What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-11-12 compared with 2019-11-15 · 288 added, 225 removed, 346 unchanged (60% of the section changed)

2 unchanged sentences

All references to store counts, including data for new store openings, are reported net of related store closures, unless otherwise noted.

Starbucks results for fiscal 2019 reflect the impacts of continued streamlining efforts, initiated during the fourth quarter of fiscal 2017, to focus on accelerating growth in high-returning businesses and converting several market operations, including Thailand, France, and the Netherlands, to fully licensed models in fiscal 2019.

Additionally, in fiscal 2019, we saw the full impact from the licensing of the majority of our CPG and Foodservice businesses to Nestlé in the fourth quarter of fiscal 2018.

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 Reserve TM 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.

As a result, we have three reportable operating segments:

Americas, International and Channel Development.

Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

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 company-owned store occupancy costs from cost of sales to store operating expenses.

We also made certain other immaterial changes.

Concurrent with the change in reportable segments and realignment of certain operating expenses noted above, we revised our prior period financial information to be consistent with the current period presentation.

There was no impact on consolidated net revenues, total operating expenses, operating income, or net earnings per share as a result of these changes.

In December 2017, the U.S.

government enacted comprehensive tax legislation into law H.R.

1, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed existing U.S.

tax law and included numerous provisions that affect our business.

corporate income tax rate for fiscal 2019 and future years is 21%, while a blended rate of 24.5% was applied in fiscal 2018.

Starbucks results for fiscal 2020 reflect the challenges our business faced with the COVID-19 pandemic, which severely impacted our results, particularly during the second and third fiscal quarters.

Consolidated revenues declined 11% to $23.5 billion in fiscal 2020 compared to $26.5 billion in fiscal 2019 driven by temporary closures of a significant number of our company-operated and licensed stores, as well as modified business operations and reduced customer traffic.

We gradually reopened our stores and, since then, have seen sequential improvements in comparable store sales in both our Americas and International segments as transaction volumes continue to climb, reflecting the resilience of our business model and the strength of our brand.

Comparable store sales for the Americas segment declined by 12% for fiscal 2020, primarily due to the temporary store closures, reduced customer traffic and shortened store hours.

The most negative impacts occurred during the third quarter of fiscal 2020.

Most company-operated and licensed stores were re-opened as of early May, and over 60% of company-operated stores in the U.S.

provided limited seating by the end of the fiscal year.

To help protect the health and welfare of our partners, we incurred incremental labor costs, including paying the wages and benefits to partners who were either unable or uncomfortable working from mid-March through May, a temporary wage increase for partners who continued working during this period and additional benefits to furloughed or separated partners resulting from reduced store hours.

The incremental wages incurred were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the Canada Emergency Wage Subsidy (“CEWS”).

In June 2020, we announced a plan to optimize our North America store portfolio, primarily in dense, metropolitan markets, by blending store formats to better cater to changing customer tastes and preferences.

During the fourth quarter of fiscal 2020, we closed approximately 100 stores in the U.S.

and Canada, and we expect to close an additional 700 stores in those markets over the next 18 months.

This reflects an additional 200 store closures than the initial announcement estimate of 600 stores.

Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statement of earnings and will continue to be recorded in accordance with the anticipated timeline of store closures.

For the International segment, comparable store sales declined by 19% for fiscal 2020, mostly due to the 31% and 37% reduction in comparable store sales during the second and third fiscal quarters of 2020, respectively.

Company-operated stores in the China market began re-opening in the fiscal second quarter, and nearly all company-operated stores were open by the end of the fiscal third quarter.

To support our international licensees in their recovery efforts, we extended more flexible development and financial terms, including waiving royalty payments during the fiscal third quarter.

Revenue for our Channel Development segment declined $68 million, or 3%, when compared with fiscal 2019.

This is largely due to the lapping of Global Coffee Alliance transition-related activities, including higher inventory sales in the prior year as Nestlé prepared to fulfill customer orders.

These are partially offset by the continued growth of the Global Coffee Alliance during fiscal 2020.

Throughout the second half of fiscal 2020, we experienced initial business recovery as our stores gradually reopened under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

As of September 27, 2020, nearly all of our company-operated and licensed stores were re-opened.

Those that have remained closed are located in travel or transportation hubs as well as central business districts.

Our global business is recovering steadily, with China approaching comparable store sales recovery and the U.S.

demonstrating continued upward momentum in sales and profitability.

Our Channel Development segment continues to grow category share as customers adjust to their at-home routines.

In fiscal 2021, we expect lower revenues for the segment as we transitioned our single-serve coffee business to a more royalty-based model.

We do not expect the change to have a material impact on our earnings.

However, the change is anticipated to have an accretive impact on operating margin for the segment.

We continue to invest in technologies and innovations to elevate the customer and partner experience and to drive long-term growth.

By reimagining our store formats, we are moving swiftly to adapt to new customer behaviors.

Absent significant COVID-19 relapses or global economic disruptions, and based on the current trend of our retail business recovery and our focused efforts to expand contactless customer experiences, digital capabilities and beverage innovation, we believe we are well positioned to regain the positive business momentum we had demonstrated prior to the pandemic.

Financial Highlights

Total net revenues increased 7% to $26.5 billion in fiscal 2019 compared to $24.7 billion in fiscal 2018 .

Consolidated operating income increased to $4.1 billion in fiscal 2019 compared to operating income of $3.9 billion in fiscal 2018 .

• Total net revenues decreased 11% to $23.5 billion in fiscal 2020 compared to $26.5 billion in fiscal 2019.

• Consolidated operating income decreased to $1.6 billion in fiscal 2020 compared to operating income of $4.1 billion in fiscal 2019.

Fiscal 2020 operating margin was 6.6% compared to 15.4% in fiscal 2019.

Operating margin compression in fiscal 2019 was primarily driven by partner (employee) investments and growth in wages and benefits, licensing our CPG and Foodservice businesses to Nestlé and other strategic investments.

These decreases were partially offset by sales leverage, cost savings initiatives, lower restructuring and impairment costs and the impact of the adoption of new revenue recognition guidance on stored value card breakage.

Operating margin contraction was primarily driven by sales deleverage and additional costs incurred attributable to COVID-19, including catastrophe pay and enhanced pay programs for retail store partners, net of benefits provided by government subsidies.

Higher restructuring activities related to our Americas store portfolio optimization and investments to support key business partners also contributed.

These decreases were partially offset by sales leverage realized in the first quarter of fiscal 2020 prior to the onset of COVID-19 impacts and supply chain efficiencies.

• Earnings per share (“EPS”) for fiscal 2020 decreased to $0.79, compared to EPS of $2.92 in fiscal 2019.

The decrease was primarily driven by lapping the prior year gains from the acquisition of our East China joint venture and the sale of our Tazo brand, partially offset by the gain from the sale of our Thailand retail operations during fiscal 2019.

Capital expenditures were $1.8 billion in fiscal 2019 compared to $2.0 billion in fiscal 2018 .

The decrease was primarily driven by the adverse impacts of COVID-19, including lower revenues due to temporary store closures, reduced customer traffic and modified operations, as well as incremental labor expenses and restructuring costs.

• Capital expenditures were $1.5 billion in fiscal 2020 compared to $1.8 billion in fiscal 2019 primarily due to a pause in new store openings due to COVID-19.

• We returned $3.6 billion to our shareholders in fiscal 2020 through share repurchases and dividends compared to $12.0 billion in fiscal 2019.

We temporarily suspended our share repurchase program in March 2020.

Acquisitions and Divestitures

2 unchanged sentences

Consolidated results of operations (in millions) :

Fiscal Year Ended

Fiscal Year Ended Sep 27,

Net revenues:

1 unchanged sentence

Licensed stores 2,327.1 2,875.0 (19.1)

Other 2,026.3 2,089.2 (3.0)

Total net revenues $ 23,518.0 $ 26,508.6 (11.3) %

Total net revenues increased $1.8 billion , or 7% , over fiscal 2018 , primarily driven by higher revenues from company-operated stores ( $1.9 billion ).

The growth in company-operated store revenues was driven by incremental revenues from 947 net new Starbucks ® company-operated store openings over the past 12 months ($957 million) and a 5% increase in comparable store sales ($879 million), attributable to a 3% increase in average ticket and a 2% increase in comparable transactions.

