What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-11-12 compared with 2019-11-15 · 567 added, 383 removed, 939 unchanged (50% of the section changed)

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(in millions, except per share data)

Fiscal Year Ended

Fiscal Year Ended Sep 27,

Net revenues:

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Licensed stores 2,327.1 2,875.0 2,652.2

Other 2,026.3 2,089.2 2,377.0

Total net revenues 23,518.0 26,508.6 24,719.5

Cost of sales

Product and distribution costs 7,694.9 8,526.9 7,930.7

Store operating expenses 10,764.0 10,493.6 9,472.2

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Net earnings including noncontrolling interests 924.7 3,594.6 4,518.0

Net earnings/(loss) attributable to noncontrolling interests

Net loss attributable to noncontrolling interests ( 3.6 ) ( 4.6 ) ( 0.3 )

Net earnings attributable to Starbucks $ 928.3 $ 3,599.2 $ 4,518.3

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Weighted average shares outstanding:

Basic 1,172.8 1,221.2 1,382.7

Diluted 1,181.8 1,233.2 1,394.6

See Notes to Consolidated Financial Statements.

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(in millions)

Fiscal Year Ended

Fiscal Year Ended Sep 27,

Net earnings including noncontrolling interests $ 924.7 $ 3,594.6 $ 4,518.0

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Accounts receivable, net 883.4 879.2

Inventories 1,551.4 1,529.4

Prepaid expenses and other current assets 739.5 488.2

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Property, plant and equipment, net 6,241.4 6,431.7

Operating lease, right-of-use asset 8,134.1 —

Deferred income taxes, net 1,789.9 1,765.8

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Other intangible assets 552.1 781.8

Goodwill 3,597.2 3,490.8

TOTAL ASSETS $ 29,374.5 $ 19,219.6

LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)

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Income taxes payable 98.2 1,291.7

Current portion of operating lease liability 1,248.8 —

Stored value card liability and current portion of deferred revenue 1,456.5 1,269.0

Short-term debt 438.8 —

Current portion of long-term debt 1,249.9 —

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Long-term debt 14,659.6 11,167.0

Operating lease liability 7,661.7 —

Deferred revenue 6,598.5 6,744.4

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Total liabilities 37,173.9 25,450.6

Shareholders’ equity/(deficit):

Shareholders’ deficit:

Common stock ($ 0.001 par value) — authorized, 2,400.0 shares;

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Additional paid-in capital 373.9 41.1

Retained earnings/(deficit)

Retained deficit ( 7,815.6 ) ( 5,771.2 )

Accumulated other comprehensive loss ( 364.6 ) ( 503.3 )

Total shareholders’ equity/(deficit)

Total shareholders’ deficit ( 7,805.1 ) ( 6,232.2 )

Noncontrolling interests 5.7 1.2

Total equity/(deficit)

Total deficit ( 7,799.4 ) ( 6,231.0 )

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 29,374.5 $ 19,219.6

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(in millions)

Fiscal Year Ended

Fiscal Year Ended Sep 27,

OPERATING ACTIVITIES:

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Goodwill impairments — 10.5 37.6

Cash provided by changes in operating assets and liabilities:

Non-cash lease cost 1,197.6 — —

Loss on retirement and impairment of assets 454.4 142.6 75.6

Other 24.5 45.3 13.4

Cash provided by/(used in) changes in operating assets and liabilities:

Accounts receivable ( 2.7 ) ( 197.7 ) 131.0

Inventories ( 10.9 ) ( 173.0 ) ( 41.2 )

Prepaid expenses and other current assets ( 317.5 ) 922.0 ( 839.5 )

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Deferred revenue 31.0 ( 30.5 ) 7,109.4

Operating lease liability ( 1,231.4 ) — —

Other operating assets and liabilities 280.5 ( 141.1 ) 16.4

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Net proceeds from the divestiture of certain operations — 684.3 608.2

Net cash used by investing activities

Other ( 44.4 ) ( 56.2 ) 5.6

Net cash used in investing activities ( 1,711.5 ) ( 1,010.8 ) ( 2,361.5 )

FINANCING ACTIVITIES:

Proceeds from issuance of short-term debt 1,406.6 — —

Repayments of short-term debt ( 967.7 ) — —

Proceeds from issuance of long-term debt 4,727.6 1,996.0 5,584.1

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Minimum tax withholdings on share-based awards ( 91.9 ) ( 111.6 ) ( 62.7 )

Net cash used by financing activities

Other ( 37.7 ) ( 17.5 ) ( 41.2 )

Net cash provided by/(used in) financing activities 1,713.3 ( 10,056.9 ) ( 3,242.8 )

Effect of exchange rate changes on cash and cash equivalents 64.7 ( 49.0 ) ( 39.5 )

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Interest, net of capitalized interest $ 396.9 $ 299.5 $ 137.1

Income taxes, net of refunds

Income taxes $ 1,699.1 $ 470.1 $ 1,176.9

See Notes to Consolidated Financial Statements.

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(in millions, except per share data)

Additional Paid-in Capital

Earnings/(Deficit)

Common Stock Additional Paid-in Capital Retained

Earnings/(Deficit) Accumulated

Comprehensive

Income/(Loss)

Shareholders’

Equity/(Deficit)

Noncontrolling

Income/(Loss) Shareholders’

Equity/(Deficit) Noncontrolling

Interests Total

Shares Amount

Balance, October 1, 2017 1,431.6 $ 1.4 $ 41.1 $ 5,563.2 $ ( 155.6 ) $ 5,450.1 $ 6.9 $ 5,457.0

Net earnings/(loss) — — — 4,518.3 — 4,518.3 ( 0.3 ) 4,518.0

Other comprehensive income/(loss) — — — — ( 174.7 ) ( 174.7 ) — ( 174.7 )

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Exercise of stock options/vesting of RSUs 8.4 — 59.4 — — 59.4 — 59.4

Sale of common stock, including tax benefit of $0.2

Sale of common stock 0.6 — 31.8 — — 31.8 — 31.8

Repurchase of common stock ( 131.5 ) ( 0.1 ) ( 345.0 ) ( 6,863.6 ) — ( 7,208.7 ) — ( 7,208.7 )

Cash dividends declared, $ 1.32 per share

Balance, October 1, 2017

— — — ( 1,760.5 ) — ( 1,760.5 ) — ( 1,760.5 )

Net distributions to noncontrolling interests — — — — — — ( 0.3 ) ( 0.3 )

Balance, September 30, 2018 1,309.1 $ 1.3 $ 41.1 $ 1,457.4 $ ( 330.3 ) $ 1,169.5 $ 6.3 $ 1,175.8

Cumulative effect of adoption of new accounting guidance — — — 495.6 — 495.6 — 495.6

Net earnings/(loss) — — — 3,599.2 — 3,599.2 ( 4.6 ) 3,594.6

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Cash dividends declared, $ 1.49 per share

— — — ( 1,801.6 ) — ( 1,801.6 ) — ( 1,801.6 )

Net distributions to noncontrolling interests — — — — — — ( 0.5 ) ( 0.5 )

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Cash dividends declared, $ 1.23 per share

Net distributions to noncontrolling interests

— — — ( 1,436.6 ) — ( 1,436.6 ) ( 0.2 ) ( 1,436.8 )

Noncontrolling interest resulting from divestiture — — — — — — 8.3 8.3

Balance, September 27, 2020 1,173.3 $ 1.2 $ 373.9 $ ( 7,815.6 ) $ ( 364.6 ) $ ( 7,805.1 ) $ 5.7 $ ( 7,799.4 )

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INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Acquisitions, Divestitures and Strategic Alliance

Derivative Financial Instruments

Fair Value Measurements

Equity and Cost Investments

Supplemental Balance Sheet Information

Other Intangible Assets and Goodwill

Employee Stock and Benefit Plans

Earnings per Share

Commitments and Contingencies

Segment Reporting

Selected Quarterly Financial Information (unaudited)

Note 1 Summary of Significant Accounting Policies

Note 2 Acquisitions, Divestitures and Strategic Alliance

Note 3 Derivative Financial Instruments

Note 4 Fair Value Measurements

Note 5 Inventories

Note 6 Equity Investments

Note 7 Supplemental Balance Sheet and Statement of Earnings Information

Note 8 Other Intangible Assets and Goodwill

Note 10 Leases

Note 11 Deferred Revenue

Note 12 Equity

Note 13 Employee Stock and Benefit Plans

Note 14 Income Taxes

Note 15 Earnings per Share

Note 16 Commitments and Contingencies

Note 17 Segment Reporting

Note 18 Selected Quarterly Financial Information (unaudited)

STARBUCKS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years ended September 29, 2019 , September 30, 2018 and October 1, 2017

Fiscal Years ended September 27, 2020, September 29, 2019 and September 30, 2018

Summary of Significant Accounting Policies

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In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”

Certain prior period information on the consolidated balance sheets and the consolidated statements of cash flows has been reclassified to conform to the current year presentation.

Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.

In the fourth quarter of fiscal 2019, we realigned our operating segment reporting structure to better reflect the cumulative effect of our streamlining efforts.

Specifically, our previous China/Asia Pacific ("CAP") segment and Europe, Middle East, and Africa ("EMEA") segment have been combined into one International segment.

Results of Siren Retail, a non-reportable operating segment consisting of Starbucks 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.

Further, to better support the review of our results, we have changed the classification of certain costs.

The most significant change was the reclassification of our company-owned store occupancy costs from cost of sales to store operating expenses of $ 2.2 billion and $ 2.0 billion for fiscal 2018 and 2017 , respectively.

Total store occupancy costs in fiscal 2019 were $ 2.4 billion .

We also made certain other immaterial changes.

There was no impact to consolidated net revenues, consolidated operating income, or net earnings per share as a result of these changes and prior period financial information has been revised to be consistent with the current period presentation.

Additional details on the nature of our business and our reportable operating segments are included in Note 16 , Segment Reporting.

Certain prior period information on the consolidated statements of cash flows has been reclassified to conform to the current year presentation.

In the third quarter of fiscal 2020, we renamed the “cost of sales” caption on our consolidated statement of earnings to “product and distribution costs,” which more accurately reflects the substance of costs classified within this line item.

There were no classification or other changes made in conjunction with the new caption.

We have three reportable operating segments:

1) Americas, which is inclusive of the U.S., Canada and Latin America;

2) International, which is inclusive of China/Asia Pacific, Europe, Middle East, and Africa;

2) International, which is inclusive of China/Asia Pacific, Europe, the Middle East and Africa;

and 3) Channel Development.

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Examples include, but are not limited to, estimates for inventory reserves, asset and goodwill impairments, assumptions underlying self-insurance reserves, income from unredeemed stored value cards, stock-based compensation forfeiture rates, future asset retirement obligations and the potential outcome of future tax consequences of events that have been recognized in the financial statements.

Actual results and outcomes may differ from these estimates and assumptions.

Actual results and outcomes may differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the outbreak of the novel coronavirus (“COVID-19”).

Restructuring

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

As of September 27, 2020, we expect the total number of closures to be approximately 800 stores in the U.S.

and Canada, reflecting an additional 200 store closures than the initial estimate of 600 stores.

