.462 | % |
| August 2025 notes | 1,250.0 | | 1,371.5 | | | 1,250.0 | | 1,414.5 | | | 3.800 | % | 3.721 | % |
| June 2026 notes | 500.0 | | 526.4 | | | 500.0 | | 542.6 | | | 2.450 | % | 2.511 | % |
| March 2027 notes | 500.0 | | 513.0 | | | 500.0 | | 528.9 | | | 2.000 | % | 2.058 | % |
| March 2028 notes | 600.0 | | 663.2 | | | 600.0 | | 679.5 | | | 3.500 | % | 3.529 | % |
| November 2028 notes | 750.0 | | 855.9 | | | 750.0 | | 886.0 | | | 4.000 | % | 3.958 | % |
| August 2029 notes | 1,000.0 | | 1,109.9 | | | 1,000.0 | | 1,147.1 | | | 3.550 | % | 3.840 | % |
| March 2030 notes | 750.0 | | 758.6 | | | 750.0 | | 778.0 | | | 2.250 | % | 3.084 | % |
| November 2030 notes | 1,250.0 | | 1,286.9 | | | 1,250.0 | | 1,325.9 | | | 2.550 | % | 2.582 | % |
| June 2045 notes | 350.0 | | 414.1 | | | 350.0 | | 412.4 | | | 4.300 | % | 4.348 | % |
| December 2047 notes | 500.0 | | 556.5 | | | 500.0 | | 546.6 | | | 3.750 | % | 3.765 | % |
| November 2048 notes | 1,000.0 | | 1,248.6 | | | 1,000.0 | | 1,222.8 | | | 4.500 | % | 4.504 | % |
| August 2049 notes | 1,000.0 | | 1,241.0 | | | 1,000.0 | | 1,215.5 | | | 4.450 | % | 4.447 | % |
| March 2050 notes | 500.0 | | 527.5 | | | 500.0 | | 517.1 | | | 3.350 | % | 3.362 | % |
| November 2050 notes | 1,250.0 | | 1,339.5 | | | 1,250.0 | | 1,332.2 | | | 3.500 | % | 3.528 | % |
| Total | 14,713.8 | | 16,014.1 | | | 16,006.4 | | 17,498.7 | | | | |
| Aggregate debt issuance costs and unamortized premium/(discount), net | (119.7) | | | | (132.5) | | | | | |
Hedge accounting fair value adjustment(3) | 21.7 | | | | 35.6 | | | | | |
| Total | $ | 14,615.8 | | | | $ | 15,909.5 | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 | | Stated Interest Rate | Effective Interest Rate (1) |
| Issuance | Face Value | Estimated Fair Value | | Face Value | Estimated Fair Value | |
| 2016 notes | $ | — |
| $ | — |
| | $ | 400.0 |
| $ | 400 |
| | 0.875 | % | 0.941 | % |
| 2018 notes | 350.0 |
| 352 |
| | 350.0 |
| 357 |
| | 2.000 | % | 2.012 | % |
| 2021 notes | 500.0 |
| 501 |
| | 500.0 |
| 511 |
| | 2.100 | % | 2.293 | % |
| 2021 notes | 250.0 |
| 250 |
| | 250.0 |
| 255 |
| | 2.100 | % | 1.600 | % |
| 2022 notes | 500.0 |
| 508 |
| | 500.0 |
| 526 |
| | 2.700 | % | 2.819 | % |
| 2023 notes | 750.0 |
| 806 |
| | 750.0 |
| 839 |
| | 3.850 | % | 2.859 | % |
2024 notes(2) | 755.3 |
| 760 |
| | — |
| — |
| | 0.372 | % | 0.462 | % |
| 2026 notes | 500.0 |
| 481 |
| | 500.0 |
| 509 |
| | 2.450 | % | 2.511 | % |
| 2045 notes | 350.0 |
| 381 |
| | 350.0 |
| 417 |
| | 4.300 | % | 4.348 | % |
| Total | 3,955.3 |
| 4,039 |
| | 3,600.0 |
| 3,814 |
| | | |
| Aggregate debt issuance costs and unamortized premium/(discount), net | (17.5 | ) | | | (14.8 | ) | | | | |
Hedge accounting fair value adjustment(3) | (5.2 | ) | | | — |
| | | | |
| Total | $ | 3,932.6 |
| | | $ | 3,585.2 |
| | | | |
| |
(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) Japanese yen-denominated long-term debt.(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)November 2020 and February 2021 notes were repaid in the first and second quarters of fiscal 2021, respectively.
(3)Amount representsincludes 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. The indentures under which the above notes were issued also require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of October 2, 2017, we were in compliance with each of these covenants.(4)Japanese yen-denominated long-term debt.
The following table summarizes our long-term debt maturities as of October 1, 20173, 2021 by fiscal year (in millions): | | | | | |
| Fiscal Year | Total |
| 2022 | $ | 1,000.0 | |
| 2023 | 1,000.0 | |
| 2024 | 1,513.8 | |
| 2025 | 1,250.0 | |
| 2026 | 500.0 | |
| Thereafter | 9,450.0 | |
| Total | $ | 14,713.8 | |
|
| | | |
| Fiscal Year | Total |
| 2018 | $ | — |
|
| 2019 | 350.0 |
|
| 2020 | — |
|
| 2021 | 750.0 |
|
| 2022 | 500.0 |
|
| Thereafter | 2,355.3 |
|
| Total | $ | 3,955.3 |
|
Note 10: Leases
During the years ended October 3, 2021 and September 27, 2020, we recognized accelerated amortization of ROU lease assets and other lease costs of $89.5 million and $87.7 million, respectively, which were recognized within restructuring and impairments on the consolidated statements of earnings.
The components of lease costs (in millions): | | | | | | | | | | | | | |
| Year Ended | | |
| Oct 3, 2021 | | Sep 27, 2020 | | |
Operating lease costs(1) | $ | 1,579.2 | | | $ | 1,573.6 | | | |
| Variable lease costs | 949.6 | | | 833.4 | | | |
| Short-term lease costs | 30.9 | | | 34.1 | | | |
| Total lease costs | $ | 2,559.7 | | | $ | 2,441.1 | | | |
| | | | | |
| | | | | |
| | | | | |
(1)Includes immaterial amounts of sublease income and rent concessions.
The following table includes supplemental information (in millions): | | | | | | | | | | | | | |
| Year Ended | | |
| Oct 3, 2021 | | Sep 27, 2020 | | |
| Cash paid related to operating lease liabilities | $ | 1,707.1 | | | $ | 1,463.3 | | | |
Operating lease liabilities arising from obtaining ROU assets(1) | 1,590.3 | | | 1,093.0 | | | |
| | | | | |
| | | | | |
| | | | | |
(1)Excludes the initial impact of adoption during the year ended September 27, 2020.
| | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Weighted-average remaining operating lease term | 8.7 years | | 8.8 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 on the consolidated balance sheet. Finance leases were immaterial as of October 3, 2021 and September 27, 2020.
Minimum future maturities of operating lease liabilities (in millions): | | | | | |
| Fiscal Year | Total |
| 2022 | $ | 1,504.6 | |
| 2023 | 1,441.3 | |
| 2024 | 1,310.2 | |
| 2025 | 1,156.6 | |
| 2026 | 1,012.5 | |
| Thereafter | 3,704.7 | |
| Total lease payments | 10,129.9 | |
| Less imputed interest | (1,140.6) | |
| Total | $ | 8,989.3 | |
As of October 3, 2021, we have entered into operating leases that have not yet commenced of $830.9 million, primarily related to real estate leases. These leases will commence between fiscal year 2022 and fiscal year 2028 with lease terms of 10 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 (in millions): | | | | | |
| Year Ended |
| Sep 29, 2019 |
| Minimum rent | $ | 1,441.7 | |
| Contingent rent | 224.3 | |
| Total | 1,666.0 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Minimum rent | $ | 1,185.7 |
| | $ | 1,092.5 |
| | $ | 1,026.3 |
|
| Contingent rent | 143.5 |
| | 130.7 |
| | 111.5 |
|
| Total | $ | 1,329.2 |
| | $ | 1,223.2 |
| | $ | 1,137.8 |
|
Minimum future rental payments under non-cancelable operating leases and lease financing arrangements as of October 1, 2017(in millions):
|
| | | | | | | |
| Fiscal Year Ending | Operating Leases | | Lease Financing Arrangements |
| 2018 | $ | 1,213.1 |
| | $ | 4.1 |
|
| 2019 | 1,141.6 |
| | 4.1 |
|
| 2020 | 1,068.6 |
| | 4.1 |
|
| 2021 | 986.9 |
| | 4.0 |
|
| 2022 | 888.1 |
| | 3.9 |
|
| Thereafter | 3,315.2 |
| | 38.9 |
|
| Total minimum lease payments | $ | 8,613.5 |
| | $ | 59.1 |
|
We0We have subleases related to certain of our operating leases. During fiscal 2017, 2016 and 2015, weWe recognized $10.9 million of sublease income of $15.5 million, $14.6 million, and $11.9 million, respectively.during the fiscal year ended September 29, 2019. Additionally, as of October 1, 2017 and October 2, 2016,September 29, 2019, the gross carrying valuesvalue of assets related to build-to-suit lease arrangements accounted for as financing leases were $94.3was $122.3 million, and $92.7 million, respectively, with associated accumulated depreciation of $9.0 million and $6.2 million, respectively.$17.2 million. Lease exit costs associated with our restructuring efforts will beprimarily relate to the closure of Teavana retail stores and certain Starbucks company-operated stores, and are recognized concurrently with actual store closures. Total lease exit costs are expected to be approximately $153.7of $55.3 million of which $15.7 million werewas recorded withinin restructuring and impairments on the consolidated statement of earnings in fiscal 2017.2019.
Note 11: Deferred Revenue
In the fourth quarter of fiscal 2018, we licensed the rights to sell and market our products in authorized channels through the Global Coffee Alliance and received an up-front prepaid royalty from Nestlé. The up-front payment of approximately $7 billion was recorded as deferred revenue as we have continuing performance obligations to support the Global Coffee Alliance, including providing Nestlé access to certain intellectual properties and products for future resale. The up-front payment is being recognized as other revenue on a straight-line basis over the estimated economic life of the arrangement of 40 years for the ongoing access to the licenses within the contractual territories. Our obligations to maintain the Starbucks brand and other intellectual properties are generally constant throughout the term of the arrangement. Therefore, a ratable recognition pattern is reflective of how we will satisfy our performance obligations.
