NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 29, 2019, September 30, 2018 and October 1, 2017
Note 1: Summary of Significant Accounting Policies
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 foodservice. The grocery and foodservice 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.”
Certain prior period information on the consolidated balance sheets and the consolidated statements of cash flows has been reclassified to conform to the current year presentation.
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 2019, we realigned our operating segment reporting structure to better reflect the cumulative effect of our streamlining efforts. Specifically, our previous China/Asia Pacific ("CAP") segment and Europe, Middle East, and Africa ("EMEA") segment have been combined into one International segment. Results of Siren Retail, a non-reportable operating segment consisting of Starbucks ReserveTM Roastery & Tasting Rooms, certain stores under the Starbucks Reserve brand and Princi operations, which were previously included within Corporate and Other, are now reported within the Americas and International segments based on the geographical location of the operations.
Further, to better support the review of our results, we have changed the classification of certain costs. The most significant change was the reclassification of our company-owned store occupancy costs from cost of sales to store operating expenses of $2.2 billion and $2.0 billion for fiscal 2018 and 2017, respectively. Total store occupancy costs in fiscal 2019 were $2.4 billion. We also made certain other immaterial changes. There was no impact to consolidated net revenues, consolidated operating income, or net earnings per share as a result of these changes and prior period financial information has been revised to be consistent with the current period presentation.
Additional details on the nature of our business and our reportable operating segments are included in Note 16, Segment Reporting.
We have three reportable operating segments: 1) Americas, which is inclusive of the U.S., Canada, and Latin America; 2) International, which is inclusive of China/Asia Pacific, Europe, Middle East, and Africa; and 3) Channel Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other.
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. Intercompany transactions and balances have been eliminated.
Fiscal Year End
Our fiscal year ends on the Sunday closest to September 30. Fiscal 2019, 2018, and 2017 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.
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-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.
Marketable Equity Securities
We also have a marketable equity securities portfolio, which is comprised of marketable equity mutual funds and equity exchange-traded funds. Marketable 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 Investments
Equity investments are accounted under the equity method if we are able to exercise significant influence, but not control, over an investee. Our share of the earnings or losses as reported by the investees are classified as income from equity investees on our consolidated statements of earnings. The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable. If a decline in fair value is determined to be 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 equity 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 other 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-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 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 and typically do not offset derivative assets and liabilities. Excluding interest rate swaps and foreign currency debt, we generally do not enter into derivative instruments with maturities longer than three 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. Cash collateral under collateral security arrangements were immaterial as of September 29, 2019 and September 30, 2018. The potential effects of netting arrangements with our derivative contracts, excluding the effects of collateral, would not have had a 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 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, in the same line item as the underlying 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. 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 transactions 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 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.
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the changes in fair value of the derivative instrument and the offsetting changes in fair value 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 changes in the fair values of these contracts are 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 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 in the ordinary course of business. Since these types of purchase commitments qualify for the normal purchase normal sale exemption, they are not recorded as 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 Accounts
Our receivables are mainly comprised of receivables for product and equipment sales to and royalties from our licensees, as well as receivables from our Global Coffee Alliance and other Channel Development customers. Our allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. As of September 29, 2019 and September 30, 2018, our allowance for doubtful accounts was $6.7 million and $8.0 million, respectively.
Inventories
Inventories are stated at the lower of cost (primarily moving average cost) or 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 September 29, 2019 and September 30, 2018, inventory reserves were $33.7 million and $41.5 million, respectively.
Property, Plant and Equipment
Property, plant and equipment, which includes assets under capital leases, are 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 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 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 charges of $64.6 million, $32.8 million, and $46.9 million in fiscal 2019, 2018, and 2017, respectively. Additionally, we recognized net impairment charges of $43.4 million, $42.8 million, and $56.1 million in fiscal 2019, 2018, and 2017, respectively. Of the total net impairment charges, $7.1 million and $37.0 million in fiscal 2019 and 2018, respectively, were restructuring related and recorded in restructuring and impairment expenses. 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.
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 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.
We recorded goodwill impairment of $10.5 million, $37.6 million and $87.2 million during fiscal 2019, 2018, and 2017, respectively. See Note 8, Other Intangible Assets and Goodwill, for further 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 2019, 2018, and 2017.
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 as the performance obligation has been satisfied. Company-operated store revenues are reported excluding 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, royalties and other fees paid by 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 on our consolidated statements of earnings.
We consider pre-opening services, including site evaluation and selection, store architectural/design and development and 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 completion of the related performance obligations, generally when a store is opened. Royalty revenues are recognized based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized as the performance obligations are met.
Stored Value Cards
Stored value cards can be activated through various channels, including at our company-operated and most licensed store locations, online at Starbucks.com or via mobile devices held by our customers, and at certain other third-party websites and locations, such as grocery stores, although they cannot be reloaded at these third-party websites or locations. Amounts loaded onto stored value cards are initially recorded as deferred revenue and recognized as revenue upon redemption. Historically, the majority of stored value cards are redeemed within one year.
In many of our company-owned markets, including the U.S., our stored value cards do not have an expiration date nor do we charge service fees that cause a decrement to customer balances. Based on historical redemption rates, a portion of stored value cards is 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 redemption patterns for each market, including the timing and business channel in which the card was activated, and remittance to government agencies under unclaimed property laws, if applicable.
Breakage is recognized as company-operated stores and licensed stores revenue within the consolidated statement of earnings beginning in fiscal 2019 in accordance with the new revenue recognition guidance as discussed in the recently adopted accounting pronouncements section of this note. For the year ended September 29, 2019, we recognized breakage revenue of $125.1 million in company-operated store revenues and $15.7 million in licensed store revenues. Prior to the adoption of the new revenue recognition guidance, breakage was recorded using the remote method and recorded in interest income and other, net. In fiscal 2018 and 2017, we recognized breakage income of $155.9 million, and $104.6 million, respectively. There were no material impacts to our consolidated financial statements for the fiscal year ended September 29, 2019 including the change in income statement presentation.
Loyalty Program
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”) with each purchase at participating Starbucks® stores and when making purchases with the Starbucks-branded credit and debit cards. 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.
We defer revenue associated with the estimated selling price of Stars earned by Starbucks® Rewards members towards free product as each Star is earned and a corresponding liability is established in deferred revenue. This deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed Stars. Stars generally expire after six months.
When a customer redeems an earned reward, we recognize revenue for the redeemed product and reduce the related deferred revenue. The new revenue recognition guidance does not impact the timing or total revenue recognized related to the loyalty program.
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.
Beginning in late fiscal 2018, 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.
The timing and amount of revenue recognized related to other revenues were not impacted by the adoption of new revenue recognition guidance.
Deferred Revenues
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 will be 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 satisfy our performance obligations. At September 29, 2019, the current and long-term deferred revenue related to the Nestlé up-front payment was $175.9 million and $6.7 billion, respectively. During the fiscal year ended September 29, 2019, the Company recognized $175.2 million related to amortization of the up-front royalty payment.
Additionally, deferred revenues include our unredeemed stored value card liability and unredeemed Stars associated with our loyalty program. Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions):
|
|
|
|
|
|
|
|
|
Total
|
|
Stored value cards and loyalty program at September 30, 2018
|
$
|
1,328.6
|
|
|
Revenue recognition adoption impact
|
(358.0
|
)
|
|
Stored value cards and loyalty program at October 1, 2018
|
970.6
|
|
|
Revenue deferred - card activations, card reloads and Stars earned
|
10,983.6
|
|
|
Revenue recognized - card and Stars redemptions and breakage
|
(10,819.7
|
)
|
|
Other (1)
|
(20.8
|
)
|
|
Stored value cards and loyalty program at September 29, 2019 (2)
|
$
|
1,113.7
|
|
|
|
|
|
(1)
|
“Other” primarily consists of changes in the stored value cards and loyalty program balance resulting from the sale of certain retail businesses and foreign currency translation.
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|
|
|
|
(2)
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Approximately $1.0 billion of this amount is current.
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Disaggregation of Revenues
Revenues disaggregated by segment, product type and geographic area are disclosed in Note 16, Segment Reporting.
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 $245.7 million, $260.3 million and $282.6 million in fiscal 2019, 2018, and 2017, respectively.
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 store operating expenses on our consolidated statements of earnings.
For premiums paid up-front to enter a lease agreement, we record a prepaid rent asset in prepaid expenses and other current assets and other long-term assets on our consolidated balance sheets and amortize the premium over the terms of the leases as additional rent expense in store operating expenses 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 store operating expenses 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 a lease abandonment accrual equal to the present value of the remaining lease payments to the landlord and other rent related payments such as common area maintenance, taxes and insurance, 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, net. The offsetting lease financing obligations are recorded in other long-term liabilities, with the current portion recorded 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 store operating expense on our consolidated statements of earnings. As of September 29, 2019 and September 30, 2018, our net ARO assets included in property, plant and equipment were $23.5 million and $19.1 million, respectively, and our net ARO liabilities included in other long-term liabilities were $95.5 million and $82.4 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 used 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 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. 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 balances our consolidated balance sheets.