As of September 27, 2020, we identified 405 stores for closure under our restructuring plans, and as a result we recorded approximately $ 254.7 million to restructuring and impairments on our consolidated statement of earnings.

Of this total, $ 151.6 million related to the impairment of store assets for which either a triggering event occurred and the assets were determined not to be recoverable or the store was permanently closed.

An additional $ 87.7 million was primarily associated with accelerated amortization or impairments of right-of-use (“ROU”) lease assets due to planned store closures prior to the end of contractual lease terms.

For impaired store asset groups, we estimated the fair values using an income approach incorporating internal projections of revenue growth and operating expenses that are considered Level 3 fair value measurements, as well as applicable discount rates and market lease rates.

The application of these projections and fair value measurements did not have a significant impact on our final impairment decisions given that we plan to fully exit the majority of these identified stores in the next 3 to 6 months.

The remaining $ 15.4 million related to employee termination costs.

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 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.

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 of the specific stores 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 either cease operations or when a reduced lease term due to early termination is reasonably certain.

As of September 27, 2020, restructuring liabilities totaling $ 80.0 million were included in current and non-current operating lease liability for the remaining outstanding rent liabilities due to landlords.

The associated expense was recognized in fiscal 2020 for these stores that were either closed or reasonably certain to close in fiscal 2021.

Additionally, $ 15.2 million was included in accrued payroll and benefits for employee termination costs on the consolidated balance sheets.

Cash payments were immaterial for fiscal 2020.

Cash and Cash Equivalents

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Equity investments are accounted under the equity method if we are able to exercise significant influence, but not control, over an investee.

Our share of the earnings or losses as reported by the investees are classified as income from equity investees on our consolidated statements of earnings.

Our share of the earnings or losses as reported by the investees is classified as income from equity investees on our consolidated statements of earnings.

The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable.

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We record all derivatives on our consolidated balance sheets at fair value and typically do not offset derivative assets and liabilities.

Excluding interest rate swaps and foreign currency debt, we generally do not enter into derivative instruments with maturities longer than three years.

Excluding interest rate hedging instruments, cross-currency swaps and foreign currency debt hedging instruments, we generally do not enter into derivative instruments with maturities longer than three years.

However, we are allowed to net settle transactions with respective counterparties for certain derivative contracts, inclusive of interest rate swaps and foreign currency forwards, with a single, net amount payable by one party to the other.

We also enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.

Cash collateral under collateral security arrangements were immaterial as of September 29, 2019 and September 30, 2018 .

As of September 27, 2020, cash collateral held under collateral security arrangements was $ 34.9 million and is included in other long-term liabilities on our consolidated balance sheet.

Cash collateral was immaterial as of September 29, 2019.

The potential effects of netting arrangements with our derivative contracts, excluding the effects of collateral, would not have had a material impact on our consolidated balance sheets.

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Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items.

For de-designated cash flow hedges in which the transactions are no longer likely to occur, the related accumulated derivative gains or losses are recognized in interest income and other, net or interest expense on our consolidated statements of earnings based on the nature of the underlying transaction.

For de-designated cash flow hedges in which the transactions are no longer likely to occur, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings based on the nature of the underlying transaction.

Net Investment Hedges

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Our allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method.

During fiscal 2020, we also assessed incremental risks due to COVID-19 on our licensees' financial viability.

For the year ended September 27, 2020, we did not observe a significant deterioration of our receivable portfolio that required a significant increase in bad debt expense.

To assist our international licensed partners with their efforts to recover from the impact of COVID-19, we provided a short-term payment extension for their outstanding receivables as of the end of the second quarter of fiscal 2020 and offered longer-term payment extensions to help certain licensees dedicate their capital to further develop stores and build the brand as the business recovers.

During the third quarter of fiscal 2020, we waived royalty payments from our international licensees and did not recognize royalty revenues associated with these accounts.

We do not believe the terms and forms of these financial relief actions changed our revenue recognition policy or had a significant impact on future collectability.

During the fourth quarter of fiscal 2020, we resumed normal royalty billings and collections.

As of September 27, 2020 and September 29, 2019, our allowance for doubtful accounts was $ 27.1 million and $ 6.7 million, respectively.

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Property, Plant and Equipment

Property, plant and equipment, which includes assets under capital leases, are carried at cost less accumulated depreciation.

Property, plant and equipment is carried at cost less accumulated depreciation.

Cost includes all direct costs necessary to acquire and prepare assets for use, including internal labor and overhead in some cases.

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If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of the appropriate estimated useful lives.

The portion of depreciation expense related to production and distribution facilities is included in cost of sales on our consolidated statements of earnings.

The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.

The portion of depreciation expense related to production and distribution facilities is included in product and distribution costs on our consolidated statements of earnings.

The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of

an asset are capitalized.

When assets are disposed of, whether through retirement or sale, the net gain or loss is recognized in net earnings.

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The fair value of the asset is estimated using a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections.

Property, plant and equipment assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Property, plant and equipment assets and ROU assets related to the store lease are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

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

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Additionally, we recognized net impairment charges of $ 210.0 million, $ 43.4 million and $ 42.8 million in fiscal 2020, 2019 and 2018, respectively.

Of the total net impairment charges, $ 7.1 million and $ 37.0 million in fiscal 2019 and 2018 , respectively, were restructuring related and recorded in restructuring and impairment expenses.

Of the total net impairment charges, $ 134.6 million, $ 7.1 million and $ 37.0 million in fiscal 2020, 2019 and 2018, respectively, were restructuring related and recorded in restructuring and impairment expenses.

For fiscal 2020, we evaluated initial COVID-19 business recovery trends and their estimated impacts on future revenue growth and profitability for assessing impairment of our company-operated retail store and related operating lease right-of-use assets.

As a result, we recorded $ 59.6 million of impairment losses within store operating expenses on our consolidated statement of earnings during the year ended September 27, 2020.

Unless it is restructuring related, the nature of the underlying asset that is impaired or disposed of will determine the operating expense line on which the related impact is recorded on our consolidated statements of earnings.

The majority of our leases are operating leases for our company-operated retail store locations.

We also lease, among other things, roasting, distribution and warehouse facilities and office space for corporate administrative purposes.

We categorize leases as either operating or finance leases at the commencement date of the lease.

Operating lease agreements may contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions.

We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component for all underlying classes of assets.

We recognize a ROU asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception.

We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term.

Our leases often include options to extend or terminate at our sole discretion, which are included in the determination of lease term when they are reasonably certain to be exercised.

Our lease liability represents the present value of future lease payments over the lease term.

Given our policy election to combine lease and non-lease components, we also consider fixed common area maintenance (“CAM”) part of our fixed future lease payments;

therefore, fixed CAM is also included in our lease liability.

We cannot determine the interest rate implicit in each of our leases.

Therefore, we use market and term-specific incremental borrowing rates.

Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

Because we do not borrow on a collateralized basis, we consider a combination of factors, including our credit-adjusted risk-free interest rate, the risk profile and funding cost of the specific geographic market of the lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral.

Our credit-adjusted risk-free rate takes into consideration interest rates we pay on our unsecured long-term bonds as well as quoted interest rates obtained from financial institutions.

Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs.

Most of our real estate leases require we pay certain expenses, such as CAM costs, real estate taxes and other executory costs, of which the fixed portion is included in operating lease costs.

We recognize operating lease costs on a straight-line basis over the lease term.

In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our lease liability.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

A significant majority of our leases are related to our company-operated stores, and their related costs are recorded within store operating expenses.

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, initial direct costs and any tenant improvement allowances received.

For operating leases, ROU assets are

reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method.

For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term.

Interest expense on each finance lease liability is recognized utilizing the effective interest method.

ROU assets are tested for impairment in the same manner as long-lived assets.

Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

During fiscal 2020, we received $ 27.6 million of COVID-19-related rent concessions for stores in our International segment generally correlating with the temporary period our stores were closed.

Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we elected to treat COVID-19-related rent concessions as variable rent.

Rent concessions were recognized as an offset to our rent expense within store operating expenses on our consolidated statement of earnings.

See Note 10 , Leases, for additional details.

Additionally, for the year ended September 27, 2020, we recorded $ 87.7 million in accelerated amortization and impairment of ROU assets for stores identified for closure under the restructuring of our Americas store portfolio, which were recorded in restructuring and impairments on the consolidated statement of earnings.

We evaluate goodwill for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change, such as material deterioration in performance or a significant number of store closures, that would indicate that impairment may exist.

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As a result, when closing individual stores, we do not include goodwill in the calculation of any loss on disposal of the related assets.

We recorded goodwill impairment of $ 10.5 million , $ 37.6 million and $ 87.2 million during fiscal 2019 , 2018 , and 2017 , respectively.

We recorded no goodwill impairment during fiscal 2020.

In fiscal 2019 and 2018, we recorded goodwill impairment of $ 10.5 million and $ 37.6 million, respectively.

See Note 8 , Other Intangible Assets and Goodwill, for further information.

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In addition, we continuously monitor and may revise our intangible asset useful lives if and when facts and circumstances change.

We recorded other intangible asset impairment charges of $ 22.1 million during fiscal 2020.

There were no significant other intangible asset impairment charges recorded during fiscal 2019 and 2018.

See Note 8 , Other Intangible Assets and Goodwill, for further information.

Insurance Reserves

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Consolidated revenues are presented net of intercompany eliminations for wholly-owned subsidiaries and investees controlled by us and for product sales to and royalty and other fees from licensees accounted for under the equity method.

Additionally,

consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates.

Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates.

Company-operated Store Revenues

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Sales of coffee, tea, food and related products are generally recognized upon shipment to licensees, depending on contract terms.

Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in cost of sales on our consolidated statements of earnings.

Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in product and distribution costs on our consolidated statements of earnings.

We consider pre-opening services, including site evaluation and selection, store architectural/design and development and operational training, to be performance obligations that are separate from the license to operate under the Starbucks brand.

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Based on historical redemption rates, a portion of stored value cards is not expected to be redeemed and will be recognized as breakage over time in proportion to stored value card redemptions.

The redemption rates are based on historical redemption patterns for each market, including the timing and business channel in which the card was activated, and remittance to government agencies under unclaimed property laws, if applicable.

Breakage is recognized as company-operated stores and licensed stores revenue within the consolidated statement of earnings beginning in fiscal 2019 in accordance with the new revenue recognition guidance as discussed in the recently adopted accounting pronouncements section of this note.

For the year ended September 29, 2019 , we recognized breakage revenue of $ 125.1 million in company-operated store revenues and $ 15.7 million in licensed store revenues.

The redemption rates are based on historical redemption patterns for each market, including the timing and business channel in which the card was activated or reloaded, and remittance to government agencies under unclaimed property laws, if applicable.

Breakage is recognized as company-operated stores and licensed stores revenue within the consolidated statement of earnings beginning in fiscal 2019 in accordance with the revenue recognition guidance that we adopted prospectively during fiscal 2019.

For the fiscal years ended September 27, 2020 and September 29, 2019, we recognized breakage revenue of $ 130.3 million and $ 125.1 million in company-operated store revenues and $ 14.3 million and $ 15.7 million in licensed store revenues, respectively.

Prior to the adoption of the new revenue recognition guidance, breakage was recorded using the remote method and recorded in interest income and other, net.