These increases were partially offset by unfavorable foreign currency translation ($189 million) and the conversion of our Thailand, France, and the Netherlands retail businesses to fully licensed markets during fiscal 2019 ($161 million).

Licensed store revenue growth also contributed to the increase in total net revenues ( $223 million ), primarily due to higher product and equipment sales to and royalty revenues from our licensees ($228 million), largely due to the opening of 992 net new Starbucks ® licensed stores over the past 12 months, and the conversion of our Thailand, France, and the Netherlands retail businesses to fully licensed markets ($35 million), partially offset by unfavorable foreign currency translation ($41 million).

Other revenues decreased $288 million , primarily driven by the licensing of our CPG and Foodservice businesses to Nestlé.

Partially offsetting this decrease was growth in product revenue, primarily premium single-serve products, in connection with the Global Coffee Alliance.

Total net revenues decreased $3.0 billion, or 11%, over fiscal 2019, primarily due to lower revenues from company-operated stores ($2.4 billion).

The decline in company-operated store revenue was due to a 14% decrease in comparable store sales ($2.9 billion), attributable to a 22% decrease in comparable transactions, partially offset by a 10% increase in average ticket.

Also contributing to the decrease were the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during fiscal 2019 ($204 million).

Partially offsetting these decreases were the incremental revenues from 806 net new Starbucks ® company-operated store openings, or a 5% increase, over the past 12 months ($718 million).

Licensed stores revenue declined by $548 million, driven by lower product and equipment sales to and royalty revenues from our licensees.

Other revenues decreased $63 million, primarily due to the lapping of a higher volume of transition activities related to the Global Coffee Alliance and the Tazo brand sale, partially offset by higher sales from the growth of the Global Coffee Alliance.

Operating Expenses

Fiscal Year Ended

Fiscal Year Ended Sep 27,

As a % of Total

Cost of sales

Product and distribution costs $ 7,694.9 $ 8,526.9 32.7 % 32.2 %

Store operating expenses 10,764.0 10,493.6 45.8 39.6

7 unchanged sentences

Store operating expenses as a % of related revenues 56.2 % 48.7 %

Cost of sales as a percentage of total net revenues increased 10 basis points, primarily due to licensing our CPG and Foodservice businesses to Nestlé (approximately 80 basis points), partially offset by cost savings initiatives (approximately 70 basis points) and leverage on cost of sales, largely driven by price increases.

Product and distribution costs as a percentage of total net revenues increased 50 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included inventory write-offs and product waste (approximately 10 basis points), partially offset by supply chain efficiencies (approximately 60 basis points).

Store operating expenses as a percentage of total net revenues increased 620 basis points.

Store operating expenses as a percentage of company-operated store revenues increased 60 basis points, primarily driven by investments in our store partners that are funded by savings from the Tax Act and growth in wages and benefits (approximately 120 basis points), largely in the Americas segment, partially offset by sales leverage driven by price increases and the impact of the adoption of new revenue recognition guidance on stored value card breakage.

Other operating expenses decreased $184 million, primarily due to cost savings related to licensing our CPG and Foodservice businesses to Nestlé ($176 million) and lapping prior year costs associated with the establishment of the Global Coffee Alliance ($34 million), including business taxes associated with the up-front prepaid royalty from Nestlé and headcount-related costs, primarily relating to employee bonus and retention costs.

Depreciation and amortization expenses as a percentage of total net revenues increased 20 basis points, primarily due to the impact of our ownership change in East China (approximately 20 basis points).

General and administrative expenses increased $116 million, primarily driven by higher performance-based compensation ($89 million) and the 2019 Starbucks Leadership Experience in Chicago, heavily concentrated in our fiscal fourth quarter ($52 million).

Restructuring and impairment expenses decreased $89 million, primarily due to lower restructuring and impairment costs related to Teavana TM/MC retail store closures ($128 million) and lower impairments related to our Switzerland retail market ($27 million), partially offset by higher exit costs associated with the closure of certain Starbucks ® company-operated stores ($32 million) and severance costs ($25 million).

Income from equity investees decreased $3 million, primarily due to the impact of our ownership changes in East China.

This decrease was partially offset by improved comparable store sales from our joint venture in South Korea and higher income from our North American Coffee Partnership joint venture.

Store operating expenses as a percentage of company-operated store revenues increased 750 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included catastrophe pay and enhanced pay programs for retail partners, net of benefits provided by temporary subsidies from the U.S.

and certain foreign governments (approximately 150 basis points).

Other operating expenses increased $59 million, primarily due to incremental costs to develop and grow the Global Coffee Alliance.

Depreciation and amortization expenses as a percentage of total net revenues increased 90 basis points, primarily due to sales deleverage.

General and administrative expenses decreased $145 million, primarily driven by lower performance-based compensation ($63 million), lapping of the 2018 U.S stock award granted in fiscal 2018, which was funded by savings from the Tax Cuts and Jobs Act enacted in December 2017 (“Tax Act”) and vested in fiscal 2019 ($61 million), and lapping of the 2019 Starbucks Leadership Experience in Chicago ($52 million), partially offset by incremental strategic investments in technology.

Restructuring and impairment expenses increased $143 million, primarily due to higher asset impairment related to our North America store portfolio optimization ($136 million), higher lease-related costs associated with the closure of certain company-operated stores ($28 million) and intangible asset impairment related to changes in our branding and marketing strategies ($22 million).

Partially offsetting theses increases were lower severance costs ($38 million) and lapping the impairment related to our Switzerland retail market ($10 million).

Income from equity investees increased $25 million, primarily due to higher income from our North American Coffee Partnership joint venture and growth in our South Korea joint venture.

The combination of these changes resulted in an overall decrease in operating margin of 880 basis points in fiscal 2020 when compared to fiscal 2019.

Other Income and Expenses

Fiscal Year Ended

Fiscal Year Ended Sep 27,

As a % of Total

Operating income $ 1,561.7 $ 4,077.9 6.6 % 15.4 %

Gain resulting from acquisition of joint venture

Net gain resulting from divestiture of certain operations — 622.8 — 2.3

4 unchanged sentences

Net earnings including noncontrolling interests 924.7 3,594.6 3.9 13.6

Net earnings/(loss) attributable to noncontrolling interests

Net loss attributable to noncontrolling interests (3.6) (4.6) — —

Net earnings attributable to Starbucks $ 928.3 $ 3,599.2 3.9 % 13.6 %

Effective tax rate including noncontrolling interests 20.6 % 19.5 %

Gain resulting from acquisition of joint venture in fiscal 2018 was due to remeasuring our preexisting 50% ownership interest in our East China joint venture to fair value upon acquisition.

Net gain resulting from divestiture of certain operations was primarily due to the sale of our Thailand, France and the Netherlands retail operations in fiscal 2019.

The gain in fiscal 2018 was primarily due to the sale of our Tazo brand and Taiwan joint venture, partially offset by the net loss from the sale of our Brazil retail operations in fiscal 2018.

Interest income and other, net decreased $95 million , primarily due to the adoption of the new revenue recognition guidance on a prospective basis, which required estimated breakage on unredeemed store value cards to be recorded as revenue.

We recorded store value card breakage in interest income and other, net in the prior year.

Interest expense increased $161 million primarily due to additional interest incurred on long-term debt issued in November 2017, March 2018, August 2018 and May 2019.

Net gain resulting from divestiture of certain operations decreased $623 million due to lapping the sale of retail operations in Thailand, France and the Netherlands in fiscal 2019.

Interest income and other, net decreased $57 million, primarily due to lower interest rates and lapping the gain on the sale of a non-operating asset.

Interest expense increased $106 million primarily due to additional interest incurred on long-term debt issued in March 2020 and May 2020.

The effective tax rate for fiscal 2020 was 20.6% compared to 19.5% for fiscal 2019.

The decrease in the effective tax rate was primarily due to the lower corporate tax rate as a result of the Tax Act (approximately 350 basis points), lapping prior year's transition tax on our accumulated undistributed foreign earnings and remeasurement of our deferred tax liabilities (approximately 300 basis points), higher stock-based compensation excess tax benefit (approximately 140 basis points), the release of income tax reserves related to the settlement of a U.S.

tax examination and the expiration of statute of limitations (approximately 130 basis points) and the tax impacts of the gain on the sale of our Thailand retail operations (approximately 130 basis points).