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. 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.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In the third quarter of fiscal 2019, we adopted the Financial Accounting Standards Board (“FASB”) issued guidance on the accounting for 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 assessments. The adoption of the new guidance did not have a material impact on our
consolidated financial statements. The presentation and disclosure requirements are being applied prospectively. See Note 3, Derivative Financial Instruments for further discussion.
In the first quarter of fiscal 2019, we adopted the new FASB 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 primary impact of the adoption was an increase to deferred income taxes, net of $227.6 million and a corresponding cumulative adjustment to opening retained earnings at the beginning of fiscal 2019.
In the first quarter of fiscal 2019, we adopted the new FASB guidance on revenue recognition utilizing the modified retrospective method, which primarily changed the accounting method and classification of revenue recognition related to unredeemed stored value cards, referred to as stored value card breakage. Under this new guidance, expected breakage amounts must be recognized proportionately in earnings as redemptions occur. Previously, stored value card breakage was recorded to interest income and other, net utilizing the remote method. Starting in the first quarter of 2019, stored value card breakage was recorded in the revenue lines where stored value cards may be redeemed, within company-operated and licensed store revenues. The cumulative impact to retained earnings as of October 1, 2018 was $268.0 million.
Impact of adoption on our consolidated balance sheet at September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
As reported
Sep 30, 2018
|
|
Revenue Recognition Adoption Impact
|
|
Adjusted
Oct 1, 2018
|
|
Deferred income taxes, net
|
$
|
134.7
|
|
|
$
|
(11.0
|
)
|
|
$
|
123.7
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Stored value card liability and current portion of deferred revenue
|
1,642.9
|
|
|
(422.0
|
)
|
|
1,220.9
|
|
|
Deferred revenue
|
6,775.7
|
|
|
64.0
|
|
|
6,839.7
|
|
|
Other long-term liabilities
|
1,430.5
|
|
|
79.0
|
|
|
1,509.5
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
Retained earnings
|
1,457.4
|
|
|
268.0
|
|
|
1,725.4
|
|
Due to the adoption, we began classifying stored value card liabilities as current and long-term deferred revenue.
Recent Accounting Pronouncements Not Yet Adopted
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from AOCI. The guidance permits entities to reclassify the stranded tax effects resulting from the Tax Act from AOCI to retained earnings. The guidance will be effective at the beginning of our first quarter of fiscal 2020 and will be adopted prospectively. We do not expect a material impact upon adoption of this guidance.
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. We will be applying the guidance, as permitted by the alternative method issued by the FASB, at the beginning of our first quarter of fiscal 2020, with certain practical expedients. Most significantly, we are electing the ‘package of practical expedients,’ which allows us to rely on our prior conclusions regarding lease identification, classification and initial direct costs. In preparation for the adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information. We expect this adoption will result in a right-of-use asset and lease liability in the range of approximately $8 billion to $9 billion on our consolidated balance sheets but will have an insignificant impact on our consolidated statements of earnings.
Note 2: Acquisitions, Divestitures and Strategic Alliance
Fiscal 2019
In the third quarter of fiscal 2019, we sold our company-operated retail business in Thailand to Coffee Concepts Thailand, a joint-venture between Maxim's Caterers Limited and F&N Retail Connection Co. Ltd, converting this operation to a fully licensed market. This transaction resulted in a pre-tax gain of $601.9 million, which was included in net gains resulting from divestiture of certain operations on our consolidated statements of earnings.
In the second quarter of fiscal 2019, we sold our company-operated retail businesses in France and the Netherlands to Alsea, S.A.B. de C.V. converting these operations to fully licensed markets. These transactions did not have a material impact on our consolidated financial statements.
Fiscal 2018
We entered into an agreement on May 6, 2018 to establish the Global Coffee Alliance with Nestlé. On August 26, 2018, Nestlé licensed the rights to market, sell and distribute Starbucks consumer packaged goods and foodservice products in authorized channels. We received an up-front payment of approximately $7 billion consisting primarily of prepaid royalties which was recorded to current and long-term deferred revenue. See Note 1, Summary of Significant Accounting Policies, for the accounting treatment.
On March 23, 2018, we sold our company-operated retail store assets and operations in Brazil to SouthRock, converting these operations to a fully licensed market. This transaction did not have a material impact on our consolidated financial statements.
On December 31, 2017, we acquired the remaining 50% interest of our East China joint venture (“East China”) from President Chain Store (Hong Kong) Holding Ltd. and Kai Yu (BVI) collectively, “Uni-President Group” or “UPG”, for approximately $1.4 billion. Approximately $90.5 million of pre-existing liabilities owed by East China to Starbucks were effectively settled upon the acquisition. Acquiring the remaining interest of East China, which at the time operated over 1,400 stores in the Shanghai, Jiangsu and Zhejiang Provinces, built on the Company's ongoing investment in China. The estimated fair values of the assets acquired and liabilities assumed are based on valuation and analysis performed by management.
Concurrently with the purchase of our East China joint venture, we sold our 50% interest in President Starbucks Coffee Taiwan Limited, our joint venture operations in Taiwan, to UPG for approximately $181.2 million. The transaction resulted in a pre-tax gain of $156.6 million which was included in net gain resulting from divestiture of certain operations on our consolidated statements of earnings.
The following table summarizes the preliminary allocation of the total consideration to the fair values of the assets acquired and liabilities assumed as of December 31, 2017, which are reported within our International segment (in millions):
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Consideration:
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|
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|
Cash paid for UPG 50% equity interest
|
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$
|
1,440.8
|
|
|
Fair value of our pre-existing 50% equity interest
|
|
1,440.8
|
|
|
Settlement of pre-existing liabilities
|
|
90.5
|
|
|
Total consideration
|
|
$
|
2,972.1
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed:
|
|
|
|
Cash and cash equivalents
|
|
$
|
129.5
|
|
|
Accounts receivable
|
|
14.3
|
|
|
Inventories
|
|
16.1
|
|
|
Prepaid expenses and other current assets
|
|
20.6
|
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|
Property, plant and equipment
|
|
254.1
|
|
|
Other long-term assets
|
|
44.6
|
|
|
Other intangible assets
|
|
818.0
|
|
|
Goodwill
|
|
2,164.1
|
|
|
Total assets acquired
|
|
$
|
3,461.3
|
|
|
Accounts payable
|
|
34.7
|
|
|
Accrued liabilities
|
|
187.7
|
|
|
Stored value card liability
|
|
21.7
|
|
|
Other long-term liabilities
|
|
245.1
|
|
|
Total liabilities assumed
|
|
489.2
|
|
|
Total consideration
|
|
$
|
2,972.1
|
|
As a result of this acquisition, we remeasured the carrying value of our preexisting 50% equity method investment to fair value, which resulted in a total gain of $1.4 billion that is not subject to income tax, and was presented as gain resulting from acquisition of joint venture on our consolidated statements of earnings. The fair value of $1.4 billion was calculated using an income approach, which was based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, as well as the selection of an appropriate discount rate. Estimates of revenue growth and operating expenses were based on internal projections and considered the historical performance of stores, local market economics and the business environments impacting store performance. The discount rate applied was based on East China's weighted-average cost of capital and included company-specific and size risk premiums.
The assets acquired and liabilities assumed are reported within our International segment. Other current and long-term assets acquired primarily include lease deposits and prepaid rent. Accrued liabilities and other long-term liabilities assumed primarily include deferred income tax, dividend payable, accrued payroll, income tax payable and accrued occupancy costs.
The definite-lived intangibles primarily relate to reacquired rights to operate stores exclusively in East China. The reacquired rights of $798.0 million represent the fair value calculated over the remaining original contractual period and will be amortized on a straight-line basis through September 2022. Amortization expense for these definite-lived intangible assets was $163.8 million and $129.8 million for fiscal 2019 and 2018, respectively. The estimated future amortization expense is approximately $157.8 million each year for the next two years and approximately $154.4 million in fiscal 2022.
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, and the existing geographic retail and online presence. The entire balance was allocated to the International segment and is not deductible for income tax purposes. Due to foreign currency translation, the balance of goodwill related to the acquisition decreased $190.6 million since the date of acquisition to $2.0 billion as of September 29, 2019.
We began consolidating East China's results of operations and cash flows into our consolidated financial statements after December 31, 2017. For the year ended September 30, 2018, East China's revenue included in our consolidated statements of earnings was $903.0 million. For the year ended September 30, 2018, East China's net earnings included in our consolidated statements of earnings was $73.1 million.
