NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited consolidated financial statements as of March 29, 2020, and for the quarter and two quarters ended March 29, 2020 and March 31, 2019, have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for the quarter and two quarters ended March 29, 2020 and March 31, 2019 reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q (“10-Q”), Starbucks Corporation is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
In the fourth quarter of fiscal 2019, we changed the classification of certain costs on our consolidated statements of earnings and revised prior period information to be consistent with the current period presentation. The most significant impact for the quarter and two quarters ended March 31, 2019, was the reclassification of our company-operated store occupancy costs from costs of sales to store operating expenses of approximately $591.8 million and $1.2 billion, respectively. We also made certain other immaterial changes. There was no impact to consolidated revenues, consolidated operating income, or net earnings per share as a result of these changes. Additionally, certain prior period information on the consolidated statements of cash flows was reclassified to conform to the current year presentation.
The financial information as of September 29, 2019 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 29, 2019 (“fiscal 2019”) included in Item 8 in the Fiscal 2019 Annual Report on Form 10-K (“10-K”). The information included in this 10-Q should be read in conjunction with the footnotes and management’s discussion and analysis of the consolidated financial statements in the 10-K.
The results of operations for the quarter and two quarters ended March 29, 2020 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 27, 2020 (“fiscal 2020”).
COVID-19
In December 2019, a novel strain of coronavirus (“COVID-19“) was first identified, and in March 2020, the World Health Organization categorized COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our partners (employees) and customers, we began temporarily closing or modifying operating models and hours of our retail stores in many markets both in response to governmental requirements and voluntarily, beyond the requirements of local authorities, during the second quarter of fiscal 2020.
Changes made in our operations, combined with reduced customer traffic, resulted in material reductions in revenues and operating income during the second quarter of fiscal 2020, which prompted us to update our impairment analyses of our company-operated retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability. As a result, we recorded an immaterial asset impairment charge within store operating expenses on our consolidated statement of earnings during the quarter ended March 29, 2020.
We also evaluated our goodwill and indefinite-lived intangible assets at the end of the fiscal second quarter. Our most recently completed goodwill impairment analyses indicated significant excess fair values over carrying values across the different reporting units. Since we expect the negative financial impacts from the outbreak to be temporary, they do not significantly affect the assumptions underpinning our long-term revenue and cash flow growth rates, operating models and business strategies. Therefore, we do not consider the outbreak to be a triggering event to accelerate our annual goodwill impairment analysis. As a result, no impairment charges for goodwill and indefinite-lived intangible assets were recorded during the quarter.
We evaluated our remaining assets, particularly accounts receivable and inventory. Our accounts receivable are mainly comprised of net unpaid invoices for product sales to and royalties from our licensees. Our allowance for doubtful accounts is calculated based on historical experience, licensee credit risk and application of the specific identification method. We also assessed incremental risks due to COVID-19 on our licensees' financial viability. To assist our international licensed partners during the outbreak, we provided a short-term payment extension for their outstanding receivables as of the end of the fiscal second quarter. We do not believe the form and length of the extension changed our revenue recognition policy or had a significant impact to future collectability. Based on these actions during the quarter ended March 29, 2020, we did not observe a significant deterioration of our receivable portfolio to warrant a significant increase in bad debt expense. We will continue to
monitor our accounts receivable as we also committed to providing other forms of relief to certain licensees during the third quarter of fiscal 2020, which may reduce our revenues.
Our inventories are stated at the lower of cost (primarily moving average cost) or net realizable value. We record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the fiscal quarter ended March 29, 2020, we recorded significant inventory write-offs due to expired or the expected expiration of perishable ingredients and products as a result of excess inventory due to the temporary closure of our retail stores. See Note 5, Inventories, for additional details. Depending on the pace of reopening of company-operated stores as well as future customer behaviors, among other factors, we may incur additional inventory write-offs during the third quarter of fiscal 2020.
During the second quarter of fiscal 2020, we received an immaterial amount of COVID-19-related rent concessions for certain stores in China, generally correlating with the limited time period our stores were closed during stay-at-home mandates. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we have elected to treat COVID-19-related rent concessions as variable rent. While we are having ongoing conversations with landlords in various markets in seeking commercially reasonable lease concessions given the current environment, we have not yet confirmed significant concessions for the remainder of the year.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments. Based on our preliminary evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which will be treated as government subsidies to offset relating operating expenses. During the quarter ended March 29, 2020, the qualified payroll tax credits reduced our store operating expenses by approximately $35 million on our consolidated statement of earnings. We expect to record additional payroll tax credits from the U.S. and other governments primarily in our fiscal third quarter to offset qualified wages paid to our partners. We intend to defer qualified payroll and other tax payments as permitted by the CARES Act.
We recorded our income tax expense, deferred tax assets and related liabilities based on management’s best estimates. Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets. As of the end of the fiscal quarter, we did not record significant valuation allowance adjustments based on available evidence. However, we will continue to monitor the realizability of our deferred tax assets, particularly in certain foreign jurisdictions where the outbreak has started to create significant net operating losses. Our ability to recover these deferred tax assets depends on several factors, including our results of operations and our ability to project future taxable income in those jurisdictions. If we determine that some portion of the tax benefit will not be realized, we would record a valuation allowance, which would increase our income tax expense. Total deferred tax assets as of the end of the fiscal second quarter were approximately $1.7 billion, of which approximately $100 million related to foreign jurisdictions where we expect to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across the jurisdictions.
The COVID-19 pandemic remains a rapidly evolving situation. The continuation of the outbreak may cause prolonged periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our company-operated and licensed stores. These may lead to increased asset recovery and valuation risks, such as impairment of our company-operated store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy will likely impact the financial viability of our suppliers, licensees and other business partners, which may interrupt our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors will adversely impact our net revenues, operating income and earnings per share financial measures.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In the second quarter of fiscal 2020, we adopted the new guidance from the FASB on simplifying the accounting for income taxes by removing certain exceptions to the general principles. The guidance was adopted on a prospective basis and had no material impact on the consolidated financial statements.
On September 30, 2019, we adopted the new guidance from the FASB on the recognition and measurement of leases utilizing the modified retrospective approach. As a result, the prior period information reported under the previous lease guidance has not been restated.