These favorable impacts were partially offset by the lapping of prior year's gain on the purchase of our East China joint venture that was not subject to income tax (approximately 580 basis points) and the impact of changes in indefinite reinvestment assertions for certain foreign subsidiaries during the first quarter of fiscal 2019 (approximately 170 basis points).

The increase was primarily due to the valuation allowances recorded against deferred tax assets of certain international jurisdictions (approximately 980 basis points).

This unfavorable impact was partially offset by lower pre-tax earnings including the foreign rate differential on our jurisdictional mix of earnings (approximately 340 basis points), stock-based compensation excess tax benefits in relation to pre-tax earnings (approximately 250 basis points), remeasurement of deferred tax assets due to enacted corporate rate change (approximately 220 basis points) and the impact of changes in indefinite reinvestment assertions for certain foreign subsidiaries in the first quarter of fiscal 2019 (approximately 170 basis points).

See Note 14 , Income Taxes, for further discussion.

1 unchanged sentence

Results of operations by segment (in millions) :

Fiscal Year Ended

Fiscal Year Ended Sep 27,

As a % of Americas

3 unchanged sentences

Licensed stores 1,592.9 1,958.0 9.7 10.7

Other 7.5 12.8 — 0.1

Total net revenues 16,379.2 18,259.0 100.0 100.0

Cost of sales

Product and distribution costs 4,611.5 5,174.7 28.2 28.3

Store operating expenses 8,488.0 8,064.8 51.8 44.2

5 unchanged sentences

Operating income $ 1,825.3 $ 3,782.8 11.1 % 20.7 %

Americas total net revenues for fiscal 2019 increased $1.5 billion, or 9%, primarily driven by a 5% increase in comparable store sales ($744 million) and 282 net new Starbucks ® company-operated stores, or a 3% increase, over the past 12 months ($580 million).

Also contributing were higher product sales to and royalty revenues from our licensees ($144 million), primarily resulting from comparable store sales growth and the opening of 323 net new Starbucks® licensed stores, or 4% increase, over the past 12 months and the impact of the adoption of revenue recognition guidance on stored value card breakage ($119 million).

Americas total net revenues for fiscal 2020 decreased $1.9 billion, or 10%, primarily due to a 12% decrease in comparable store sales ($1.9 billion) driven by a 21% decrease in transactions, partially offset by an 11% increase in average ticket.

Also contributing were lower product and equipment sales to and royalty revenues from our licensees ($354 million).

These decreases were partially offset by 134 net new Starbucks ® company-operated stores, or a 1% increase, over the past 12 months ($436 million).

Operating Margin

Americas operating income for fiscal 2019 increased 9% to $3.8 billion , compared to $3.5 billion in fiscal 2018 .

Operating margin decreased 10 basis points to 20.7% , primarily driven by higher partner investments, largely funded by savings from the Tax Act, growth in wages and benefits (approximately 130 basis points) and to a much lesser extent, investments in labor hours heavily concentrated in our fiscal fourth quarter.

Partially offsetting these were cost savings initiatives, primarily in cost of sales (approximately 90 basis points), the impact of the adoption of revenue recognition guidance on stored value card breakage (approximately 50 basis points) and sales leverage.

Americas operating income for fiscal 2020 decreased 52% to $1.8 billion, compared to $3.8 billion in fiscal 2019.

Operating margin decreased 960 basis points to 11.1%, primarily due to sales deleverage attributed to reduced labor productivity and additional costs incurred as a result of COVID-19, mainly catastrophe pay and enhanced pay programs for retail store partners incurred primarily during the fiscal third quarter, net of benefits provided by the CARES Act and CEWS (approximately 180 basis points).

Higher restructuring expenses relating to our North America portfolio optimization (approximately 130 basis points) also contributed to the decrease.

Partially offsetting these decreases were sales leverage realized prior to the onset of COVID-19 and pricing increases.

International

Fiscal Year Ended

Fiscal Year Ended Sep 27,

As a % of International

3 unchanged sentences

Licensed stores 734.2 917.0 14.3 14.8

Other 27.6 17.5 0.5 0.3

Total net revenues 5,147.6 6,190.7 100.0 100.0

Cost of sales

Product and distribution costs 1,682.0 1,894.9 32.7 30.6

Store operating expenses 2,276.0 2,428.5 44.2 39.2

6 unchanged sentences

Operating income $ 354.0 $ 964.7 6.9 % 15.6 %

Discussion of our International segment results below reflects the impact of fully consolidating our East China business from an equity method joint venture to a company-operated market since the acquisition date of December 31, 2017.

Under the joint venture model, we recognized royalties and product sales within revenue and related product cost of sales as well as our proportionate share of East China's net earnings, which resulted in a higher margin business.

Under the company-operated ownership model, East China’s operating results are reflected in most income statement lines of this segment.

International total net revenues for fiscal 2019 increased $640 million, or 12%, primarily driven by 665 net new Starbucks ® company-operated stores, or a 12% increase, over the past 12 months ($377 million), the ownership change in East China ($280 million) and a 3% increase in comparable store sales ($135 million).

Also contributing were increased product sales to and royalty revenues from licensees ($84 million), primarily resulting from opening of 669 net new Starbucks ® licensed stores, or an 11% increase, over the past 12 months and the impact of the adoption of revenue recognition guidance on stored value card breakage ($20 million).

These increases were partially offset by unfavorable foreign currency translation ($183 million) and the conversion of our Thailand, France, and the Netherlands retail businesses to fully licensed markets ($126 million).

International total net revenues for fiscal 2020 decreased $1.0 billion, or 17%, primarily due to a 19% decrease in comparable store sales ($931 million) driven by a 23% decrease in transactions, partially offset by a 5% increase in average ticket.

Also contributing were lower product sales and equipment sales to and royalty revenues from licensees ($199 million) and the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during fiscal 2019 ($186 million).

These decreases were partially offset by 672 net new Starbucks ® company-operated stores, or an 11% increase, over the past 12 months ($282 million).

Operating Margin

International operating income for fiscal 2019 increased 11% to $965 million , compared to $873 million in fiscal 2018 .

Operating margin decreased 10 basis points to 15.6% , primarily driven by strategic investments to support growth in China (approximately 80 basis points) and growth in wages and benefits (approximately 70 basis points), primarily offset by cost savings initiatives (approximately 80 basis points) and labor efficiencies (approximately 70 basis points).

International operating income for fiscal 2020 decreased 63% to $354 million, compared to $965 million in fiscal 2019.

Operating margin decreased 870 basis points to 6.9%, primarily driven by sales deleverage concentrated in the second and third quarters of fiscal 2020 attributable to COVID-19, including continued partner wages and benefits as well as occupancy costs.

Royalty relief granted to licensees during the third fiscal quarter also contributed to the decline (approximately 80 basis points).

Channel Development

Fiscal Year Ended

Fiscal Year Ended Sep 27,

As a % of Channel Development

Total Net Revenues

Cost of sales

Net revenues $ 1,925.0 $ 1,992.6

Product and distribution costs 1,338.1 1,390.0 69.5 69.8

Other operating expenses 108.2 76.2 5.6 3.8

4 unchanged sentences

Operating income $ 687.2 $ 697.5 35.7 % 35.0 %

Our Channel Development segment results reflect the impact of the licensing of our CPG and Foodservice businesses to Nestlé late in the fourth quarter of fiscal 2018, which we lapped late in the fourth quarter of fiscal 2019.

Our collaborative business relationships for our global ready-to-drink products and the associated revenues remain unchanged due to the Global Coffee Alliance.

Channel Development net revenues for fiscal 2019 decreased $305 million , or 13% , when compared to the prior year period, primarily driven by licensing our CPG and Foodservice businesses to Nestlé ($329 million), offset by growth in product revenue, primarily premium single-serve products, in connection with our Global Coffee Alliance ($25 million).

Channel Development total net revenues for fiscal 2020 decreased $68 million, or 3% compared to fiscal 2019, primarily due to the lapping of higher transition activities related to the Global Coffee Alliance ($115 million) and product sales to Unilever as a result of the sale and transition of the Tazo brand ($34 million).

These were partially offset by the expansion of the Global Coffee A lliance ($70 million), as at-home coffee consumption grew while the Foodservice business experienced softening due to COVID-19.