In fiscal 2018 and 2017 , we recognized breakage income of $ 155.9 million , and $ 104.6 million , respectively.

There were no material impacts to our consolidated financial statements for the fiscal year ended September 29, 2019 including the change in income statement presentation.

In fiscal 2018, we recognized breakage income of $ 155.9 million.

Loyalty Program

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They earn loyalty points (“Stars”) with each purchase at participating Starbucks ® stores and when making purchases with the Starbucks-branded credit and debit cards.

Beginning in the fourth quarter of fiscal 2020, in addition to using their Starbucks Cards, Starbucks ® Rewards members can earn Stars by paying with cash, credit or debit cards, or selected mobile wallets at company-operated stores in the U.S.

After accumulating a certain number of Stars, the customer earns a reward that can be redeemed for free product that, regardless of where the related Stars were earned within that country, will be honored at company-operated stores and certain participating licensed store locations in that same country.

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When a customer redeems an earned reward, we recognize revenue for the redeemed product and reduce the related deferred revenue.

The new revenue recognition guidance does not impact the timing or total revenue recognized related to the loyalty program.

The revenue recognition guidance that we adopted prospectively during fiscal 2019, did not impact the timing or total revenue recognized related to the loyalty program.

Other Revenues

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Product sales to Nestlé are generally recognized when the product is shipped whereas royalty revenues are recognized based on a percentage of reported sales.

The timing and amount of revenue recognized related to other revenues were not impacted by the adoption of new revenue recognition guidance.

The adoption of the revenue recognition guidance discussed above did not impact the timing and amount of revenue recognized related to other revenues.

Deferred Revenues

In the fourth quarter of fiscal 2018, we licensed the rights to sell and market our products in authorized channels through the Global Coffee Alliance, and received an up-front prepaid royalty from Nestlé.

The up-front payment of approximately $ 7 billion was recorded as deferred revenue as we have continuing performance obligations to support the Global Coffee Alliance, including providing Nestlé access to certain intellectual properties and products for future resale.

The up-front payment will be recognized as other revenue on a straight-line basis over the estimated economic life of the arrangement of 40 years for the ongoing access to the licenses within the contractual territories.

Our obligations to maintain the Starbucks brand and other intellectual properties are generally constant throughout the term of the arrangement.

Therefore, a ratable recognition pattern is reflective of how we satisfy our performance obligations.

At September 29, 2019 , the current and long-term deferred revenue related to the Nestlé up-front payment was $ 175.9 million and $ 6.7 billion , respectively.

During the fiscal year ended September 29, 2019 , the Company recognized $ 175.2 million related to amortization of the up-front royalty payment.

Additionally, deferred revenues include our unredeemed stored value card liability and unredeemed Stars associated with our loyalty program.

Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions) :

Stored value cards and loyalty program at September 30, 2018

Revenue recognition adoption impact

Stored value cards and loyalty program at October 1, 2018

Revenue deferred - card activations, card reloads and Stars earned

Revenue recognized - card and Stars redemptions and breakage

Stored value cards and loyalty program at September 29, 2019 (2)

“Other” primarily consists of changes in the stored value cards and loyalty program balance resulting from the sale of certain retail businesses and foreign currency translation.

Approximately $1.0 billion of this amount is current.

Our deferred revenue primarily consists of the up-front prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, and our unredeemed stored value card liability and unredeemed Stars associated with our loyalty program.

See Note 11 , Deferred Revenue, for further information.

Disaggregation of Revenues

Revenues disaggregated by segment, product type and geographic area are disclosed in Note 17 , Segment Reporting.

Product and Distribution Costs

Product and distribution costs primarily consist of raw materials, purchased goods and packaging costs as well as operational costs of our supply chain organization, such as wages and benefits, occupancy costs and depreciation expenses, in support of sourcing, procuring, manufacturing, warehousing and transportation activities of products sold at our company-operated and licensed stores as well as through Channel Development and our other businesses.

Also included are inventory and supply chain asset impairment costs.

Store Operating Expenses

Store operating expenses consist of costs incurred in our company-operated stores, primarily wages and benefits related to store partners (employees), occupancy costs and other costs that directly support the operation and sales-related activities of those stores.

General and Administrative Expenses

General and administrative expenses primarily consist of wages and benefits, professional service fees and occupancy costs for corporate headquarter and regional offices that support our corporate functions, including technology, finance, legal and partner (employee) resources .

We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising takes place.

Advertising expenses totaled $ 258.8 million, $ 245.7 million and $ 260.3 million in fiscal 2020, 2019 and 2018, respectively.

Government Subsidies

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments for a limited period.

Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future.

Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) to help employers offset a portion of their employee wages for a limited period.

We elected to treat qualified government subsidies from the U.S., Canada and other governments as offsets to the related operating expenses.

During fiscal 2020, the qualified payroll credits reduced our store operating expenses by $ 349.6 million on our consolidated statement of earnings.

After netting the qualified U.S.

payroll tax credits against our payroll tax payable, we recorded $ 155.1 million within prepaid expenses and other current assets as of September 27, 2020.

As of September 27, 2020, deferred payroll tax payments of $ 151.0 million were included in other long-term liabilities on our consolidated balance sheets.

Store Preopening Expenses

Costs incurred in connection with the start-up and promotion of new company-operated store openings are expensed as incurred.

Operating Leases

We lease retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases.

Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions.

We recognize amortization of lease incentives, premiums and minimum

rent expenses on a straight-line basis beginning on the date of initial possession, which is generally when we enter the space and begin to make improvements in preparation for intended use.

For tenant improvement allowances and rent holidays, we record a deferred rent liability within accrued liabilities, or other long-term liabilities, on our consolidated balance sheets and amortize the deferred rent over the terms of the leases as reductions to rent expense in store operating expenses on our consolidated statements of earnings.

For premiums paid up-front to enter a lease agreement, we record a prepaid rent asset in prepaid expenses and other current assets and other long-term assets on our consolidated balance sheets and amortize the premium over the terms of the leases as additional rent expense in store operating expenses on our consolidated statements of earnings.

For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial possession, we record minimum rent expense on a straight-line basis over the terms of the leases in store operating expenses on our consolidated statements of earnings, with the adjustments to cash rent accrued as deferred rent in our consolidated balance sheets.

Certain leases provide for contingent rent, which is determined as a percentage of gross sales in excess of specified levels.

We record a contingent rent liability in accrued occupancy costs within accrued liabilities on our consolidated balance sheets and the corresponding rent expense when we determine that achieving the specified levels during the fiscal year is probable.

When ceasing operations of company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, we record such expense at the time written notice is given to the landlord.

In cases where terms, including termination fees, are yet to be negotiated with the landlord, we will record the expense upon signing of an agreement with the landlord.

In cases where the landlord does not allow us to prematurely exit the lease, we recognize a lease abandonment accrual equal to the present value of the remaining lease payments to the landlord and other rent related payments such as common area maintenance, taxes and insurance, less any projected sublease income at the cease-use date.

Lease Financing Arrangements

We are sometimes involved in the construction of leased buildings, primarily stores.

When we qualify as the deemed owner of these buildings due to significant involvement during the construction period under build-to-suit lease accounting requirements and do not qualify for sales recognition under sales-leaseback accounting guidance, we record the cost of the related buildings in property, plant and equipment, net.

The offsetting lease financing obligations are recorded in other long-term liabilities, with the current portion recorded in accrued occupancy costs within accrued liabilities on our consolidated balance sheets.

These assets and obligations are amortized in depreciation and amortization and interest expense, respectively, on our consolidated statements of earnings based on the terms of the related lease agreements.

Asset Retirement Obligations

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We compute income taxes using the asset and liability method, under which deferred income taxes are recognized based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities.

Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse.

Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which

we expect the temporary differences to reverse.

The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.

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Starbucks recognizes interest and penalties related to income tax matters in income tax expense on our consolidated statements of earnings.

Accrued interest and penalties are included within the related tax balances our consolidated balance sheets.

Accrued interest and penalties are included within the related tax balances on our consolidated balance sheets.

Global intangible low-taxed income (“GILTI”) provisions are applied, providing an incremental tax on foreign income.

We have made a policy election to classify taxes due under the GILTI provision as a current period expense.

Earnings per Share

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Recently Adopted Accounting Pronouncements

In the third quarter of fiscal 2019, we adopted the Financial Accounting Standards Board (“FASB”) issued guidance on the accounting for hedging relationships.

The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, expands permissible cash flow hedges on contractually specified components, and simplifies hedge documentation and effectiveness assessments.

The adoption of the new guidance did not have a material impact on our

consolidated financial statements.

The presentation and disclosure requirements are being applied prospectively.

See Note 3 , Derivative Financial Instruments for further discussion.

In the first quarter of fiscal 2019, we adopted the new FASB guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory.

The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party.

The primary impact of the adoption was an increase to deferred income taxes, net of $ 227.6 million and a corresponding cumulative adjustment to opening retained earnings at the beginning of fiscal 2019.

In the first quarter of fiscal 2019, we adopted the new FASB guidance on revenue recognition utilizing the modified retrospective method, which primarily changed the accounting method and classification of revenue recognition related to unredeemed stored value cards, referred to as stored value card breakage.

Under this new guidance, expected breakage amounts must be recognized proportionately in earnings as redemptions occur.

Previously, stored value card breakage was recorded to interest income and other, net utilizing the remote method.

Starting in the first quarter of 2019, stored value card breakage was recorded in the revenue lines where stored value cards may be redeemed, within company-operated and licensed store revenues.

The cumulative impact to retained earnings as of October 1, 2018 was $ 268.0 million .

Impact of adoption on our consolidated balance sheet at September 30, 2018:

(in millions)

Revenue Recognition Adoption Impact

Deferred income taxes, net

Current liabilities:

Stored value card liability and current portion of deferred revenue

Deferred revenue

Other long-term liabilities

Shareholders' equity:

Retained earnings

Due to the adoption, we began classifying stored value card liabilities as current and long-term deferred revenue.

In the second quarter of fiscal 2020, we adopted the new guidance from the FASB on simplifying the accounting for income taxes by removing certain exceptions to the general principles.

The guidance was adopted on a prospective basis and had no material impact on the consolidated financial statements.

On September 30, 2019, we adopted the new guidance from the FASB on the recognition and measurement of leases utilizing the modified retrospective approach.

As a result, the prior period information reported under the previous lease guidance has not been restated.

As permitted under the new FASB lease guidance, we elected the package of practical expedients, which allowed us to retain our prior conclusions regarding lease identification, classification and initial direct costs.

For our lease agreements with lease and non-lease components, we elected the practical expedient to account for these as a single lease component for all underlying classes of assets.

For our adoption, we did not elect to use hindsight for our existing leases.

Additionally, for short-term leases with an initial lease term of 12 months or less and with purchase options we are reasonably certain will not be exercised, we elected to not record right-of-use assets or corresponding lease obligations on our consolidated balance sheet.

We will continue to record rent expense for each short-term lease on a straight-line basis over the lease term.

The new FASB lease guidance had a material impact on our consolidated balance sheet;

however, it did not have a material impact on our consolidated statement of earnings.