At October 3, 2021, the current and long-term deferred revenue related to the Nestlé up-front payment was $177.0 million and $6.4 billion, respectively. At September 27, 2020, the current and long-term deferred revenue related to the Nestlé up-front payment was $179.3 million and $6.5 billion, respectively. During the fiscal years ended October 3, 2021, September 27, 2020 and September 29, 2019, we recognized $176.6 million, $176.8 million and $175.2 million of current 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): | | | | | |
| Fiscal Year Ended October 3, 2021 | Total |
| Stored value cards and loyalty program at September 27, 2020 | $ | 1,280.5 | |
| Revenue deferred - card activations, card reloads and Stars earned | 12,563.4 | |
| Revenue recognized - card and Stars redemptions and breakage | (12,401.7) | |
Other(1) | 6.3 | |
Stored value cards and loyalty program at October 3, 2021(2) | $ | 1,448.5 | |
| |
| Fiscal Year Ended September 27, 2020 | Total |
| Stored value cards and loyalty program at September 29, 2019 | $ | 1,113.7 | |
| Revenue deferred - card activations, card reloads and Stars earned | 10,527.7 | |
| Revenue recognized - card and Stars redemptions and breakage | (10,367.9) | |
Other(1) | 7.0 | |
Stored value cards and loyalty program at September 27, 2020(2) | $ | 1,280.5 | |
(1)“Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.
(2)As of October 3, 2021, approximately $1.3 billion of this amount was current. As of September 27, 2020, approximately $1.2 billion of this amount was current.
Note 12: Equity
In addition to 2.4 billion shares of authorized common stock with $0.001 par value per share, we have authorized 7.5 million shares of preferred stock, none of which was outstanding at October 1, 2017.3, 2021.
In March 2019, we entered into ASR agreements with third-party financial institutions totaling $2.0 billion, effective March 22, 2019. We made a $2.0 billion up-front payment to the financial institutions and received an initial delivery of 22.2 million shares. In June 2019, we received an additional 3.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $76.50.
Outside of the ASR agreements noted above, we repurchased 37.536.6 million shares of common stock at afor $3.1 billion on the open market during the year ended September 29, 2019. In total, cost of $2.1 billion, and 34.9we repurchased 139.6 million shares at a total cost of $2.0$10.1 billion for the yearsyear ended October 1, 2017September 29, 2019.
Our Board of Directors authorized the repurchase of up to an additional 120 million and October 2, 2016,40 million shares under our ongoing share repurchase program during the fiscal first quarter of 2019 and fiscal second quarter of 2020, respectively. In March 2020, we announced a temporary suspension of our share repurchase program until we restored certain financial leverage targets. We repurchased 20.3 million shares of common stock for $1.7 billion on the open market during the year ended September 27, 2020. As of October 1, 2017, 80.3September 27, 2020, 48.9 million shares remained available for repurchase under current authorizations. Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022.
During the fourth quarter of fiscal 2021, our Board of Directors declared a quarterly cash dividend to shareholders of $0.49 per share to be paid on November 26, 2021 to shareholders of record as of the close of business on November 12, 2021.
Comprehensive Income
Comprehensive income includes all changes in equity during the period, except those resulting from transactions with our shareholders. Comprehensive income is comprised of net earnings and other comprehensive income. Accumulated other comprehensive income reported on our consolidated balance sheets consists of foreign currency translation adjustments and other items and the unrealized gains and losses, net of applicable taxes, on available-for-sale debt securities and on derivative instruments designated and qualifying as cash flow and net investment hedges.
Changes in accumulated other comprehensive income (“AOCI”)AOCI by component for the years ended October 1, 2017, October 2, 2016,3, 2021, September 27, 2020 and September 27, 2015,29, 2019, net of tax,a re are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| October 3, 2021 | | | | | | | | | |
| 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 | (2.7) | | | 240.2 | | | 47.1 | | | 190.4 | | | 475.0 | |
| Net (gains)/losses reclassified from AOCI to earnings | (1.5) | | | 0.2 | | | (10.0) | | | 48.1 | | | 36.8 | |
| Other comprehensive income/(loss) attributable to Starbucks | (4.2) | | | 240.4 | | | 37.1 | | | 238.5 | | | 511.8 | |
| | | | | | | | | |
| Net gains/(losses) in AOCI, end of period | $ | 1.5 | | | $ | 158.3 | | | $ | 48.6 | | | $ | (61.2) | | | $ | 147.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| September 27, 2020 | | | | | | | | | |
| 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 | 6.5 | | | (95.0) | | | 28.9 | | | 208.4 | | | 148.8 | |
| Net (gains)/losses reclassified from AOCI to earnings | (4.0) | | | (1.1) | | | (9.8) | | | — | | | (14.9) | |
| Other comprehensive income/(loss) attributable to Starbucks | 2.5 | | | (96.1) | | | 19.1 | | | 208.4 | | | 133.9 | |
| Cumulative effect of accounting adoption | (0.7) | | | 3.0 | | | 2.5 | | | — | | | 4.8 | |
| Net gains/(losses) in AOCI, end of period | $ | 5.7 | | | $ | (82.1) | | | $ | 11.5 | | | $ | (299.7) | | | $ | (364.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| September 29, 2019 | | | | | | | | | |
| 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 | 8.2 | | | (10.7) | | | (29.7) | | | (143.7) | | | (175.9) | |
| Net (gains)/losses reclassified from AOCI to earnings | 0.6 | | | 4.0 | | | — | | | (1.7) | | | 2.9 | |
| Other comprehensive income/(loss) attributable to Starbucks | 8.8 | | | (6.7) | | | (29.7) | | | (145.4) | | | (173.0) | |
| | | | | | | | | |
| Net gains/(losses) in AOCI, end of period | $ | 3.9 | | | $ | 11.0 | | | $ | (10.1) | | | $ | (508.1) | | | $ | (503.3) | |
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| October 1, 2017 | | | | | | | | | |
| Net gains/(losses) in AOCI, beginning of period | $ | 1.1 |
| | $ | 10.9 |
| | $ | 1.3 |
| | $ | (121.7 | ) | | $ | (108.4 | ) |
| Net gains/(losses) recognized in OCI before reclassifications | (6.6 | ) | | 40.6 |
| | 12.7 |
| | (40.7 | ) | | 6.0 |
|
| Net (gains)/losses reclassified from AOCI to earnings | 3.0 |
| | (55.6 | ) | | — |
| | (0.6 | ) | | (53.2 | ) |
| Other comprehensive income/(loss) attributable to Starbucks | (3.6 | ) | | (15.0 | ) | | 12.7 |
| | (41.3 | ) | | (47.2 | ) |
| Net gains/(losses) in AOCI, end of period | $ | (2.5 | ) | | $ | (4.1 | ) | | $ | 14.0 |
| | $ | (163.0 | ) | | $ | (155.6 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| October 2, 2016 | | | | | | | | | |
| Net gains/(losses) in AOCI, beginning of period | $ | (0.1 | ) | | $ | 25.6 |
| | $ | 1.3 |
| | $ | (226.2 | ) | | $ | (199.4 | ) |
| Net gains/(losses) recognized in OCI before reclassifications | 2.2 |
| | (82.1 | ) | | — |
| | 104.5 |
| | 24.6 |
|
| Net (gains)/losses reclassified from AOCI to earnings | (1.0 | ) | | 67.4 |
| | — |
| | — |
| | 66.4 |
|
| Other comprehensive income/(loss) attributable to Starbucks | 1.2 |
| | (14.7 | ) | | — |
| | 104.5 |
|
| 91.0 |
|
| Net gains/(losses) in AOCI, end of period | $ | 1.1 |
| | $ | 10.9 |
| | $ | 1.3 |
| | $ | (121.7 | ) | | $ | (108.4 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | Available-for-Sale Securities | | Cash Flow Hedges | | Net Investment Hedges | | Translation Adjustment and Other | | Total |
| September 27, 2015 | | | | | | | | | |
| Net gains/(losses) in AOCI, beginning of period | $ | (0.4 | ) | | $ | 46.3 |
| | $ | 3.2 |
| | $ | (23.8 | ) | | $ | 25.3 |
|
| Net gains/(losses) recognized in OCI before reclassifications | 0.9 |
| | 30.8 |
| | 2.7 |
| | (185.6 | ) | | (151.2 | ) |
| Net (gains)/losses reclassified from AOCI to earnings | (0.6 | ) | | (51.5 | ) | | (4.6 | ) | | 14.3 |
| | (42.4 | ) |
| Other comprehensive income/(loss) attributable to Starbucks | 0.3 |
| | (20.7 | ) | | (1.9 | ) | | (171.3 | ) | | (193.6 | ) |
| Purchase of noncontrolling interest | — |
| | — |
| | — |
| | (31.1 | ) | | (31.1 | ) |
| Net gains/(losses) in AOCI, end of period | $ | (0.1 | ) | | $ | 25.6 |
| | $ | 1.3 |
| | $ | (226.2 | ) | | $ | (199.4 | ) |
Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | |
AOCI Components | | Amounts Reclassified from AOCI | | Affected Line Item in the Statements of Earnings |
| Year Ended | |
| Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 | |
| Gains/(losses) on available-for-sale securities | | $ | 1.8 | | | $ | 4.9 | | | $ | 0.9 | | | Interest income and other, net |
| Gains/(losses) on cash flow hedges | | 1.9 | | | 1.9 | | | (3.9) | | | Please refer to Note 3, Derivative Instruments for additional information. |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Gains/(losses) on net investment hedges | | 13.4 | | | 13.3 | | | — | | | Interest expense |
Translation adjustment and other (1) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Korea | | (58.9) | | | — | | | — | | | Net gain resulting from divestiture of certain operations |
| Thailand | | — | | | — | | | 1.7 | | | Net gain resulting from divestiture of certain operations |
| | | | | | | | |
| | (41.8) | | | 20.1 | | | (1.3) | | | Total before tax |
| | 5.0 | | | (5.2) | | | (1.6) | | | Tax (expense)/benefit |
| | $ | (36.8) | | | $ | 14.9 | | | $ | (2.9) | | | Net of tax |
(1) Release of cumulative translation adjustments and other activities to earnings upon sale or liquidation of foreign businesses.