Operating Margin

Channel Development operating income for fiscal 2020 decreased 1% to $687 million, compared to $698 million in fiscal 2019.

Operating margin decreased 540 basis points to 35.0% , primarily driven by licensing our CPG and Foodservice businesses to Nestlé (approximately 640 basis points), partially offset by lapping prior year costs associated with the establishment of the Global Coffee Alliance (approximately 140 basis points), including business taxes associated with the up-front prepaid royalty and headcount-related costs, primarily related to employee bonus and retention costs.

Operating margin increased 70 basis points to 35.7%, primarily due to the transfer of certain single-serve products to Nestlé as part of the Global Coffee Alliance (approximately 150 basis points), strong performance from our North American Coffee Partnership joint venture (approximately 80 basis points) and lapping the correction of amortization expense (approximately 60 basis points) in the prior year, partially offset by certain transition items related to the Global Coffee Alliance (approximately 190 basis points).

Corporate and Other

Fiscal Year Ended

Fiscal Year Ended Sep 27,

Net revenues:

Company-operated stores

Licensed stores

Other $ 66.2 $ 66.3 (0.2) %

Total net revenues 66.2 66.3 (0.2)

Cost of sales

Store operating expenses

Product and distribution costs 63.3 67.3 (5.9)

Store operating expenses — 0.3 nm

Other operating expenses 14.0 18.6 (24.7)

4 unchanged sentences

Operating loss $ (1,304.8) $ (1,367.1) (4.6) %

Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh and the legacy operations of the Teavana retail business, which substantially ceased during fiscal 2018.

Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh.

Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.

Corporate and Other operating loss decreased to $1.3 billion for fiscal 2020, or 5%, compared to $1.4 billion in fiscal 2019.

This decrease was primarily driven by lower performance-based compensation and lapping of the 2018 U.S stock award granted in fiscal 2018, which was funded by savings from the Tax Act and vested in fiscal 2019, partially offset by incremental strategic investments in technology.

RESULTS OF OPERATIONS — FISCAL 2019 COMPARED TO FISCAL 2018

Consolidated results of operations (in millions) :

Fiscal Year Ended

Fiscal Year Ended Sep 29,

Net revenues:

1 unchanged sentence

Licensed stores 2,875.0 2,652.2 8.4

Other 2,089.2 2,377.0 (12.1)

Total net revenues $ 26,508.6 $ 24,719.5 7.2 %

Total net revenues increased $2.3 billion, or 10%, over fiscal 2017, primarily driven by increased revenues from company-operated stores ($2.0 billion).

The growth in company-operated store revenues was driven by incremental revenues from 816 net new Starbucks® company-operated store openings over the past 12 months ($904 million), incremental revenues from the impact of our ownership change in East China ($903 million) and a 2% increase in comparable store sales ($345 million), attributable to a 3% increase in average ticket.

Licensed store revenue growth also contributed to the increase in total net revenues ($297 million), primarily due to increased product and equipment sales to and royalty revenues from our licensees ($298 million), largely due to the opening of 1,181 net new Starbucks® licensed stores over the past 12 months and the conversions of both the Singapore and Taiwan markets to fully licensed in the fourth quarter of fiscal 2017 and the first quarter of fiscal 2018, respectively ($44 million).

These increases were partially offset by the impact of our ownership change in East China at the end of the first quarter of fiscal 2018 ($53 million).

Other revenues decreased $4 million, primarily driven by the absence of revenue due to the sale of our Tazo brand in the first quarter of fiscal 2018 ($56 million), the closure of our e-commerce business in the fourth quarter of fiscal 2017 ($51 million) and licensing our CPG and Foodservice businesses to Nestlé late in the fourth quarter of fiscal 2018 ($50 million).

Partially offsetting these decreases were increased sales of packaged coffee and premium single-serve products ($115 million).

Total net revenues increased $1.8 billion, or 7%, over fiscal 2018, primarily driven by higher revenues from company-operated stores ($1.9 billion).

These increases were partially offset by unfavorable foreign currency translation ($189 million) and the conversion of our Thailand, France and the Netherlands retail businesses to fully licensed markets during fiscal 2019 ($161 million).

Licensed store revenue growth also contributed to the increase in total net revenues ($223 million), primarily due to higher product and equipment sales to and royalty revenues from our licensees ($228 million), largely due to the opening of 992 net new Starbucks ® licensed stores over the past 12 months, and the conversion of our Thailand, France and the Netherlands retail businesses to fully licensed markets ($35 million), partially offset by unfavorable foreign currency translation ($41 million).

Other revenues decreased $288 million, primarily driven by the licensing of our CPG and Foodservice businesses to Nestlé.

Partially offsetting this decrease was growth in product revenue, primarily premium single-serve products, in connection with the Global Coffee Alliance.

Operating Expenses

Fiscal Year Ended

Fiscal Year Ended Sep 29,

As a % of Total

Cost of sales

Product and distribution costs $ 8,526.9 $ 7,930.7 32.2 % 32.1 %

Store operating expenses 10,493.6 9,472.2 39.6 38.3

7 unchanged sentences

Store operating expenses as a % of related revenues 48.7 % 48.1 %

Cost of sales as a percentage of total net revenues increased 50 basis points, primarily due to food and beverage-related mix shifts (approximately 120 basis points), largely in the Americas segment, partially offset by the impact of our ownership change in East China (approximately 40 basis points).

Store operating expenses, which include occupancy costs, as a percentage of total net revenues increased 40 basis points.

Store operating expenses as a percentage of company-operated store revenues were flat, primarily driven by the impact of our ownership change in East China (approximately 40 basis points), partially offset by increased partner investments, largely in the Americas segment.

Other operating expenses increased $37 million, primarily driven by business taxes associated with the up-front payment received from Nestlé.

Product and distribution costs as a percentage of total net revenues increased 10 basis points, primarily due to licensing our CPG and Foodservice businesses to Nestlé (approximately 80 basis points), partially offset by cost savings initiatives (approximately 70 basis points) and leverage on product and distribution costs, largely driven by price increases.

Store operating expenses as a percentage of total net revenues increased 130 basis points.

General and administrative expenses increased $300 million, primarily due to higher salaries and benefits related to digital platforms, technology infrastructure and innovations and the 2018 U.S.

stock award granted in the third quarter of fiscal 2018, which was funded by savings from the Tax Act and vests over one year.

Restructuring and impairment expenses increased $71 million, primarily due to higher asset impairments associated with the decision to close certain company-operated stores in the U.S.

and Canada ($23 million), higher goodwill impairment charges associated with our Switzerland company-operated retail reporting unit ($20 million) and International restructuring costs, including severance and asset impairments ($18 million).

Income from equity investees decreased $90 million, primarily due to the impact of ownership changes in our East China and Taiwan joint ventures, partially offset by higher South Korea joint venture income.

Income from equity investees decreased $3 million, primarily due to the impact of our ownership changes in East China.

This decrease was partially offset by improved comparable store sales from our joint venture in South Korea and higher income from our North American Coffee Partnership joint venture.

The combination of these changes resulted in an overall decrease in operating margin of 30 basis points in fiscal 2019 when compared to fiscal 2018.

Other Income and Expenses

Fiscal Year Ended

Fiscal Year Ended Sep 29,

As a % of Total

10 unchanged sentences

Effective tax rate including noncontrolling interests 19.5 % 21.8 %

Gain resulting from acquisition of joint venture was due to remeasuring our preexisting 50% ownership interest in our East China joint venture to fair value upon acquisition.

Net gain resulting from divestiture of certain operations primarily consisted of sales of our Tazo brand and Taiwan joint venture, partially offset by the net loss from the sale of our Brazil retail operations in fiscal 2018.

The gain in fiscal 2017 was primarily due to the sale of our Singapore retail operations.

Interest income and other, net increased $10 million, primarily due to recognizing higher income on unredeemed stored value card balances, partially offset by the lapping of prior year's gain on the sale of our investment in Square, Inc.

warrants in the prior year period.

Interest expense increased $78 million primarily related to additional interest incurred on long-term debt issued in November 2017, March 2018 and August 2018.

Gain resulting from acquisition of joint venture in fiscal 2018 was due to remeasuring our preexisting 50% ownership interest in our East China joint venture to fair value upon acquisition.