The following table provides the supplemental pro forma revenue and net earnings of the combined entity had the acquisition date of East China been October 3, 2016, the first day of our first quarter of fiscal 2017, rather than the end of our first quarter of fiscal 2018 (in millions):
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|
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Year Ended
|
|
|
Sep 30, 2018
|
|
Oct 1, 2017 (1)
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Revenue
|
$
|
24,990.4
|
|
|
$
|
23,315.0
|
|
|
Net earnings attributable to Starbucks
|
3,196.8
|
|
|
4,209.0
|
|
|
|
|
|
(1)
|
The pro forma net earnings attributable to Starbucks for fiscal 2017 includes acquisition-related gain of $1.4 billion and transaction and integration costs of $39.3 million for the year ended October 1, 2017.
|
The amounts in the supplemental pro forma earnings for the periods presented above fully eliminate intercompany transactions, apply our accounting policies and reflect adjustments for additional occupancy costs as well as 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 October 3, 2016. These pro forma results are unaudited and are not necessarily indicative of results of operations that would have occurred had the acquisition actually closed in the prior period or indicative of the results of operations for any future period.
During the year ended September 30, 2018, we incurred approximately $3.6 million of acquisition-related costs, such as regulatory, legal, and advisory fees, which were recorded in general and administrative expenses.
In the first quarter of fiscal 2018, we sold the assets associated with our Tazo brand including Tazo® signature recipes, intellectual property and inventory to Unilever for a total of $383.8 million. The transaction resulted in a pre-tax gain of $347.9 million, which was included in the net gain from divestiture of certain operations on our consolidated statements of earnings. Results from Tazo operations prior to the sale were reported primarily in Channel Development.
Fiscal 2017
In the fourth quarter of fiscal 2017, we sold our company-operated retail store assets and operations in Singapore to Maxim's Caterers Limited, converting these operations to a fully licensed market, for a total of $119.9 million. This transaction resulted in a pre-tax gain of $83.9 million, which was included in the net gain resulting from divestiture of certain operations on our consolidated statements of earnings.
Note 3: Derivative Financial Instruments
Interest Rates
From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in AOCI and is subsequently reclassified to interest expense over the life of the related debt.
To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 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 resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, cost of sales, or interest income and other, net, respectively, when the hedged exposures affect net earnings.
From time to time, we may enter into financial instruments, including but not limited to forward contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.
Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of
translating foreign currency-denominated payables and receivables; these gains and losses are recorded in interest income and other, net.
Commodities
Depending on market conditions, we may enter into coffee forward contracts, futures contracts, and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5, Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The resulting gains and losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.
Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand. The resulting gains or losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.
To mitigate the price uncertainty of a portion of our future purchases, including dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales on our consolidated statements of earnings.
Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (in millions):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Sep 29,
2019
|
|
Sep 30,
2018
|
|
Oct 1,
2017
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
$
|
0.5
|
|
|
$
|
24.7
|
|
|
$
|
17.6
|
|
|
$
|
2.4
|
|
|
157
|
|
Cross-currency swaps
|
(1.4
|
)
|
|
(12.6
|
)
|
|
(6.0
|
)
|
|
—
|
|
|
62
|
|
Foreign currency - other
|
12.9
|
|
|
5.8
|
|
|
(9.1
|
)
|
|
7.8
|
|
|
36
|
|
Coffee
|
(1.0
|
)
|
|
(0.2
|
)
|
|
(6.6
|
)
|
|
(0.2
|
)
|
|
27
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
16.0
|
|
|
16.0
|
|
|
16.2
|
|
|
—
|
|
|
0
|
|
Foreign currency debt
|
(26.1
|
)
|
|
3.6
|
|
|
(2.2
|
)
|
|
—
|
|
|
54
|
Pretax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
Gains/(Losses)
Recognized in
OCI Before Reclassifications
|
|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
Location of gain/(loss)
|
|
|
|
Sep 29,
2019
|
|
Sep 30,
2018
|
|
Oct 1,
2017
|
|
Sep 29,
2019
|
|
Sep 30,
2018
|
|
Oct 1,
2017
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
|
$
|
(27.8
|
)
|
|
$
|
14.1
|
|
|
$
|
—
|
|
|
$
|
4.7
|
|
|
$
|
4.9
|
|
|
$
|
4.8
|
|
Interest expense
|
|
Cross-currency swaps
|
|
(5.9
|
)
|
|
(6.1
|
)
|
|
59.5
|
|
|
0.1
|
|
|
0.3
|
|
|
(0.9
|
)
|
Interest expense
|
|
|
|
|
|
(19.8
|
)
|
|
1.9
|
|
|
58.1
|
|
Interest income and other, net
|
|
Foreign currency - other
|
|
20.8
|
|
|
16.7
|
|
|
1.8
|
|
|
7.0
|
|
|
(0.3
|
)
|
|
3.0
|
|
Licensed stores revenues
|
|
|
|
|
|
4.4
|
|
|
(3.3
|
)
|
|
8.4
|
|
Cost of sales
|
|
Coffee
|
|
(1.2
|
)
|
|
(0.3
|
)
|
|
(8.1
|
)
|
|
(0.3
|
)
|
|
(7.4
|
)
|
|
(2.7
|
)
|
Cost of sales
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
—
|
|
|
(0.1
|
)
|
|
23.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Foreign currency debt
|
|
(39.8
|
)
|
|
7.9
|
|
|
(3.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Pretax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related hedged item recognized in earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(Losses) Recognized in Earnings
|
|
|
Location of gain/(loss) recognized in earnings
|
|
Year Ended
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Non-Designated Derivatives:
|
|
|
|
|
|
|
|
|
Foreign currency - other
|
Interest income and other, net
|
|
$
|
(8.1
|
)
|
|
$
|
4.6
|
|
|
$
|
4.6
|
|
|
Dairy
|
Interest income and other, net
|
|
(1.9
|
)
|
|
(2.4
|
)
|
|
—
|
|
|
Diesel fuel and other commodities
|
Interest income and other, net
|
|
(5.9
|
)
|
|
3.7
|
|
|
1.3
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Interest expense
|
|
54.7
|
|
|
(33.7
|
)
|
|
(5.2
|
)
|
|
Long-term debt (hedged item)
|
Interest expense
|
|
(50.7
|
)
|
|
33.7
|
|
|
5.2
|
|
Notional amounts of outstanding derivative contracts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Interest rate swaps
|
$
|
1,500
|
|
|
$
|
750
|
|
|
Cross-currency swaps
|
341
|
|
|
434
|
|
|
Foreign currency - other
|
1,125
|
|
|
914
|
|
|
Coffee
|
52
|
|
|
—
|
|
|
Dairy
|
1
|
|
|
16
|
|
|
Diesel fuel and other commodities
|
17
|
|
|
21
|
|
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
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Designated Derivative Instruments:
|
|
|
|
|
|
|
Interest rates
|
Other long-term assets
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
Cross-currency swaps
|
Other long-term assets
|
|
0.2
|
|
|
5.8
|
|
|
Foreign currency - other
|
Prepaid expenses and other current assets
|
|
11.4
|
|
|
9.0
|
|
|
Other long-term assets
|
|
7.8
|
|
|
4.6
|
|
|
Interest rate swap
|
Other long-term assets
|
|
18.2
|
|
|
—
|
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
|
Foreign currency
|
Prepaid expenses and other current assets
|
|
1.0
|
|
|
13.7
|
|
|
Dairy
|
Prepaid expenses and other current assets
|
|
—
|
|
|
0.2
|
|
|
Diesel fuel and other commodities
|
Prepaid expenses and other current assets
|
|
0.2
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
Balance Sheet Location
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Designated Derivative Instruments:
|
|
|
|
|
|
|
Interest rates
|
Other long-term liabilities
|
|
$
|
2.6
|
|
|
$
|
—
|
|
|
Cross-currency swaps
|
Other long-term liabilities
|
|
9.7
|
|
|
9.3
|
|
|
Foreign currency - other
|
Accrued liabilities
|
|
0.6
|
|
|
3.6
|
|
|
Other long-term liabilities
|
|
0.1
|
|
|
1.7
|
|
|
Coffee
|
Accrued liabilities
|
|
1.0
|
|
|
—
|
|
|
Other long-term liabilities
|
|
0.1
|
|
|
—
|
|
|
Interest rate swap
|
Other long-term liabilities
|
|
—
|
|
|
32.5
|
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
|
Foreign currency
|
Accrued liabilities
|
|
3.0
|
|
|
2.5
|
|
|
Dairy
|
Accrued liabilities
|
|
—
|
|
|
0.1
|
|
|
Diesel fuel and other commodities
|
Accrued liabilities
|
|
1.1
|
|
|
0.3
|
|
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
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Location on the balance sheet
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
761.8
|
|
|
$
|
711.0
|
|
|
$
|
11.8
|
|
|
$
|
(39.0
|
)
|
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 11, Equity.