|
| | | | | | | | | | | | | | |
AOCI Components | | Amounts Reclassified from AOCI | | Affected Line Item in the Statements of Earnings |
| | Fiscal Year Ended | |
| | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 | |
| Gains/(losses) on available-for-sale securities | | $ | (4.1 | ) | | $ | 1.6 |
| | $ | 1.0 |
| | Interest income and other, net |
| Gains/(losses) on cash flow hedges | | | | | | | | |
| Interest rate hedges | | 4.8 |
| | 5.0 |
| | 3.2 |
| | Interest expense |
| Cross-currency swaps | | 57.2 |
| | (101.1 | ) | | 46.2 |
| | Interest income and other, net |
| Foreign currency hedges | | 3.0 |
| | 4.9 |
| | 14.0 |
| | Revenue |
| Foreign currency/coffee hedges | | 5.7 |
| | 11.4 |
| | 8.6 |
| | Cost of sales including occupancy costs |
Gains/(losses) on net investment hedges(1) | | — |
| | — |
| | 7.2 |
| | Gain resulting from acquisition of joint venture |
Translation adjustment(2) | | | | | | | | |
| Starbucks Japan | | — |
| | — |
| | (7.2 | ) | | Gain resulting from acquisition of joint venture |
| Other | | 0.6 |
| | — |
| | (7.1 | ) | | Interest income and other, net |
| | | 67.2 |
| | (78.2 | ) | | 65.9 |
| | Total before tax |
| | | (14.0 | ) | | 11.8 |
| | (23.5 | ) | | Tax (expense)/benefit |
| | | $ | 53.2 |
| | $ | (66.4 | ) | | $ | 42.4 |
| | Net of tax |
| |
(1)
| Release of pretax cumulative net gains in AOCI related to our net investment derivative instruments used to hedge our preexisting 39.5% equity method investment in Starbucks Japan.
|
| |
(2)
| Release of cumulative translation adjustments to earnings upon sale or liquidation of foreign business.
|
Note 12:13: Employee Stock and Benefit Plans
We maintain several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”) or stock appreciation rights to employees, non-employee directors and consultants. We issue new shares of common stock upon exercise of stock options and the vesting of RSUs. We also have an employee stock purchase plan (“ESPP”).
As of October 1, 2017,3, 2021, there were 73.541.0 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 13.311.3 million shares available for issuance under our ESPP.
Stock-based compensation expense recognized in the consolidated financial statements (in millions): | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| RSUs | $ | 316.9 | | | $ | 241.0 | | | $ | 288.0 | |
| Options | 2.2 | | | 7.5 | | | 20.0 | |
| Total stock-based compensation expense recognized in the consolidated statements of earnings | $ | 319.1 | | | $ | 248.5 | | | $ | 308.0 | |
| Total related tax benefit | $ | 51.6 | | | $ | 47.8 | | | $ | 59.3 | |
| Total capitalized stock-based compensation included in net property, plant and equipment on the consolidated balance sheets | $ | 3.7 | | | $ | 3.6 | | | $ | 3.4 | |
RSUs
We have both time-vested and performance-based RSUs. Time-vested RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of a vesting period, subject solely to the employee’s continuing employment. The time-vested RSUs either vest in two or four equal annual installments beginning a year from the grant date. Our performance-based RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock if we achieve specified performance goals during the performance period and the grantee remains employed through the vesting period.
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Options | $ | 44.3 |
| | $ | 42.7 |
| | $ | 37.8 |
|
| RSUs | 131.7 |
| | 175.4 |
| | 172.0 |
|
| Total stock-based compensation expense recognized in the consolidated statements of earnings | $ | 176.0 |
| | $ | 218.1 |
| | $ | 209.8 |
|
| Total related tax benefit | $ | 57.6 |
| | $ | 73.0 |
| | $ | 72.3 |
|
| Total capitalized stock-based compensation included in net property, plant and equipment and inventories on the consolidated balance sheets | $ | 1.9 |
| | $ | 1.5 |
| | $ | 1.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Number
of
Shares | | Weighted
Average
Grant Date
Fair Value
per Share | | Weighted
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| Nonvested, September 27, 2020 | 8.3 | | | $ | 74.23 | | | 1.1 | | $ | 699 | |
| Granted | 4.1 | | | 96.05 | | | | | |
| Vested | (3.2) | | | 69.99 | | | | | |
| Forfeited/canceled | (1.5) | | | 87.72 | | | | | |
| Nonvested, October 3, 2021 | 7.7 | | | 86.23 | | | 0.9 | | 869 | |
As of October 3, 2021, total unrecognized stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $145 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.0 years. The total fair value of RSUs vested was $226 million, $211 million and $255 million during fiscal 2021, 2020 and 2019, respectively. For fiscal 2020 and 2019, the weighted average fair value per RSU granted was $81.96 and $68.14, respectively.
Stock Option Plans
StockWe may provide stock options to purchase our common stockas a form of employee compensation, which are granted at the fair value of the stock on the grant date.primarily time-vested. The majority of time-vested options become exercisable in four equal installments beginning a year from the grant date and generally expire 10 years from the grant date. Options granted to non-employee directors generally vest overimmediately or one to three years.year from grant. All outstanding stock options are non-qualified stock options.
The fair value of stock option awards was estimated at the grant date with the following weighted average assumptions for fiscal years 2017, 20162021, 2020 and 2015:
|
| | | | | | | | | | | |
| | Employee Stock Options
Granted During the Period |
| Fiscal Year Ended | 2017 | | 2016 | | 2015 |
| Expected term (in years) | 3.9 |
| | 3.9 |
| | 4.2 |
|
| Expected stock price volatility | 21.6 | % | | 23.9 | % | | 22.3 | % |
| Risk-free interest rate | 1.5 | % | | 1.2 | % | | 1.1 | % |
| Expected dividend yield | 1.8 | % | | 1.3 | % | | 1.6 | % |
| Weighted average grant price | $ | 56.12 |
| | $ | 60.20 |
| | $ | 39.89 |
|
| Estimated fair value per option granted | $ | 8.56 |
| | $ | 10.54 |
| | $ | 6.58 |
|
| | | | | | | | | | | | | | | | | |
| Stock Options
Granted During the Period |
| Fiscal Year Ended | 2021 | | 2020 | | 2019 |
| Expected term (in years) | 8.1 | | 7.8 | | 4.1 |
| Expected stock price volatility | 26.3 | % | | 27.3 | % | | 21.6 | % |
| Risk-free interest rate | 1.4 | % | | 1.2 | % | | 2.9 | % |
| Expected dividend yield | 1.6 | % | | 2.9 | % | | 2.1 | % |
| Weighted average grant price | $ | 110.46 | | | $ | 56.33 | | | $ | 67.33 | |
| Estimated fair value per option granted | $ | 27.59 | | | $ | 11.30 | | | $ | 11.06 | |
The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on a combination of historical volatility of our stock and the one-year implied volatility of Starbucks traded options, for the related vesting periods. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The dividend yield assumption is based on our anticipated cash dividend payouts. The amounts shown above for the estimated fair value per option granted are before the estimated effect of forfeitures, which reduce the amount of expense recorded in the consolidated statements of earnings.
Stock option transactions for the year ended October 1, 20173, 2021 (in millions, except per share and contractual life amounts):
|
| | | | | | | | | | | | |
| | Shares
Subject to
Options | | Weighted
Average
Exercise
Price
per Share | | Weighted
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| Outstanding, October 2, 2016 | 31.3 |
| | $ | 30.59 |
| | 5.8 | | $ | 771 |
|
| Granted | 7.1 |
| | 56.12 |
| | | | |
| Exercised | (5.3 | ) | | 23.16 |
| | | | |
| Expired/forfeited | (1.7 | ) | | 51.13 |
| | | | |
| Outstanding, October 1, 2017 | 31.4 |
| | 36.51 |
| | 5.8 | | 589 |
|
| Exercisable, October 1, 2017 | 19.7 |
| | 26.42 |
| | 4.2 | | 552 |
|
| Vested and expected to vest, October 1, 2017 | 30.0 |
| | 35.60 |
| | 5.6 | | 587 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares
Subject to
Options | | Weighted
Average
Exercise
Price
per Share | | Weighted
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| Outstanding, September 27, 2020 | 9.2 | | | $ | 53.06 | | | 5.4 | | $ | 286 | |
| Granted | 0.0 | | | 110.46 | | | | | |
| Exercised | (4.0) | | | 51.31 | | | | | |
| Expired/forfeited | 0.0 | | | 56.69 | | | | | |
| Outstanding, October 3, 2021 | 5.2 | | | 54.58 | | | 4.5 | | 303 | |
| Exercisable, October 3, 2021 | 4.4 | | | 53.06 | | | 4.1 | | 261 | |
| Vested and expected to vest, October 3, 2021 | 5.2 | | | 54.57 | | | 4.5 | | 302 | |
The aggregate intrinsic value in the table above, which is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, is before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated.
As of October 1, 2017,3, 2021, total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested options was approximately $38$0.1 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.70.5 years. The total intrinsic value of options exercised was $181$219 million, $254$236 million and $358$466 million during fiscal years 2017, 20162021, 2020 and 2015,2019, respectively. The total fair value of options vested was $40$14 million, $37$25 million and $36$31 million during fiscal years 2017, 20162021, 2020 and 2015,2019, respectively.
RSUs
We have both time-vested and performance-based RSUs. Time-vested RSUs are awarded to eligible employees and non-employee directors and entitle the grantee to receive shares of common stock at the end of a vesting period, subject solely to the employee’s continuing employment or the non-employee director's continuing service. The majority of time-vested RSUs vest in two equal annual installments beginning a year from the grant date. Our performance-based RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock if we achieve specified performance goals during the performance period and the grantee remains employed during the subsequent vesting period. The majority of performance-based RSUs vest in two equal annual installments beginning two years from the grant date.