The most material impact was the recognition of right-of-use assets of

$ 8.4 billion upon adoption, with corresponding lease liabilities of $ 9.0 billion relating to our operating leases.

Existing deferred rent and tenant improvement allowances of approximately $ 568.0 million, previously recorded within other long-term liabilities, were recorded as an offset to our gross operating lease right-of-use assets.

Additionally, pursuant to the transition guidance, we derecognized build-to-suit lease assets, previously recorded in property, plant and equipment, net, along with the corresponding liabilities on the consolidated balance sheet as of September 30, 2019.

Accordingly, these leases have been recorded as operating leases as of the adoption date and are now included in operating lease, right-of-use assets and operating lease liabilities on the consolidated balance sheet.

As of the adoption date, accumulated deficit within shareholder's equity on our consolidated balance sheet decreased by $ 17.3 million, primarily related to the derecognition of build-to-suit leasing arrangements.

In the first quarter of fiscal 2020, we adopted the new guidance from the FASB on the reclassification of certain tax effects from accumulated other comprehensive income (loss) (“AOCI”) which permits entities to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from AOCI to retained earnings.

The guidance was adopted prospectively with no material impact on the consolidated financial statements as of September 27, 2020.

Recent Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued guidance on the reclassification of certain tax effects from AOCI.

The guidance permits entities to reclassify the stranded tax effects resulting from the Tax Act from AOCI to retained earnings.

The guidance will be effective at the beginning of our first quarter of fiscal 2020 and will be adopted prospectively.

We do not expect a material impact upon adoption of this guidance.

In February 2016, the FASB issued guidance on the recognition and measurement of leases.

Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases.

The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee.

Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases.

We will be applying the guidance, as permitted by the alternative method issued by the FASB, at the beginning of our first quarter of fiscal 2020, with certain practical expedients.

Most significantly, we are electing the ‘package of practical expedients,’ which allows us to rely on our prior conclusions regarding lease identification, classification and initial direct costs.

In preparation for the adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information.

We expect this adoption will result in a right-of-use asset and lease liability in the range of approximately $ 8 billion to $ 9 billion on our consolidated balance sheets but will have an insignificant impact on our consolidated statements of earnings.

In March 2020, the FASB issued guidance related to reference rate reform.

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

We are currently evaluating the impact of the transition from LIBOR to alternative reference rates but do not expect a significant impact to our consolidated financial statements.

In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects Current Expected Credit Losses on financial assets, including receivables and available-for-sale securities.

The new methodology requires entities to estimate and recognize expected credit losses each reporting period.

The guidance will be applied under the modified retrospective approach and will be effective at the beginning of our first quarter of fiscal 2021.

We do not expect a material impact to our consolidated financial statements upon adoption.

Acquisitions, Divestitures and Strategic Alliance

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See Note 1 , Summary of Significant Accounting Policies, for the accounting treatment.

Also see Note 11 , Deferred Revenue.

On March 23, 2018, we sold our company-operated retail store assets and operations in Brazil to SouthRock, converting these operations to a fully licensed market.

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Accounts receivable 14.3

Inventories 16.1

Prepaid expenses and other current assets 20.6

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Other intangible assets 818.0

Goodwill 2,164.1

Total assets acquired $ 3,461.3

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Amortization expense for these definite-lived intangible assets was $ 160.6 million and $ 163.8 million for fiscal 2020 and 2019, respectively.

The estimated future amortization expense is approximately $ 157.8 million each year for the next two years and approximately $ 154.4 million in fiscal 2022.

The estimated future amortization expense is approximately $ 157.8 million and $ 154.4 million in fiscal 2021 and 2022, respectively.

Goodwill represents the intangible assets that do not qualify for separate recognition and primarily includes the acquired customer base, the acquired workforce including store partners in the region that have strong relationships with these customers and the existing geographic retail and online presence.

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The following table provides the supplemental pro forma revenue and net earnings of the combined entity had the acquisition date of East China been October 3, 2016, the first day of our first quarter of fiscal 2017, rather than the end of our first quarter of fiscal 2018 (in millions) :

Oct 1, 2017 (1)

Revenue $ 24,990.4

Net earnings attributable to Starbucks 3,196.8

The pro forma net earnings attributable to Starbucks for fiscal 2017 includes acquisition-related gain of $ 1.4 billion and transaction and integration costs of $ 39.3 million for the year ended October 1, 2017.

The amounts in the supplemental pro forma earnings for the periods presented above fully eliminate intercompany transactions, apply our accounting policies and reflect adjustments for additional occupancy costs as well as depreciation and amortization that would have been charged assuming the same fair value adjustments to leases, property, plant and equipment and acquired intangibles had been applied on October 3, 2016.

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Results from Tazo operations prior to the sale were reported primarily in Channel Development.

In the fourth quarter of fiscal 2017, we sold our company-operated retail store assets and operations in Singapore to Maxim's Caterers Limited, converting these operations to a fully licensed market, for a total of $ 119.9 million .

This transaction resulted in a pre-tax gain of $ 83.9 million , which was included in the net gain resulting from divestiture of certain operations on our consolidated statements of earnings.

Derivative Financial Instruments

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To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases and intercompany borrowing and lending activities.

The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, cost of sales, or interest income and other, net, respectively, when the hedged exposures affect net earnings.

From time to time, we may enter into financial instruments, including but not limited to forward contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations.

The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, product and distribution costs, or interest income and other, net, respectively, when the hedged exposures affect net earnings.

From time to time, we may enter into financial instruments, including, but not limited to, forward and swap contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations.

The resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.

Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items.

Gains and losses from these derivatives are largely offset by the financial impact of

translating foreign currency-denominated payables and receivables;

Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables and receivables;

these gains and losses are recorded in interest income and other, net.

Depending on market conditions, we may enter into coffee forward contracts, futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5 , Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available.

The resulting gains and losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.

The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.

Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand.

The resulting gains or losses are recorded in AOCI and are subsequently reclassified to cost of sales when the hedged exposure affects net earnings.

To mitigate the price uncertainty of a portion of our future purchases, including dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments.

The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales on our consolidated statements of earnings.

The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.

Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.

Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items.

For de-designated cash flow hedges in which the underlying transactions are no longer probable of occurring, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings.

During the second, third and fourth quarters of fiscal 2020, we de-designated certain cash flow hedges due to the global COVID-19 impacts, resulting in the release of an insignificant net gain from AOCI to our consolidated statement of earnings.

We continue to believe forecasted exposures relating to our other designated cash flow hedges are probable of occurring.

To mitigate the price uncertainty of a portion of our future purchases, including diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments.

The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in product and distribution costs on our consolidated statements of earnings.

Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax ( in millions ):

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Included in AOCI

Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months

Outstanding Contract/Debt Remaining Maturity

Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months Outstanding Contract/Debt Remaining Maturity

Cash Flow Hedges:

Interest rates

Coffee $ ( 2.5 ) $ ( 1.0 ) $ ( 0.2 ) $ ( 3.2 ) 15

Cross-currency swaps 5.2 ( 1.4 ) ( 12.6 ) — 50

Dairy 0.5 — — 0.5 9

Foreign currency - other 5.3 12.9 5.8 4.6 36

Interest rates ( 90.6 ) 0.5 24.7 ( 2.9 ) 145

Net Investment Hedges:

Cross-currency swaps 32.6 — — — 108

Foreign currency 16.0 16.0 16.0 — 0

Foreign currency debt ( 37.1 ) ( 26.1 ) 3.6 — 42

Pretax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings ( in millions ):

Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings ( in millions ):

Gains/(Losses)

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Gains/(Losses) Reclassified from

AOCI to Earnings

Location of gain/(loss)

AOCI to Earnings Location of gain/(loss)

Cash Flow Hedges:

Interest rates

Interest expense

Cross-currency swaps

Interest expense

Coffee $ ( 1.2 ) $ ( 1.2 ) $ ( 0.3 ) $ 0.5 $ ( 0.3 ) $ ( 7.4 ) Product and distribution costs

Cross-currency swaps 4.4 ( 5.9 ) ( 6.1 ) 2.3 0.1 0.3 Interest expense

( 6.1 ) ( 19.8 ) 1.9 Interest income and other, net

Foreign currency - other

Licensed stores revenues

Cost of sales

Dairy 3.0 — — 4.0 — — Product and distribution costs

( 1.7 ) — — Interest income and other, net (1)

Foreign currency - other ( 6.4 ) 20.8 16.7 5.5 7.0 ( 0.3 ) Licensed stores revenues

( 8.7 ) 4.4 ( 3.3 ) Product and distribution costs

6.1 — — Interest income and other, net (1)

Interest rates ( 126.1 ) ( 27.8 ) 14.1 — 4.7 4.9 Interest expense

Net Investment Hedges:

Cross-currency swaps 56.8 — — 13.3 — — Interest expense

Foreign currency — — ( 0.1 ) — — —

Foreign currency debt ( 18.1 ) ( 39.8 ) 7.9 — — —

Pretax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related hedged item recognized in earnings ( in millions ):

(1) As a result of the global COVID-19 impacts, we discontinued cash flow hedges during the year ended September 27, 2020.

Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings ( in millions ):

Gains/(Losses) Recognized in Earnings

Location of gain/(loss) recognized in earnings

Location of gain/(loss) recognized in earnings Year Ended

Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Non-Designated Derivatives:

Foreign currency - other

Interest income and other, net

Diesel fuel and other commodities

Interest income and other, net

Dairy Interest income and other, net $ — $ ( 1.9 ) $ ( 2.4 )

Diesel fuel and other commodities Interest income and other, net ( 8.8 ) ( 5.9 ) 3.7

Foreign currency - other Interest income and other, net 0.3 ( 8.1 ) 4.6

Fair Value Hedges:

Interest rate swap

Interest expense

Long-term debt (hedged item)

Interest expense

Interest rate swap Interest expense 28.7 54.7 ( 33.7 )

Long-term debt (hedged item) Interest expense ( 23.8 ) ( 50.7 ) 33.7

Notional amounts of outstanding derivative contracts (in millions) :

Interest rate swaps

Sep 27, 2020 Sep 29, 2019

Coffee $ 63 $ 52

Cross-currency swaps 870 341

Foreign currency - other

Diesel fuel and other commodities 5 17

Foreign currency - other 1,140 1,125

Interest rate swaps 1,750 1,500

Fair value of outstanding derivative contracts ( in millions ) including the location of the asset and/or liability on the consolidated balance sheets:

Derivative Assets

Balance Sheet Location

Balance Sheet Location Sep 27, 2020 Sep 29, 2019

Designated Derivative Instruments:

Interest rates

Other long-term assets

Cross-currency swaps

Other long-term assets

Foreign currency - other

Prepaid expenses and other current assets

Other long-term assets

Interest rate swap

Coffee Prepaid expenses and other current assets $ 2.6 $ —

Cross-currency swaps Other long-term assets 37.7 0.2

Dairy Prepaid expenses and other current assets 2.1 —

Foreign currency - other Prepaid expenses and other current assets 8.6 11.4

Other long-term assets 3.8 7.8

Interest rates Other long-term assets — 0.1

Interest rate swap Other long-term assets 45.8 18.2

Non-designated Derivative Instruments:

Foreign currency

Prepaid expenses and other current assets

Diesel fuel and other commodities

Prepaid expenses and other current assets

Diesel fuel and other commodities Prepaid expenses and other current assets — 0.2

Foreign currency Prepaid expenses and other current assets 2.3 1.0

Derivative Liabilities

Balance Sheet Location

Balance Sheet Location Sep 27, 2020 Sep 29, 2019

Designated Derivative Instruments:

Interest rates

Other long-term liabilities

Cross-currency swaps

Other long-term liabilities

Foreign currency - other

Accrued liabilities

Other long-term liabilities

Accrued liabilities

Coffee Accrued liabilities $ 1.4 $ 1.0

Other long-term liabilities 0.1 0.1

Interest rate swap

Cross-currency swaps Other long-term liabilities 7.3 9.7

Dairy Accrued liabilities 1.4 —

Foreign currency - other Accrued liabilities 1.6 0.6

Other long-term liabilities 2.6 0.1

Interest rates Other long-term liabilities 69.3 2.6

Non-designated Derivative Instruments:

Foreign currency

Accrued liabilities

Diesel fuel and other commodities

Accrued liabilities

Diesel fuel and other commodities Accrued liabilities 1.7 1.1

Foreign currency Accrued liabilities 1.2 3.0

The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships:

Carrying amount of hedged item

Cumulative amount of fair value hedging adjustment included in the carrying amount

Carrying amount of hedged item Cumulative amount of fair value hedging adjustment included in the carrying amount

Sep 27, 2020 Sep 29, 2019 Sep 27, 2020 Sep 29, 2019

Location on the balance sheet

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Fair Value Measurements at Reporting Date Using

September 29, 2019

Quoted Prices

September 27, 2020 Quoted Prices

Identical Assets

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Available-for-sale debt securities

Certificates of deposit 1.6 — 1.6 —

Commercial paper 66.8 — 66.8 —

Corporate debt securities 123.6 — 123.6 —

Foreign government obligations 8.5 — 8.5 —

Mortgage and other asset-backed securities 15.8 — 15.8 —

Total available-for-sale debt securities 216.3 — 216.3 —

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Available-for-sale debt securities

Corporate debt securities

Auction rate securities 5.7 — — 5.7

government treasury securities

State and local government obligations

Corporate debt securities 82.6 — 82.6 —

Mortgage and other asset-backed securities 19.3 — 19.3 —

State and local government obligations 3.6 — 3.6 —

government treasury securities 94.9 94.9 — —

Total long-term investments 206.1 94.9 105.5 5.7

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Derivative assets 87.3 — 87.3 —

Total assets $ 4,941.1 $ 4,514.3 $ 421.1 $ 5.7

Accrued liabilities:

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Fair Value Measurements at Reporting Date Using

September 30, 2018

Quoted Prices

September 29, 2019 Quoted Prices

Identical Assets

(Level 1) Significant

Other Observable

(Level 2) Significant

Unobservable Inputs

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Corporate debt securities 3.5 — 3.5 —

Foreign government obligations

Total available-for-sale debt securities 4.0 — 4.0 —

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Available-for-sale debt securities

Agency obligations

Corporate debt securities

Auction rate securities 5.8 — — 5.8

Foreign government obligations

government treasury securities

State and local government obligations

Corporate debt securities 101.2 — 101.2 —

Mortgage and other asset-backed securities 1.6 — 1.6 —

State and local government obligations 4.9 — 4.9 —

government treasury securities 106.5 106.5 — —

Total long-term investments 220.0 106.5 107.7 5.8

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Derivative assets 26.3 — 26.3 —

Total assets $ 3,016.0 $ 2,859.6 $ 150.6 $ 5.8

Accrued liabilities:

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Derivative liabilities 12.5 — 12.5 —

Total $ 18.2 $ 1.1 $ 17.1 $ —

There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented.

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These assets are measured at fair value if determined to be impaired.

Impairment of property, plant, and equipment is included at Note 1 , Summary of Significant Accounting Policies.

Impairment of property, plant and equipment and ROU assets is included in Note 1 , Summary of Significant Accounting Policies.

Other than the impairments discussed in Note 8 , Other Intangible Assets and Goodwill, and the aforementioned fair value adjustments, there were no other material fair value adjustments during fiscal 2020 and 2019.

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Inventories (in millions)

Sep 27, 2020 Sep 29, 2019

Unroasted $ 664.7 $ 656.5

Roasted 223.5 276.5

Other merchandise held for sale 293.9 288.0

Packaging and other supplies 369.3 308.4

Total $ 1,551.4 $ 1,529.4

Other merchandise held for sale includes, among other items, serveware, food and tea.

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Until prices are fixed, we estimate the total cost of these purchase commitments.

We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on these purchase commitments is remote.

We believe, based on relationships established with our suppliers in the past and continuous monitoring of the business environment, the risk of non-delivery on these purchase commitments is remote.

During fiscal 2020, we wrote off approximately $ 50 million of inventory in the second quarter that was expiring or expected to expire due to COVID-19 related store closures, primarily perishable food and beverage ingredients located at our stores, distribution centers and suppliers.

This was included in product and distribution costs on our consolidated statement of earnings.

We did not record significant write-offs related to COVID-19 during the second half of the fiscal year.

Equity Investments (in millions)

Sep 27, 2020 Sep 29, 2019

Equity method investments $ 426.4 $ 336.1

Other investments 52.3 59.9

Total $ 478.7 $ 396.0

Equity Method Investments

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These international entities operate licensed Starbucks ® retail stores.

Additional disclosure regarding changes in our

equity method investments due to acquisition or divestiture is included at Note 2 , Acquisitions, Divestitures and Strategic Alliance.

We also license the rights to produce and distribute Starbucks-branded products to our 50 % owned joint venture, The North American Coffee Partnership with the Pepsi-Cola Company, which develops and distributes bottled Starbucks ® beverages, including Frappuccino ® coffee drinks, Starbucks Doubleshot ® espresso drinks, Starbucks Refreshers ® beverages, and Starbucks ® Iced Espresso Classics.

We also license the rights to produce and distribute Starbucks-branded p roducts to our 50 % owned joint venture, The North American Coffee Partnership with the Pepsi-Cola Company, which develops and distributes bottled Starbucks ® beverages, including Frappuccino ® coffee drinks, Starbucks Doubleshot ® espresso drinks, Starbucks Refreshers ® beverages, Starbucks ® Iced Espresso Classics and Starbucks ® Iced Coffee.

Our share of income and losses from our equity method investments is included in income from equity investees on our consolidated statements of earnings.

Also included in this line item is our proportionate share of gross profit resulting from coffee and other product sales to, and royalty and license fee revenues generated from, equity investees.

Revenues generated from these related parties were $ 130.7 million , $ 112.8 million , and $ 187.3 million in fiscal 2019 , 2018 and 2017 , respectively.

Related costs of sales were $ 73.2 million , $ 71.5 million , and $ 109.3 million in fiscal 2019 , 2018 and 2017 , respectively.

Revenues generated from these entities were $ 123.9 million, $ 130.7 million and $ 112.8 million in fiscal 2020, 2019 and 2018, respectively.

product and distribution costs were $ 79.8 million, $ 73.2 million and $ 71.5 million in fiscal 2020, 2019 and 2018, respectively.

As of September 27, 2020 and September 29, 2019, there were $ 28.7 million and $ 35.5 million of accounts receivable from equity investees, respectively, on our consolidated balance sheets, primarily related to product sales and royalty revenues.

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Therefore, we elected to measure these investments at cost with adjustments for observable changes in price or impairment.

Supplemental Balance Sheet Information (in millions)

Supplemental Balance Sheet and Statement of Earnings Information (in millions)

Prepaid Expenses and Other Current Assets

Sep 27, 2020 Sep 29, 2019

Income tax receivable $ 356.9 $ 141.1

Government subsidies receivable 155.1 —

Other prepaid expenses and current assets 227.5 347.1

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Property, Plant and Equipment, net

Sep 27, 2020 Sep 29, 2019

Land $ 46.0 $ 46.8

Buildings 586.8 691.5

Leasehold improvements 8,262.6 7,948.6

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Accrued Liabilities

Sep 27, 2020 Sep 29, 2019

Accrued occupancy costs $ 76.9 $ 176.9

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Total accrued liabilities $ 1,160.7 $ 1,753.7

Store Operating Expenses

Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Wages and benefits $ 6,131.9 $ 5,941.7 $ 5,319.2

Occupancy costs 2,388.0 2,411.2 2,250.5

Other expenses 2,244.1 2,140.7 1,902.5

Total store operating expenses $ 10,764.0 $ 10,493.6 $ 9,472.2

Other Intangible Assets and Goodwill

During the third quarter of fiscal 2020, we completed our annual goodwill impairment analysis.

The results of our analysis indicated significant excess fair values over carrying values across the different reporting units, and therefore no goodwill impairment was recorded.

Due to changes in branding and marketing strategy, certain indefinite-lived intangible assets became definite-lived.

As a result, approximately $ 105.5 million was reclassified primarily into Trade names, trademarks and patents within the Finite-Lived Intangible Assets table below.

We estimated the fair values of these assets under an income approach with an average remaining useful life of approximately five years.

The analysis indicated that the fair value of one of the assets exceeded its carrying value.

As a result, we recorded a charge of $ 22.1 million to restructuring and impairments on our consolidated statement of earnings during the third quarter of fiscal 2020.

For our remaining intangible assets, our analysis did not indicate further impairment.

Indefinite-Lived Intangible Assets

(in millions)

(in millions) Sep 27, 2020 Sep 29, 2019

Trade names, trademarks and patents $ 95.0 $ 203.4

Other indefinite-lived intangible assets

Total indefinite-lived intangible assets

Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2 , Acquisitions, Divestitures and Strategic Alliance.

Changes in the carrying amount of goodwill by reportable operating segment (in millions) :

International

Corporate and Other

Goodwill balance at October 2, 2017

Acquisition/(divestiture)

Goodwill balance at October 1, 2018

Acquisition/(divestiture)

Goodwill balance at September 30, 2019

For fiscal 2018, “Other” primarily consists of changes in the goodwill balance resulting from transfers between segments due to the dissolution of the Teavana reporting unit.

For both fiscal 2019 and 2018, "Other" also includes foreign currency translation.

During fiscal 2018, a strengthening Swiss franc diverted consumer traffic to neighboring countries and despite our operational investments and improvements, projections indicated that the carrying value of Switzerland goodwill balance was not fully recoverable.

This resulted in an impairment charge for the remaining Switzerland goodwill balance of $ 37.6 million .

During the third quarter of fiscal 2017, management finalized its long-term strategy for the Teavana reporting unit, which included closing all Teavana-branded retail stores.

As a result, we recorded store asset impairment of $ 33.0 million and goodwill impairment of $ 69.3 million , reducing goodwill of the Teavana reporting unit to $ 398.3 million as of July 2, 2017.

During the third quarter of fiscal 2018, we dissolved the Teavana reporting unit upon completion of the retail store closures.

As a result, we reorganized the Teavana business and allocated the remaining $ 398.3 million of goodwill to other reporting units, primarily within the Americas segment, based on a relative fair value approach.