As permitted under the new FASB lease guidance, we elected the package of practical expedients, which allowed us to retain our prior conclusions regarding lease identification, classification and initial direct costs. For our lease agreements with lease and non-lease components, we elected the practical expedient to account for these as a single lease component for all underlying classes of assets. For our adoption, we did not elect to use hindsight for our existing leases. Additionally, for short-term leases with an initial lease term of 12 months or less and with purchase options we are reasonably certain will not be
exercised, we elected to not record right-of-use assets or corresponding lease obligations on our consolidated balance sheet. We will continue to record rent expense for each short-term lease on a straight-line basis over the lease term.
The new FASB lease guidance had a material impact on our consolidated balance sheet; however, it did not have a material impact on our consolidated statement of earnings. The most material impact was the recognition of right-of-use assets of $8.4 billion upon adoption, with corresponding lease liabilities of $9.0 billion relating to our operating leases. Existing deferred rent and tenant improvement allowances of approximately $568.0 million, previously recorded within other long-term liabilities, were recorded as an offset to our gross operating lease right-of-use assets. Additionally, pursuant to the transition guidance, we derecognized build-to-suit lease assets, previously recorded in property, plant and equipment, net, along with the corresponding liabilities on the consolidated balance sheet as of September 30, 2019. Accordingly, these leases have been recorded as operating leases as of the adoption date and are now included in operating lease, right-of-use assets and operating lease liabilities on the consolidated balance sheet. As of the adoption date, accumulated deficit within shareholder's equity on our consolidated balance sheet decreased by $17.3 million, primarily related to the derecognition of build-to-suit leasing arrangements.
See Note 9, Leases, for further discussion regarding the adoption of the new guidance.
In the first quarter of fiscal 2020, we adopted the new guidance from the FASB on the reclassification of certain tax effects from accumulated other comprehensive income (“AOCI”) which permits entities to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from AOCI to retained earnings. The guidance was adopted prospectively with no material impact on the consolidated financial statements as of March 29, 2020.
Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates, but do not expect a significant impact to our consolidated financial statements.
Note 2: Acquisitions, Divestitures and Strategic Alliance
Fiscal 2019
In the third quarter of fiscal 2019, we sold our company-operated retail business in Thailand to Coffee Concepts Thailand, a joint venture between Maxim's Caterers Limited and F&N Retail Connection Co. Ltd, converting this operation to a fully licensed market. This transaction resulted in a pre-tax gain of $601.9 million, which was included in net gains resulting from divestiture of certain operations on our consolidated statements of earnings.
In the second quarter of fiscal 2019, we sold our company-operated retail businesses in France and the Netherlands to Alsea, S.A.B. de C.V. converting these operations to fully licensed markets. These transactions did not have a material impact to our consolidated financial statements.
Note 3: Derivative Financial Instruments
Interest Rates
From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in AOCI and is subsequently reclassified to interest expense over the life of the related debt.
To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 8, Debt, for additional information on our long-term debt.
Foreign Currency
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, cost of sales, or interest income and other, net, respectively, when the hedged exposures affect net earnings.
From time to time, we may enter into financial instruments, including, but not limited to, forward and swap contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are generally 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.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the underlying transactions are no longer likely to occur, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings. During the quarter ended March 29, 2020, we de-designated certain cash flow hedges due to the global COVID-19 impacts, resulting in the release of an insignificant net gain from AOCI to our consolidated statement of earnings. We continue to believe transactions relating to our other designated cash flow hedges are probable to occur as of the end of the fiscal quarter.
Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (in millions):
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Net Gains/(Losses)
Included in AOCI
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Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months
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Outstanding Contract/Debt Remaining Maturity
(Months)
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Mar 29,
2020
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Sep 29,
2019
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Cash Flow Hedges:
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|
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|
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|
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Interest rates
|
$
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(87.5)
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$
|
0.5
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|
|
$
|
3.1
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|
151
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|
Cross-currency swaps
|
1.7
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|
|
(1.4)
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|
|
—
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|
|
56
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|
Foreign currency - other
|
26.8
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|
|
12.9
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|
13.8
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|
36
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|
Coffee
|
(2.0)
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|
(1.0)
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0.2
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|
21
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|
Dairy
|
(3.8)
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—
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|
|
(3.8)
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|
8
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|
Net Investment Hedges:
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Foreign currency
|
16.0
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|
16.0
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—
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0
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|
Cross-currency swaps
|
45.9
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—
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—
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|
114
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|
Foreign currency debt
|
(14.1)
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|
|
(26.1)
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|
—
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|
48
|
Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings (in millions):
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Quarter Ended
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Gains/(Losses)
Recognized in
OCI Before Reclassifications
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|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
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|
|
Location of gain/(loss)
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|
|
|
|
|
Mar 29,
2020
|
|
Mar 31,
2019
|
|
Mar 29,
2020
|
|
Mar 31,
2019
|
|
|
|
Cash Flow Hedges:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
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$
|
(140.6)
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|
$
|
(14.9)
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|
$
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0.5
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|
|
$
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1.4
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|
|
Interest expense
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|
Cross-currency swaps
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|
2.9
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|
5.4
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|
(0.4)
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|
(0.1)
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|
Interest expense
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0.2
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|
1.4
|
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|
Interest income and other, net
|
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|
Foreign currency - other
|
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|
26.8
|
|
|
(2.9)
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|
|
0.9
|
|
|
1.3
|
|
|
Licensed stores revenues
|
|
|
|
|
|
|
|
|
|
|
(1.0)
|
|
|
1.7
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
—
|
|
|
Interest income and other, net (1)
|
|
Coffee
|
|
|
|
(12.1)
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
Cost of sales
|
|
|
Dairy
|
|
|
|
(4.9)
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|
|
—
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|
|
0.7
|
|
|
—
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
(0.6)
|
|
|
—
|
|
|
Interest income and other, net(1)
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
58.0
|
|
|
—
|
|
|
3.9
|
|
|
—
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|
|
Interest expense
|
|
|
Foreign currency debt
|
|
|
|
(0.4)
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|
2.9
|
|
|
—
|
|
|
—
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|
|
|
|
(1)As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the quarter ended March 29, 2020.