Note 4: Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance at
September 29, 2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,686.6
|
|
|
$
|
2,686.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Commercial paper
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
Corporate debt securities
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
Total available-for-sale debt securities
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
Marketable equity securities
|
66.5
|
|
|
66.5
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
70.5
|
|
|
66.5
|
|
|
4.0
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
12.6
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
101.2
|
|
|
—
|
|
|
101.2
|
|
|
—
|
|
|
Auction rate securities
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
U.S. government treasury securities
|
106.5
|
|
|
106.5
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
4.9
|
|
|
—
|
|
|
4.9
|
|
|
—
|
|
|
Mortgage and other asset-backed securities
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
Total long-term investments
|
220.0
|
|
|
106.5
|
|
|
107.7
|
|
|
5.8
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
26.3
|
|
|
—
|
|
|
26.3
|
|
|
—
|
|
|
Total assets
|
$
|
3,016.0
|
|
|
$
|
2,859.6
|
|
|
$
|
150.6
|
|
|
$
|
5.8
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
5.7
|
|
|
$
|
1.1
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
12.5
|
|
|
—
|
|
|
12.5
|
|
|
—
|
|
|
Total liabilities
|
$
|
18.2
|
|
|
$
|
1.1
|
|
|
$
|
17.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Balance at
September 30, 2018
|
|
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
|
$
|
8,756.3
|
|
|
$
|
8,756.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Commercial paper
|
8.4
|
|
|
—
|
|
|
8.4
|
|
|
—
|
|
|
Corporate debt securities
|
91.8
|
|
|
—
|
|
|
91.8
|
|
|
—
|
|
|
Foreign government obligations
|
6.0
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
Total available-for-sale debt securities
|
106.2
|
|
|
—
|
|
|
106.2
|
|
|
—
|
|
|
Marketable equity securities
|
75.3
|
|
|
75.3
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
181.5
|
|
|
75.3
|
|
|
106.2
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
24.5
|
|
|
1.2
|
|
|
23.3
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Agency obligations
|
5.9
|
|
|
—
|
|
|
5.9
|
|
|
—
|
|
|
Corporate debt securities
|
114.5
|
|
|
—
|
|
|
114.5
|
|
|
—
|
|
|
Auction rate securities
|
5.9
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
Foreign government obligations
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
U.S. government treasury securities
|
108.1
|
|
|
108.1
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
4.8
|
|
|
—
|
|
|
4.8
|
|
|
—
|
|
|
Mortgage and other asset-backed securities
|
24.9
|
|
|
—
|
|
|
24.9
|
|
|
—
|
|
|
Total long-term investments
|
267.7
|
|
|
108.1
|
|
|
153.7
|
|
|
5.9
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
10.4
|
|
|
—
|
|
|
10.4
|
|
|
—
|
|
|
Total assets
|
$
|
9,240.4
|
|
|
$
|
8,940.9
|
|
|
$
|
293.6
|
|
|
$
|
5.9
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
6.5
|
|
|
$
|
0.4
|
|
|
$
|
6.1
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
43.5
|
|
|
—
|
|
|
43.5
|
|
|
—
|
|
|
Total
|
$
|
50.0
|
|
|
$
|
0.4
|
|
|
$
|
49.6
|
|
|
$
|
—
|
|
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 investments generally mature within 4 years. Proceeds from sales of securities were $291.1 million, $459.0 million, and $999.7 million for fiscal 2019, 2018 and 2017, respectively. Realized gains and losses were not material for fiscal 2019, 2018, and 2017. Gross unrealized holding gains and losses were not material as of September 29, 2019 and September 30, 2018.
Marketable Equity Securities
Marketable equity securities include equity mutual funds and exchange-traded funds. Our marketable equity securities portfolio approximates a portion of our liability under our MDCP, a defined contribution plan. Our MDCP liability was $92.1 million and $102.2 million as of September 29, 2019 and September 30, 2018, respectively. The changes in net unrealized holding gains and losses in the marketable equity securities portfolio included in earnings for fiscal 2019, 2018 and 2017 were not material. Gross unrealized holding gains and losses on marketable equity securities were not material as of September 29, 2019 and September 30, 2018.
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 other investments, and other assets. These assets are measured at fair value if determined to be impaired. Impairment of property, plant, and equipment is included at Note 1, Summary of Significant Accounting Policies.
Other than the impairments discussed in Note 8, Other Intangible Assets and Goodwill, and the aforementioned fair value adjustments, there were no other material fair value adjustments during fiscal 2019 and 2018.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Coffee:
|
|
|
|
|
Unroasted
|
$
|
656.5
|
|
|
$
|
588.6
|
|
|
Roasted
|
276.5
|
|
|
281.2
|
|
|
Other merchandise held for sale
|
288.0
|
|
|
273.1
|
|
|
Packaging and other supplies
|
308.4
|
|
|
257.6
|
|
|
Total
|
$
|
1,529.4
|
|
|
$
|
1,400.5
|
|
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 September 29, 2019, we had committed to purchasing green coffee totaling $854 million under fixed-price contracts and an estimated $203 million under price-to-be-fixed contracts. A portion of our price-to-be-fixed contacts are effectively fixed through the use of futures. See Note 3, Derivative Financial Instruments for further discussion. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on these purchase commitments is remote.
Note 6: Equity Investments (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29,
2019
|
|
Sep 30,
2018
|
|
Equity method investments
|
$
|
336.1
|
|
|
$
|
296.0
|
|
|
Other investments
|
59.9
|
|
|
38.7
|
|
|
Total
|
$
|
396.0
|
|
|
$
|
334.7
|
|
Equity Method Investments
As of September 29, 2019, we had 50% ownership interests in Starbucks Coffee Korea Co., Ltd. and Tata Starbucks Limited (India). These international entities operate licensed Starbucks® retail stores. Additional disclosure regarding changes in our
equity method investments due to acquisition or divestiture is included at Note 2, Acquisitions, Divestitures and 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, and Starbucks® Iced Espresso Classics.
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 parties were $130.7 million, $112.8 million, and $187.3 million in fiscal 2019, 2018 and 2017, respectively. Related costs of sales were $73.2 million, $71.5 million, and $109.3 million in fiscal 2019, 2018 and 2017, respectively. As of September 29, 2019 and September 30, 2018, there were $35.5 million and $41.2 million of accounts receivable from equity investees, respectively, on our consolidated balance sheets, primarily related to product sales and royalty revenues.
Other Investments
We have equity interests in entities that develop and operate Starbucks licensed stores in several global markets, as well as in companies that support our strategic initiatives. We do not have significant influence over these entities and their fair values are not readily determinable. Therefore, we elected to measure these investments at cost with adjustments for observable changes in price or impairment.
Note 7: Supplemental Balance Sheet Information (in millions)
Prepaid Expenses and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Income tax receivable
|
$
|
141.1
|
|
|
$
|
955.4
|
|
|
Other prepaid expenses and current assets
|
347.1
|
|
|
507.4
|
|
|
Total prepaid expenses and current assets
|
$
|
488.2
|
|
|
$
|
1,462.8
|
|
Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Land
|
$
|
46.8
|
|
|
$
|
46.8
|
|
|
Buildings
|
691.5
|
|
|
557.3
|
|
|
Leasehold improvements
|
7,948.6
|
|
|
7,372.8
|
|
|
Store equipment
|
2,659.5
|
|
|
2,400.2
|
|
|
Roasting equipment
|
769.6
|
|
|
658.8
|
|
|
Furniture, fixtures and other
|
1,799.0
|
|
|
1,659.3
|
|
|
Work in progress
|
358.5
|
|
|
501.9
|
|
|
Property, plant and equipment, gross
|
14,273.5
|
|
|
13,197.1
|
|
|
Accumulated depreciation
|
(7,841.8
|
)
|
|
(7,268.0
|
)
|
|
Property, plant and equipment, net
|
$
|
6,431.7
|
|
|
$
|
5,929.1
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Accrued occupancy costs
|
$
|
176.9
|
|
|
$
|
164.2
|
|
|
Accrued dividends payable
|
485.7
|
|
|
445.4
|
|
|
Accrued capital and other operating expenditures
|
703.9
|
|
|
745.4
|
|
|
Self insurance reserves
|
210.5
|
|
|
213.7
|
|
|
Accrued business taxes
|
176.7
|
|
|
183.8
|
|
|
Total accrued liabilities
|
$
|
1,753.7
|
|
|
$
|
1,752.5
|
|
Note 8: Other Intangible Assets and Goodwill
Indefinite-Lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Trade names, trademarks and patents
|
$
|
203.4
|
|
|
$
|
215.9
|
|
|
Other indefinite-lived intangible assets
|
—
|
|
|
15.1
|
|
|
Total indefinite-lived intangible assets
|
$
|
203.4
|
|
|
$
|
231.0
|
|
Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2, Acquisitions, Divestitures and Strategic Alliance.