RSU transactions for the year ended October 1, 2017(in millions, except per share and contractual life amounts):
|
| | | | | | | | | | | | |
| | Number
of
Shares | | Weighted
Average
Grant Date
Fair Value
per Share | | Weighted
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| Nonvested, October 2, 2016 | 8.3 |
| | $ | 46.15 |
| | 0.9 | | $ | 448 |
|
| Granted | 5.1 |
| | 54.30 |
| | | | |
| Vested | (4.3 | ) | | 42.09 |
| | | | |
| Forfeited/canceled | (1.5 | ) | | 51.05 |
| | | | |
| Nonvested, October 1, 2017 | 7.6 |
| | 52.06 |
| | 0.9 | | 410 |
|
For fiscal 2016 and 2015, the weighted average fair value per RSU granted was $58.81 and $38.56, respectively. As of October 1, 2017, total unrecognized stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $75 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.0 years. The total fair value of RSUs vested was $182 million, $169 million and $137 million during fiscal years 2017, 2016 and 2015, respectively.
ESPP
Our ESPP allows eligible employees to contribute up to 10% of their base earnings toward the quarterly purchase of our common stock, subject to an annual maximum dollar amount. The purchase price is 95% of the fair market value of the stock on the last business day of the quarterly offering period. The number of shares issued under our ESPP was 0.5 million in fiscal 2017.
2021.
Deferred Compensation Plan
We have a Deferred Compensation Plan for Non-Employee Directors under which non-employee directors may, for any fiscal year, irrevocably elect to defer receipt of shares of common stock the director would have received upon vesting of restricted stock units. The number of deferred shares outstanding related to deferrals made under this plan is not material.
Defined Contribution Plans
We maintain voluntary defined contribution plans, both qualified and non-qualified, covering eligible employees as defined in the plan documents. Participating employees may elect to defer and contribute a portion of their eligible compensation to the plans up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws.
Our matching contributions to all U.S. and non-U.S. plans were $101.4$145.1 million, $86.2$132.7 million and $70.9$122.1 million in fiscal years 2017, 20162021, 2020 and 2015,2019, respectively.
Note 13:14: Income Taxes
Components of earnings before income taxes (in millions): | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| United States | $ | 4,138.5 | | | $ | 904.6 | | | $ | 3,518.7 | |
| Foreign | 1,218.4 | | | 259.8 | | | 947.5 | |
| Total earnings before income taxes | $ | 5,356.9 | | | $ | 1,164.4 | | | $ | 4,466.2 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| United States | $ | 3,393.0 |
| | $ | 3,415.7 |
| | $ | 2,837.2 |
|
| Foreign | 924.5 |
| | 782.9 |
| | 1,065.8 |
|
| Total earnings before income taxes | $ | 4,317.5 |
| | $ | 4,198.6 |
| | $ | 3,903.0 |
|
Provision/(benefit) for income taxes (in millions): | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Current taxes: | | | | | |
| U.S. federal | $ | 681.8 | | | $ | 49.9 | | | $ | 1,414.3 | |
| U.S. state and local | 190.0 | | | 36.9 | | | 447.8 | |
| Foreign | 409.8 | | | 181.4 | | | 458.3 | |
| Total current taxes | 1,281.6 | | | 268.2 | | | 2,320.4 | |
| Deferred taxes: | | | | | |
| U.S. federal | 10.4 | | | (8.4) | | | (1,074.5) | |
| U.S. state and local | (6.4) | | | (4.8) | | | (322.4) | |
| Foreign | (129.0) | | | (15.3) | | | (51.9) | |
| Total deferred taxes | (125.0) | | | (28.5) | | | (1,448.8) | |
| Total income tax expense | $ | 1,156.6 | | | $ | 239.7 | | | $ | 871.6 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Current taxes: | | | | | |
| U.S. federal | $ | 931.0 |
| | $ | 704.1 |
| | $ | 801.0 |
|
| U.S. state and local | 170.8 |
| | 166.5 |
| | 150.1 |
|
| Foreign | 216.6 |
| | 218.5 |
| | 172.2 |
|
| Total current taxes | 1,318.4 |
| | 1,089.1 |
| | 1,123.3 |
|
| Deferred taxes: | | | | | |
| U.S. federal | 121.2 |
| | 351.3 |
| | 56.5 |
|
| U.S. state and local | 14.2 |
| | 25.8 |
| | 4.0 |
|
| Foreign | (21.2 | ) | | (86.5 | ) | | (40.1 | ) |
| Total deferred taxes | 114.2 |
| | 290.6 |
| | 20.4 |
|
| Total income tax expense | $ | 1,432.6 |
| | $ | 1,379.7 |
| | $ | 1,143.7 |
|
Reconciliation of the statutory U.S. federal income tax rate with our effective income tax rate: | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income taxes, net of federal tax benefit | 2.7 | | | 2.2 | | | 2.1 | |
| Foreign rate differential | 0.5 | | | (3.2) | | | (0.1) | |
| Change in tax rates | (1.3) | | | (2.2) | | | — | |
| Excess tax benefits of stock-based compensation | (0.9) | | | (4.2) | | | (2.1) | |
| Foreign derived intangible income | (0.5) | | | (1.4) | | | (1.5) | |
| Charitable contributions | (0.4) | | | (1.7) | | | — | |
| Valuation allowances | 0.2 | | | 10.0 | | | — | |
| Residual tax on foreign earnings | — | | | — | | | 1.7 | |
| Tax impacts related to sale of certain operations | — | | | — | | | (1.3) | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | 0.3 | | | 0.1 | | | (0.3) | |
| Effective tax rate | 21.6 | % | | 20.6 | % | | 19.5 | % |
|
| | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net of federal tax benefit | 2.8 |
| | 3.0 |
| | 2.8 |
|
| Benefits and taxes related to foreign operations | (2.8 | ) | | (2.2 | ) | | (2.1 | ) |
| Domestic production activity deduction | (1.8 | ) | | (1.9 | ) | | (2.2 | ) |
| Gain resulting from acquisition of joint venture | — |
| | — |
| | (3.7 | ) |
| Other, net | — |
| | (1.0 | ) | | (0.5 | ) |
| Effective tax rate | 33.2 | % | | 32.9 | % | | 29.3 | % |
U.S. income and foreign withholding taxes have not been provided on approximately $3.7 billionAs of cumulative undistributed earnings ofOctober 3, 2021, in certain foreign subsidiaries in which we are partially indefinitely reinvested, the gross taxable temporary difference between the accounting basis and equity investees, including cumulative unrealized currency translation adjustments. We intend to reinvest these earnings for the foreseeable future. If these amounts were distributed to the U.S., in the form of
dividends tax basis was approximately $1.8 billion for otherwise, we would be subject to additional U.S. income taxes, which there could be material. Determination of the amount ofup to approximately $290 million of unrecognized deferred income tax liabilities on these earnings is not practicable because of the complexities with its hypothetical calculation, and the amount of liability, if any, is dependent on circumstances existing if and when remittance occurs.liability.
Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):
|
| | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 |
| Deferred tax assets: | | | |
| Property, plant and equipment | $ | 71.3 |
| | $ | 56.8 |
|
| Accrued occupancy costs | 118.0 |
| | 104.5 |
|
| Accrued compensation and related costs | 95.0 |
| | 88.6 |
|
| Stored value card liability | 130.7 |
| | 124.2 |
|
| Stock-based compensation | 125.9 |
| | 138.3 |
|
| Net operating losses | 80.8 |
| | 79.0 |
|
| Litigation charge | 792.0 |
| | 862.3 |
|
| Other | 180.8 |
| | 197.4 |
|
| Total | $ | 1,594.5 |
| | $ | 1,651.1 |
|
| Valuation allowance | (80.1 | ) | | (70.3 | ) |
| Total deferred tax asset, net of valuation allowance | $ | 1,514.4 |
| | $ | 1,580.8 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment | (477.2 | ) | | (445.7 | ) |
| Intangible assets and goodwill | (159.0 | ) | | (175.9 | ) |
| Other | (89.1 | ) | | (88.5 | ) |
| Total | (725.3 | ) | | (710.1 | ) |
| Net deferred tax asset | $ | 789.1 |
| | $ | 870.7 |
|
| Reported as: | | | |
| Deferred income tax assets | 795.4 |
| | 885.4 |
|
| Deferred income tax liabilities (included in Other long-term liabilities) | (6.3 | ) | | (14.7 | ) |
| Net deferred tax asset | $ | 789.1 |
| | $ | 870.7 |
|
| | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 |
| Deferred tax assets: | | | |
| Operating lease liabilities | $ | 2,395.2 | | | $ | 2,313.0 | |
| | | |
| Stored value card liability and deferred revenue | 1,679.4 | | | 1,678.6 | |
| Intangible assets and goodwill | 317.7 | | | 248.6 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | 641.0 | | | 554.4 | |
| Total | $ | 5,033.3 | | | $ | 4,794.6 | |
| Valuation allowance | (275.3) | | | (239.4) | |
| Total deferred tax asset, net of valuation allowance | $ | 4,758.0 | | | $ | 4,555.2 | |
| Deferred tax liabilities: | | | |
| Operating lease, right-of-use assets | (2,296.5) | | | (2,191.8) | |
| Property, plant and equipment | (451.2) | | | (463.3) | |
| | | |
| Other | (284.0) | | | (268.3) | |
| Total | (3,031.7) | | | (2,923.4) | |
| Net deferred tax asset (liability) | $ | 1,726.3 | | | $ | 1,631.8 | |
| Reported as: | | | |
| | | |
| Deferred income tax assets | 1,874.8 | | | 1,789.9 | |
| | | |
| Deferred income tax liabilities (included in Other long-term liabilities) | (148.5) | | | (158.1) | |
| Net deferred tax asset (liability) | $ | 1,726.3 | | | $ | 1,631.8 | |
The valuation allowanceallowances as of October 1, 20173, 2021 and October 2, 2016 isSeptember 27, 2020 were primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.
As of October 1, 2017,3, 2021, we had federal net operating loss carryforwards of $70.8 million which have an indefinite carryforward period, state net operating loss carryforwards of $31.2$109.7 million which will begin to expire in fiscal 2024, federal tax credit carryforwards of $21.8 million which will begin to expire in fiscal 2030, state tax credit carryforwards of $1.2 million which will begin to expire in fiscal 2024 state tax credit carryforwards of $18.0 million, of which $15.9 million will begin to expire in fiscal 2024 and the remainder will begin to expire in fiscal 2018, and foreign net operating loss carryforwards of $262.2$327.9 million, of which $207.3$118.8 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2018.2022.