Net gain resulting from divestiture of certain operations was primarily due to the sale of our Thailand, France and the Netherlands retail operations in fiscal 2019.

The gain in fiscal 2018 was primarily due to the sale of our Tazo brand and Taiwan joint venture, partially offset by the net loss from the sale of our Brazil retail operations in fiscal 2018.

Interest income and other, net decreased $95 million, primarily due to the adoption of the new revenue recognition guidance on a prospective basis, which required estimated breakage on unredeemed store value cards to be recorded as revenue.

We recorded stored value card breakage in interest income and other, net in the prior year.

Interest expense increased $161 million primarily due to additional interest incurred on long-term debt issued in November 2017, March 2018, August 2018 and May 2019.

The effective tax rate for fiscal 2019 was 19.5% compared to 21.8% for fiscal 2018.

The decrease in the effective tax rate was primarily due to the gain on the purchase of our East China joint venture that was not subject to income tax (approximately 580 basis points) and the Tax Act (approximately 480 basis points).

The impact from the Tax Act primarily included favorability from the lower corporate income tax rate applied to our fiscal 2018 results (approximately 760 basis points) and the remeasurement of our net deferred tax liabilities (approximately 130 basis points).

This favorability was partially offset by the estimated transition tax on our accumulated undistributed foreign earnings (approximately 400 basis points).

See Note 14 , Income Taxes, for further discussion.

1 unchanged sentence

Results of operations by segment (in millions) :

Fiscal Year Ended

Fiscal Year Ended Sep 29,

As a % of Americas

3 unchanged sentences

Licensed stores 1,958.0 1,814.0 10.7 10.8

Other 12.8 13.1 0.1 0.1

Total net revenues 18,259.0 16,748.6 100.0 100.0

Cost of sales

Product and distribution costs 5,174.7 4,884.1 28.3 29.2

Store operating expenses 8,064.8 7,248.6 44.2 43.3

5 unchanged sentences

Operating income $ 3,782.8 $ 3,485.2 20.7 % 20.8 %

Americas total net revenues for fiscal 2018 increased $1.1 billion, or 7%, primarily driven by 383 net new Starbucks ® company-operated store openings, or a 4.1% increase, over the past 12 months ($604 million) and a 2% increase in comparable store sales ($319 million).

Also contributing were higher product sales to and royalty revenues from our licensees ($173 million), primarily resulting from the opening of 512 net new Starbucks® licensed stores, or a 7.2% increase, over the past 12 months.

Operating Income

Americas operating income for fiscal 2018 decreased 3% to $3.5 billion , compared to $3.6 billion in fiscal 2017.

Operating margin decreased 210 basis points to 20.8% , primarily due to food and beverage-related mix shifts (approximately 130 basis points), increased partner investments (approximately 120 basis points) which included incremental investments funded by the Tax Act, increased strategic investments (approximately 30 basis points), the impact of the May 29th anti-bias training (approximately 20 basis points) and higher restructuring costs, including asset impairments and severance (approximately 20 basis points), partially offset by sales leverage.

Also contributing were higher product sales to and royalty revenues from our licensees ($144 million), primarily resulting from comparable store sales growth and the opening of 323 net new Starbucks ® licensed stores, or 4% increase, over the past 12 months and the impact of the adoption of revenue recognition guidance on stored value card breakage ($119 million).

Operating Margin

Americas operating income for fiscal 2019 increased 9% to $3.8 billion, compared to $3.5 billion in fiscal 2018.

Operating margin decreased 10 basis points to 20.7%, primarily driven by higher partner investments, largely funded by savings from the Tax Act, growth in wages and benefits (approximately 130 basis points) and to a much lesser extent, investments in labor hours heavily concentrated in our fiscal fourth quarter.

Partially offsetting these were cost savings initiatives, primarily in product and distribution costs (approximately 90 basis points), the impact of the adoption of revenue recognition guidance on stored value card breakage (approximately 50 basis points) and sales leverage.

International

Fiscal Year Ended

Fiscal Year Ended Sep 29,

As a % of International

3 unchanged sentences

Licensed stores 917.0 837.0 14.8 15.1

Other 17.5 12.1 0.3 0.2

Total net revenues 6,190.7 5,551.2 100.0 100.0

Cost of sales

Product and distribution costs 1,894.9 1,709.4 30.6 30.8

Store operating expenses 2,428.5 2,182.3 39.2 39.3

7 unchanged sentences

Under a company-operated ownership model, East China's operating results are reflected in most line items on the statements of earnings.

International total net revenues for fiscal 2018 increased $1.3 billion, or 32%, primarily driven by the impact of our ownership change in East China ($850 million), 433 net new Starbucks ® company-operated store openings, or a 12.1% increase, over the past 12 months ($298 million), and favorable foreign currency translation ($121 million).

Also contributing were higher product sales to and royalty revenues from our licensees ($100 million), primarily resulting from the opening of 669 net new Starbucks licensed stores, or a 13.6% increase, over the past 12 months and the conversion of our Taiwan joint venture to fully licensed operations at the end of the first quarter of fiscal 2018 ($25 million).

Under the joint venture model, we recognized royalties and product sales within revenue and related product and distribution costs as well as our proportionate share of East China's net earnings, which resulted in a higher margin business.

Under the company-operated ownership model, East China’s operating results are reflected in most income statement lines of this segment.

International total net revenues for fiscal 2019 increased $640 million, or 12%%, primarily driven by 665 net new Starbucks ® company-operated stores, or a 12% increase, over the past 12 months ($377 million), the ownership change in East China ($280 million) and a 3% increase in comparable store sales ($135 million).

These increases were partially offset by unfavorable foreign currency translation ($183 million) and the conversion of our Thailand, France and the Netherlands retail businesses to fully licensed markets ($126 million).

Operating Margin

International operating income for fiscal 2019 increased 11% to $965 million, compared to $873 million in fiscal 2018.

Operating margin decreased 420 basis points to 15.7% , primarily due to the impact of our ownership change in East China (approximately 350 basis points).

Also contributing were higher goodwill impairment charges associated with our Switzerland retail reporting unit (approximately 40 basis points) and restructuring costs, including severance and asset impairments (approximately 40 basis points).

Operating margin decreased 10 basis points to 15.6%, primarily driven by strategic investments to support growth in China (approximately 80 basis points) and growth in wages and benefits (approximately 70 basis points), primarily offset by cost savings initiatives (approximately 80 basis points) and labor efficiencies (approximately 70 basis points).

Channel Development

Fiscal Year Ended

Fiscal Year Ended Sep 29,

As a % of Channel Development

1 unchanged sentence

Total net revenues $ 1,992.6 $ 2,297.3

Cost of sales

Product and distribution costs 1,390.0 1,252.3 69.8 54.5

Other operating expenses 76.2 286.5 3.8 12.5

4 unchanged sentences

Operating income $ 697.5 $ 927.1 35.0 % 40.4 %

Discussion of our Channel Development segment results reflects the impact of the licensing of our CPG and Foodservice businesses to Nestlé and the sale of the Tazo brand.

Late in the fourth quarter of fiscal 2018, we licensed our CPG (Starbucks-, Starbucks Reserve-, Teavana-, Seattle's Best Coffee-, Starbucks VIA- and Torrefazione Italia-branded packaged coffee and tea) and Foodservice businesses to Nestlé and formed the Global Coffee Alliance.

Eleven months of fiscal 2018 results reflect our CPG and Foodservice businesses as company-owned and one month as licensed operations.

Our collaborative business relationships for our global ready-to-drink products and the associated revenues remain unchanged due to the Global Coffee Alliance.

Channel Development net revenues for fiscal 2018 increased $41 million, or 2%, over fiscal 2017.

Revenue growth was driven by an increase in sales of our packaged coffee and premium single-serve products ($115 million), lapping a prior year revenue deduction adjustment ($13 million) and favorable foreign currency translation ($10 million).

These increases were partially offset by the absence of revenue from the sale of our Tazo brand in the first quarter of fiscal 2018 ($56 million) and licensing our CPG and Foodservice businesses to Nestlé late in the fourth quarter of fiscal 2018 ($50 million).

Channel Development net revenues for fiscal 2019 decreased $305 million, or 13%, when compared to the prior year period, primarily driven by licensing our CPG and Foodservice businesses to Nestlé ($329 million), offset by growth in product revenue, primarily premium single-serve products, in connection with our Global Coffee Alliance ($25 million).