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|
Two Quarters Ended
|
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|
Gains/(Losses)
Recognized in
OCI Before Reclassifications
|
|
|
|
Gains/(Losses) Reclassified from
AOCI to Earnings
|
|
|
|
Location of gain/(loss)
|
|
|
|
|
|
Mar 29,
2020
|
|
Mar 31,
2019
|
|
Mar 29,
2020
|
|
Mar 31,
2019
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
|
|
|
$
|
(120.6)
|
|
|
$
|
(30.6)
|
|
|
$
|
1.3
|
|
|
$
|
2.8
|
|
|
Interest expense
|
|
|
Cross-currency swaps
|
|
|
|
9.1
|
|
|
(2.6)
|
|
|
(0.6)
|
|
|
(0.5)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
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|
5.8
|
|
|
|
(9.9)
|
|
|
Interest income and other, net
|
|
|
Foreign currency - other
|
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|
|
22.1
|
|
|
11.7
|
|
|
2.6
|
|
|
|
2.7
|
|
|
Licensed stores revenues
|
|
|
|
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|
|
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|
(1.3)
|
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|
2.2
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
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|
2.0
|
|
|
—
|
|
|
Interest income and other, net (1)
|
|
Coffee
|
|
|
|
(1.1)
|
|
|
—
|
|
|
—
|
|
|
|
(0.3)
|
|
|
Cost of sales
|
|
|
Dairy
|
|
|
|
(5.0)
|
|
|
—
|
|
|
0.7
|
|
|
|
—
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
(0.6)
|
|
|
—
|
|
|
Interest income and other, net(1)
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
|
68.7
|
|
|
—
|
|
|
7.2
|
|
|
|
—
|
|
|
Interest expense
|
|
Foreign currency debt
|
|
|
|
12.6
|
|
|
(19.0)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1)As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the quarter ended March 29, 2020.
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|
Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings (in millions):
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Gains/(Losses) Recognized in Earnings
|
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|
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|
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|
Location of gain/(loss) recognized in earnings
|
|
Quarter Ended
|
|
|
|
Two Quarters Ended
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Non-Designated Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency - other
|
Interest income and other, net
|
|
|
$
|
4.9
|
|
|
$
|
0.5
|
|
|
$
|
8.3
|
|
|
$
|
(7.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy
|
Interest income and other, net
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
(2.2)
|
|
|
Diesel fuel and other commodities
|
Interest income and other, net
|
|
|
(8.9)
|
|
|
1.9
|
|
|
(8.0)
|
|
|
(4.7)
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Interest expense
|
|
|
35.2
|
|
|
10.1
|
|
|
24.3
|
|
|
26.2
|
|
|
Long-term debt (hedged item)
|
Interest expense
|
|
|
(27.5)
|
|
|
(11.6)
|
|
|
(23.3)
|
|
|
(28.5)
|
|
Notional amounts of outstanding derivative contracts (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Interest rate swap
|
$
|
1,750
|
|
|
$
|
1,500
|
|
|
Cross-currency swaps
|
1,004
|
|
|
341
|
|
|
Foreign currency - other
|
1,120
|
|
|
1,125
|
|
|
Coffee
|
96
|
|
|
52
|
|
|
Dairy
|
49
|
|
|
1
|
|
|
Diesel fuel and other commodities
|
24
|
|
|
17
|
|
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
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Designated Derivative Instruments:
|
|
|
|
|
|
|
Interest rates
|
Other long-term assets
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Cross-currency swaps
|
Other long-term assets
|
|
67.6
|
|
|
0.2
|
|
|
Foreign currency - other
|
Prepaid expenses and other current assets
|
|
|
22.7
|
|
|
11.4
|
|
|
|
Other long-term assets
|
|
16.7
|
|
|
7.8
|
|
|
Coffee
|
Prepaid expenses and other current assets
|
|
1.0
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Dairy
|
Prepaid expenses and other current assets
|
|
|
1.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Other long-term assets
|
|
|
42.5
|
|
|
18.2
|
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
|
Foreign currency
|
Prepaid expenses and other current assets
|
|
|
5.1
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Diesel fuel and other commodities
|
Prepaid expenses and other current assets
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
Balance Sheet Location
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Designated Derivative Instruments:
|
|
|
|
|
|
|
Interest rates
|
Other long-term liabilities
|
|
$
|
67.0
|
|
|
$
|
2.6
|
|
|
Cross-currency swaps
|
Other long-term liabilities
|
|
|
6.0
|
|
|
9.7
|
|
|
Foreign currency - other
|
Accrued liabilities
|
|
|
0.1
|
|
|
0.6
|
|
|
|
Other long-term liabilities
|
|
|
0.4
|
|
|
0.1
|
|
|
Coffee
|
Accrued liabilities
|
|
|
4.5
|
|
|
1.0
|
|
|
|
Other long-term liabilities
|
|
|
0.1
|
|
|
0.1
|
|
|
Dairy
|
Accrued liabilities
|
|
6.9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Non-designated Derivative Instruments:
|
|
|
|
|
|
|
Foreign currency
|
Accrued liabilities
|
|
|
3.4
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel fuel and other commodities
|
Accrued liabilities
|
|
|
7.4
|
|
|
1.1
|
|
The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of hedged item
|
|
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Location on the balance sheet
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
785.1
|
|
|
$
|
761.8
|
|
|
$
|
35.1
|
|
|
$
|
11.8
|
|
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 11, Equity.
Note 4: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Balance at
March 29,2020
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,572.3
|
|
|
$
|
2,572.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
3.1
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities
|
3.1
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
Marketable equity securities
|
49.8
|
|
|
49.8
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
52.9
|
|
|
49.8
|
|
|
3.1
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
30.1
|
|
|
1.5
|
|
|
28.6
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
87.7
|
|
|
—
|
|
|
87.7
|
|
|
—
|
|
|
Auction rate securities
|
5.7
|
|
|
—
|
|
|
—
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government treasury securities
|
101.5
|
|
|
101.5
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
3.6
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
Mortgage and other asset-backed securities
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
198.8
|
|
|
101.5
|
|
|
91.6
|
|
|
5.7
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
126.8
|
|
|
—
|
|
|
126.8
|
|
|
—
|
|
|
Total assets
|
$
|
2,980.9
|
|
|
$
|
2,725.1
|
|
|
$
|
250.1
|
|
|
$
|
5.7
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
22.3
|
|
|
$
|
7.7
|
|
|
$
|
14.6
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
73.5
|
|
|
0.1
|
|
|
73.4
|
|
|
—
|
|
|
Total liabilities
|
$
|
95.8
|
|
|
$
|
7.8
|
|
|
$
|
88.0
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Balance at September 29, 2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,686.6
|
|
|
$
|
2,686.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
Commercial paper
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
Corporate debt securities
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
Marketable equity securities
|
66.5
|
|
|
66.5
|
|
|
—
|
|
|
—
|
|
|
Total short-term investments
|
70.5
|
|
|
66.5
|
|
|
4.0
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
12.6
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
101.2
|
|
|
—
|
|
|
101.2
|
|
|
—
|
|
|
Auction rate securities
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government treasury securities
|
106.5
|
|
|
106.5
|
|
|
—
|
|
|
—
|
|
|
State and local government obligations
|
4.9
|
|
|
—
|
|
|
4.9
|
|
|
—
|
|
|
Mortgage and other asset-backed
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
220.0
|
|
|
106.5
|
|
|
107.7
|
|
|
5.8
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Derivative assets
|
26.3
|
|
|
—
|
|
|
26.3
|
|
|
—
|
|
|
Total assets
|
$
|
3,016.0
|
|
|
$
|
2,859.6
|
|
|
$
|
150.6
|
|
|
$
|
5.8
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
5.7
|
|
|
$
|
1.1
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
12.5
|
|
|
—
|
|
|
12.5
|
|
|
—
|
|
|
Total liabilities
|
$
|
18.2
|
|
|
$
|
1.1
|
|
|
$
|
17.1
|
|
|
$
|
—
|
|
There were no material transfers between levels, and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.
Gross unrealized holding gains and losses on available-for-sale debt securities and marketable equity securities were not material as of March 29, 2020 and September 29, 2019.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets and other assets. These assets are measured at fair value if determined to be impaired. As discussed in Note 1, Summary of Significant Accounting Policies, we recorded an immaterial impairment charge during the quarter ended March 29, 2020.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 8, Debt. There were no material fair value adjustments during the two quarters ended March 29, 2020 and March 31, 2019.
Note 5: Inventories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Coffee:
|
|
|
|
|
Unroasted
|
$
|
663.3
|
|
|
$
|
656.5
|
|
|
Roasted
|
233.8
|
|
|
276.5
|
|
|
Other merchandise held for sale
|
309.0
|
|
|
288.0
|
|
|
Packaging and other supplies
|
286.1
|
|
|
308.4
|
|
|
Total
|
$
|
1,492.2
|
|
|
$
|
1,529.4
|
|
Other merchandise held for sale includes, among other items, serveware, food and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations.
As of March 29, 2020, we had committed to purchasing green coffee totaling $861 million under fixed-price contracts and an estimated $463 million under price-to-be-fixed contracts. We expect to take physical delivery for these contracts. A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures. See Note 3, Derivative Financial Instruments, for further discussion. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on relationships established with our suppliers in the past and continuous monitoring, the risk of non-delivery on these purchase commitments is remote.
During our second fiscal quarter, we wrote off approximately $50 million of inventory that was expiring or expected to expire due to COVID-19 related store closures, primarily perishable food and beverage ingredients located at our stores, distribution centers and suppliers.
Note 6: Supplemental Balance Sheet Information (in millions):
Prepaid Expenses and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Income tax receivable
|
$
|
390.8
|
|
|
$
|
141.1
|
|
|
Other prepaid expenses and current assets
|
300.7
|
|
|
347.1
|
|
|
Total prepaid expenses and current assets
|
$
|
691.5
|
|
|
$
|
488.2
|
|
Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Land
|
$
|
46.8
|
|
|
$
|
46.8
|
|
|
Buildings
|
575.9
|
|
|
691.5
|
|
|
Leasehold improvements
|
8,169.4
|
|
|
7,948.6
|
|
|
Store equipment
|
2,724.1
|
|
|
2,659.5
|
|
|
Roasting equipment
|
799.8
|
|
|
769.6
|
|
|
Furniture, fixtures and other
|
1,881.0
|
|
|
1,799.0
|
|
|
Work in progress
|
384.1
|
|
|
358.5
|
|
|
Property, plant and equipment, gross
|
14,581.1
|
|
|
14,273.5
|
|
|
Accumulated depreciation
|
(8,194.1)
|
|
|
(7,841.8)
|
|
|
Property, plant and equipment, net
|
$
|
6,387.0
|
|
|
$
|
6,431.7
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Accrued occupancy costs
|
$
|
57.7
|
|
|
$
|
176.9
|
|
|
Accrued dividends payable
|
478.9
|
|
|
485.7
|
|
|
Accrued capital and other operating expenditures
|
634.9
|
|
|
703.9
|
|
|
Self insurance reserves
|
233.8
|
|
|
210.5
|
|
|
Accrued business taxes
|
133.7
|
|
|
176.7
|
|
|
Total accrued liabilities
|
$
|
1,539.0
|
|
|
$
|
1,753.7
|
|
Note 7: Other Intangible Assets and Goodwill
Refer to Note 1, Summary of Significant Accounting Policies, for impairment considerations during the quarter ended March 29, 2020 due to COVID-19.
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Mar 29, 2020
|
|
Sep 29, 2019
|
|
Trade names, trademarks and patents
|
$
|
204.2
|
|
|
$
|
203.4
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
|
|
|
|
Sep 29, 2019
|
|
|
|
|
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Acquired and reacquired rights
|
$
|
1,076.9
|
|
|
$
|
(637.2)
|
|
|
$
|
439.7
|
|
|
$
|
1,075.0
|
|
|
$
|
(537.2)
|
|
|
$
|
537.8
|
|
|
Acquired trade secrets and processes
|
27.6
|
|
|
(20.6)
|
|
|
7.0
|
|
|
27.6
|
|
|
(19.2)
|
|
|
8.4
|
|
|
Trade names, trademarks and patents
|
41.3
|
|
|
(24.5)
|
|
|
16.8
|
|
|
40.6
|
|
|
(22.9)
|
|
|
17.7
|
|
|
Licensing agreements
|
15.9
|
|
|
(13.2)
|
|
|
2.7
|
|
|
16.2
|
|
|
(12.2)
|
|
|
4.0
|
|
|
Other finite-lived intangible assets
|
22.2
|
|
|
(13.9)
|
|
|
8.3
|
|
|
22.0
|
|
|
(11.5)
|
|
|
10.5
|
|
|
Total finite-lived intangible assets
|
$
|
1,183.9
|
|
|
$
|
(709.4)
|
|
|
$
|
474.5
|
|
|
$
|
1,181.4
|
|
|
$
|
(603.0)
|
|
|
$
|
578.4
|
|
Amortization expense for finite-lived intangible assets was $54.5 million and $108.6 million for the quarter and two quarters ended March 29, 2020 and $68.7 million and $123.1 million for the quarter and two quarters ended March 31, 2019, respectively.