Uncertain Tax Positions
As of October 1, 2017,3, 2021, we had $196.9 $82.6 million of gross unrecognized tax benefits of which $139.5$62.8 million, if recognized, would affect our effective tax rate. We recognized a benefit of $4.6 million, an expense of $5.2$3.0 million and a benefit of $3.6 million and an expense of $0.7$2.8 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2017, 20162021, 2020 and 2015,2019, respectively. As of October 1, 20173, 2021 and October 2, 2016,September 27, 2020, we had accrued interest and penalties of $11.2$7.1 million and $7.7$13.0 million,, respectively, within our consolidated balance sheets.
The following table summarizes the activity related to our unrecognized tax benefits (in millions): | | | | | | | | | | | | | | | | | |
| Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Beginning balance | $ | 123.7 | | | $ | 132.1 | | | $ | 224.6 | |
| Increase related to prior year tax positions | 4.8 | | | 11.1 | | | 3.8 | |
| Decrease related to prior year tax positions | (11.9) | | | (0.5) | | | (75.3) | |
| Increase related to current year tax positions | 8.9 | | | 9.8 | | | 18.5 | |
| | | | | |
| Decreases related to settlements with taxing authorities | (4.4) | | | — | | | (16.4) | |
| Decrease related to lapsing of statute of limitations | (38.5) | | | (28.8) | | | (23.1) | |
| Ending balance | $ | 82.6 | | | $ | 123.7 | | | $ | 132.1 | |
|
| | | | | | | | | | | |
| | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Beginning balance | $ | 146.5 |
| | $ | 150.4 |
| | $ | 112.7 |
|
| Increase related to prior year tax positions | 10.4 |
| | — |
| | 7.9 |
|
| Decrease related to prior year tax positions | — |
| | (23.6 | ) | | (0.9 | ) |
| Increase related to current year tax positions | 41.3 |
| | 33.7 |
| | 32.0 |
|
| Decrease related to current year tax positions | — |
| | — |
| | (0.6 | ) |
| Decreases related to settlements with taxing authorities | — |
| | (3.1 | ) | | (0.7 | ) |
| Decrease related to lapsing of statute of limitations | (1.3 | ) | | (10.9 | ) | | — |
|
| Ending balance | $ | 196.9 |
| | $ | 146.5 |
| | $ | 150.4 |
|
We are currently under examination, or may be subject to examination, by various U.S. federal, state, local and foreign tax jurisdictions for fiscal years 20062014 through 2016.2020.We are no longer subject to U.S. federal or state examination for years prior to fiscal year 2011, with the exception of one state. We are no longer subject2018, U.S. state and local examinations for years prior to fiscal 2014 or examination in any material international markets prior to 2006. 2015.
It is reasonably possible that
We do not expect a portionsignificant amount of the Company's gross unrecognized tax benefits mayto be recognized by the end of fiscal 20182022 for reasons such as a result of a lapse of the statute of limitations or resolution of examinations with tax authorities. We estimate this range to be approximately $42 million to $75 million.authorities.
Note 14:15: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Net earnings attributable to Starbucks | $ | 2,884.7 |
| | $ | 2,817.7 |
| | $ | 2,757.4 |
|
| Weighted average common shares outstanding (for basic calculation) | 1,449.5 |
| | 1,471.6 |
| | 1,495.9 |
|
| Dilutive effect of outstanding common stock options and RSUs | 12.0 |
| | 15.1 |
| | 17.5 |
|
| Weighted average common and common equivalent shares outstanding (for diluted calculation) | 1,461.5 |
| | 1,486.7 |
| | 1,513.4 |
|
| EPS — basic | $ | 1.99 |
| | $ | 1.91 |
| | $ | 1.84 |
|
| EPS — diluted | $ | 1.97 |
| | $ | 1.90 |
| | $ | 1.82 |
|
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Net earnings attributable to Starbucks | $ | 4,199.3 | | | $ | 928.3 | | | $ | 3,599.2 | |
| Weighted average common shares outstanding (for basic calculation) | 1,177.6 | | | 1,172.8 | | | 1,221.2 | |
| Dilutive effect of outstanding common stock options and RSUs | 7.9 | | | 9.0 | | | 12.0 | |
| Weighted average common and common equivalent shares outstanding (for diluted calculation) | 1,185.5 | | | 1,181.8 | | | 1,233.2 | |
| EPS — basic | $ | 3.57 | | | $ | 0.79 | | | $ | 2.95 | |
| EPS — diluted | $ | 3.54 | | | $ | 0.79 | | | $ | 2.92 | |
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 excludeswould 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 have beenbe antidilutive. We had 11.4 million and 5.4 million out-of-the-money stock options asAs of October 1, 20173, 2021, September 27, 2020 and October 2, 2016, respectively. There wereSeptember 29, 2019, we had no out-of-the-money stock options as of September 27, 2015.options.
Note 15:16: Commitments and Contingencies
Contractual Commitments
In the fourth quarter of fiscal 2017, we signed an agreement to acquire the remaining 50% ownership of our East China joint venture from Uni-President Enterprises Corporation (“UPEC”) and President Chain Store Corporation (“PCSC”) for approximately $1.3 billion to unify our business operations across mainland China. The acquisition will convert these licensed stores to company-operated stores and is expected to close by early calendar year 2018, subject to regulatory approval and customary closing conditions. Concurrently, with the purchase of our East China joint venture, UPEC and PCSC will assume 100% ownership of Starbucks operations in Taiwan by acquiring our 50% interest in President Starbucks Coffee Taiwan Limited for approximately $175 million. The sale is also expected to close by early calendar year 2018.
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 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, and its opening brief in the appeals process on April 9, 2021. Defendants filed their response brief on August 9, 2021, and Plaintiff filed a reply on November 15, 2021.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 at times, 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 16:17: Segment Reporting
Our chief executive officer and executive chairman comprise the Company's Chief Operating Decision Maker function (“CODM”). Segment information is prepared on the same basis that our CODMceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results and makes key operating decisions.
We have fourthree reportable operating segments: 1) Americas,North America, which is inclusive of the U.S., Canada, and Latin America;Canada; 2) China/International, which is inclusive of China, Japan, Asia Pacific, (“CAP”); 3) Europe, Middle East and Africa, (“EMEA”)Latin America and 4)the Caribbean; and 3) Channel Development.
Americas, CAP,North America and EMEAInternational operations sell coffee and other beverages, complementary food, packaged coffees, single-serve coffee products and a focused selection of merchandise through company-operated stores and licensed stores. Our AmericasNorth America segment is our most mature business and has achieved significant scale. Certain markets within our CAP and EMEA operations are still in the early stages of development and require a more extensive support organization, relative to their current levels of revenue and operating income, than our Americas operations. The Americas, CAP and EMEA segments also include certain foodservice accounts, primarily in Canada, Japan and the U.K.
Channel Development operations sell a selectionrevenues include packaged coffee, tea, foodservice products and ready-to-drink beverages to customers outside of packaged coffeesour company-operated and single-serve products, as well as a selectionlicensed stores. Most of premium Tazo® teas globally.our Channel Development operations also producerevenues are from product sales to and sell a variety of ready-to-drink beverages, such as Frappuccino® coffee drinks, Starbucks Doubleshot® espresso drinks, Starbucks Refreshers® beverages, Teavana™ tea beverages and chilled multi-serve beverages. The U.S. foodservice business, which is included inroyalty revenues from Nestlé through the Channel Development segment, sells coffee and other related products to institutional foodservice companies.Global Coffee Alliance.
Consolidated revenue mix by product type (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
Beverage(1) | $ | 18,317.0 | | | 63 | % | | $ | 14,337.5 | | | 61 | % | | $ | 15,921.2 | | | 60 | % |
Food(2) | 5,053.4 | | | 17 | % | | 3,799.2 | | | 16 | % | | 4,336.3 | | | 16 | % |
Other(3) | 5,690.2 | | | 20 | % | | 5,381.3 | | | 23 | % | | 6,251.1 | | | 24 | % |
| Total | $ | 29,060.6 | | | 100 | % | | $ | 23,518.0 | | | 100 | % | | $ | 26,508.6 | | | 100 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Beverage | $ | 12,915.0 |
| | 58 | % | | $ | 12,383.4 |
| | 58 | % | | $ | 11,115.4 |
| | 58 | % |
| Food | 3,832.1 |
| | 17 | % | | 3,495.0 |
| | 16 | % | | 3,085.3 |
| | 16 | % |
| Packaged and single-serve coffees and teas | 2,883.6 |
| | 13 | % | | 2,866.0 |
| | 14 | % | | 2,619.9 |
| | 14 | % |
Other(1) | 2,756.1 |
| | 12 | % | | 2,571.5 |
| | 12 | % | | 2,342.1 |
| | 12 | % |
| Total | $ | 22,386.8 |
| | 100 | % | | $ | 21,315.9 |
| | 100 | % | | $ | 19,162.7 |
| | 100 | % |
(2) Food includes sales within our company-operated stores.
(3) “Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, beverage-related ingredients, serveware and ready-to-drink beverages, among other items.