Operating Margin

Channel Development operating income for fiscal 2019 decreased 25% to $698 million, compared to $927 million in fiscal 2018.

Operating margin decreased 250 basis points to 40.4% , primarily driven by business taxes associated with the up-front payment received from Nestlé (approximately 120 basis points), Global Coffee Alliance headcount-related costs, including employee bonus and retention costs (approximately 80 basis points), and the impact of our ownership changes, including licensing our CPG and Foodservice businesses to Nestlé and the sale of our Tazo brand.

Operating margin decreased 540 basis points to 35.0%, primarily driven by licensing our CPG and Foodservice businesses to Nestlé (approximately 640 basis points), partially offset by lapping prior year costs associated with the establishment of the Global Coffee Alliance (approximately 140 basis points), including business taxes associated with the up-front prepaid royalty and headcount-related costs, primarily related to employee bonus and retention costs.

Corporate and Other

Fiscal Year Ended

Fiscal Year Ended Sep 29,

Net revenues:

1 unchanged sentence

Licensed stores — 1.2 (100.0)

Other 66.3 54.5 21.7

Total net revenues 66.3 122.4 (45.8)

Cost of sales

Product and distribution costs 67.3 84.9 (20.7)

Store operating expenses 0.3 41.3 (99.3)

9 unchanged sentences

Cash and Investment Overview

Our cash and investments were $3.0 billion and $9.2 billion as of September 29, 2019 and September 30, 2018 , respectively, with the decrease driven by the usage of the up-front prepaid royalty associated with the Global Coffee Alliance primarily for share repurchases.

Our cash and investments were $4.8 billion and $3.0 billion as of September 27, 2020 and September 29, 2019, respectively.

In fiscal 2020, cash and investments increased by $1.8 billion primarily due to the issuance of short-term and long-term debt as well as lower share repurchases following the temporary suspension of our share repurchase program in March 2020.

These liquidity increases offset lower retail cash inflows due to temporary store closures and modified operations resulting from the COVID-19 pandemic.

We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases.

Our investment portfolio primarily includes highly liquid available-for-sale securities, including government treasury securities (domestic and foreign) and corporate debt securities.

Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (domestic and foreign) and commercial paper.

As of September 27, 2020, approximately $2.0 billion of cash was held in foreign subsidiaries.

Borrowing capacity

Our $2.0 billion unsecured 5-year revolving credit facility (the “2018 credit facility”) and our $1.0 billion unsecured 364-Day credit facility (the “364-day credit facility”) 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 .

Credit Facilities and Commercial Paper

Our total contractual borrowing capacity for general corporate purposes was $2.7 billion as of the end of fiscal 2020 when combining the unused commercial paper program and credit facilities discussed below, less outstanding borrowing.

Revolving Lines of Credit

Our $2.0 billion unsecured 5-year revolving credit facility (“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.

Borrowings under the credit facility are subject to terms defined within the 2018 credit facility and will bear interest at a variable rate based on LIBOR, and, for U.S.

dollar-denominated loans under certain circumstances, a Base Rate, 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 1.100% 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, was set to mature on October 23, 2019.

In the first quarter of fiscal 2020, the maturity has been extended to October 21, 2020 .

The 2018 credit facility is available for general corporate purposes.

As of September 27, 2020, we had no borrowings under the 2018 credit facility.

Our $1.0 billion unsecured 364-day credit facility (the “364-day credit facility”), of which no amount may be used for issuances of letters of credit, is currently set to mature on September 22, 2021.

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 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 credit facility covenants.

No amounts were outstanding under our credit facility as of September 29, 2019 .

Borrowings under the credit facility are subject to terms defined within the 364-day credit facility and will bear interest at a variable rate based on

LIBOR, and, for U.S.

dollar-denominated loans under certain circumstances, a Base Rate, in each case plus an applicable margin.

The applicable margin is 1.150% for Eurocurrency Rate Loans and 0.150% for Base Rate Loans.

The 364-day credit facility is available for general corporate purposes.

As of September 27, 2020, we had no borrowings under the 364-day credit facility.

Due to the financial impacts from COVID-19, we reached an agreement with our lenders to amend the fixed charge coverage ratio covenant for our combined $3.0 billion revolving lines of credit, through the fourth quarter of fiscal 2021.

Commercial Paper

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 facilities discussed above.

Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the 2018 and 364-day credit facilities 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 under our commercial paper program.

In May 2019 , we issued long-term debt in an underwritten registered public offering, which consisted of $1.0 billion of 10-year 3.550% Senior Notes (the “2029 notes”) due August 2029 and $1.0 billion of 30-year 4.450% Senior Notes (the “2049 notes”) due August 2049 .

Interest on the 2029 notes and the 2049 notes is payable semi-annually on February 15 and August 15, commencing on August 15, 2019.

In August 2018, we issued long-term debt in an underwritten registered public offering, which consisted of $1.25 billion of 7-year 3.800% Senior Notes (the “2025 notes”) due August 2025, $750 million of 10-year 4.000% Senior Notes (the “2028 notes”) due November 2028 and $1 billion of 30-year 4.500% Senior Notes (the “2048 notes”) due November 2048.

Interest on the 2025 notes is payable semi-annually on February 15 and August 15, commencing on February 15, 2019.

Interest on the 2028 and 2048 notes is payable semi-annually on May 15 and November 15, commencing on November 15, 2018.

In February 2018, we issued long-term debt in an underwritten registered public offering, which consisted of $1.0 billion of 5-year 3.100% Senior Notes (the “2023 notes”) due March 2023 and $600 million of 10-year 3.500% Senior Notes (the “2028 notes”) due March 2028.

Interest on the 2023 and 2028 notes is payable semi-annually on March 1 and September 1, commencing on September 1, 2018.

In November 2017, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 3-year 2.200% Senior Notes (the “2020 notes”) due November 2020 and $500 million of 30-year 3.750% Senior Notes (the “2047 notes”) due December 2047.

Interest on the 2020 notes is payable semi-annually on May 22 and November 22, commencing on May 22, 2018 and interest on the 2047 notes is payable semi-annually on June 1 and December 1, commencing on June 1, 2018.

We will use the net proceeds from the offering of the 2049 notes to enhance our sustainability programs.

We will use the net proceeds from these remaining offerings for general corporate purposes, including the repurchases of our common stock under our ongoing share repurchase program, business expansion and payment of dividends.

As of September 27, 2020, we had borrowings of $296.5 million outstanding, net of unamortized discount, under our commercial paper program, of which a majority will mature during the second quarter of fiscal 2021.

Credit Facilities in Japan

Additionally, we hold Japanese yen-denominated credit facilities which are available for working capital needs and capital expenditures within our Japanese market.

During the third quarter of fiscal 2020, we expanded our ¥1 billion unsecured credit facility to ¥5 billion, or $47.4 million, as of September 27, 2020.

This facility is currently set to mature on December 31, 2020.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.

Additionally during the third quarter, we expanded our ¥2 billion unsecured credit facility to ¥10 billion, or $94.9 million, as of September 27, 2020.

This facility is currently set to mature on March 26, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus 0.300%.

As of September 27, 2020, we had $142.3 million of borrowings outstanding under these credit facilities.

In October 2020, we entered into a new ¥10 billion unsecured facility, or approximately $95 million as of October 29, 2020.

This facility is set to mature on October 29, 2021.

Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.

Long-Term Debt

On May 7, 2020, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 1.300% Senior Notes (the“2022 notes”) due May 2022, $1.25 billion of 2.550% Senior Notes (the “2030 notes”) due November 2030 and $1.25 billion of 3.500% Senior Notes (the “2050 notes”) due November 2050.

We are using the net proceeds from the offering for general corporate purposes and for future repayments of outstanding indebtedness.

Interest on the 2022 notes is payable semi-annually on May 7 and November 7, commencing on November 7, 2020.

Interest on the 2030 notes and the 2050 notes is payable semi-annually on May 15 and November 15, commencing on November 15, 2020.

On March 12, 2020, we issued long-term debt in an underwritten registered public offering, which consisted of $500 million of 2.000% Senior Notes (the “2027 notes”) due March 2027, $750 million of 2.250% Senior Notes (the “2030 notes”) due March 2030 and $500 million of 3.350% Senior Notes (the “2050 notes”) due March 2050.