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
|
Goodwill balance at October 2, 2017
|
$
|
211.6
|
|
|
$
|
892.7
|
|
|
$
|
30.2
|
|
|
$
|
404.7
|
|
|
$
|
1,539.2
|
|
|
Acquisition/(divestiture)
|
—
|
|
|
2,164.0
|
|
|
(1.5
|
)
|
|
—
|
|
|
2,162.5
|
|
|
Impairment
|
—
|
|
|
(37.6
|
)
|
|
—
|
|
|
—
|
|
|
(37.6
|
)
|
|
Other
|
285.8
|
|
|
(15.9
|
)
|
|
6.0
|
|
|
(398.4
|
)
|
|
(122.5
|
)
|
|
Goodwill balance at October 1, 2018
|
$
|
497.4
|
|
|
$
|
3,003.2
|
|
|
$
|
34.7
|
|
|
$
|
6.3
|
|
|
$
|
3,541.6
|
|
|
Acquisition/(divestiture)
|
—
|
|
|
(5.5
|
)
|
|
—
|
|
|
—
|
|
|
(5.5
|
)
|
|
Impairment
|
—
|
|
|
(5.3
|
)
|
|
—
|
|
|
(5.2
|
)
|
|
(10.5
|
)
|
|
Other
|
(0.7
|
)
|
|
(34.0
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(34.8
|
)
|
|
Goodwill balance at September 30, 2019
|
$
|
496.7
|
|
|
$
|
2,958.4
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,490.8
|
|
For fiscal 2018, “Other” primarily consists of changes in the goodwill balance resulting from transfers between segments due to the dissolution of the Teavana reporting unit. For both fiscal 2019 and 2018, "Other" also includes foreign currency translation.
During fiscal 2018, a strengthening Swiss franc diverted consumer traffic to neighboring countries and despite our operational investments and improvements, projections indicated that the carrying value of Switzerland goodwill balance was not fully recoverable. This resulted in an impairment charge for the remaining Switzerland goodwill balance of $37.6 million.
During the third quarter of fiscal 2017, management finalized its long-term strategy for the Teavana reporting unit, which included closing all Teavana-branded retail stores. As a result, we recorded store asset impairment of $33.0 million and goodwill impairment of $69.3 million, reducing goodwill of the Teavana reporting unit to $398.3 million as of July 2, 2017. During the third quarter of fiscal 2018, we dissolved the Teavana reporting unit upon completion of the retail store closures. As a result, we reorganized the Teavana business and allocated the remaining $398.3 million of goodwill to other reporting units, primarily within the Americas segment, based on a relative fair value approach.
Finite-Lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Acquired and reacquired rights
|
$
|
1,075.0
|
|
|
$
|
(537.2
|
)
|
|
$
|
537.8
|
|
|
$
|
1,081.7
|
|
|
$
|
(320.1
|
)
|
|
$
|
761.6
|
|
|
Acquired trade secrets and processes
|
27.6
|
|
|
(19.2
|
)
|
|
8.4
|
|
|
27.6
|
|
|
(16.5
|
)
|
|
11.1
|
|
|
Trade names, trademarks and patents
|
40.6
|
|
|
(22.9
|
)
|
|
17.7
|
|
|
33.0
|
|
|
(19.5
|
)
|
|
13.5
|
|
|
Licensing agreements
|
16.2
|
|
|
(12.2
|
)
|
|
4.0
|
|
|
14.3
|
|
|
(5.1
|
)
|
|
9.2
|
|
|
Other finite-lived intangible assets
|
22.0
|
|
|
(11.5
|
)
|
|
10.5
|
|
|
25.6
|
|
|
(9.8
|
)
|
|
15.8
|
|
|
Total finite-lived intangible assets
|
$
|
1,181.4
|
|
|
$
|
(603.0
|
)
|
|
$
|
578.4
|
|
|
$
|
1,182.2
|
|
|
$
|
(371.0
|
)
|
|
$
|
811.2
|
|
Amortization expense for finite-lived intangible assets was $232.8 million, $186.5 million, and $57.5 million during fiscal 2019, 2018 and 2017, respectively.
Estimated future amortization expense as of September 29, 2019 (in millions):
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
|
|
2020
|
$
|
214.6
|
|
|
2021
|
194.0
|
|
|
2022
|
160.4
|
|
|
2023
|
2.8
|
|
|
2024
|
2.1
|
|
|
Thereafter
|
4.5
|
|
|
Total estimated future amortization expense
|
$
|
578.4
|
|
Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2, Acquisitions, Divestitures and Strategic Alliance.
Note 9: Debt
Revolving Credit Facility and Commercial Paper Program
Our $2.0 billion unsecured 5-year revolving credit facility (the “2018 credit facility”) and a $1.0 billion unsecured 364-Day credit facility (the “364-day credit facility”) are available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases.
The 2018 credit facility, of which $150 million may be used for issuances of letters of credit, is currently set to mature on October 25, 2022. We have the option, subject to negotiation and agreement with 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 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's long-term credit ratings assigned by Moody's and Standard & Poor'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. The current applicable margin is 0.910% for Eurocurrency Rate Loans and 0.000% (nil) for Base Rate Loans.
The 364-day credit facility, of which no amount may be used for issuances of letters of credit, has been extended to mature on October 21, 2020. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $500 million. Borrowings under the credit facility 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 was 0.920% for Eurocurrency Rate Loans and 0.000% (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. As of September 29, 2019, we were in compliance with all applicable covenants. No amounts were outstanding under our credit facility as of September 29, 2019.
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $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 September 29, 2019, we had no borrowings outstanding under the program.
Long-term Debt
Components of long-term debt including the associated interest rates and related fair values by calendar maturity (in millions, except interest rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Stated Interest Rate
|
Effective Interest Rate (1)
|
|
Issuance
|
Face Value
|
Estimated Fair Value
|
|
Face Value
|
Estimated Fair Value
|
|
|
December 2018 notes
|
$
|
—
|
|
$
|
—
|
|
|
$
|
350.0
|
|
$
|
350
|
|
|
2.000
|
%
|
2.012
|
%
|
|
November 2020 notes
|
500.0
|
|
501
|
|
|
500.0
|
|
490
|
|
|
2.200
|
%
|
2.228
|
%
|
|
February 2021 notes
|
500.0
|
|
500
|
|
|
500.0
|
|
489
|
|
|
2.100
|
%
|
2.293
|
%
|
|
February 2021 notes
|
250.0
|
|
250
|
|
|
250.0
|
|
244
|
|
|
2.100
|
%
|
1.600
|
%
|
|
June 2022 notes
|
500.0
|
|
509
|
|
|
500.0
|
|
486
|
|
|
2.700
|
%
|
2.819
|
%
|
|
February 2023 notes
|
1,000.0
|
|
1,033
|
|
|
1,000.0
|
|
986
|
|
|
3.100
|
%
|
3.107
|
%
|
|
October 2023 notes (2)
|
750.0
|
|
798
|
|
|
750.0
|
|
759
|
|
|
3.850
|
%
|
2.859
|
%
|
|
March 2024 notes (3)
|
788.3
|
|
795
|
|
|
748.4
|
|
743
|
|
|
0.372
|
%
|
0.462
|
%
|
|
August 2025 notes
|
1,250.0
|
|
1,351
|
|
|
1,250.0
|
|
1,249
|
|
|
3.800
|
%
|
3.721
|
%
|
|
June 2026 notes
|
500.0
|
|
502
|
|
|
500.0
|
|
451
|
|
|
2.450
|
%
|
2.511
|
%
|
|
February 2028 notes
|
600.0
|
|
644
|
|
|
600.0
|
|
576
|
|
|
3.500
|
%
|
3.529
|
%
|
|
November 2028 notes
|
750.0
|
|
837
|
|
|
750.0
|
|
754
|
|
|
4.000
|
%
|
3.958
|
%
|
|
May 2029 notes (4)
|
1,000.0
|
|
1,080
|
|
|
—
|
|
—
|
|
|
3.550
|
%
|
3.871
|
%
|
|
June 2045 notes
|
350.0
|
|
390
|
|
|
350.0
|
|
330
|
|
|
4.300
|
%
|
4.348
|
%
|
|
December 2047 notes
|
500.0
|
|
518
|
|
|
500.0
|
|
438
|
|
|
3.750
|
%
|
3.765
|
%
|
|
November 2048 notes
|
1,000.0
|
|
1,160
|
|
|
1,000.0
|
|
977
|
|
|
4.500
|
%
|
4.504
|
%
|
|
May 2049 notes (4)
|
1,000.0
|
|
1,165
|
|
|
—
|
|
—
|
|
|
4.450
|
%
|
4.433
|
%
|
|
Total
|
11,238.3
|
|
12,033
|
|
|
9,548.4
|
|
9,322
|
|
|
|
|
|
Aggregate debt issuance costs and unamortized premium/(discount), net
|
(83.1
|
)
|
|
|
(69.3
|
)
|
|
|
|
|
|
Hedge accounting fair value adjustment (2)
|
11.8
|
|
|
|
(39.0
|
)
|
|
|
|
|
|
Total
|
$
|
11,167.0
|
|
|
|
$
|
9,440.1
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance.
|
|
|
|
|
(2)
|
Amount includes the change in fair value due to changes in benchmark interest rates related to our October 2023 notes. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
|
|
|
|
|
(3)
|
Japanese yen-denominated long-term debt.
|
The indentures under which the above notes were issued 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 September 29, 2019, we were in compliance with each of these covenants.