Information by geographic area (in millions): | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended | Oct 3, 2021 | | Sep 27, 2020 | | Sep 29, 2019 |
| Net revenues: | | | | | |
| United States | $ | 20,377.8 | | | $ | 16,879.8 | | | $ | 18,622.7 | |
| China | 3,674.8 | | | 2,582.8 | | | 2,872.0 | |
| Other countries | 5,008.0 | | | 4,055.4 | | | 5,013.9 | |
| Total | $ | 29,060.6 | | | $ | 23,518.0 | | | $ | 26,508.6 | |
| | | | | |
| Long-lived assets: | | | | | |
| United States | $ | 12,819.4 | | | $ | 12,624.9 | | | $ | 7,330.2 | |
| China | 4,673.8 | | | 4,425.6 | | | 3,279.8 | |
| Other countries | 4,143.0 | | | 4,517.6 | | | 2,955.7 | |
| Total | $ | 21,636.2 | | | $ | 21,568.1 | | | $ | 13,565.7 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Net revenues: | | | | | |
| United States | $ | 16,527.1 |
| | $ | 15,774.8 |
| | $ | 14,123.7 |
|
| Other countries | 5,859.7 |
| | 5,541.1 |
| | 5,039.0 |
|
| Total | $ | 22,386.8 |
| | $ | 21,315.9 |
| | $ | 19,162.7 |
|
| | | | | | |
Long-lived assets(1): | | | | | |
| United States | $ | 5,848.3 |
| | $ | 6,012.8 |
| | $ | 5,795.2 |
|
| Other countries | 3,234.0 |
| | 3,541.8 |
| | 2,639.9 |
|
| Total | $ | 9,082.3 |
| | $ | 9,554.6 |
| | $ | 8,435.1 |
|
(1) Long-lived assets for fiscal 2016 and fiscal 2015 have been adjusted for the adoption of new accounting guidance related to the reclassification of debt issuance costs as discussed in Note 1, Summary of Significant Accounting Policies.No customer accounts for 10% or more of our revenues. Revenues are shown based on the geographic location of our customers. Revenues from countries other than the U.S. and China consist primarily of revenues from Japan, Canada China and the U.K., which together account for approximately 77%79% of net revenues from other countries for fiscal 2017.2021.
Management evaluates the performance of its operating segments based on net revenues and operating income. The accounting policies of the operating segments are the same as those described in Note 1, Summary of Significant Accounting Policies.
Operating income represents earnings before other income and expenses and income taxes. Management does not evaluate the performance of its operating segments using asset measures. The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include cash and cash equivalents, ROU assets, net property, plant and equipment, equity and cost investments, goodwill and other intangible assets. Assets not attributed to reportable operating segments below are corporate assets and are primarily comprised of cash and cash equivalents available for general corporate purposes, investments, assets of the corporate headquarters and roasting facilities and inventory.
The table below presents financial information for our reportable operating segments and AllCorporate and Other Segmentssegment for the years ended October 1, 2017, October 2, 2016 and 3, 2021, September 27, 2015.2020 and September 29, 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | North America | | International | | | | Channel Development | | Corporate and Other | |
Total |
| Fiscal 2021 | | | | | | | | | | | |
| Total net revenues | $ | 20,447.9 | | | $ | 6,921.6 | | | | | $ | 1,593.6 | | | $ | 97.5 | | | $ | 29,060.6 | |
| Depreciation and amortization expenses | 753.9 | | | 544.7 | | | | | 1.2 | | | 141.9 | | | 1,441.7 | |
| Income from equity investees | — | | | 135.3 | | | | | 250.0 | | | — | | | 385.3 | |
| Operating income/(loss) | 4,259.3 | | | 1,245.7 | | | | | 789.1 | | | (1,422.0) | | | 4,872.1 | |
| Total assets | $ | 10,571.8 | | | $ | 10,083.3 | | | | | $ | 125.4 | | | $ | 10,612.1 | | | $ | 31,392.6 | |
| | | | | | | | | | | |
| Fiscal 2020 | | | | | | | | | | | |
Total net revenues(1) | $ | 16,296.2 | | | $ | 5,230.6 | | | | | $ | 1,925.0 | | | $ | 66.2 | | | $ | 23,518.0 | |
| Depreciation and amortization expenses | 762.0 | | | 518.4 | | | | | 1.2 | | | 149.7 | | | 1,431.3 | |
| Income from equity investees | — | | | 102.3 | | | | | 220.2 | | | — | | | 322.5 | |
Operating income/(loss)(1) | 1,801.7 | | | 370.6 | | | | | 687.2 | | | (1,297.8) | | | 1,561.7 | |
| Total assets | $ | 10,717.4 | | | $ | 9,449.7 | | | | | $ | 165.0 | | | $ | 9,042.4 | | | $ | 29,374.5 | |
| | | | | | | | | | | |
| Fiscal 2019 | | | | | | | | | | | |
Total net revenues(1) | $ | 18,130.4 | | | $ | 6,319.3 | | | | | $ | 1,992.6 | | | $ | 66.3 | | | $ | 26,508.6 | |
| Depreciation and amortization expenses | 696.1 | | | 511.5 | | | | | 13.0 | | | 156.7 | | | 1,377.3 | |
| Income from equity investees | — | | | 102.4 | | | | | 195.6 | | | — | | | 298.0 | |
Operating income/(loss)(1) | 3,728.1 | | | 1,011.3 | | | | | 697.5 | | | (1,359.0) | | | 4,077.9 | |
| Total assets | $ | 4,446.7 | | | $ | 6,724.6 | | | | | $ | 132.2 | | | $ | 7,916.1 | | | $ | 19,219.6 | |
(1) North America, International and Corporate and Other total net revenues and operating income/(loss) for fiscal years ended September 27, 2020 and September 29, 2019, have been restated to conform with current period presentation.
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Americas | | China / Asia Pacific | | EMEA | | Channel Development | | All Other Segments | | Segment Total |
| Fiscal 2017 | | | | | | | | | | | |
| Total net revenues | $ | 15,652.7 |
| | $ | 3,240.2 |
| | $ | 1,013.7 |
| | $ | 2,008.6 |
| | $ | 471.6 |
| | $ | 22,386.8 |
|
| Depreciation and amortization expenses | 615.0 |
| | 202.2 |
| | 31.3 |
| | 2.2 |
| | 10.1 |
| | 860.8 |
|
| Income from equity investees | — |
| | 197.0 |
| | — |
| | 194.4 |
| | — |
| | 391.4 |
|
| Operating income/(loss) | 3,663.2 |
| | 765.0 |
| | 116.1 |
| | 893.4 |
| | (174.3 | ) | | 5,263.4 |
|
| Total assets | 3,327.2 |
| | 2,770.9 |
| | 273.8 |
| | 114.0 |
| | 771.9 |
| | 7,257.8 |
|
| | | | | | | | | | | | |
| Fiscal 2016 | | | | | | | | | | | |
| Total net revenues | $ | 14,795.4 |
| | $ | 2,938.8 |
| | $ | 1,124.9 |
| | $ | 1,932.5 |
| | $ | 524.3 |
| | $ | 21,315.9 |
|
| Depreciation and amortization expenses | 590.1 |
| | 180.6 |
| | 40.8 |
| | 2.8 |
| | 13.3 |
| | 827.6 |
|
| Income from equity investees | — |
| | 150.1 |
| | 1.5 |
| | 166.6 |
| | — |
| | 318.2 |
|
| Operating income/(loss) | 3,742.0 |
| | 631.6 |
| | 151.6 |
| | 807.3 |
| | (38.4 | ) | | 5,294.1 |
|
| Total assets | 3,424.6 |
| | 2,740.2 |
| | 552.1 |
| | 67.1 |
| | 861.1 |
| | 7,645.1 |
|
| | | | | | | | | | | | |
| Fiscal 2015 | | | | | | | | | | | |
| Total net revenues | $ | 13,293.4 |
| | $ | 2,395.9 |
| | $ | 1,216.7 |
| | $ | 1,730.9 |
| | $ | 525.8 |
| | $ | 19,162.7 |
|
| Depreciation and amortization expenses | 522.3 |
| | 150.7 |
| | 52.0 |
| | 2.7 |
| | 16.3 |
| | 744.0 |
|
| Income from equity investees | — |
| | 119.6 |
| | 3.1 |
| | 127.2 |
| | — |
| | 249.9 |
|
| Operating income/(loss) | 3,223.3 |
| | 500.5 |
| | 168.2 |
| | 653.9 |
| | (24.8 | ) | | 4,521.1 |
|
| Total assets | 2,726.7 |
| | 2,230.5 |
| | 749.1 |
| | 87.3 |
| | 1,785.3 |
| | 7,578.9 |
|
The following table reconciles total segment operating income in the table above to consolidated earnings before income taxes (in millions):
|
| | | | | | | | | | | |
| Fiscal Year Ended | Oct 1, 2017 | | Oct 2, 2016 | | Sep 27, 2015 |
| Total segment operating income | $ | 5,263.4 |
| | $ | 5,294.1 |
| | $ | 4,521.1 |
|
| Unallocated corporate operating expenses | (1,128.7 | ) | | (1,122.2 | ) | | (920.1 | ) |
| Consolidated operating income | 4,134.7 |
| | 4,171.9 |
| | 3,601.0 |
|
| Gain resulting from acquisition of joint venture | — |
| | — |
| | 390.6 |
|
| Loss on extinguishment of debt | — |
| | — |
| | (61.1 | ) |
| Interest income and other, net | 275.3 |
| | 108.0 |
| | 43.0 |
|
| Interest expense | (92.5 | ) | | (81.3 | ) | | (70.5 | ) |
| Earnings before income taxes | $ | 4,317.5 |
| | $ | 4,198.6 |
| | $ | 3,903.0 |
|
Note 17: Selected Quarterly Financial Information (unaudited; in millions, except EPS)
|
| | | | | | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Full Year |
| Fiscal 2017: | | | | | | | | | |
| Net revenues | $ | 5,732.9 |
| | $ | 5,294.0 |
| | $ | 5,661.5 |
| | $ | 5,698.3 |
| | $ | 22,386.8 |
|
| Operating income | 1,132.6 |
| | 935.4 |
| | 1,044.2 |
| | 1,022.5 |
| | 4,134.7 |
|
| Net earnings attributable to Starbucks | 751.8 |
| | 652.8 |
| | 691.6 |
| | 788.5 |
| | 2,884.7 |
|
| EPS — diluted | 0.51 |
| | 0.45 |
| | 0.47 |
| | 0.54 |
| | 1.97 |
|
Fiscal 2016(1): | | | | | | | | | |
| Net revenues | $ | 5,373.5 |
| | $ | 4,993.2 |
| | $ | 5,238.0 |
| | $ | 5,711.2 |
| | $ | 21,315.9 |
|
| Operating income | 1,058.0 |
| | 864.2 |
| | 1,022.3 |
| | 1,227.5 |
| | 4,171.9 |
|
| Net earnings attributable to Starbucks | 687.6 |
| | 575.1 |
| | 754.1 |
| | 801.0 |
| | 2,817.7 |
|
| EPS — diluted | 0.46 |
| | 0.39 |
| | 0.51 |
| | 0.54 |
| | 1.90 |
|
(1) The fiscal year ended on October 2, 2016, included 53 weeks, with the 53rd week falling in our fourth fiscal quarter.
Note 18: Subsequent Events
On October 25, 2017, we replaced our $1.5 billion 2016 credit facility with our new $2.0 billion unsecured 5-year revolving credit facility (the “2018 credit facility”), set to mature on October 25, 2022 and a $1.0 billion unsecured 364-Day credit facility (the “364-day credit facility”), set to mature on October 24, 2018. We have the option, subject to negotiation and agreement with the related banks, to increase either facility by an additional $500 million.
On October 27, 2017 we increased our commercial paper program from $1 billion to $3 billion, allowing us to issue unsecured commercial paper notes up to this maximum aggregate amount outstanding at any time.
On November 2, 2017, we entered into an agreement to sell assets associated with our Tazo brand including Tazo® signature recipes, intellectual property and inventory to Unilever for a total of $384.0 million. This transaction is subject to customary closing conditions, and Starbucks expects the closing date to occur in the first quarter of fiscal 2018. The transaction will result in a net gain and will be included in interest income and other, net on our consolidated statements of earnings. Results from Tazooperations are currently reported primarily in Channel Development.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Shareholders of Starbucks Corporation
Seattle, WashingtonOpinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the “Company”) as of October 1, 20173, 2021 and October 2, 2016, andSeptember 27, 2020, the related consolidated statements of earnings, comprehensive income, equity, and cash flows, for each of the three years in the period ended October 1, 20173, 2021, and the related notes (collectively referred to as the “financial statements”). TheseIn our opinion, the financial statements arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.Company as of October 3, 2021 and September 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 3, 2021, in conformity with accounting principles generally accepted in the United States of America.
We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of October 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidatedCritical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements present fairly, in allthat was communicated or required to be communicated to the Audit and Compliance Committee and that (1) relates to accounts or disclosures that are material respects,to the financial positionstatements and (2) involved our especially challenging, subjective, or complex judgments. The communication of Starbucks Corporation and subsidiaries as of October 1, 2017 and October 2, 2016, and the results of their operations and their cash flows for each of the three yearscritical audit matters does not alter in the period ended October 1, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of October 1, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission andany way our report dated November 17, 2017 expressed an unqualified opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes — Indefinite Reinvestment of Foreign Earnings - Refer to Note 14 to the financial statements
Critical Audit Matter Description
Under the provisions of ASC 740, Income Taxes, (“ASC 740”), there is a presumption that investments in foreign subsidiaries will be recovered upon sale or through a partial or complete distribution of earnings to the parent entity, and therefore subject the parent entity to additional taxes. If sufficient evidence shows the foreign subsidiary has invested or will invest the undistributed earnings indefinitely, the ASC 740 presumption may be overcome, and no additional taxes shall be accrued. The Company has investments in the profitable operations of certain foreign subsidiaries that may be subject to additional foreign withholding taxes and/or U.S. federal and state income taxes upon sale or a partial or complete distribution of earnings, incremental to local income taxes already paid. As of October 3, 2021, the Company is partially indefinitely reinvested in certain foreign subsidiaries. The Company has recorded a deferred tax liability of $83 million related to the taxable temporary difference for which it is not indefinitely reinvested. For the remaining $1.8 billion of taxable temporary difference, there could be up to approximately $290 million of unrecognized tax liability.
The Company’s internal control overassertion of partial indefinite reinvestment for certain foreign subsidiaries requires management to make long-term forecasting assumptions and detailed plans for reinvestment. The most significant assumption supporting the Company’s indefinite reinvestment assertion is the forecast of capital expenditures in international markets. Performing audit procedures to evaluate the reasonableness of management’s indefinite reinvestment analysis and capital expenditures forecast required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists.
How the Critical Matter Was Addressed in the Audit
Our principal audit procedures related to management’s indefinite reinvestment analysis and the supporting forecast of capital expenditures for certain foreign subsidiaries, included the following, among others:
•We tested the effectiveness of controls related to management’s forecast of capital expenditures.
•We performed a retrospective review of management’s historical ability to accurately forecast capital expenditures by comparing actual results to management’s historical forecast.
•We inquired of senior executives of the Company to corroborate strategic plans for growth.
•We compared the forecasts obtained to support the indefinite reinvestment assertion to:
◦Historical capital expenditures, including costs per new store opening;
◦Historical new store growth; and
◦Historical profitability of new stores by region; and
◦Forecasts used by the Company for financial reporting.reporting purposes in other areas, such as the evaluation of the recoverability of goodwill; and
◦Internal communications to management and the Board of Directors; and
◦Forecasted information included in the Company’s press releases, other external communications and analyst reports; and
◦External publications of expected industry growth.
•With the assistance of our tax specialists, we evaluated the appropriateness of management’s analysis under ASC 740 and the sufficiency of the evidence provided by management to support that the Company has the intent and ability to partially indefinitely reinvest the undistributed earnings.
/s/ Deloitte & Touche LLP
Seattle, Washington
November 17, 201719, 2021
We have served as the Company's auditor since 1987.
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
| |
Item 9A. | Controls and Procedures |
Item 9A.Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
During the fourth quarter of fiscal 2017,2021, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report (October 1, 2017)(October 3, 2021).
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this 10-K.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework(the “2013 Framework”), issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of October 1, 2017.3, 2021.
Our internal control over financial reporting as of October 1, 20173, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Shareholders of Starbucks Corporation
Seattle, WashingtonOpinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Starbucks Corporation and subsidiaries (the “Company”) as of October 1, 2017,3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended October 3, 2021, of the Company and our report dated November 19, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the fiscal year ended October 1, 2017, of the Company and our report dated November 17, 2017 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Seattle, Washington
November 17, 201719, 2021
| |
Item 9B. | Other Information |
Item 9B.Other Information
None.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10.Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is set forth in Item 1 of Part 1I of this Report under the caption “Executive Officers of the Registrant.“Information about our Executive Officers.”
We adopted a code of ethics that applies to our chief executive officer, executive chairman, chief financial officer, controller and other finance leaders, which is a “code of ethics” as defined by applicable rules of the SEC. This code is publicly available on our website at www.starbucks.com/about-us/company-information/corporate-governance. If we make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code to our chief executive officer, chief operating officer, chief financial officer, chief accounting officer or controller, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website at www.starbucks.com/about-us/company-information/corporate-governance or in a report on Form 8-K filed with the SEC.
The remaining information required by this item is incorporated herein by reference to the sections entitled “Proposal 1 —- Election of Directors” andDirectors,” “Beneficial Ownership of Common Stock, — Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance — Board Committees and Related Matters”Governance” and “Corporate Governance —- Audit and Compliance Committee” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on March 21, 201816, 2022 (the “Proxy Statement”).
We will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
| |
Item 11. | Executive Compensation |
Item 11.Executive Compensation
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Executive Compensation Tables,” “Compensation of Directors,” “Corporate Governance — Compensation and Management Development Committee”Directors” and “Compensation Committee Report”Interlocks and Insider Participation” in the Proxy Statement.
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is incorporated by reference to the sections entitled “Equity Compensation Plan Information” and “Beneficial Ownership of Common Stock” in the Proxy Statement.
| |
Item 13. | Certain Relationships, Related Transactions and Director Independence |
Item 13.Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Person Transactions” and “Corporate Governance —- Affirmative Determinations Regarding Director Independence and Other Matters” in the Proxy Statement.
| |
Item 14. | Principal Accounting Fees and Services |
Item 14.Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the sections entitled “Independent“Proposal 4 - Ratification of Selection of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm - Independent Registered Public Accounting Firm Fees” and “Policy“Proposal 4 - Ratification of Selection of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm - Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm” in the Proxy Statement.
PART IV
| |
Item 15. | Exhibits, Financial Statement Schedules |
Item 15.Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this 10-K:
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this 10-K:
•Consolidated Statements of Earnings for the fiscal years ended October 1, 2017, October 2, 2016, and 3, 2021, September 27, 2015;
2020, and September 29, 2019;•Consolidated Statements of Comprehensive Income for the fiscal years ended October 1, 2017, October 2, 2016, and 3, 2021, September 27, 2015;
2020, and September 29, 2019;•Consolidated Balance Sheets as of October 1, 20173, 2021 and October 2, 2016;
September 27, 2020;•Consolidated Statements of Cash Flows for the fiscal years ended October 1, 2017, October 2, 2016, and 3, 2021, September 27, 2015;
2020, and September 29, 2019;•Consolidated Statements of Equity for the fiscal years ended October 1, 2017, October 2, 2016, and 3, 2021, September 27, 2015;
2020, and September 29, 2019;•Notes to Consolidated Financial Statements; and
•Reports of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.
3. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 8-K | | 0-20322 | | 5/7/2018 | | 2.1 | | |
| | | | 10-Q | | 0-20322 | | 4/28/2015 | | 3.1 | | |
| | | | 8-K | | 0-20322 | | 3/19/2021 | | 3.1 | | |
| | | | S-3ASR | | 333-213645
| | 9/15/2016
| | 4.1 | | |
| | | | 8-K | | 0-20322 | | 3/20/2017 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 3/20/2017 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 11/22/2017 | | 4.2 | | |
| | | | | | | | | | | | |
| | | | 8-K | | 0-20322 | | 11/22/2017 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 2/28/2018 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 2/28/2018 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 2/28/2018 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 8/10/2018 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 8/10/2018 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 8/10/2018 | | 4.4 | | |
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 10-Q | | 0-20322 | | 4/28/2015 | | 3.1 | | |
| | | | 8-K | | 0-20322 | | 9/16/2016 | | 3.1 | | |
| | | | S-3ASR | | 333-213645
| | 9/15/2016
| | 4.1 | | |
| | | | 8-K | | 0-20322 | | 3/20/2017 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 3/20/2017 | | 4.3 | | |
| | | | S-3ASR | | 333-190955 | | 9/3/2013 | | 4.1 | | |
| | | | 8-K | | 0-20322 | | 9/6/2013 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 9/6/2013 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 12/5/2013 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 12/5/2013 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 2/4/2016
| | 4.2 | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 8-K | | | | | | | | |
| | | | 8-K | | 0-20322 | | 5/13/2019 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 5/13/2019 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 5/13/2019 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 3/12/2020 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 3/12/2020 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 3/12/2020 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 3/12/2020 | | 4.5 | | |
| | | | 8-K | | 0-20322 | | 5/7/2020 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 5/7/2020 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 5/7/2020 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 5/7/2020 | | 4.5 | | |
| |
| | S-3ASR | | 333-190955 | | 9/3/2013 | | 4.1 | | |
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 8-K | | 0-20322 | | 2/4/2016
| | 4.3 | | |
| | | | 8-K | | 0-20322 | | 5/16/2016
| | 4.4 | | |
| | | | 8-K | | 0-20322 | | 5/16/2016
| | 4.5 | | |
89
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 10-K | | 0-20322 | | 12/23/2003 | | 10.2 | | |
| | | | 10-Q | | 0-20322 | | 8/1/2017 | | 10.1 | | |
| | | | 10-K | | 0-20322 | | 12/20/2001 | | 10.5 | | |
| | | | 10-K
| | 0-20322 | | 11/18/2016 | | 10.4 | | |
| | | | 10-Q | | 0-20322 | | 2/4/2011 | | 10.2 | | |
| | | | 10-K | | 0-20322 | | 12/23/2003 | | 10.9 | | |
| | | | 10-K | | 0-20322 | | 12/23/2003 | | 10.10 | | |
| | | | 10-K | | 0-20322 | | 11/18/2011 | | 10.11 | | |
| | | | 10-K | | 0-20322 | | 12/14/2006 | | 10.12 | | |
| | | | 10-Q | | 0-20322 | | 4/28/2015 | | 10.4 | | |
| | | | 10-Q | | 0-20322 | | 2/10/2006 | | 10.2 | | |
| | | | 10-Q | | 0-20322 | | 04/26/2016
| | 10.1 | | |
| | | | 10-Q | | 0-20322 | | 5/2/2012 | | 10.1 | | |
| | | | 10-K | | 0-20322 | | 11/18/2016 | | 10.14 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 8-K | | 0-20322 | | 9/6/2013 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 9/6/2013 | | 4.3 | | |
| | | | | | | | | | | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.2 | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.3 | | |
| | | | 8-K | | 0-20322 | | 6/10/2015 | | 4.4 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | 8-K | | 0-20322 | | 5/16/2016 | | 4.4 | | |
| | | | 8-K | | 0-20322 | | 5/16/2016 | | 4.5 | | |
| | | | 10-K | | 0-20322 | | 11/15/2019 | | 4.29 | | |
| | | | 10-Q | | 0-20322 | | 8/1/2017 | | 10.1 | | |
| | | | 10-Q | | 0-20322 | | 7/30/2019 | | 10.1 | | |
| | | | 10-Q | | 0-20322 | | 2/4/2011 | | 10.2 | | |
| | | | 10-Q | | | | | | | | |
| | | | 10-K | | 0-20322 | | 11/16/2018 | | 10.5 | | |
| | | | 10-K | | 0-20322 | | 11/16/2018 | | 10.7 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 10-Q | | 0-20322 | | 04/26/2016
| | 10.2 | | |
| | | | 10-Q | | 0-20322 | | 04/26/2016
| | 10.3 | | |
| | Credit Agreement, dated October 25, 2017, among Starbucks Corporation, Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, N.A., Citibank, N.A. and U.S. Bank National Association, as L/C Issuers, and the other Lenders from time to time a party thereto. | | 8-K | | 0-20322 | | 10/30/2017 | | 10.1 | | |
| | | | 8-K | | 0-20322 | | 10/30/2017 | | 10.2 | | |
| | | | 8-K | | 0-20322 | | 7/29/2016
| | 10.1 | | |
| | | | 10-Q | | 0-20322 | | 5/8/2008 | | 10.3 | | |
| | | | 10-K | | 0-20322 | | 11/18/2011 | | 10.30 | | |
| | | | 10-K | | 0-20322 | | 11/18/2016 | | 10.21 | | |
| | | | 10-K | | 0-20322 | | 11/18/2016 | | 10.22 | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | 10-Q | | 0-20322 | | 4/29/2014 | | 10.3 | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | 10-Q
| | 0-20322 | | 2/10/2006 | | 10.2 | | |
| | | | 10-K | | 0-20322 | | 11/16/2018 | | 10.9 | | |
| | | | 10-K | | 0-20322 | | 11/18/2016 | | 10.14 | | |
| | | | 10-Q | | 0-20322 | | 4/26/2016 | | 10.2 | | |
| | Credit Agreement, dated September 16, 2021, among Starbucks Corporation, Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank, N.A., Citibank, N.A. and U.S. Bank National Association, as L/C Issuers, and the other Lenders from time to time a party thereto. | | 8-K | | 0-20322 | | 9/17/2021 | | 10.1 | | |
| | | | 8-K | | 0-20322 | | 7/29/2016 | | 10.1 | | |
| | | | 10-K | | 0-20322 | | 11/18/2016 | | 10.21 | | |
| | | | 10-K | | 0-20322 | | 11/15/2019 | | 10.22 | | |
| | | | 10-K | | 0-20322 | | 11/12/2020 | | 10.23 | | |
| | | | 10-K | | 0-20322 | | 11/12/2020 | | 10.24 | | |
| | | | 10-K | | 0-20322 | | 11/17/2017 | | 10.25 | | |
| | | | 10-K | | 0-20322 | | 11/16/2018 | | 10.23 | | |
| | | | | | | | | | | | |
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| |
| | Incorporated by Reference | |
|
Exhibit Number | | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit Number | | Filed Herewith |
| | | | | | | | | | | | |
| | | | 10-K | | 0-20322 | | 11/15/2019 | | 10.26 | | |
| | | | 10-K | | 0-20322 | | 11/12/2020 | | 10.29 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit
Number
| | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit
Number
| | Filed
Herewith
|
| | | | 10-Q | | 0-20322 | | 2/2/2010 | | 10.3 | | |
| | | | 10-K | | 0-20322 | | 11/14/2014 | | 10.33 | | |
| | | | 8-K | | 0-20322 | | 1/29/2014 | | 10.2 | | |
| | | | 10-Q | | 0-20322 | | 5/2/2017 | | 10.1 | | |
| | | | 8-K | | 0-20322 | | 9/6/2017 | | 10.1 | | |
|
| | 8-K | | 0-20322 | | 1/7/2021 | | | | 10.1 | | |
| | | | Incorporated by Reference | | |
Exhibit
Number
| | Exhibit Description | | Form | | File No. | | Date of Filing | | Exhibit
Number
| | Filed
Herewith
|
| | | | — | | — | | — | | — | | X |
| | | | — | | — | | — | | — | | X |
| | | | — | | — | | — | | — | | X |
| | | | __ | | __ | | __ | | __ | | X |
| | | | — | | — | | — | | — | | X |
| | | | — | | — | | — | | — | | X |
| | | | — | | — | | — | | — | | |
| | | | — | | — | | — | | — | | X |
| 104 | | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) | | | | | | | | | | |
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*Denotes a management contract or compensatory plan or arrangement.
**Furnished herewith.
Item 16.Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | |
| | |
| | STARBUCKS CORPORATION |
| STARBUCKS CORPORATION |
| | |
| | |
| | |
| By: | |
| By: | /s/ Kevin R. Johnson |
| | Kevin R. Johnson president and chief executive officer |
| |
November 17, 201719, 2021
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Kevin R. Johnson and Scott Maw, and each of them, as such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of November 17, 2017. 19, 2021. | | | | | | | | | | | | | | |
| | Signature | | Title |
| | | | |
| By: | | Signature | | Title |
| | | | |
By: | | /s/ Kevin R. Johnson | | president and chief executive officer, director (principal executive officer) |
| | Kevin R. Johnson | |
| | | | |
| By: | | /s/ Scott MawRachel Ruggeri | | executive vice president, chief financial officer (principal financial officer and principal accounting officer) |
| | Scott MawRachel Ruggeri | |
| | | | |
By: | | /s/ Howard Schultz | | executive chairman |
| | Howard Schultz | | |
| | | | |
By: | | /s/ William W. Bradley | | director |
| | William W. Bradley | | |
| | | | |
By: | | /s/ Rosalind G. Brewer | | director |
| | Rosalind G. Brewer | | |
| | | | |
By: | | /s/ Mary N. Dillon | | director |
| | Mary N. Dillon | | |
| | | | |
By: | | /s/ Robert M. Gates | | director |
| | Robert M. Gates | | |
|
| | | | |
| By: | | Signature/s/ Jill L. Walker | | Titlesenior vice president, Corporate Financial Services, and chief accounting officer (principal accounting officer) |
| | Jill L. Walker | | |
By: | | | | |
| By: | | /s/ Richard E. Allison, Jr. | | director |
| | Richard E. Allison, Jr. | | |
| | | | |
| By: | | /s/ Andrew Campion | | director |
| | Andrew Campion | | |
| | | | |
| By: | | /s/ Mary N. Dillon | | director |
| | Mary N. Dillon | | |
| | | | |
| By: | | /s/ Isabel Ge Mahe | | director |
| | Isabel Ge Mahe | | |
| | | | |
| By: | | /s/ Mellody Hobson | | director |
| | Mellody Hobson | | |
| | | | |
| By: | | /s/ Jørgen Vig Knudstorp | | director |
| | Jørgen Vig Knudstorp
| | |
| | | | |
By: | | | | |
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| By: | | /s/ Satya Nadella | | director |
| | Satya Nadella | | |
| | | | |
| By: | | /s/ Joshua Cooper Ramo | | director |
| | Joshua Cooper Ramo | | |
| | | | |
| By: | | /s/ Clara Shih | | director |
| | Clara Shih | | |
| | | | |
| By: | | /s/ Javier G. Teruel | | director |
| | Javier G. Teruel | | |
| | | | |
By: | | /s/ Myron E. Ullman, III | | director |
| | Myron E. Ullman, III | | |
| | | | |
By: | | /s/ Craig E. Weatherup | | director |
| | Craig E. Weatherup | | |