We are using the net proceeds from the offering for general corporate purposes, including the repayment of outstanding borrowings under our commercial paper program.

We may temporarily invest funds that are not immediately needed for these purposes in short-term investments, including marketable securities.

Interest on the 2027 notes, the 2030 notes and the 2050 notes is payable semi-annually on March 12 and September 12, commencing on September 12, 2020.

See Note 9 , Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for details of the components of our long-term debt.

The indentures under which all of our Senior Notes were issued require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties.

Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the Senior Notes were issued.

As of September 27, 2020, we were in compliance with all applicable covenants.

We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt, to invest in our core businesses, including capital expenditures, new product innovations, related marketing support and partner and digital investments, return cash to shareholders through common stock cash dividend payments and share repurchases, as well as other new business opportunities related to our core and other developing businesses.

investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses.

Further, we may use our available cash resources to make proportionate capital contributions to our investees.

We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our growth agenda.

We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our “Growth at Scale” agenda.

Acquisitions may include increasing our ownership interests in our investees.

Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy.

We believe that future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as any shareholder distributions for the foreseeable future.

We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for the foreseeable future.

Significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding.

1 unchanged sentence

however, additional borrowings would result in increased interest expense in the future.

In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through dividends and share repurchases.

In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases.

To further strengthen our liquidity in the near term, we currently expect the suspension of share repurchases to continue through the end of fiscal 2021.

If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances.

We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings.

In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional

foreign withholding taxes and U.S.

In the event we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S.

state income taxes, which could be material.

We have revised our indefinite reinvestment assertions for prior years' cumulative earnings from certain foreign subsidiaries.

This change did not have a material impact to our financial results.

We have not, nor do we anticipate the need for, repatriated funds to the U.S.

We do not anticipate the need for repatriated funds to the U.S.

to satisfy domestic liquidity needs.

See Note 14 , Income Taxes, for further discussion.

During each of the first two quarters of fiscal 2018 , we declared a cash dividend to shareholders of $0.30 per share.

In the last two quarters of fiscal 2018 and each of the first three quarters of fiscal 2019 , we declared a cash dividend of $0.36 per share.

During fiscal 2020, we entered into a new $500 million unsecured 364-day term-loan facility (“the 2020 term-loan facility”) which we drew on and subsequently repaid within the fiscal year.

The 2020 term-loan facility was originally set to mature on March 19, 2021.

During each of the first three quarters of fiscal 2019, we declared a cash dividend to shareholders of $0.36 per share.

In the fourth quarter of fiscal 2019 and each of the first three quarters of fiscal 2020, we declared a cash dividend of $0.41 per share.

Dividends are paid in the quarter following the declaration date.

Cash returned to shareholders through dividends in fiscal 2020 and 2019 totaled $1.9 billion and $1.8 billion, respectively.

In the fourth quarter of fiscal 2019 , we declared a cash dividend of $0.41 per share to be paid on November 29, 2019 with an expected payout of approximately $486 million .

We entered into accelerated share repurchase agreements (“ASR agreements”) with third-party financial institutions totaling $5.0 billion , effective October 1, 2018.

Subsequent to the fourth quarter of fiscal 2020, we declared a cash dividend of $0.45 per share to be paid on November 27, 2020 with an expected payout of approximately $527.9 million.

As of the date of this report, we do not expect to reduce our quarterly dividend as a result of the COVID-19 pandemic.

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 of our common stock.

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.

Additionally, we entered into ASR agreements with third-party financial institutions totaling $2.0 billion , effective March 22, 2019.

Additionally, 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 of our common stock.

In June 2019, we received an additional 3.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $76.50.

Outside of the ASR agreements noted above, during fiscal 2019 and 2018 , we repurchased 36.6 million and 131.5 million shares of common stock, respectively, or $3.1 billion and $7.2 billion , respectively, on the open market.

For fiscal 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.

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.

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 fiscal year ended September 29, 2019.

In total, we repurchased 139.6 million shares at a total cost of $10.1 billion for the fiscal year ended September 29, 2019.

Our Board of Directors approved an increase of 120 million and 40 million shares to our ongoing share repurchase program during the fiscal first quarter of 2019 and fiscal second quarter of 2020, respectively.

We temporarily suspended our share repurchase program in March 2020.

Prior to the suspension, we repurchased 20.3 million shares of common stock for $1.7 billion on the open market during the year ended September 27, 2020.

As of September 27, 2020, 48.9 million shares remained available for repurchase under current authorizations.

The existing share repurchase program remains authorized by the Board of Directors.

The suspension of the share repurchases is currently expected to continue through fiscal 2021, and we may resume share repurchases in the future at any time, depending upon operating results, our capital needs and other factors.

Other than normal operating expenses, cash requirements for fiscal 2021 are expected to consist primarily of capital expenditures for investments in our new and existing stores and our supply chain and corporate facilities.

1 unchanged sentence

Cash provided by operating activities was $1.6 billion for fiscal 2020, compared to $5.0 billion for fiscal 2019.

The change was primarily driven by lapping the prior year receipt of the up-front payment from Nestlé in the fourth quarter of fiscal 2018.

Cash used by investing activities totaled $1.0 billion for fiscal 2019 , compared to $2.4 billion for fiscal 2018 .

The change was primarily driven by lapping the prior year payment to acquire the 50% ownership interest in our East China joint venture and higher proceeds from the divestiture of certain operations.

Cash used by financing activities for fiscal 2019 totaled $10.1 billion , compared to $3.2 billion for fiscal 2018 .

The change was primarily due to lower proceeds from issuance of long-term debt and higher repurchases of our common stock under accelerated share repurchase agreements in fiscal 2019.

The change was primarily due to temporary retail store closures resulting from the COVID-19 pandemic, the U.S.

federal tax payment related to the Nestlé transaction and the timing of other tax payments and refunds.

Cash used in investing activities totaled $1.7 billion for fiscal 2020, compared to $1.0 billion for fiscal 2019.

The change was primarily driven by lapping proceeds from the divestiture of certain operations related to the conversions of our retail businesses in Thailand, France and the Netherlands to fully licensed markets during 2019 and an increase in purchase of investments in fiscal 2020.

This was partially offset by lower capital expenditures for new and existing stores.

Cash provided by financing activities for fiscal 2020 totaled $1.7 billion, compared to cash used in financing activities of $10.1 billion for fiscal 2019.

The change was primarily due to higher repurchases of our common stock under accelerated share repurchase agreements in fiscal 2019 and higher proceeds from issuance of long-term debt in fiscal 2020.

Contractual Obligations

2 unchanged sentences

Contractual Obligations (1)

Total Less than 1

Operating lease obligations (2)

Financing lease obligations

$ 10,089.6 $ 1,528.1 $ 2,668.7 $ 2,112.6 $ 3,780.2

Debt obligations

2 unchanged sentences

Purchase obligations (3)

1,237.1 750.3 423.4 63.4 —

Other obligations (4)

498.9 101.0 71.5 115.9 210.5

Total $ 35,411.3 $ 4,569.4 $ 6,057.0 $ 5,891.8 $ 18,893.1

(1) We have excluded long-term gross unrecognized tax benefits for uncertain tax positions, including interest and penalties of $137.5 million from the amounts presented as the timing of these obligations is uncertain.

6 unchanged sentences

Off-Balance Sheet Arrangements

Off-balance sheet arrangements relate to operating lease and purchase commitments detailed in the footnotes to the consolidated financial statements included in Item 8 of Part II of this 10-K.

Off-balance sheet arrangements relate to purchase commitments detailed in the footnotes to the consolidated financial statements included in Item 8 of Part II of this 10-K.

COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS

8 unchanged sentences

Under this policy, market-based risks are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions.

The market price risk management policy governs how hedging instruments may be used to mitigate risk.

The market price risk management policy governs how hedging instruments may be used to mitigate

Risk limits are set annually and prohibit speculative trading activity.

We also monitor and limit the amount of associated counterparty credit risk, which we consider to be low.

Excluding interest rate swaps, hedging instruments generally do not have maturities in excess of three years .

We use interest rate swap agreements and treasury locks to primarily hedge against changes in benchmark interest rates related to anticipated debt issuances and cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our fixed-rate debt and foreign exchange exposure of net investments in Japan.