Estimated future amortization expense as of March 29, 2020 (in millions):
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
Total
|
|
2020 (excluding the two quarters ended March 29, 2020)
|
$
|
107.6
|
|
|
2021
|
195.7
|
|
|
2022
|
161.4
|
|
|
2023
|
2.8
|
|
|
2024
|
2.2
|
|
|
Thereafter
|
4.8
|
|
|
Total estimated future amortization expense
|
$
|
474.5
|
|
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
|
Goodwill balance at September 29, 2019
|
$
|
496.7
|
|
|
$
|
2,958.4
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,490.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(1)
|
(1.5)
|
|
|
3.7
|
|
|
—
|
|
|
—
|
|
|
2.2
|
|
|
Goodwill balance at March 29, 2020
|
$
|
495.2
|
|
|
$
|
2,962.1
|
|
|
$
|
34.7
|
|
|
$
|
1.0
|
|
|
$
|
3,493.0
|
|
(1)“Other” consists of changes in the goodwill balance resulting from foreign currency translation.
Note 8: Debt
Short-term Debt
Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As of March 29, 2020, we had $1.1 billion of borrowings outstanding under the program, of which a majority matures in the third quarter of fiscal 2020.
Long-term Debt
Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity (in millions, except interest rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
|
Sep 29, 2019
|
|
|
Stated Interest Rate
|
Effective Interest Rate(1)
|
|
Issuance
|
Amount
|
Estimated Fair Value
|
|
Amount
|
Estimated Fair Value
|
|
|
|
|
November 2020 notes
|
$
|
500.0
|
|
$
|
501
|
|
|
$
|
500.0
|
|
$
|
501
|
|
|
2.200
|
%
|
2.228
|
%
|
|
February 2021 notes
|
500.0
|
|
501
|
|
|
500.0
|
|
500
|
|
|
2.100
|
%
|
2.293
|
%
|
|
February 2021 notes
|
250.0
|
|
250
|
|
|
250.0
|
|
250
|
|
|
2.100
|
%
|
1.600
|
%
|
|
June 2022 notes
|
500.0
|
|
510
|
|
|
500.0
|
|
509
|
|
|
2.700
|
%
|
2.819
|
%
|
|
March 2023 notes
|
1,000.0
|
|
1,025
|
|
|
1,000.0
|
|
1,033
|
|
|
3.100
|
%
|
3.107
|
%
|
|
October 2023 notes(2)
|
750.0
|
|
801
|
|
|
750.0
|
|
798
|
|
|
3.850
|
%
|
2.859
|
%
|
|
March 2024 notes(3)
|
775.7
|
|
785
|
|
|
788.3
|
|
795
|
|
|
0.372
|
%
|
0.462
|
%
|
|
August 2025 notes
|
1,250.0
|
|
1,368
|
|
|
1,250.0
|
|
1,351
|
|
|
3.800
|
%
|
3.721
|
%
|
|
June 2026 notes
|
500.0
|
|
501
|
|
|
500.0
|
|
502
|
|
|
2.450
|
%
|
2.511
|
%
|
|
March 2027 notes(4)
|
500.0
|
|
486
|
|
|
—
|
|
—
|
|
|
2.000
|
%
|
2.058
|
%
|
|
March 2028 notes
|
600.0
|
|
627
|
|
|
600.0
|
|
644
|
|
|
3.500
|
%
|
3.529
|
%
|
|
November 2028 notes
|
750.0
|
|
832
|
|
|
750.0
|
|
837
|
|
|
4.000
|
%
|
3.958
|
%
|
|
August 2029 notes
|
1,000.0
|
|
1,052
|
|
|
1,000.0
|
|
1,080
|
|
|
3.550
|
%
|
3.871
|
%
|
|
March 2030 notes(4)
|
750.0
|
|
706
|
|
|
—
|
|
—
|
|
|
2.250
|
%
|
3.102
|
%
|
|
June 2045 notes
|
350.0
|
|
387
|
|
|
350.0
|
|
390
|
|
|
4.300
|
%
|
4.348
|
%
|
|
December 2047 notes
|
500.0
|
|
500
|
|
|
500.0
|
|
518
|
|
|
3.750
|
%
|
3.765
|
%
|
|
November 2048 notes
|
1,000.0
|
|
1,199
|
|
|
1,000.0
|
|
1,160
|
|
|
4.500
|
%
|
4.504
|
%
|
|
August 2049 notes
|
1,000.0
|
|
1,157
|
|
|
1,000.0
|
|
1,165
|
|
|
4.450
|
%
|
4.433
|
%
|
|
March 2050 notes(4)
|
500.0
|
|
508
|
|
|
—
|
|
—
|
|
|
3.350
|
%
|
3.381
|
%
|
|
Total
|
12,975.7
|
|
13,696
|
|
|
11,238.3
|
|
12,033
|
|
|
|
|
|
Aggregate debt issuance costs and unamortized premium/(discount), net
|
(102.7)
|
|
|
|
(83.1)
|
|
|
|
|
|
|
Hedge accounting fair value adjustment(2)
|
35.1
|
|
|
|
11.8
|
|
|
|
|
|
|
Total
|
$
|
12,908.1
|
|
|
|
$
|
11,167.0
|
|
|
|
|
|
(1)Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance.
(2)Amount includes the change in fair value due to changes in benchmark interest rates related to our October 2023 notes. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
(3)Japanese yen-denominated long-term debt.
(4)Issued in March 2020.
The indentures under which the above notes were issued require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of March 29, 2020, we were in compliance with all applicable covenants.
The following table summarizes our long-term debt maturities as of March 29, 2020 by fiscal year (in millions):
|
|
|
|
|
|
|
|
Fiscal Year
|
Total
|
|
|
|
|
2020
|
$
|
—
|
|
|
2021
|
1,250.0
|
|
|
2022
|
500.0
|
|
|
2023
|
1,000.0
|
|
|
2024
|
1,525.7
|
|
|
Thereafter
|
8,700.0
|
|
|
Total
|
$
|
12,975.7
|
|
Note 9: Leases
The following significant lease accounting policies from our most recent Annual Report on Form 10-K have been updated to reflect the adoption of FASB's new guidance on the recognition and measurement of leases.
The majority of our leases are operating leases for our company-operated retail store locations. We also lease, among other things, roasting, distribution and warehouse facilities and office space for corporate administrative purposes. We do not enter into lease transactions with related parties.
We categorize leases as either operating or finance leases at the commencement date of the lease. Operating lease agreements may contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component for all underlying classes of assets.
We recognize a right-of-use (“ROU”) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term. Our leases often include options to extend or terminate at our sole discretion, which are included in the determination of lease term when they are reasonably certain to be exercised.
Our lease liability represents the present value of future lease payments over the lease term. Given our policy election to combine lease and non-lease components, we also consider fixed common area maintenance (“CAM”) part of our fixed future lease payments; therefore, fixed CAM is also included in our lease liability.
We cannot determine the interest rate implicit in each of our leases. Therefore, we use market and term-specific incremental borrowing rates. Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not borrow on a collateralized basis, we consider a combination of factors, including our credit-adjusted risk-free interest rate, the risk profile and funding cost of the specific geographic market of the lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral. Our credit-adjusted risk-free rate takes into consideration interest rates we pay on our unsecured long-term bonds as well as quoted interest rates obtained from financial institutions.
Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs. Most of our real estate leases require we pay certain expenses, such as CAM costs, real estate taxes and other executory costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. A significant majority of our leases are related to our company-operated stores, and their related costs are recorded within store operating expenses.
The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, initial direct costs, and any tenant improvement allowances received. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and
determine if a remeasurement is required. During the second quarter of fiscal 2020, we received immaterial rent concessions related to COVID-19 company-operated store closures.
The components of lease costs (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Mar 29, 2020
|
|
Mar 29, 2020
|
|
Operating lease costs(1)
|
$
|
377.4
|
|
|
$
|
750.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable lease costs
|
197.2
|
|
|
426.0
|
|
|
Short-term lease costs
|
8.3
|
|
|
16.6
|
|
|
Total lease costs
|
$
|
582.9
|
|
|
$
|
1,193.1
|
|
(1)Operating lease costs includes an immaterial amount of sublease income.
The following table includes supplemental information (in millions):
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
Mar 29, 2020
|
|
Cash paid related to operating lease liabilities
|
$
|
726.0
|
|
|
Operating lease liabilities arising from obtaining ROU assets(1)
|
506.6
|
|
|
|
|
|
|
Mar 29, 2020
|
|
Weighted-average remaining operating lease term
|
8.9 years
|
|
Weighted-average operating lease discount rate
|
2.5
|
%
|
(1)Excludes the initial impact of adoption. See Note 1, Summary of Significant Accounting Policies for additional information.
Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. Finance leases were immaterial as of March 29, 2020.
Minimum future maturities of operating lease liabilities (in millions):
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
Mar 29, 2020
|
|
2020 (excluding the two quarters ended March 29, 2020)
|
$
|
739.0
|
|
|
2021
|
1,425.1
|
|
|
2022
|
1,314.2
|
|
|
2023
|
1,187.9
|
|
|
2024
|
1,052.3
|
|
|
Thereafter
|
4,296.9
|
|
|
Total lease payments
|
10,015.4
|
|
|
Less imputed interest
|
(1,111.5)
|
|
|
Total
|
$
|
8,903.9
|
|
As of March 29, 2020, we have entered into operating leases that have not yet commenced of $656.8 million, primarily related to real estate leases. These leases will commence between fiscal year 2020 and fiscal year 2025 with lease terms of 3 years to 20 years.
Previous Lease Guidance Disclosures
Rent expense under operating lease agreements under the previous lease guidance, which excludes certain amounts required under the new guidance, for the quarter and two quarters ended March 31, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Two Quarters Ended
|
|
|
Mar 31, 2019
|
|
Mar 31, 2019
|
|
Minimum rent
|
$
|
366.2
|
|
|
$
|
717.0
|
|
|
Contingent rent
|
56.3
|
|
|
112.0
|
|
|
Total
|
$
|
422.5
|
|
|
$
|
829.0
|
|
As previously reported in our 10-K, the minimum future rental payments under non-cancelable operating leases and lease financing arrangements under the previous lease guidance as of September 29, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending
|
Operating Leases
|
|
Lease Financing Arrangements
|
|
2020
|
$
|
1,432.9
|
|
|
$
|
5.2
|
|
|
2021
|
1,342.2
|
|
|
5.2
|
|
|
2022
|
1,247.4
|
|
|
5.0
|
|
|
2023
|
1,124.3
|
|
|
5.0
|
|
|
2024
|
996.4
|
|
|
4.9
|
|
|
Thereafter
|
4,087.7
|
|
|
42.6
|
|
|
Total minimum lease payments
|
$
|
10,230.9
|
|
|
$
|
67.9
|
|
Note 10: Deferred Revenue
Our deferred revenue primarily consists of the up-front prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, and our unredeemed stored value card liability and unredeemed loyalty points (“Stars”) associated with our loyalty program.
At March 29, 2020, the current and long-term deferred revenue related to the Nestlé up-front payment was $176.5 million and $6.6 billion, respectively. During the quarter and two quarters ended March 29, 2020, we recognized $44.2 million and $88.4 million in current deferred revenue, respectively, related to amortization of the up-front payment. For the quarter and two quarters ended March 31, 2019, we recognized $43.7 million and $87.8 million in current deferred revenue, respectively, related to amortization of the up-front payment.
Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions):
|
|
|
|
|
|
|
|
Quarter Ended March 29, 2020
|
Total
|
|
Stored value cards and loyalty program at December 29, 2019
|
1,561.0
|
|
|
Revenue deferred - card activations, card reloads and Stars earned
|
2,453.6
|
|
|
Revenue recognized - card and Stars redemptions and breakage
|
(2,736.4)
|
|
|
Other(1)
|
(5.1)
|
|
|
Stored value cards and loyalty program at March 29, 2020(2)
|
1,273.1
|
|
|
|
|
|
Two Quarters Ended March 29, 2020
|
Total
|
|
Stored value cards and loyalty program at September 29, 2019
|
$
|
1,113.7
|
|
|
Revenue deferred - card activations, card reloads and Stars earned
|
5,961.1
|
|
|
Revenue recognized - card and Stars redemptions and breakage
|
(5,798.3)
|
|
|
Other(1)
|
(3.4)
|
|
|
Stored value cards and loyalty program at March 29, 2020(2)
|
$
|
1,273.1
|
|
(1)“Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.
(2)Approximately $1,191.5 million of this amount is current.
Note 11: Equity
Changes in AOCI by component, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
Available-for-Sale Debt Securities
|
|
Cash Flow Hedges
|
|
Net Investment Hedges
|
|
Translation Adjustment and Other
|
|
Total
|
|
March 29, 2020
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
3.2
|
|
|
$
|
33.7
|
|
|
$
|
7.7
|
|
|
$
|
(432.0)
|
|
|
$
|
(387.4)
|
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
2.5
|
|
|
(96.7)
|
|
|
43.0
|
|
|
(78.4)
|
|
|
(129.6)
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
(0.1)
|
|
|
(1.8)
|
|
|
(2.9)
|
|
|
—
|
|
|
(4.8)
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
2.4
|
|
|
(98.5)
|
|
|
40.1
|
|
|
(78.4)
|
|
|
(134.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
5.6
|
|
|
$
|
(64.8)
|
|
|
$
|
47.8
|
|
|
$
|
(510.4)
|
|
|
$
|
(521.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
(2.9)
|
|
|
$
|
17.5
|
|
|
$
|
3.3
|
|
|
$
|
(361.1)
|
|
|
$
|
(343.2)
|
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
2.9
|
|
|
(8.9)
|
|
|
2.2
|
|
|
79.7
|
|
|
75.9
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
0.1
|
|
|
(4.3)
|
|
|
—
|
|
|
—
|
|
|
(4.2)
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
3.0
|
|
|
(13.2)
|
|
|
2.2
|
|
|
79.7
|
|
|
71.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
0.1
|
|
|
$
|
4.3
|
|
|
$
|
5.5
|
|
|
$
|
(281.4)
|
|
|
$
|
(271.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
Available-for-Sale Debt Securities
|
|
Cash Flow Hedges
|
|
Net Investment Hedges
|
|
Translation Adjustment and Other
|
|
Total
|
|
March 29, 2020
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, beginning of period
|
$
|
3.9
|
|
|
$
|
11.0
|
|
|
$
|
(10.1)
|
|
|
$
|
(508.1)
|
|
|
$
|
(503.3)
|
|
|
Net gains/(losses) recognized in OCI before reclassifications
|
2.4
|
|
|
(70.9)
|
|
|
60.7
|
|
|
(2.3)
|
|
|
(10.1)
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
—
|
|
|
(7.9)
|
|
|
(5.3)
|
|
|
—
|
|
|
(13.2)
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
2.4
|
|
|
(78.8)
|
|
|
55.4
|
|
|
(2.3)
|
|
|
(23.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting adoption
|
(0.7)
|
|
|
3.0
|
|
|
2.5
|
|
|
—
|
|
|
4.8
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
5.6
|
|
|
$
|
(64.8)
|
|
|
$
|
47.8
|
|
|
$
|
(510.4)
|
|
|
$
|
(521.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 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
|
4.6
|
|
|
(16.2)
|
|
|
(14.1)
|
|
|
81.3
|
|
|
55.6
|
|
|
Net (gains)/losses reclassified from AOCI to earnings
|
0.4
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
|
Other comprehensive income/(loss) attributable to Starbucks
|
5.0
|
|
|
(13.4)
|
|
|
(14.1)
|
|
|
81.3
|
|
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) in AOCI, end of period
|
$
|
0.1
|
|
|
$
|
4.3
|
|
|
$
|
5.5
|
|
|
$
|
(281.4)
|
|
|
$
|
(271.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
AOCI
Components
|
|
Amounts Reclassified from AOCI
|
|
|
|
Affected Line Item in
the Statements of Earnings
|
|
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
|
|
Gains/(losses) on available-for-sale debt securities
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
Interest income and other, net
|
|
Gains/(losses) on cash flow hedges
|
|
2.3
|
|
|
5.6
|
|
|
Please refer to Note 3, Derivative Financial Instruments for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on net investment hedges
|
|
3.9
|
|
|
—
|
|
|
Interest income and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4
|
|
|
5.8
|
|
|
Total before tax
|
|
|
|
(1.6)
|
|
|
(1.6)
|
|
|
Tax (expense)/benefit
|
|
|
|
$
|
4.8
|
|
|
$
|
4.2
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
|
|
|
|
AOCI
Components
|
|
Amounts Reclassified from AOCI
|
|
|
|
Affected Line Item in
the Statements of Earnings
|
|
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
|
|
Gains/(losses) on available-for-sale debt securities
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Interest income and other, net
|
|
Gains/(losses) on cash flow hedges
|
|
9.9
|
|
|
(3.0)
|
|
|
Please refer to Note 3, Derivative Financial Instruments for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on net investment hedges
|
|
7.2
|
|
|
—
|
|
|
Interest income and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.1
|
|
|
(2.3)
|
|
|
Total before tax
|
|
|
|
(3.9)
|
|
|
(0.9)
|
|
|
Tax (expense)/benefit
|
|
|
|
$
|
13.2
|
|
|
$
|
(3.2)
|
|
|
Net of tax
|
In addition to 2.4 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of March 29, 2020.
During the two quarters ended March 29, 2020, we repurchased 20.3 million shares of common stock for $1.7 billion. On March 18, 2020, we announced that our Board of Directors authorized the repurchase of up to an additional 40 million shares under our ongoing share repurchase program. As of March 29, 2020, 48.9 million shares remained available for repurchase under current authorizations. On April 8, 2020, we announced a temporary suspension of our share repurchase program. Repurchases pursuant to this program were last made in mid-March.
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.
During the second quarter of fiscal 2020, our Board of Directors declared a quarterly cash dividend to shareholders of $0.41 per share to be paid on May 22, 2020 to shareholders of record as of the close of business on May 8, 2020.
Note 12: Employee Stock Plans
As of March 29, 2020, there were 46.2 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 12.2 million shares available for issuance under our employee stock purchase plan.
Stock-based compensation expense recognized in the consolidated statements of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Two Quarters Ended
|
|
|
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Options
|
$
|
0.7
|
|
|
$
|
7.2
|
|
|
$
|
2.4
|
|
|
$
|
15.5
|
|
|
Restricted Stock Units (“RSUs”)
|
55.6
|
|
|
87.7
|
|
|
144.2
|
|
|
176.6
|
|
|
Total stock-based compensation expense
|
$
|
56.3
|
|
|
$
|
94.9
|
|
|
$
|
146.6
|
|
|
$
|
192.1
|
|
Stock option and RSU transactions from September 29, 2019 through March 29, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
RSUs
|
|
Options outstanding/Nonvested RSUs, September 29, 2019
|
15.2
|
|
|
8.9
|
|
|
Granted
|
0.1
|
|
|
3.7
|
|
|
Options exercised/RSUs vested
|
(1.3)
|
|
|
(3.3)
|
|
|
Forfeited/expired
|
(0.1)
|
|
|
(0.7)
|
|
|
Options outstanding/Nonvested RSUs, March 29, 2020
|
13.9
|
|
|
8.6
|
|
|
Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of March 29, 2020
|
$
|
2.5
|
|
|
$
|
237.1
|
|
Note 13: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Two Quarters Ended
|
|
|
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Mar 29, 2020
|
|
Mar 31, 2019
|
|
Net earnings attributable to Starbucks
|
$
|
328.4
|
|
|
$
|
663.2
|
|
|
$
|
1,214.1
|
|
|
$
|
1,423.6
|
|
|
Weighted average common shares outstanding (for basic calculation)
|
1,171.8
|
|
|
1,239.2
|
|
|
1,176.1
|
|
|
1,240.6
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
8.9
|
|
|
11.5
|
|
|
9.7
|
|
|
11.5
|
|
|
Weighted average common and common equivalent shares outstanding (for diluted calculation)
|
1,180.7
|
|
|
1,250.7
|
|
|
1,185.8
|
|
|
1,252.1
|
|
|
EPS — basic
|
$
|
0.28
|
|
|
$
|
0.54
|
|
|
$
|
1.03
|
|
|
$
|
1.15
|
|
|
EPS — diluted
|
$
|
0.28
|
|
|
$
|
0.53
|
|
|
$
|
1.02
|
|
|
$
|
1.14
|
|
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 March 29, 2020 and March 31, 2019, we had no out-of-the-money stock options.
Note 14: Commitments and Contingencies
Legal Proceedings
On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al. On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al.. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last
remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (OEHHA) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial.
On June 3, 2019, the Office of Administrative Law (OAL) approved the coffee exemption regulation. The regulation became effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. A status conference before the trial judge to discuss the motions that each party has filed is scheduled for May 11, 2020. At this stage of the proceedings, Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is remote. Accordingly, no loss contingency was recorded for this matter.
Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 15: Segment Reporting
Segment information is prepared on the same basis that our ceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results and makes key operating decisions.
Consolidated revenue mix by product type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
|
|
|
|
|
|
Mar 29, 2020
|
|
|
|
Mar 31, 2019
|
|
|
|
Mar 29, 2020
|
|
|
|
Mar 31, 2019
|
|
|
|
Beverage(1)
|
$
|
3,530.9
|
|
|
59
|
%
|
|
$
|
3,760.4
|
|
|
60
|
%
|
|
$
|
7,789.4
|
|
|
59
|
%
|
|
$
|
7,688.3
|
|
|
60
|
%
|
|
Food(2)
|
1,076.8
|
|
|
18
|
%
|
|
1,157.9
|
|
|
18
|
%
|
|
2,355.7
|
|
|
18
|
%
|
|
2,344.3
|
|
|
18
|
%
|
|
Other(3)
|
1,388.0
|
|
|
23
|
%
|
|
1,387.6
|
|
|
22
|
%
|
|
2,947.7
|
|
|
23
|
%
|
|
2,906.1
|
|
|
22
|
%
|
|
Total
|
$
|
5,995.7
|
|
|
100
|
%
|
|
$
|
6,305.9
|
|
|
100
|
%
|
|
$
|
13,092.8
|
|
|
100
|
%
|
|
$
|
12,938.7
|
|
|
100
|
%
|
(1)Beverage represents sales within our company-operated stores.
(2)Food includes sales within our company-operated stores as well as products sales to our licensees.
(3)“Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, serveware, beverage-related ingredients and ready-to-drink beverages, among other items.
The table below presents financial information for our reportable operating segments and Corporate and Other segment (in millions):
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
|
March 29, 2020
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
4,330.0
|
|
|
$
|
1,134.6
|
|
|
$
|
519.1
|
|
|
$
|
12.0
|
|
|
$
|
5,995.7
|
|
|
Depreciation and amortization expenses
|
191.5
|
|
|
130.0
|
|
|
0.3
|
|
|
34.5
|
|
|
356.3
|
|
|
Income from equity investees
|
—
|
|
|
24.8
|
|
|
43.1
|
|
|
—
|
|
|
67.9
|
|
|
Operating income/(loss)
|
$
|
621.2
|
|
|
$
|
(15.4)
|
|
|
$
|
189.6
|
|
|
$
|
(308.0)
|
|
|
$
|
487.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Total net revenues(1)
|
$
|
4,314.1
|
|
|
$
|
1,529.4
|
|
|
$
|
446.6
|
|
|
$
|
15.8
|
|
|
$
|
6,305.9
|
|
|
Depreciation and amortization expenses
|
173.0
|
|
|
130.4
|
|
|
12.3
|
|
|
40.5
|
|
|
356.2
|
|
|
Income from equity investees
|
—
|
|
|
22.1
|
|
|
40.2
|
|
|
—
|
|
|
62.3
|
|
|
Operating income/(loss)
|
$
|
856.4
|
|
|
$
|
201.8
|
|
|
$
|
148.9
|
|
|
$
|
(349.4)
|
|
|
$
|
857.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
International
|
|
Channel
Development
|
|
Corporate and Other
|
|
Total
|
|
March 29, 2020
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
9,340.9
|
|
|
$
|
2,705.7
|
|
|
$
|
1,013.7
|
|
|
$
|
32.5
|
|
|
$
|
13,092.8
|
|
|
Depreciation and amortization expenses
|
380.7
|
|
|
256.7
|
|
|
0.6
|
|
|
69.4
|
|
|
707.4
|
|
|
Income from equity investees
|
—
|
|
|
55.8
|
|
|
86.1
|
|
|
—
|
|
|
141.9
|
|
|
Operating income/(loss)
|
$
|
1,720.0
|
|
|
$
|
260.5
|
|
|
$
|
365.1
|
|
|
$
|
(638.4)
|
|
|
$
|
1,707.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
8,926.6
|
|
|
$
|
3,033.5
|
|
|
$
|
951.1
|
|
|
$
|
27.5
|
|
|
$
|
12,938.7
|
|
|
Depreciation and amortization expenses
|
339.9
|
|
|
257.3
|
|
|
12.4
|
|
|
80.0
|
|
|
689.6
|
|
|
Income from equity investees
|
—
|
|
|
48.5
|
|
|
81.6
|
|
|
—
|
|
|
130.1
|
|
|
Operating income/(loss)
|
$
|
1,825.2
|
|
|
$
|
431.9
|
|
|
$
|
324.6
|
|
|
$
|
(708.3)
|
|
|
$
|
1,873.4
|
|
(1)Prior period amounts have been restated to reflect the fourth quarter fiscal 2019 realigned Starbucks operating segment reporting structure.