Finite-Lived Intangible Assets

(in millions)

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Sep 27, 2020 Sep 29, 2019

(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Acquired and reacquired rights $ 1,116.1 $ ( 765.0 ) $ 351.1 $ 1,075.0 $ ( 537.2 ) $ 537.8

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Fiscal Year Ending

Thereafter 2.5

Total estimated future amortization expense $ 457.1

Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2 , Acquisitions, Divestitures and Strategic Alliance.

Revolving Credit Facility and Commercial Paper Program

Our $ 2.0 billion unsecured 5-year revolving credit facility (the “2018 credit facility”) and a $ 1.0 billion unsecured 364-Day credit facility (the “364-day credit facility”) are available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases.

Changes in the carrying amount of goodwill by reportable operating segment (in millions) :

Americas International Channel

Development Corporate and Other Total

Goodwill balance at September 30, 2018 $ 497.4 $ 3,003.2 $ 34.7 $ 6.3 $ 3,541.6

Acquisition/(divestiture) — ( 5.5 ) — — ( 5.5 )

Impairment — ( 5.3 ) — ( 5.2 ) ( 10.5 )

( 0.7 ) ( 34.0 ) — ( 0.1 ) ( 34.8 )

Goodwill balance at September 29, 2019 $ 496.7 $ 2,958.4 $ 34.7 $ 1.0 $ 3,490.8

Acquisition/(divestiture) — — — — —

Impairment — — — — —

( 0.2 ) 106.6 — — 106.4

Goodwill balance at September 27, 2020 $ 496.5 $ 3,065.0 $ 34.7 $ 1.0 $ 3,597.2

(1) For fiscal 2020 and 2019, “Other” primarily consists of foreign currency translation.

Revolving Credit Facility

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 .

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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, has been extended to mature on October 21, 2020 .

The 364-day credit facility, of which no amount may be used for issuances of letters of credit, has been extended 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.

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dollar-denominated loans under certain circumstances, a Base Rate (as defined in the credit facility), in each case plus an applicable margin.

The applicable margin was 0.920 % for Eurocurrency Rate Loans and 0.000 % (nil) for Base Rate Loans.

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 364-day credit agreement.

The applicable margin is 1.150 % for Eurocurrency Rate Loans and 0.150 % 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 27, 2020, we were in compliance with all applicable covenants.

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

No amounts were outstanding under our 2018 credit facility or our 364-day credit facility as of September 27, 2020.

Short-term Debt

Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $ 3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue.

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The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases.

As of September 29, 2019 , we had no borrowings outstanding under the program.

As of September 27, 2020, we had $ 296.5 million borrowings outstanding under the program, net of unamortized discount, of which a majority matures in the second quarter of fiscal 2021.

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

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.

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 ¥ 15 billion, or $ 142.3 million, of borrowings outstanding under these Japanese Yen-denominated credit facilities.

Long-term Debt

Components of long-term debt including the associated interest rates and related fair values by calendar maturity ( in millions, except interest rates):

Stated Interest Rate

Effective Interest Rate (1)

Estimated Fair Value

December 2018 notes

Sep 27, 2020 Sep 29, 2019 Stated Interest Rate Effective Interest Rate (1)

Issuance Face Value Estimated Fair Value Face Value Estimated Fair Value

November 2020 notes $ 500.0 501 $ 500.0 501 2.200 % 2.228 %

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February 2021 notes 250.0 251 250.0 250 2.100 % 1.600 %

May 2022 notes (5)

500.0 506 — — 1.300 % 1.334 %

June 2022 notes 500.0 518 500.0 509 2.700 % 2.819 %

February 2023 notes

March 2023 notes 1,000.0 1,059 1,000.0 1,033 3.100 % 3.107 %

October 2023 notes (2)

750.0 818 750.0 798 3.850 % 2.859 %

March 2024 notes (3)

806.4 794 788.3 795 0.372 % 0.462 %

August 2025 notes 1,250.0 1,415 1,250.0 1,351 3.800 % 3.721 %

June 2026 notes 500.0 543 500.0 502 2.450 % 2.511 %

February 2028 notes

March 2027 notes (4)

500.0 529 — — 2.000 % 2.058 %

March 2028 notes 600.0 680 600.0 644 3.500 % 3.529 %

November 2028 notes 750.0 886 750.0 837 4.000 % 3.958 %

May 2029 notes (4)

August 2029 notes 1,000.0 1,147 1,000.0 1,080 3.550 % 3.840 %

March 2030 notes (4)

750.0 778 — — 2.250 % 3.084 %

November 2030 notes (5)

1,250.0 1,326 — — 2.550 % 2.582 %

June 2045 notes 350.0 412 350.0 390 4.300 % 4.348 %

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November 2048 notes 1,000.0 1,223 1,000.0 1,160 4.500 % 4.504 %

May 2049 notes (4)

August 2049 notes 1,000.0 1,216 1,000.0 1,165 4.450 % 4.447 %

March 2050 notes (4)

500.0 517 — — 3.350 % 3.362 %

November 2050 notes (5)

1,250.0 1,332 — — 3.500 % 3.528 %

Total 16,006.4 17,500 11,238.3 12,033

Aggregate debt issuance costs and unamortized premium/(discount), net ( 132.5 ) ( 83.1 )

Hedge accounting fair value adjustment (2)

Total $ 15,909.5 $ 11,167.0

(1) Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge the interest rate risk prior to the debt issuance.

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(3) Japanese yen-denominated long-term debt.

(4) Issued in March 2020.

(5) Issued in May 2020.

The indentures under which the above notes were issued also require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties.

As of September 29, 2019, we were in compliance with each of these covenants.

The following table summarizes our long-term debt maturities as of September 27, 2020 by fiscal year ( in millions ):

Rent expense under operating lease agreements (in millions) :

Fiscal Year Ended

Fiscal Year Total

2021 $ 1,250.0

Thereafter 9,950.0

Total $ 16,006.4

The components of lease costs (in millions) :

Operating lease costs (1)

Variable lease costs 833.4

Short-term lease costs 34.1

Total lease costs $ 2,441.1

(1) Operating lease costs includes an immaterial amount of sublease income.

The following table includes supplemental information (in millions) :

Cash paid related to operating lease liabilities $ 1,463.3

Operating lease liabilities arising from obtaining ROU assets (1)

(1) Excludes the initial impact of adoption.

See Note 1 , Summary of Significant Accounting Policies for additional information.

Weighted-average remaining operating lease term 8.8 years

Weighted-average operating lease discount rate 2.5 %

Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued liabilities on the consolidated balance sheet.

Finance leases were immaterial as of September 27, 2020.

Minimum future maturities of operating lease liabilities (in millions) :

Fiscal Year Total

2021 $ 1,528.1

Thereafter 3,780.2

Total lease payments 10,089.6

Less imputed interest ( 1,179.1 )

Total $ 8,910.5

As of September 27, 2020, we have entered into operating leases that have not yet commenced of $ 653.8 million, primarily related to real estate leases.

These leases will commence between fiscal year 2021 and fiscal year 2026 with lease terms of 3

years to 20 years.

A charge of $ 87.7 million in accelerated amortization and impairment of ROU assets was recorded in restructuring and impairments on the consolidated statement of earnings in fiscal 2020.

Previous Lease Guidance Disclosures

Rent expense under operating lease agreements under the previous lease guidance, which excludes certain amounts required under the new guidance (in millions) :

Sep 29, 2019 Sep 30, 2018

Minimum rent $ 1,441.7 $ 1,424.5

Contingent rent 224.3 200.7

Minimum future rental payments under non-cancelable operating leases and lease financing arrangements as of September 29, 2019 (in millions) :

Fiscal Year Ending

Operating Leases

Lease Financing Arrangements

Total 1,666.0 1,625.2

As previously disclosed, the minimum future rental payments under non-cancelable operating leases and lease financing arrangements under the previous lease guidance as of September 29, 2019 (in millions) :

Fiscal Year Operating Leases Lease Financing Arrangements

2020 $ 1,432.9 $ 5.2

2021 1,342.2 5.2

2022 1,247.4 5.0

2023 1,124.3 5.0

2024 996.4 4.9

Thereafter 4,087.7 42.6

Total minimum lease payments $ 10,230.9 $ 67.9

We have subleases related to certain of our operating leases.

During fiscal 2019 , 2018 and 2017 , we recognized sublease income of $ 10.9 million , $ 12.3 million , and $ 15.5 million , respectively.

During fiscal 2019 and 2018, we recognized sublease income of $ 10.9 million and $ 12.3 million, respectively.

Additionally, as of September 29, 2019 and September 30, 2018, the gross carrying values of assets related to build-to-suit lease arrangements accounted for as financing leases were $ 122.3 million and $ 103.2 million, respectively, with associated accumulated depreciation of $ 17.2 million and $ 12.7 million, respectively.

Lease exit costs associated with our restructuring efforts primarily relate to the closure of Teavana retail stores and certain Starbucks company-operated stores, and are recognized concurrently with actual store closures.

Total lease exit costs of $ 55.3 million , $ 119.3 million , and $ 15.7 million were recorded within restructuring and impairments on the consolidated statement of earnings in fiscal 2019, 2018, and 2017, respectively.

Remaining lease exit costs are not expected to be material.

Total lease exit costs of $ 55.3 million and $ 119.3 million were recorded in restructuring and impairments on the consolidated statement of earnings in fiscal 2019 and 2018.

Deferred Revenue

Our obligations to maintain the Starbucks brand and other intellectual properties are generally constant throughout the term of the arrangement.

Therefore, a ratable recognition pattern is reflective of how we satisfy our performance obligations.

At September 27, 2020, the current and long-term deferred revenue related to the Nestlé up-front payment was $ 179.3 million and $ 6.5 billion, respectively.

At September 29, 2019, the current and long-term deferred revenue related to the Nestlé up-front payment was $ 175.9 million and $ 6.7 billion, respectively.

During the fiscal years ended September 27, 2020 and September 29, 2019, we recognized $ 176.8 million and $ 175.2 million of current deferred revenue, respectively, related to amortization of the up-front payment.

Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions) :

Fiscal Year Ended September 27, 2020

Stored value cards and loyalty program at September 29, 2019

Revenue deferred - card activations, card reloads and Stars earned 10,527.7

Revenue recognized - card and Stars redemptions and breakage ( 10,367.9 )

Stored value cards and loyalty program at September 27, 2020 (2)

Fiscal Year Ended September 29, 2019

Stored value cards and loyalty program at September 30, 2018

Revenue recognition adoption impact ( 358.0 )

Stored value cards and loyalty program at October 1, 2018 970.6

Revenue deferred - card activations, card reloads and Stars earned 10,983.6

Revenue recognized - card and Stars redemptions and breakage ( 10,819.7 )

Stored value cards and loyalty program at September 29, 2019 (2)

(1) “Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.

(2) As of September 27, 2020, approximately $ 1.2 billion of this amount was current.

As of September 29, 2019, approximately $ 1.0 billion of this amount was current .

In addition to 2.4 billion shares of authorized common stock with $ 0.001 par value per share, we have authorized 7.5 million shares of preferred stock, none of which was outstanding at September 27, 2020.

Through open market transactions under our share repurchase program, we repurchased 131.5 million shares of common stock at a total cost of $ 7.2 billion for the year ended September 30, 2018.

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.

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Outside of the ASR agreements noted above, we repurchased 36.6 million shares of common stock for $ 3.1 billion on the open market during the year ended September 29, 2019.

In connection with the ASR agreements and other open market transactions, we repurchased 139.6 million shares of common stock at a total cost of $ 10.1 billion , 131.5 million shares at a total cost of $ 7.2 billion , and 37.5 million shares of common stock at a total cost of $ 2.1 billion for the years ended September 29, 2019 , September 30, 2018 , and October 1, 2017 , respectively.

In the first quarter 2019, we announced that our Board of Directors approved an increase of 120 million shares to our ongoing share repurchase program.

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

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

We temporarily suspended share repurchases in March 2020.

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.

During the fourth quarter of fiscal 2019 , our Board of Directors declared a quarterly cash dividend to shareholders of $ 0.41 per share to be paid on November 29, 2019 to shareholders of record as of the close of business on November 13, 2019 .

Subsequent to the fourth quarter of fiscal 2020, our Board of Directors declared a quarterly cash dividend to shareholders of $ 0.45 per share to be paid on November 27, 2020 to shareholders of record as of the close of business on November 12, 2020.

Comprehensive Income

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Accumulated other comprehensive income reported on our consolidated balance sheets consists of foreign currency translation adjustments and other items and the unrealized gains and losses, net of applicable taxes, on available-for-sale debt securities and on derivative instruments designated and qualifying as cash flow and net investment hedges.

Changes in AOCI by component for the years ended September 29, 2019 , September 30, 2018 , and October 1, 2017 , net of tax, are as follows:

(in millions)

Available-for-Sale Securities

Cash Flow Hedges

Net Investment Hedges

Translation Adjustment and Other

Changes in AOCI by component for the years ended September 27, 2020, September 29, 2019 and September 30, 2018, net of tax, are as follows:

(in millions) Available-for-Sale Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total

September 27, 2020

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Other comprehensive income/(loss) attributable to Starbucks 2.5 ( 96.1 ) 19.1 208.4 133.9

Cumulative effect of accounting adoption ( 0.7 ) 3.0 2.5 — 4.8

Net gains/(losses) in AOCI, end of period $ 5.7 $ ( 82.1 ) $ 11.5 $ ( 299.7 ) $ ( 364.6 )

(in millions)

Available-for-Sale Securities

Cash Flow Hedges

Net Investment Hedges

Translation Adjustment and Other

(in millions) Available-for-Sale Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total

September 29, 2019

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Net gains/(losses) in AOCI, end of period $ 3.9 $ 11.0 $ ( 10.1 ) $ ( 508.1 ) $ ( 503.3 )

(in millions)

Available-for-Sale Securities

Cash Flow Hedges

Net Investment Hedges

Translation Adjustment and Other

October 1, 2017

(in millions) Available-for-Sale Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total

September 30, 2018

Net gains/(losses) in AOCI, beginning of period $ ( 2.5 ) $ ( 4.1 ) $ 14.0 $ ( 163.0 ) $ ( 155.6 )

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Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions) :

Amounts Reclassified from AOCI

Affected Line Item in

Amounts Reclassified from AOCI Affected Line Item in

the Statements of Earnings

Fiscal Year Ended

Gains/(losses) on available-for-sale securities

Interest income and other, net

Gains/(losses) on cash flow hedges

Please refer to Note 3 , Derivative Instruments for additional information.

Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Gains/(losses) on available-for-sale securities $ 4.9 $ 0.9 $ ( 3.6 ) Interest income and other, net

Gains/(losses) on cash flow hedges 1.9 ( 3.9 ) ( 3.9 ) Please refer to Note 3 , Derivative Instruments for additional information.

Gains/(losses) on net investment hedges 13.3 — — Interest expense

Translation adjustment (1)

Net gain resulting from divestiture of certain operations

East China joint venture

Gain resulting from acquisition of joint venture

Taiwan joint venture

Net gain resulting from divestiture of certain operations

Interest income and other, net

Brazil — — ( 24.1 ) Net gain resulting from divestiture of certain operations

East China joint venture — — 7.2 Gain resulting from acquisition of joint venture

Taiwan joint venture — — 1.4 Net gain resulting from divestiture of certain operations

Thailand — 1.7 — Net gain resulting from divestiture of certain operations

Other — — ( 1.7 ) Interest income and other, net

20.1 ( 1.3 ) ( 24.7 ) Total before tax

( 5.2 ) ( 1.6 ) 1.2 Tax (expense)/benefit

$ 14.9 $ ( 2.9 ) $ ( 23.5 ) Net of tax

(1) Release of cumulative translation adjustments to earnings upon sale or liquidation of foreign businesses.

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Stock-based compensation expense recognized in the consolidated financial statements (in millions) :

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Options $ 7.5 $ 20.0 $ 28.0

RSUs 241.0 288.0 222.3

Total stock-based compensation expense recognized in the consolidated statements of earnings $ 248.5 $ 308.0 $ 250.3

Total related tax benefit $ 47.8 $ 59.3 $ 62.4

Total capitalized stock-based compensation included in net property, plant and equipment and inventories on the consolidated balance sheets

Total capitalized stock-based compensation included in net property, plant and equipment on the consolidated balance sheets $ 3.6 $ 3.4 $ 3.5

Stock Option Plans

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The fair value of stock option awards was estimated at the grant date with the following weighted average assumptions for fiscal 2020, 2019 and 2018:

Employee Stock Options

Stock Options

Granted During the Period

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Stock option transactions for the year ended September 27, 2020 (in millions, except per share and contractual life amounts) :

Options Weighted

per Share Weighted

Life (Years) Aggregate

Outstanding, September 29, 2019 15.2 $ 49.45 5.0 $ 592

Granted 0.1 56.33

Exercised ( 6.0 ) 43.92

Expired/forfeited ( 0.1 ) 52.20

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The aggregate intrinsic value in the table above, which is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, is before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated.

As of September 29, 2019 , total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested options was approximately $ 5 million , before income taxes, and is expected to be recognized over a weighted average period of approximately 1.6 years .

The total intrinsic value of options exercised was $ 466 million , $ 236 million , and $ 181 million during fiscal 2019 , 2018 and 2017 , respectively.

As of September 27, 2020, total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested options was approximately $ 1 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 1.0 year.

The total intrinsic value of options exercised was $ 236 million, $ 466 million and

$ 236 million during fiscal 2020, 2019 and 2018, respectively.

The total fair value of options vested was $ 25 million, $ 31 million and $ 53 million during fiscal 2020, 2019 and 2018, respectively.

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RSU transactions for the year ended September 27, 2020 (in millions, except per share and contractual life amounts) :

Shares Weighted

per Share Weighted

Life (Years) Aggregate

Nonvested, September 29, 2019 8.9 $ 62.56 1.1 $ 788

Granted 4.0 81.96

Vested ( 3.5 ) 59.97

Forfeited/canceled ( 1.1 ) 71.88

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plans were $ 132.7 million, $ 122.1 million and $ 111.7 million in fiscal 2020, 2019 and 2018, respectively.

On December 22, 2017, the President of the United States signed and enacted comprehensive tax legislation into law H.R.

1, commonly referred to as the Tax Act.

Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018.

The tax rate for fiscal 2019 and future years was reduced to 21 % from our blended 24.5 % in fiscal 2018.

In the first quarter of fiscal 2019 the measurement period related to the Tax Act concluded, which resulted in immaterial adjustments to our provisional estimates.

While the Tax Act provides for a modified territorial tax system, global intangible low-taxed income (“GILTI”) provisions are applied providing an incremental tax on foreign income.

We have made a policy election to classify taxes due under the GILTI provision as a current period expense.

Components of earnings before income taxes (in millions):

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

United States $ 904.6 $ 3,518.7 $ 4,826.0

Foreign 259.8 947.5 954.0

Total earnings before income taxes $ 1,164.4 $ 4,466.2 $ 5,780.0

Provision/(benefit) for income taxes (in millions):

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Current taxes:

federal $ 49.9 $ 1,414.3 $ 156.2

state and local 36.9 447.8 52.0

Foreign 181.4 458.3 327.0

Total current taxes 268.2 2,320.4 535.2

Deferred taxes:

federal ( 8.4 ) ( 1,074.5 ) 633.7

state and local ( 4.8 ) ( 322.4 ) 101.5

Foreign ( 15.3 ) ( 51.9 ) ( 8.4 )

Total deferred taxes ( 28.5 ) ( 1,448.8 ) 726.8

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federal income tax rate with our effective income tax rate:

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Statutory rate 21.0 % 21.0 % 24.5 %

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Foreign rate differential ( 3.2 ) ( 0.1 ) ( 0.1 )

Valuation allowances 10.0 — —

Excess tax benefits of stock-based compensation ( 4.2 ) ( 2.1 ) ( 0.9 )

Residual tax on foreign earnings

Change in tax rates ( 2.2 ) — —

Charitable contributions ( 1.7 ) — —

Foreign derived intangible income ( 1.4 ) ( 1.5 ) —

Residual tax on foreign earnings — 1.7 —

Tax impacts related to sale of certain operations — ( 1.3 ) —

Domestic production activity deduction

Gain resulting from acquisition of joint venture — — ( 5.8 )

Impact of the Tax Act — — 2.8

Other, net 0.1 ( 0.3 ) ( 0.8 )

Effective tax rate 20.6 % 19.5 % 21.8 %

In the first quarter of fiscal 2019, we revised our indefinite reinvestment assertions for prior years' earnings from certain foreign subsidiaries.

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

As of September 27, 2020, in foreign subsidiaries in which we are partially indefinitely reinvested, the gross taxable temporary difference between the accounting basis and tax basis was approximately $ 1.4 billion for which there could be up to approximately $ 280 million of unrecognized tax liability.

Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):

Sep 27, 2020 Sep 29, 2019

Deferred tax assets:

Property, plant and equipment

Operating lease liabilities $ 2,313.0 $ —

Stored value card liability and deferred revenue 1,678.6 1,649.0

Intangible assets and goodwill 248.6 230.0

Accrued occupancy costs — 121.6

Accrued compensation and related costs

Stored value card liability and deferred revenue

Stock-based compensation

Net operating losses

Other 554.4 413.0

Total $ 4,794.6 $ 2,413.6

Valuation allowance ( 239.4 ) ( 75.1 )

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Deferred tax liabilities:

Operating lease, right-of-use assets ( 2,191.8 ) —

Property, plant and equipment ( 463.3 ) ( 400.9 )

Intangible assets and goodwill ( 145.1 ) ( 209.9 )

Other ( 123.2 ) ( 148.3 )

Total ( 2,923.4 ) ( 759.1 )

Net deferred tax asset (liability) $ 1,631.8 $ 1,579.4

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Net deferred tax asset (liability) $ 1,631.8 $ 1,579.4

The valuation allowance as of September 29, 2019 and September 30, 2018 was primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.

As of September 29, 2019 , we had federal net operating loss carryforwards of $ 41.8 million which have an indefinite carryforward period, state net operating loss carryforwards of $ 78.1 million which will begin to expire in fiscal 2024 , state tax credit carryforwards of $ 3.5 million which will begin to expire in fiscal 2024, and foreign net operating loss carryforwards of $ 246.2 million , of which $ 109.5 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2020.

The valuation allowances as of September 27, 2020 and September 29, 2019 were primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.

As of September 27, 2020, we had federal net operating loss carryforwards of $ 75.2 million which have an indefinite carryforward period, state net operating loss carryforwards of $ 112.8 million which will begin to expire in fiscal 2024, federal tax credit carryforwards of $ 11.9 million which will begin to expire in fiscal 2029, state tax credit carryforwards of $ 2.7 million which will begin to expire in fiscal 2024 and foreign net operating loss carryforwards of $ 317.8 million, of which $ 150.5 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2021.

Uncertain Tax Positions

As of September 27, 2020, we had $ 123.7 million of gross unrecognized tax benefits of which $ 103.0 million, if recognized, would affect our effective tax rate.

We recognized a benefit of $ 2.8 million , a benefit of $ 0.5 million and an expense of $ 5.2 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2019 , 2018 and 2017 , respectively.

We recognized an expense of $ 3.0 million, a benefit of $ 2.8 million and a benefit of $ 0.5 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2020, 2019 and 2018, respectively.

As of September 27, 2020 and September 29, 2019, we had accrued interest and penalties of $ 13.0 million and $ 10.0 million, respectively, within our consolidated balance sheets.

The following table summarizes the activity related to our unrecognized tax benefits (in millions) :

Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Beginning balance $ 132.1 $ 224.6 $ 196.9

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We are no longer subject to U.S.

state examination for years prior to fiscal 2011.

state and local examinations for years prior to fiscal 2011.

We are no longer subject to examination in any material international markets prior to 2015.

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Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS) :

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Net earnings attributable to Starbucks $ 928.3 $ 3,599.2 $ 4,518.3

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Weighted average common and common equivalent shares outstanding (for diluted calculation) 1,181.8 1,233.2 1,394.6

EPS — basic $ 0.79 $ 2.95 $ 3.27

EPS — diluted $ 0.79 $ 2.92 $ 3.24

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The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive.

As of September 29, 2019 , we had no out-of-the-money stock options, compared to 14.1 million and 11.4 million as of September 30, 2018 and October 1, 2017 , respectively.

As of September 27, 2020 and September 29, 2019, we had no out-of-the-money stock options compared to 14.1 million as of September 30, 2018.

Commitments and Contingencies

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The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff.

Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee

bean roasting process.

Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process.

The Company has asserted multiple affirmative defenses.

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On June 24, 2019, the Court of Appeal lifted the stay of the litigation.

A status conference before the trial judge to discuss discovery issues and dispositive motions is scheduled for January 21, 2020.

At this stage of the proceedings, Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is less than reasonably possible.

At the status conference on August 25, 2020, the trial judge granted the defendants’ motion for summary judgment, ruling that the coffee exemption regulation is a complete defense to the Plaintiff’s complaint.

The Notice of Entry of Judgment from the court was served on October 6, 2020.

The plaintiff has not yet filed a Notice of Appeal.

Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is less than reasonably possible.

Accordingly, no loss contingency was recorded for this matter.

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1) Americas, which is inclusive of the U.S., Canada and Latin America;

2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, and Africa;

2) International, which is inclusive of China, Japan, Asia Pacific, Europe, the Middle East and Africa;

and 3) Channel Development.

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Consolidated revenue mix by product type (1) (in millions):

Fiscal Year Ended

Packaged and single-serve coffees and teas

“Other” primarily consists of royalty and licensing revenues, beverage-related ingredients, serveware, and ready-to-drink beverages, among other items.

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

$ 14,337.5 61 % $ 15,921.2 60 % $ 14,463.1 59 %

3,799.2 16 % 4,336.3 16 % 3,986.5 16 %

5,381.3 23 % 6,251.1 24 % 6,269.9 25 %

Total $ 23,518.0 100 % $ 26,508.6 100 % $ 24,719.5 100 %

(1) Certain prior period amounts have been reclassified to conform to current year presentation.

(2) Beverage represents sales within our company-operated stores.

(3) Food includes sales within our company-operated stores.

(4) “Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, beverage-related ingredients, serveware and ready-to-drink beverages, among other items.

Information by geographic area ( in millions ):

Fiscal Year Ended

Fiscal Year Ended Sep 27, 2020 Sep 29, 2019 Sep 30, 2018

Net revenues:

United States $ 16,879.8 $ 18,622.7 $ 17,409.4

China 2,582.8 2,872.0 2,355.8

Other countries 4,055.4 5,013.9 4,954.3

Total $ 23,518.0 $ 26,508.6 $ 24,719.5

Long-lived assets:

United States $ 12,624.9 $ 7,330.2 $ 5,635.9

China 4,425.6 3,279.8 3,474.6

Other countries 4,517.6 2,955.7 2,551.7

Total $ 21,568.1 $ 13,565.7 $ 11,662.2

No customer accounts for 10% or more of our revenues .

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Revenues from countries other than the U.S.

consist primarily of revenues from China, Japan, Canada and the U.K., which together account for approximately 83 % of net revenues from other countries for fiscal 2019 .

and China consist primarily of revenues from Japan, Canada and the U.K., which together account for approximately 78 % of net revenues from other countries for fiscal 2020.

Management evaluates the performance of its operating segments based on net revenues and operating income.

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Operating income represents earnings before other income and expenses and income taxes.

The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include cash and cash equivalents, net property, plant and equipment, equity and cost investments, goodwill, and other intangible assets.

The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include cash and cash equivalents, ROU assets, net property, plant and equipment, equity and cost investments, goodwill and other intangible assets.

Assets not attributed to reportable operating segments are corporate assets and are primarily comprised of cash and cash equivalents available for general corporate purposes, investments, assets of the corporate headquarters and roasting facilities and inventory.

The table below presents financial information for our reportable operating segments and Corporate and Other segment for the years ended September 29, 2019 , September 30, 2018 and October 1, 2017 .

The table below presents financial information for our reportable operating segments and Corporate and Other segment for the years ended September 27, 2020, September 29, 2019 and September 30, 2018.

( in millions )

International

Americas International Channel

Corporate and Other

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Operating income/(loss) 1,825.3 354.0 687.2 ( 1,304.8 ) 1,561.7

Total assets $ 10,717.4 $ 9,449.7 $ 165.0 $ 9,042.4 $ 29,374.5

Total net revenues $ 18,259.0 $ 6,190.7 $ 1,992.6 $ 66.3 $ 26,508.6

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Operating income/(loss) 3,782.8 964.7 697.5 ( 1,367.1 ) 4,077.9

Total assets $ 4,446.7 $ 6,724.6 $ 132.2 $ 7,916.1 $ 19,219.6

Total net revenues $ 16,748.6 $ 5,551.2 $ 2,297.3 $ 122.4 $ 24,719.5

2 unchanged sentences

Operating income/(loss) 3,485.2 872.8 927.1 ( 1,401.8 ) 3,883.3

Total assets $ 4,473.7 $ 6,361.9 $ 148.2 $ 13,172.6 $ 24,156.4

Selected Quarterly Financial Information (unaudited;

in millions, except EPS)

Operating income

Net earnings attributable to Starbucks

EPS — diluted

Net revenues $ 7,097.1 $ 5,995.7 $ 4,222.1 $ 6,203.1 $ 23,518.0

Operating income/(loss) 1,219.8 487.4 ( 703.9 ) 558.3 1,561.7

Net earnings/(loss) attributable to Starbucks 885.7 328.4 ( 678.4 ) 392.6 928.3

Earnings/(loss) per share — diluted 0.74 0.28 ( 0.58 ) 0.33 0.79

Net revenues $ 6,632.7 $ 6,305.9 $ 6,823.0 $ 6,747.0 $ 26,508.6

Operating income 1,015.7 857.7 1,121.3 1,083.3 4,077.9

Net earnings attributable to Starbucks 760.6 663.2 1,372.8 802.9 3,599.2

EPS — diluted

Earnings per share — diluted 0.61 0.53 1.12 0.67 2.92

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 12, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Changes in Accounting Principle

As discussed in Notes 1 and 10 to the financial statements, the Company changed its method of accounting for leases effective September 30, 2019, due to adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No.

The Company adopted the new lease standard using the transition method provided in Accounting Standards Updated (ASU) No.

2018-11 such that prior period amounts are not adjusted and continue to be reported in accordance with ASC 840, Leases.

The adoption of the new leasing standard is also communicated as a critical audit matter below.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill - China Company-Operated Reporting Unit - Refer to Notes 1 and 8 to the financial statements

Leases — Incremental Borrowing Rate Used in Adoption of ASC 842 - Refer to Notes 1 and 10 to the financial statements

Critical Audit Matter Description

We identified goodwill for the China company-operated reporting unit (“China”) as a critical audit matter.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of the reporting unit to its carrying value.

The Company uses a discounted cash flow model to estimate the fair value of the reporting unit, which requires management to make subjective estimates and assumptions, particularly related to the forecast of future revenues.

The total goodwill balance of the International Segment was $2,958.4 million as of September 29, 2019, of which the majority was allocated to China.

The sensitivity of operating results in China to changes in market risk factors, such as economic conditions, regulatory environment, and competition, required the application of a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecast of future revenues.

The Company adopted the provisions of ASC 842, Leases, as of September 30, 2019.

In doing so, the Company recorded lease liabilities for the present value of its leases of $9.0 billion and corresponding right-of-use (ROU) assets of $8.4 billion.

The Company has disclosed the impact of adoption in Note 1 to its 2020 financial statements.

In determining the lease liabilities and ROU assets, the Company derived market and term-specific incremental borrowing rates (IBRs) to calculate the present value of its lease payments.

The determination of an IBR for each lease, requires management to consider a combination of factors, including its credit-adjusted risk-free interest rate, the risk profile and funding cost of the specific geographic market of the lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral.

Given the company-specific factors and judgments in the model used by management to develop the IBRs for its leases at adoption, the auditing of the IBRs involved a high degree of auditor judgment, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s forecast of future revenues used by management to estimate the fair value of China included the following, among others:

We tested the effectiveness of controls over management’s goodwill impairment evaluation, including the controls related to management’s forecast of future revenues

We evaluated management’s ability to accurately forecast future revenues by comparing actual results to management’s historical forecast

We assessed the reasonableness of the forecast of future revenues by comparing the forecast to:

- Historical revenues

- Internal communications to management and the Board of Directors

- Forecast information included in analyst and industry reports for the Company

- Historical and forecast information included in macro-economic reports for the China market

- Subsequent forecasts, to evaluate for changes made by management since the annual measurement date through issuance of the financial statements.

Our audit procedures related to the IBRs used in the adoption of ASC 842, which thereby determined the adoption disclosed in the September 27, 2020 financial statements, included the following, among others:

• We tested the effectiveness of controls over the determination and calculation of the IBRs.

• With the assistance of our fair value specialists, we evaluated the methods and assumptions used by management to estimate the IBRs and tested the inputs used by management to develop the IBRs.

/s/ Deloitte & Touche LLP

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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 8. Financial Statements and Supplementary Data