The following table summarizes our long-term debt maturities as of September 29, 2019 by fiscal year (in millions):
|
|
|
|
|
|
|
|
Fiscal Year
|
Total
|
|
2020
|
$
|
—
|
|
|
2021
|
1,250.0
|
|
|
2022
|
500.0
|
|
|
2023
|
1,000.0
|
|
|
2024
|
1,538.3
|
|
|
Thereafter
|
6,950.0
|
|
|
Total
|
$
|
11,238.3
|
|
Note 10: Leases
Rent expense under operating lease agreements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Minimum rent
|
$
|
1,441.7
|
|
|
$
|
1,424.5
|
|
|
$
|
1,185.7
|
|
|
Contingent rent
|
224.3
|
|
|
200.7
|
|
|
143.5
|
|
|
Total
|
$
|
1,666.0
|
|
|
$
|
1,625.2
|
|
|
$
|
1,329.2
|
|
Minimum future rental payments under non-cancelable operating leases and lease financing arrangements as of September 29, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
Operating Leases
|
|
Lease Financing Arrangements
|
|
2020
|
$
|
1,432.9
|
|
|
$
|
5.2
|
|
|
2021
|
1,342.2
|
|
|
5.2
|
|
|
2022
|
1,247.4
|
|
|
5.0
|
|
|
2023
|
1,124.3
|
|
|
5.0
|
|
|
2024
|
996.4
|
|
|
4.9
|
|
|
Thereafter
|
4,087.7
|
|
|
42.6
|
|
|
Total minimum lease payments
|
$
|
10,230.9
|
|
|
$
|
67.9
|
|
We have subleases related to certain of our operating leases. During fiscal 2019, 2018 and 2017, we recognized sublease income of $10.9 million, $12.3 million, and $15.5 million, respectively. Additionally, as of September 29, 2019 and September 30, 2018, the gross carrying values of assets related to build-to-suit lease arrangements accounted for as financing leases were $122.3 million and $103.2 million, respectively, with associated accumulated depreciation of $17.2 million and $12.7 million, respectively. Lease exit costs associated with our restructuring efforts primarily 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 of $55.3 million, $119.3 million, and $15.7 million were recorded within restructuring and impairments on the consolidated statement of earnings in fiscal 2019, 2018, and 2017, respectively. Remaining lease exit costs are not expected to be material.
Note 11: 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 September 29, 2019.
In September 2018, we entered into accelerated share repurchase agreements (“ASR agreements”) with third-party financial institutions totaling $5.0 billion, effective October 1, 2018. We made a $5.0 billion up-front payment to the financial institutions and received an initial delivery of 72.0 million shares. In March 2019, we received an additional 4.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $65.03.
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 36.6 million shares of common stock for $3.1 billion on the open market during the year ended September 29, 2019. In connection with the ASR agreements and other open market transactions, we repurchased 139.6 million shares of common stock at a total cost of $10.1 billion, 131.5 million shares at a total cost of $7.2 billion, and 37.5 million shares of common stock at a total cost of $2.1 billion for the years ended September 29, 2019, September 30, 2018, and October 1, 2017, respectively. In the first quarter 2019, we announced that our Board of Directors approved an increase of 120 million shares to our ongoing share repurchase program. As of September 29, 2019, 29.2 million shares remained available for repurchase under current authorizations.
During the fourth quarter of fiscal 2019, our Board of Directors declared a quarterly cash dividend to shareholders of $0.41 per share to be paid on November 29, 2019 to shareholders of record as of the close of business on November 13, 2019.
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 AOCI by component for the years ended September 29, 2019, September 30, 2018, and October 1, 2017, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
(2.5
|
)
|
|
$
|
(4.1
|
)
|
|
$
|
14.0
|
|
|
$
|
(163.0
|
)
|
|
$
|
(155.6
|
)
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
(5.1
|
)
|
|
17.9
|
|
|
5.6
|
|
|
(216.6
|
)
|
|
(198.2
|
)
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
2.7
|
|
|
3.9
|
|
|
—
|
|
|
16.9
|
|
|
23.5
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
(2.4
|
)
|
|
21.8
|
|
|
5.6
|
|
|
(199.7
|
)
|
|
(174.7
|
)
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
(4.9
|
)
|
|
$
|
17.7
|
|
|
$
|
19.6
|
|
|
$
|
(362.7
|
)
|
|
$
|
(330.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
)
|
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
|
|
|
Fiscal Year Ended
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
|
Gains/(losses) on available-for-sale securities
|
|
$
|
0.9
|
|
|
$
|
(3.6
|
)
|
|
$
|
(4.1
|
)
|
|
Interest income and other, net
|
|
Gains/(losses) on cash flow hedges
|
|
(3.9
|
)
|
|
(3.9
|
)
|
|
70.7
|
|
|
Please refer to Note 3, Derivative Instruments for additional information.
|
|
Translation adjustment (1)
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
—
|
|
|
(24.1
|
)
|
|
—
|
|
|
Net gain resulting from divestiture of certain operations
|
|
East China joint venture
|
|
—
|
|
|
7.2
|
|
|
—
|
|
|
Gain resulting from acquisition of joint venture
|
|
Taiwan joint venture
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
Net gain resulting from divestiture of certain operations
|
|
Thailand
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
Net gain resulting from divestiture of certain operations
|
|
Other
|
|
—
|
|
|
(1.7
|
)
|
|
0.6
|
|
|
Interest income and other, net
|
|
|
|
(1.3
|
)
|
|
(24.7
|
)
|
|
67.2
|
|
|
Total before tax
|
|
|
|
(1.6
|
)
|
|
1.2
|
|
|
(14.0
|
)
|
|
Tax (expense)/benefit
|
|
|
|
$
|
(2.9
|
)
|
|
$
|
(23.5
|
)
|
|
$
|
53.2
|
|
|
Net of tax
|
|
|
|
|
(1)
|
Release of cumulative translation adjustments to earnings upon sale or liquidation of foreign businesses.
|
Note 12: 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 September 29, 2019, there were 52.6 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 12.4 million shares available for issuance under our ESPP.
Stock-based compensation expense recognized in the consolidated financial statements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Options
|
$
|
20.0
|
|
|
$
|
28.0
|
|
|
$
|
44.3
|
|
|
RSUs
|
288.0
|
|
|
222.3
|
|
|
131.7
|
|
|
Total stock-based compensation expense recognized in the consolidated statements of earnings
|
$
|
308.0
|
|
|
$
|
250.3
|
|
|
$
|
176.0
|
|
|
Total related tax benefit
|
$
|
59.3
|
|
|
$
|
62.4
|
|
|
$
|
57.6
|
|
|
Total capitalized stock-based compensation included in net property, plant and equipment and inventories on the consolidated balance sheets
|
$
|
3.4
|
|
|
$
|
3.5
|
|
|
$
|
1.9
|
|
Stock Option Plans
We provide stock options as a form of employee compensation, which are 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 immediately or one 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 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Options
Granted During the Period
|
|
Fiscal Year Ended
|
2019
|
|
2018
|
|
2017
|
|
Expected term (in years)
|
4.1
|
|
|
3.6
|
|
|
3.9
|
|
|
Expected stock price volatility
|
21.6
|
%
|
|
20.5
|
%
|
|
21.6
|
%
|
|
Risk-free interest rate
|
2.9
|
%
|
|
2.1
|
%
|
|
1.5
|
%
|
|
Expected dividend yield
|
2.1
|
%
|
|
2.2
|
%
|
|
1.8
|
%
|
|
Weighted average grant price
|
$
|
67.33
|
|
|
$
|
56.56
|
|
|
$
|
56.12
|
|
|
Estimated fair value per option granted
|
$
|
11.06
|
|
|
$
|
7.32
|
|
|
$
|
8.56
|
|
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 September 29, 2019 (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, September 30, 2018
|
27.3
|
|
|
$
|
42.13
|
|
|
5.2
|
|
$
|
418
|
|
|
Granted
|
0.5
|
|
|
67.33
|
|
|
|
|
|
|
Exercised
|
(11.6
|
)
|
|
32.46
|
|
|
|
|
|
|
Expired/forfeited
|
(1.0
|
)
|
|
56.13
|
|
|
|
|
|
|
Outstanding, September 29, 2019
|
15.2
|
|
|
49.45
|
|
|
5.0
|
|
592
|
|
|
Exercisable, September 29, 2019
|
10.2
|
|
|
45.38
|
|
|
3.7
|
|
440
|
|
|
Vested and expected to vest, September 29, 2019
|
14.9
|
|
|
49.33
|
|
|
5.0
|
|
583
|
|
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 September 29, 2019, total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested options was approximately $5 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 1.6 years. The total intrinsic value of options exercised was $466 million, $236 million, and $181 million during fiscal 2019, 2018 and 2017, respectively. The total fair value of options vested was $31 million, $53 million, and $40 million during fiscal 2019, 2018 and 2017, respectively.
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.
RSU transactions for the year ended September 29, 2019 (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, September 30, 2018
|
11.2
|
|
|
$
|
55.62
|
|
|
1.0
|
|
$
|
636
|
|
|
Granted
|
4.6
|
|
|
68.14
|
|
|
|
|
|
|
Vested
|
(4.6
|
)
|
|
55.71
|
|
|
|
|
|
|
Forfeited/canceled
|
(2.3
|
)
|
|
59.88
|
|
|
|
|
|
|
Nonvested, September 29, 2019
|
8.9
|
|
|
62.56
|
|
|
1.1
|
|
788
|
|
For fiscal 2018 and 2017, the weighted average fair value per RSU granted was $56.48 and $54.30, respectively. As of September 29, 2019, total unrecognized stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $165 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 $255 million, $166 million and $182 million during fiscal 2019, 2018 and 2017, 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 0.4 million in fiscal 2019.
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 $122.1 million, $111.7 million and $101.4 million in fiscal 2019, 2018 and 2017, respectively.
Note 13: Income Taxes
On December 22, 2017, the President of the United States signed and enacted comprehensive tax legislation into law H.R. 1, commonly referred to as the Tax Act. Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. The tax rate for fiscal 2019 and future years was reduced to 21% from our blended 24.5% in fiscal 2018. In the first quarter of fiscal 2019 the measurement period related to the Tax Act concluded, which resulted in immaterial adjustments to our provisional estimates.
While the Tax Act provides for a modified territorial tax system, global intangible low-taxed income (“GILTI”) provisions are applied providing an incremental tax on foreign income. We have made a policy election to classify taxes due under the GILTI provision as a current period expense.
Components of earnings before income taxes (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
United States
|
$
|
3,518.7
|
|
|
$
|
4,826.0
|
|
|
$
|
3,393.0
|
|
|
Foreign
|
947.5
|
|
|
954.0
|
|
|
924.5
|
|
|
Total earnings before income taxes
|
$
|
4,466.2
|
|
|
$
|
5,780.0
|
|
|
$
|
4,317.5
|
|
Provision/(benefit) for income taxes (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Current taxes:
|
|
|
|
|
|
|
U.S. federal
|
$
|
1,414.3
|
|
|
$
|
156.2
|
|
|
$
|
931.0
|
|
|
U.S. state and local
|
447.8
|
|
|
52.0
|
|
|
170.8
|
|
|
Foreign
|
458.3
|
|
|
327.0
|
|
|
216.6
|
|
|
Total current taxes
|
2,320.4
|
|
|
535.2
|
|
|
1,318.4
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
U.S. federal
|
(1,074.5
|
)
|
|
633.7
|
|
|
121.2
|
|
|
U.S. state and local
|
(322.4
|
)
|
|
101.5
|
|
|
14.2
|
|
|
Foreign
|
(51.9
|
)
|
|
(8.4
|
)
|
|
(21.2
|
)
|
|
Total deferred taxes
|
(1,448.8
|
)
|
|
726.8
|
|
|
114.2
|
|
|
Total income tax expense
|
$
|
871.6
|
|
|
$
|
1,262.0
|
|
|
$
|
1,432.6
|
|
Reconciliation of the statutory U.S. federal income tax rate with our effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Statutory rate
|
21.0
|
%
|
|
24.5
|
%
|
|
35.0
|
%
|
|
State income taxes, net of federal tax benefit
|
2.1
|
|
|
2.1
|
|
|
2.8
|
|
|
Foreign rate differential
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(2.8
|
)
|
|
Excess tax benefits of stock-based compensation
|
(2.1
|
)
|
|
(0.9
|
)
|
|
—
|
|
|
Residual tax on foreign earnings
|
1.7
|
|
|
—
|
|
|
—
|
|
|
Foreign derived intangible income
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
Tax impacts related to sale of certain operations
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
Domestic production activity deduction
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
Gain resulting from acquisition of joint venture
|
—
|
|
|
(5.8
|
)
|
|
—
|
|
|
Impact of the Tax Act
|
—
|
|
|
2.8
|
|
|
—
|
|
|
Other, net
|
(0.3
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
Effective tax rate
|
19.5
|
%
|
|
21.8
|
%
|
|
33.2
|
%
|
In the first quarter of fiscal 2019, we revised our indefinite reinvestment assertions for prior years' earnings from certain foreign subsidiaries. This change did not have a material impact to our financial results. As of September 29, 2019, in foreign subsidiaries in which we are partially indefinitely reinvested, the gross taxable temporary difference between the accounting basis and tax basis was approximately $1.3 billion, for which there could be up to approximately $300 million of unrecognized tax liability.
Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Deferred tax assets:
|
|
|
|
|
Property, plant and equipment
|
$
|
66.5
|
|
|
$
|
67.4
|
|
|
Intangible assets and goodwill
|
230.0
|
|
|
—
|
|
|
Accrued occupancy costs
|
121.6
|
|
|
109.0
|
|
|
Accrued compensation and related costs
|
62.7
|
|
|
64.2
|
|
|
Stored value card liability and deferred revenue
|
1,649.0
|
|
|
144.2
|
|
|
Stock-based compensation
|
77.5
|
|
|
96.7
|
|
|
Net operating losses
|
75.6
|
|
|
79.2
|
|
|
Other
|
130.7
|
|
|
129.5
|
|
|
Total
|
$
|
2,413.6
|
|
|
$
|
690.2
|
|
|
Valuation allowance
|
(75.1
|
)
|
|
(129.3
|
)
|
|
Total deferred tax asset, net of valuation allowance
|
$
|
2,338.5
|
|
|
$
|
560.9
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
(400.9
|
)
|
|
(348.1
|
)
|
|
Intangible assets and goodwill
|
(209.9
|
)
|
|
(274.2
|
)
|
|
Other
|
(148.3
|
)
|
|
(74.1
|
)
|
|
Total
|
(759.1
|
)
|
|
(696.4
|
)
|
|
Net deferred tax asset (liability)
|
$
|
1,579.4
|
|
|
$
|
(135.5
|
)
|
|
Reported as:
|
|
|
|
|
Deferred income tax assets
|
1,765.8
|
|
|
134.7
|
|
|
Deferred income tax liabilities (included in Other long-term liabilities)
|
(186.4
|
)
|
|
(270.2
|
)
|
|
Net deferred tax asset (liability)
|
$
|
1,579.4
|
|
|
$
|
(135.5
|
)
|
The valuation allowance as of September 29, 2019 and September 30, 2018 was primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.
As of September 29, 2019, we had federal net operating loss carryforwards of $41.8 million which have an indefinite carryforward period, state net operating loss carryforwards of $78.1 million which will begin to expire in fiscal 2024, state tax credit carryforwards of $3.5 million which will begin to expire in fiscal 2024, and foreign net operating loss carryforwards of $246.2 million, of which $109.5 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2020.
Uncertain Tax Positions
As of September 29, 2019, we had $132.1 million of gross unrecognized tax benefits of which $113.2 million, if recognized, would affect our effective tax rate. We recognized a benefit of $2.8 million, a benefit of $0.5 million and an expense of $5.2 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2019, 2018 and 2017, respectively. As of September 29, 2019 and September 30, 2018, we had accrued interest and penalties of $10.0 million and $12.8 million, respectively, within our consolidated balance sheets.
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Beginning balance
|
$
|
224.6
|
|
|
$
|
196.9
|
|
|
$
|
146.5
|
|
|
Increase related to prior year tax positions
|
3.8
|
|
|
17.5
|
|
|
10.4
|
|
|
Decrease related to prior year tax positions
|
(75.3
|
)
|
|
(41.8
|
)
|
|
—
|
|
|
Increase related to current year tax positions
|
18.5
|
|
|
62.4
|
|
|
41.3
|
|
|
Decreases related to settlements with taxing authorities
|
(16.4
|
)
|
|
(4.5
|
)
|
|
—
|
|
|
Decrease related to lapsing of statute of limitations
|
(23.1
|
)
|
|
(5.9
|
)
|
|
(1.3
|
)
|
|
Ending balance
|
$
|
132.1
|
|
|
$
|
224.6
|
|
|
$
|
196.9
|
|
We are currently under examination, or may be subject to examination, by various U.S. federal, state, local and foreign tax jurisdictions for fiscal 2008 through 2018. We are no longer subject to U.S. federal examination for years prior to fiscal 2016. We are no longer subject to U.S. state examination for years prior to fiscal 2011. We are no longer subject to examination in any material international markets prior to 2008.
It is reasonably possible that up to $29 million of the Company's gross unrecognized tax benefits may be recognized by the end of fiscal 2020 for reasons such as a lapse of the statute of limitations or resolution of examinations with tax authorities.
Note 14: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Net earnings attributable to Starbucks
|
$
|
3,599.2
|
|
|
$
|
4,518.3
|
|
|
$
|
2,884.7
|
|
|
Weighted average common shares outstanding (for basic calculation)
|
1,221.2
|
|
|
1,382.7
|
|
|
1,449.5
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
12.0
|
|
|
11.9
|
|
|
12.0
|
|
|
Weighted average common and common equivalent shares outstanding (for diluted calculation)
|
1,233.2
|
|
|
1,394.6
|
|
|
1,461.5
|
|
|
EPS — basic
|
$
|
2.95
|
|
|
$
|
3.27
|
|
|
$
|
1.99
|
|
|
EPS — diluted
|
$
|
2.92
|
|
|
$
|
3.24
|
|
|
$
|
1.97
|
|
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. As of September 29, 2019, we had no out-of-the-money stock options, compared to 14.1 million and 11.4 million as of September 30, 2018 and October 1, 2017, respectively.
Note 15: Commitments and Contingencies
Legal Proceedings
On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al. On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al.. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee
bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (OEHHA) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial.
On June 3, 2019, the Office of Administrative Law (OAL) approved the coffee exemption regulation. The regulation will be effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. A status conference before the trial judge to discuss discovery issues and dispositive motions is scheduled for January 21, 2020. At this stage of the proceedings, Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is less than reasonably possible. Accordingly, no loss contingency was recorded for this matter.
Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 16: Segment Reporting
Segment information is prepared on the same basis that our ceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results, and makes key operating decisions.
We have three reportable operating segments: 1) Americas, which is inclusive of the U.S., Canada, and Latin America; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, and Africa; and 3) Channel Development.
Americas and International 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 Americas segment is our most mature business and has achieved significant scale.
Channel Development revenues include packaged coffee sales, tea and ready-to-drink beverages to customers outside of our company-operated and licensed stores. Historically revenues have included domestic and international sales of our packaged coffee, tea and ready-to-drink products to grocery, warehouse club and specialty retail stores and through institutional foodservice companies which serviced businesses. Since the fourth quarter of fiscal 2018, most of our Channel Development revenues are from product sales to and royalty revenues from Nestlé. The collaborative business relationships for ready-to-drink products and the associated revenues remain unchanged due to the Global Coffee Alliance.
Consolidated revenue mix by product type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Beverage
|
$
|
15,921.2
|
|
|
60
|
%
|
|
$
|
14,463.1
|
|
|
59
|
%
|
|
$
|
12,915.0
|
|
|
58
|
%
|
|
Food
|
4,792.8
|
|
|
18
|
%
|
|
4,397.7
|
|
|
18
|
%
|
|
3,832.1
|
|
|
17
|
%
|
|
Packaged and single-serve coffees and teas
|
2,126.8
|
|
|
8
|
%
|
|
2,797.5
|
|
|
11
|
%
|
|
2,883.6
|
|
|
13
|
%
|
|
Other (1)
|
3,667.8
|
|
|
14
|
%
|
|
3,061.2
|
|
|
12
|
%
|
|
2,756.1
|
|
|
12
|
%
|
|
Total
|
$
|
26,508.6
|
|
|
100
|
%
|
|
$
|
24,719.5
|
|
|
100
|
%
|
|
$
|
22,386.8
|
|
|
100
|
%
|
|
|
|
|
(1)
|
“Other” primarily consists of 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
|
Sep 29, 2019
|
|
Sep 30, 2018
|
|
Oct 1, 2017
|
|
Net revenues:
|
|
|
|
|
|
|
United States
|
$
|
18,622.7
|
|
|
$
|
17,409.4
|
|
|
$
|
16,527.1
|
|
|
Other countries
|
7,885.9
|
|
|
7,310.1
|
|
|
5,859.7
|
|
|
Total
|
$
|
26,508.6
|
|
|
$
|
24,719.5
|
|
|
$
|
22,386.8
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
United States
|
$
|
7,330.2
|
|
|
$
|
5,635.9
|
|
|
$
|
5,848.3
|
|
|
Other countries
|
6,235.5
|
|
|
6,026.3
|
|
|
3,234.0
|
|
|
Total
|
$
|
13,565.7
|
|
|
$
|
11,662.2
|
|
|
$
|
9,082.3
|
|
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. consist primarily of revenues from China, Japan, Canada and the U.K., which together account for approximately 83% of net revenues from other countries for fiscal 2019.
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. The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include cash and cash equivalents, net property, plant and equipment, equity and cost investments, goodwill, and other intangible assets. Assets not attributed to reportable operating segments 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 Corporate and Other segment for the years ended September 29, 2019, September 30, 2018 and October 1, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
|
Fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
18,259.0
|
|
|
$
|
6,190.7
|
|
|
$
|
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)
|
3,782.8
|
|
|
964.7
|
|
|
697.5
|
|
|
(1,367.1
|
)
|
|
4,077.9
|
|
|
Total assets
|
$
|
4,446.7
|
|
|
$
|
6,724.6
|
|
|
$
|
132.2
|
|
|
$
|
7,916.1
|
|
|
$
|
19,219.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
16,748.6
|
|
|
$
|
5,551.2
|
|
|
$
|
2,297.3
|
|
|
$
|
122.4
|
|
|
$
|
24,719.5
|
|
|
Depreciation and amortization expenses
|
641.0
|
|
|
447.6
|
|
|
1.3
|
|
|
157.1
|
|
|
1,247.0
|
|
|
Income from equity investees
|
—
|
|
|
117.4
|
|
|
183.8
|
|
|
—
|
|
|
301.2
|
|
|
Operating income/(loss)
|
3,485.2
|
|
|
872.8
|
|
|
927.1
|
|
|
(1,401.8
|
)
|
|
3,883.3
|
|
|
Total assets
|
$
|
4,473.7
|
|
|
$
|
6,361.9
|
|
|
$
|
148.2
|
|
|
$
|
13,172.6
|
|
|
$
|
24,156.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
15,629.4
|
|
|
$
|
4,204.3
|
|
|
$
|
2,256.6
|
|
|
$
|
296.5
|
|
|
$
|
22,386.8
|
|
|
Depreciation and amortization expenses
|
616.1
|
|
|
233.2
|
|
|
3.0
|
|
|
159.1
|
|
|
1,011.4
|
|
|
Income from equity investees
|
—
|
|
|
197.0
|
|
|
194.4
|
|
|
—
|
|
|
391.4
|
|
|
Operating income/(loss)
|
3,577.2
|
|
|
835.6
|
|
|
967.0
|
|
|
(1,245.1
|
)
|
|
4,134.7
|
|
|
Total assets
|
$
|
3,374.9
|
|
|
$
|
3,117.1
|
|
|
$
|
129.1
|
|
|
$
|
7,744.5
|
|
|
$
|
14,365.6
|
|
Note 17: Selected Quarterly Financial Information (unaudited; in millions, except EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
|
Fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
6,632.7
|
|
|
$
|
6,305.9
|
|
|
$
|
6,823.0
|
|
|
$
|
6,747.0
|
|
|
$
|
26,508.6
|
|
|
Operating income
|
1,015.7
|
|
|
857.7
|
|
|
1,121.3
|
|
|
1,083.3
|
|
|
4,077.9
|
|
|
Net earnings attributable to Starbucks
|
760.6
|
|
|
663.2
|
|
|
1,372.8
|
|
|
802.9
|
|
|
3,599.2
|
|
|
EPS — diluted
|
0.61
|
|
|
0.53
|
|
|
1.12
|
|
|
0.67
|
|
|
2.92
|
|
|
Fiscal 2018:
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
6,073.7
|
|
|
$
|
6,031.8
|
|
|
$
|
6,310.3
|
|
|
$
|
6,303.6
|
|
|
$
|
24,719.5
|
|
|
Operating income
|
1,116.1
|
|
|
772.5
|
|
|
1,038.2
|
|
|
956.6
|
|
|
3,883.3
|
|
|
Net earnings attributable to Starbucks
|
2,250.2
|
|
|
660.1
|
|
|
852.5
|
|
|
755.8
|
|
|
4,518.3
|
|
|
EPS — diluted
|
1.57
|
|
|
0.47
|
|
|
0.61
|
|
|
0.56
|
|
|
3.24
|
|