Excluding interest rate hedging instruments, cross currency swaps and foreign currency debt, hedging instruments generally do not have maturities in excess of three years.

Refer to Note 1 , Summary of Significant Accounting Policies, and Note 3 , Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our hedging instruments.

6 unchanged sentences

The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions) :

Increase/(Decrease) to Net Earnings

Increase/(Decrease) to OCI

10% Increase in

Underlying Rate

10% Decrease in

Underlying Rate

Increase/(Decrease) to Net Earnings Increase/(Decrease) to OCI

10% Increase in

1 unchanged sentence

10% Decrease in

Underlying Rate 10% Increase in

Underlying Rate 10% Decrease in

Underlying Rate

4 unchanged sentences

To reduce cash flow volatility from foreign currency fluctuations, we enter into derivative instruments to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, intercompany borrowing and lending activities and certain other transactions in currencies other than the functional currency of the entity that enters into the arrangements, as well as the translation risk of certain balance sheet items.

The volatility in the foreign exchange market may lead to significant fluctuation in foreign currency exchange rates and adversely impact our financial results in the case of weakening foreign currencies relative to the U.S.

See Note 3 , Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion.

2 unchanged sentences

The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items ( in millions ):

Increase/(Decrease) to Net Earnings

Increase/(Decrease) to OCI

10% Increase in

Underlying Rate

10% Decrease in

Underlying Rate

Increase/(Decrease) to Net Earnings Increase/(Decrease) to OCI

10% Increase in

Underlying Rate

10% Decrease in

Underlying Rate 10% Decrease in

Underlying Rate 10% Increase in

Underlying Rate 10% Decrease in

Underlying Rate

11 unchanged sentences

Change in Fair Value

100 Basis Point Increase in

Fair Value 100 Basis Point Increase in

Underlying Rate

2 unchanged sentences

Long-term debt (1)

$ 17,500 $ 1,294 $ (1,294)

(1) Amount disclosed is net of $23 million change in the fair value of our designated interest rate swap.

7 unchanged sentences

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that management believes are both most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

4 unchanged sentences

Property, Plant and Equipment and Other Finite-Lived Assets

We evaluate property, plant and equipment and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable.

We evaluate property, plant and equipment, operating lease right-of-use (“ROU”) assets and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable.

When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows.

2 unchanged sentences

Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

For company-operated store assets, the impairment test is performed at the individual store asset group level.

For company-operated store assets, the impairment test is performed at the individual store asset group level, which is inclusive of property, plant and equipment and lease ROU assets.

The fair value of a store’s assets is estimated using a discounted cash flow model.

1 unchanged sentence

Our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an

appropriate discount rate.

Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount rate.

For company-operated stores, estimates of revenue growth and operating expenses are based on internal projections and consider the store’s historical performance, the local market economics and the business environment impacting the store’s performance.

1 unchanged sentence

These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.

During fiscal 2019 , there were no significant changes in any of our estimates or assumptions that had a material impact on the outcome of our impairment calculations.

However, as we periodically reassess estimated future cash flows and asset fair values, changes in our estimates and assumptions may cause us to realize material impairment charges in the future.

In each of the three fiscal years prior to fiscal 2020, our business has operated at levels of growth and profitability that have not required material numbers of our store assets to be reviewed for potential impairment.

Given the substantial reduction in our revenues and cash flows as a result of the COVID-19 pandemic, primarily in the third quarter of fiscal 2020, along with our announced restructuring plans to close up to 800 of our company-operated stores in the U.S.

and Canada in the next 18 months, we identified triggering events that required us to assess the need for potential impairment charges for a larger number of company-operated stores in fiscal 2020 than in prior years.

As a result of these activities, we recorded store impairment charges of $298.9 million in fiscal 2020, of which $239.3 million was included in restructuring and impairment expenses on our consolidated statement of earnings.

The magnitude of these charges was not particularly sensitive to variations in fair value inputs, as the majority of charges recorded were the result of full impairments of stores identified for closure, based on factors such as the format and location of the store or its current operating performance.

Excluding stores in areas impacted by our restructuring plans, our company-operated store portfolio is projecting a return to pre-COVID-19 levels of operations and cash flow recoverability within the next 12 months.

However, irrespective of the above, our expectations of business recovery trends may vary materially in future periods based on the pace of global and market-specific recovery from the COVID-19 pandemic.

As of September 27, 2020, we had identified 405 stores in the U.S.

and Canada for closure under our restructuring plans.

We expect to potentially identify up to another 395 stores for closure.

We expect total future restructuring costs, which are attributable to our Americas segment, to range from approximately $260 million to $400 million.

These restructuring costs include accelerated amortization or impairments of ROU assets due to planned store closures prior to the end of contractual lease terms ($150 million to $190 million), store asset impairment and disposal costs not previously recorded as part of our ongoing store impairment process ($100 million to $190 million) and the remaining amount relates to employee termination costs.

Our estimates of future restructuring costs are based on actual costs incurred for recently closed stores of similar profile under the restructuring plans.

As we have previously recorded impairment charges in fiscal 2020 for stores that may be identified for closure under our plans, and because store closure decisions are still subject to change, the final costs associated with these store closures may be different from the initial estimates.

These costs will depend on the asset carrying value and remaining lease term for each store identified.

Future restructuring costs are expected to be incurred over the next 18 months as stores are specifically identified for closure or, in the case of lease exit costs, when the stores cease operations.

Asset impairment charges are discussed in Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

Goodwill and Indefinite-Lived Intangible Assets

We evaluate goodwill and indefinite-lived intangible assets for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired.

If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, inclusive of the size of the reporting unit's goodwill, the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition.

If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair

value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, inclusive of the carrying value of the reporting unit's goodwill, the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition.

If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new store concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate.

Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance.

Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, including assumptions regarding business recovery post COVID-19, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance.

The discount rate is selected based on the estimated cost of capital for a market participant to operate the reporting unit in the region.

These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion.

Our goodwill impairment assessments were not significantly altered as a result of the COVID-19 pandemic.

We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as the U.S.

and China, we do not anticipate incurring significant goodwill impairment in the next 12 months.

When assessing indefinite-lived intangible assets for impairment, where we perform a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist.

If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the intangible asset group.

The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group's forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances.

The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group's forecasted growth, including assumptions regarding business recovery post COVID-19, and royalty rates, which are adjusted for our particular facts and circumstances.

The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business.

These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion.

The goodwill impairment charges are discussed in Note 8 , Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

During fiscal 2020, we recorded a charge of $22.1 million relating to the impairment of an indefinite-lived intangible asset due to changes in branding and marketing strategy.

The amount of charge taken was not materially impacted by our choice of fair value assumptions, and we do not anticipate recording significant impairment charges in the next 12 months.

Definite-lived intangible asset impairment charges are discussed in Note 8 , Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities.

3 unchanged sentences

In projecting future taxable income, we consider historical results and incorporate assumptions about the amount of future state, federal and foreign pretax operating income adjusted for items that do not have tax consequences.

Our assumptions regarding future taxable income are consistent with the plans and estimates

we use to manage our underlying businesses.

Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses.

In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss).

During fiscal 2020, we recorded valuation allowances of $56.5 million to reduce our deferred tax asset balance as of the beginning of the fiscal year relating to certain foreign jurisdictions not expected to generate enough future income to offset accumulated losses.

Absent a sustained multi-year global decline in our business in key markets such as the U.S., China and Japan, we do not anticipate incurring significant additional valuation allowances against our remaining deferred tax assets as of September 27, 2020 in the next 12 months.

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 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.

We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is

more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position.

For uncertain tax positions that do not meet this threshold, we record a related liability.

3 unchanged sentences

state income taxes.

We have revised our indefinite reinvestment assertions for prior years’ cumulative earnings from certain foreign subsidiaries.

We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings.

These plans have been unaltered as a result of the COVID-19 pandemic.

While we do not expect to repatriate cash to the U.S.

3 unchanged sentences

Deferred tax asset valuation allowances and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results, including forecasted COVID-19 business recovery, could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.

Refer to Note 13 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for additional discussion surrounding the changes as a result of the Tax Act.

RECENT ACCOUNTING PRONOUNCEMENTS

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis