STARBUCKS CORP 10-Q

Item 1. Financial Statements STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in millions, except per share data) (unaudited) Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Net revenues: Company-operated stores $ 5,653.1 $ 4,766.0 $ 11,379.6 $ 10,546.6 Licensed stores 595.0 689.8 1,208.8 1,481.9 Other 419.9 539.9 829.1 1,064.3 Total net revenues 6,668.0 5,995.7 13,417.5 13,092.8 Product and distribution costs 1,992.4 1,997.7 4,041.5 4,234.2 Store operating expenses 2,823.3 2,721.4 5,690.7 5,542.9 Other operating expenses 87.7 95.0 179.5 196.7 Depreciation and amortization expenses 366.7 356.3 732.6 707.4 General and administrative expenses 464.4 406.5 936.5 840.7 Restructuring and impairments 23.0 ( 0.7 ) 95.2 5.6 Total operating expenses 5,757.5 5,576.2 11,676.0 11,527.5 Income from equity investees 77.1 67.9 159.7 141.9 Operating income 987.6 487.4 1,901.2 1,707.2 Interest income and other, net 17.3 2.0 32.7 18.0 Interest expense ( 115.0 ) ( 99.2 ) ( 235.8 ) ( 191.1 ) Earnings before income taxes 889.9 390.2 1,698.1 1,534.1 Income tax expense 230.5 65.4 416.5 324.0 Net earnings including noncontrolling interests 659.4 324.8 1,281.6 1,210.1 Net loss attributable to noncontrolling interests — ( 3.6 ) — ( 4.0 ) Net earnings attributable to Starbucks $ 659.4 $ 328.4 $ 1,281.6 $ 1,214.1 Earnings per share - basic $ 0.56 $ 0.28 $ 1.09 $ 1.03 Earnings per share - diluted $ 0.56 $ 0.28 $ 1.08 $ 1.02 Weighted average shares outstanding: Basic 1,177.5 1,171.8 1,176.3 1,176.1 Diluted 1,184.8 1,180.7 1,183.9 1,185.8 See Notes to Consolidated Financial Statements. 3 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions, unaudited) Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Net earnings including noncontrolling interests $ 659.4 $ 324.8 $ 1,281.6 $ 1,210.1 Other comprehensive income/(loss), net of tax: Unrealized holding gains/(losses) on available-for-sale debt securities ( 2.5 ) 3.2 ( 3.0 ) 3.1 Tax (expense)/benefit 0.5 ( 0.7 ) 0.6 ( 0.7 ) Unrealized gains/(losses) on cash flow hedging instruments 97.2 ( 127.9 ) 104.9 ( 95.5 ) Tax (expense)/benefit ( 23.9 ) 31.2 ( 26.8 ) 24.6 Unrealized gains/(losses) on net investment hedging instruments 47.7 57.6 17.5 81.3 Tax (expense)/benefit ( 12.1 ) ( 14.6 ) ( 4.5 ) ( 20.6 ) Translation adjustment and other ( 83.4 ) ( 79.9 ) 155.3 ( 3.8 ) Tax (expense)/benefit 2.2 1.5 2.2 1.5 Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale debt securities, hedging instruments, and translation adjustment ( 7.9 ) ( 6.4 ) ( 11.5 ) ( 17.1 ) Tax expense/(benefit) 1.8 1.6 3.6 3.9 Other comprehensive income/(loss) 19.6 ( 134.4 ) 238.3 ( 23.3 ) Comprehensive income including noncontrolling interests 679.0 190.4 1,519.9 1,186.8 Comprehensive income/(loss) attributable to noncontrolling interests — ( 3.6 ) — ( 4.0 ) Comprehensive income attributable to Starbucks $ 679.0 $ 194.0 $ 1,519.9 $ 1,190.8 See Notes to Consolidated Financial Statements. 4 Table of Contents STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (in millions, except per share data) (unaudited) Mar 28, 2021 Sep 27, 2020 ASSETS Current assets: Cash and cash equivalents $ 3,880.7 $ 4,350.9 Short-term investments 123.0 281.2 Accounts receivable, net 880.2 883.4 Inventories 1,503.6 1,551.4 Prepaid expenses and other current assets 592.0 739.5 Total current assets 6,979.5 7,806.4 Long-term investments 284.8 206.1 Equity investments 499.4 478.7 Property, plant and equipment, net 6,123.1 6,241.4 Operating lease, right-of-use asset 8,036.8 8,134.1 Deferred income taxes, net 1,770.0 1,789.9 Other long-term assets 574.9 568.6 Other intangible assets 444.3 552.1 Goodwill 3,658.9 3,597.2 TOTAL ASSETS $ 28,371.7 $ 29,374.5 LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) Current liabilities: Accounts payable $ 1,033.6 $ 997.9 Accrued liabilities 1,771.6 1,160.7 Accrued payroll and benefits 646.1 696.0 Income taxes payable 117.0 98.2 Current portion of operating lease liability 1,296.4 1,248.8 Stored value card liability and current portion of deferred revenue 1,622.1 1,456.5 Short-term debt 18.3 438.8 Current portion of long-term debt — 1,249.9 Total current liabilities 6,505.1 7,346.8 Long-term debt 14,630.3 14,659.6 Operating lease liability 7,577.7 7,661.7 Deferred revenue 6,532.1 6,598.5 Other long-term liabilities 774.8 907.3 Total liabilities 36,020.0 37,173.9 Shareholders' deficit: Common stock ($ 0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,177.9 and 1,173.3 shares, respectively 1.2 1.2 Additional paid-in capital 595.4 373.9 Retained deficit ( 8,124.3 ) ( 7,815.6 ) Accumulated other comprehensive loss ( 126.3 ) ( 364.6 ) Total shareholders’ deficit ( 7,654.0 ) ( 7,805.1 ) Noncontrolling interests 5.7 5.7 Total deficit ( 7,648.3 ) ( 7,799.4 ) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 28,371.7 $ 29,374.5 See Notes to Consolidated Financial Statements. 5 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions, unaudited) Two Quarters Ended Mar 28, 2021 Mar 29, 2020 OPERATING ACTIVITIES: Net earnings including noncontrolling interests $ 1,281.6 $ 1,210.1 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 772.9 746.9 Deferred income taxes, net ( 25.2 ) 47.7 Income earned from equity method investees ( 131.3 ) ( 116.3 ) Distributions received from equity method investees 130.2 98.1 Stock-based compensation 175.3 146.6 Non-cash lease costs 617.9 596.3 Loss on retirement and impairment of assets 175.4 30.9 Other ( 15.4 ) 36.8 Cash provided by/(used in) changes in operating assets and liabilities: Accounts receivable 12.8 ( 60.7 ) Inventories 51.3 36.9 Prepaid expenses and other current assets 139.7 ( 247.7 ) Income taxes payable 40.0 ( 1,227.4 ) Accounts payable 21.3 ( 186.4 ) Deferred revenue 89.8 112.1 Operating lease liability ( 676.3 ) ( 608.6 ) Other operating assets and liabilities 59.5 ( 140.5 ) Net cash provided by operating activities 2,719.5 474.8 INVESTING ACTIVITIES: Purchases of investments ( 321.7 ) ( 65.1 ) Sales of investments 121.7 93.7 Maturities and calls of investments 289.0 4.3 Additions to property, plant and equipment ( 647.9 ) ( 758.3 ) Other ( 20.1 ) ( 22.5 ) Net cash used in investing activities ( 579.0 ) ( 747.9 ) FINANCING ACTIVITIES: Net proceeds/(payments) from issuance of commercial paper ( 296.5 ) 613.0 Net proceeds from issuance of short-term debt 203.3 494.1 Repayments of short-term debt ( 320.5 ) — Proceeds from issuance of long-term debt — 1,739.7 Repayments of long-term debt ( 1,250.0 ) — Proceeds from issuance of common stock 134.4 65.4 Cash dividends paid ( 1,058.0 ) ( 965.2 ) Repurchase of common stock — ( 1,698.9 ) Minimum tax withholdings on share-based awards ( 90.1 ) ( 87.6 ) Other — ( 10.4 ) Net cash provided by/(used in) financing activities ( 2,677.4 ) 150.1 Effect of exchange rate changes on cash and cash equivalents 66.7 8.7 Net decrease in cash and cash equivalents ( 470.2 ) ( 114.3 ) CASH AND CASH EQUIVALENTS: Beginning of period 4,350.9 2,686.6 End of period $ 3,880.7 $ 2,572.3 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of capitalized interest $ 250.8 $ 186.3 Income taxes $ 236.2 $ 1,726.2 See Notes to Consolidated Financial Statements. 6 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY For the Quarters Ended March 28, 2021 and March 29, 2020 (in millions, except per share data, unaudited) Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Loss) Shareholders’ Equity/(Deficit) Noncontrolling Interests Total Shares Amount Balance, December 27, 2020 1,177.2 $ 1.2 $ 488.6 $ ( 8,253.6 ) $ ( 145.9 ) $ ( 7,909.7 ) $ 5.7 $ ( 7,904.0 ) Net earnings — — — 659.4 — 659.4 — 659.4 Other comprehensive income/(loss) — — — — 19.6 19.6 — 19.6 Stock-based compensation expense — — 76.7 — — 76.7 — 76.7 Exercise of stock options/vesting of RSUs 0.6 — 20.0 — — 20.0 — 20.0 Sale of common stock 0.1 — 10.1 — — 10.1 — 10.1 Cash dividends declared, $ 0.45 per share — — — ( 530.1 ) — ( 530.1 ) — ( 530.1 ) Balance, March 28, 2021 1,177.9 $ 1.2 $ 595.4 $ ( 8,124.3 ) $ ( 126.3 ) $ ( 7,654.0 ) $ 5.7 $ ( 7,648.3 ) Balance, December 29, 2019 1,174.5 $ 1.2 $ 41.1 $ ( 6,414.8 ) $ ( 387.4 ) $ ( 6,759.9 ) $ 0.8 $ ( 6,759.1 ) Net earnings/(loss) — — — 328.4 — 328.4 ( 3.6 ) 324.8 Other comprehensive income/(loss) — — — — ( 134.4 ) ( 134.4 ) — ( 134.4 ) Stock-based compensation expense — — 57.1 — — 57.1 — 57.1 Exercise of stock options/vesting of RSUs 0.8 — 13.6 — — 13.6 — 13.6 Sale of common stock 0.1 — 9.6 — — 9.6 — 9.6 Repurchase of common stock ( 7.3 ) — ( 80.3 ) ( 486.8 ) — ( 567.1 ) — ( 567.1 ) Cash dividends declared, $ 0.41 per share — — — ( 477.4 ) — ( 477.4 ) — ( 477.4 ) Balance, March 29, 2020 1,168.1 $ 1.2 $ 41.1 $ ( 7,050.6 ) $ ( 521.8 ) $ ( 7,530.1 ) $ ( 2.8 ) $ ( 7,532.9 ) See Notes to Consolidated Financial Statements. 7 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY For the Two Quarters Ended March 28, 2021 and March 29, 2020 (in millions, except per share data, unaudited) Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Loss) Shareholders’ Equity/(Deficit) Noncontrolling Interests Total Shares Amount Balance, September 27, 2020 1,173.3 $ 1.2 $ 373.9 $ ( 7,815.6 ) $ ( 364.6 ) $ ( 7,805.1 ) $ 5.7 $ ( 7,799.4 ) Cumulative effect of adoption of new accounting guidance — — — ( 2.2 ) — ( 2.2 ) — ( 2.2 ) Net earnings — — — 1,281.6 — 1,281.6 — 1,281.6 Other comprehensive income/(loss) — — — — 238.3 238.3 — 238.3 Stock-based compensation expense — — 177.2 — — 177.2 — 177.2 Exercise of stock options/vesting of RSUs 4.4 — 24.0 — — 24.0 — 24.0 Sale of common stock 0.2 — 20.3 — — 20.3 — 20.3 Cash dividends declared, $ 1.35 per share — — — ( 1,588.1 ) — ( 1,588.1 ) — ( 1,588.1 ) Balance, March 28, 2021 1,177.9 $ 1.2 $ 595.4 $ ( 8,124.3 ) $ ( 126.3 ) $ ( 7,654.0 ) $ 5.7 $ ( 7,648.3 ) Balance, September 29, 2019 1,184.6 $ 1.2 $ 41.1 $ ( 5,771.2 ) $ ( 503.3 ) $ ( 6,232.2 ) $ 1.2 $ ( 6,231.0 ) Cumulative effect of adoption of new accounting guidance — — — 12.5 4.8 17.3 — 17.3 Net earnings/(loss) — — — 1,214.1 — 1,214.1 ( 4.0 ) 1,210.1 Other comprehensive income/(loss) — — — — ( 23.3 ) ( 23.3 ) — ( 23.3 ) Stock-based compensation expense — — 148.4 — — 148.4 — 148.4 Exercise of stock options/vesting of RSUs 3.6 — ( 40.5 ) — — ( 40.5 ) — ( 40.5 ) Sale of common stock 0.2 — 18.5 — — 18.5 — 18.5 Repurchase of common stock ( 20.3 ) — ( 126.4 ) ( 1,548.6 ) — ( 1,675.0 ) — ( 1,675.0 ) Cash dividends declared, $ 0.82 per share — — — ( 957.4 ) — ( 957.4 ) — ( 957.4 ) Balance, March 29, 2020 1,168.1 $ 1.2 $ 41.1 $ ( 7,050.6 ) $ ( 521.8 ) $ ( 7,530.1 ) $ ( 2.8 ) $ ( 7,532.9 ) See Notes to Consolidated Financial Statements. 8 Table of Contents STARBUCKS CORPORATION INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies 10 Note 2 Derivative Financial Instruments 11 Note 3 Fair Value Measurements 16 Note 4 Inventories 18 Note 5 Supplemental Balance Sheet and Statement of Earnings Information 18 Note 6 Other Intangible Assets and Goodwill 19 Note 7 Debt 20 Note 8 Leases 22 Note 9 Deferred Revenue 23 Note 10 Equity 25 Note 11 Employee Stock Plans 26 Note 12 Income Taxes 27 Note 13 Earnings per Share 27 Note 14 Commitments and Contingencies 27 Note 15 Segment Reporting 28 9 Table of Contents STARBUCKS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1: Summary of Significant Accounting Policies Financial Statement Preparation The unaudited consolidated financial statements as of March 28, 2021, and for the quarter and two quarters ended March 28, 2021 and March 29, 2020, have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for the quarter and two quarters ended March 28, 2021 and March 29, 2020 reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q (“10-Q”), Starbucks Corporation is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.” Certain prior period information on the consolidated statements of cash flows has been reclassified to conform to the current year presentation. The financial information as of September 27, 2020 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 27, 2020 (“fiscal 2020”) included in Item 8 in the Fiscal 2020 Annual Report on Form 10-K (“10-K”). The information included in this 10-Q should be read in conjunction with the footnotes and management’s discussion and analysis of the consolidated financial statements in the 10-K. The results of operations for the quarter and two quarters ended March 28, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 3, 2021 (“fiscal 2021”). Additionally, our 2021 fiscal year will include 53 weeks, with the 53rd week falling in the fourth fiscal quarter. The novel coronavirus, known as the global pandemic COVID-19, was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores. We have since established the necessary protocols to operate safely, and our businesses continue to recover as sales in the U.S. and China, our two lead growth markets, have returned to roughly pre-pandemic levels. As of the end of the second quarter of fiscal 2021, nearly all our company-operated and licensed stores have re-opened; however, many were operating at less than full capacity. 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 the quarter and two quarters ended March 28, 2021, qualified payroll and other credits reduced our store operating expenses by $ 97.4 million and $ 117.2 million, respectively, on our consolidated statement of earnings. During the quarter ended March 29, 2020, the qualified payroll tax credits reduced our store operating expenses by approximately $ 35 million on our consolidated statement of earnings. After netting the qualified credits against our payable, a receivable of $ 158.6 million was included in prepaid expenses and other current assets as of March 28, 2021. During the quarter and two quarters ended March 28, 2021, we deferred $ 5.2 million and $ 81.7 million, respectively, of qualified payroll tax payments, and as of March 28, 2021, deferred payroll tax payments of $ 116.4 million were included in both accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets. Restructuring In fiscal 2020, we announced a plan to optimize our North America store portfolio, primarily in dense metropolitan markets by developing new store formats to better cater to changing customer tastes and preferences. As of March 28, 2021, we expect the total number of closures to be approximately 800 stores in the U.S. and Canada and have identified 760 stores for closure under our restructuring plans. As a result we recorded approximately $ 23.0 million and $ 95.2 million to restructuring and impairments on our consolidated statement of earnings during the quarter and two quarters ended March 28, 2021, respectively. Of these totals, $ 8.6 million and $ 51.2 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, respectively. During the quarter and two quarters ended March 28, 2021, an additional $ 14.4 million and $ 44.0 million, respectively, was associated with accelerated amortization 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 10 Table of Contents 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 over the next 9 to 12 months. We expect total future restructuring costs, which are attributable to our Americas segment, to be approximately $ 30 million to $ 40 million. These restructuring costs primarily include accelerated amortization or impairments of ROU assets due to planned store closures prior to the end of contractual lease terms. The remaining balance includes store impairment and disposal costs not previously recorded as part of our ongoing store impairment process and employee termination costs. As we have previously recorded impairment charges 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 vary from these 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 primarily over the next 9 to 12 months as stores are specifically identified for closure or, in the case of lease exit costs, either when a store ceases operations or when a reduced lease term is reasonably certain due to expected, early lease termination. As of March 28, 2021, restructuring liabilities totaling $ 21.4 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 or during the first two quarters of fiscal 2021 for stores that were either closed or reasonably certain to close under the plan. Additionally, $ 10.4 million of accrued employee termination costs was included in accrued payroll and benefits. Cash payments were $ 23.2 million for the first two quarters of fiscal 2021. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board ("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 was adopted during the first quarter of fiscal 2021 under the modified retrospective approach and resulted in a $ 2.2 million transition adjustment to opening shareholders' retained deficit on our consolidated statements of equity. Recent Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting 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. Note 2: Derivative Financial Instruments Interest Rates From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified to interest expense over the life of the related debt. To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 7 , Debt, for additional information on our long-term debt. Foreign Currency To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, 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 11 Table of Contents resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated. Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables and receivables; these gains and losses are recorded in interest income and other, net. Commodities Depending on market conditions, we may enter into coffee forward contracts, futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 4, 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 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 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 quarter and two quarters ended March 29, 2020, we de-designated certain cash flow hedges due to the global COVID-19 impacts, which resulted in the release of an insignificant net gain from AOCI to our consolidated statement of earnings. There were no significant cash flow hedge de-designations in fiscal 2021. 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 ): Net Gains/(Losses) Included in AOCI Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months Outstanding Contract/Debt Remaining Maturity (Months) Mar 28, 2021 Sep 27, 2020 Cash Flow Hedges: Coffee $ 15.3 $ ( 2.5 ) $ 9.5 12 Cross-currency swaps 5.3 5.2 — 44 Dairy 0.2 0.5 0.2 5 Foreign currency - other ( 9.5 ) 5.3 ( 4.9 ) 34 Interest rates ( 17.0 ) ( 90.6 ) ( 0.7 ) 139 Net Investment Hedges: Cross-currency swaps 19.9 32.6 — 102 Foreign currency 16.0 16.0 — 0 Foreign currency debt ( 16.3 ) ( 37.1 ) — 36 12 Table of Contents 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 ): Quarter Ended Gains/(Losses) Recognized in OCI Before Reclassifications Gains/(Losses) Reclassified from AOCI to Earnings Location of gain/(loss) Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Cash Flow Hedges: Coffee $ 5.7 $ ( 12.1 ) $ ( 3.4 ) $ — Product and distribution costs Cross-currency swaps 13.8 2.9 0.6 ( 0.4 ) Interest expense 13.5 0.2 Interest income and other, net Dairy ( 0.9 ) ( 4.9 ) ( 0.6 ) 0.7 Product and distribution costs — ( 0.6 ) Interest income and other, net (1) Foreign currency - other 7.1 26.8 0.2 0.9 Licensed stores revenues ( 1.9 ) ( 1.0 ) Product and distribution costs — 2.0 Interest income and other, net (1) Interest rates 71.5 ( 140.6 ) ( 0.5 ) 0.5 Interest expense ( 3.6 ) — Interest income and other, net Net Investment Hedges: Cross-currency swaps 6.1 58.0 3.4 3.9 Interest expense Foreign currency debt 41.6 ( 0.4 ) — — (1) As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the quarter ended March 29, 2020. Two Quarters Ended Gains/(Losses) Recognized in OCI Before Reclassifications Gains/(Losses) Reclassified from AOCI to Earnings Location of gain/(loss) Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Cash Flow Hedges: Coffee 17.7 ( 1.1 ) ( 2.7 ) — Product and distribution costs Cross-currency swaps 10.4 9.1 1.6 ( 0.6 ) Interest expense 8.7 5.8 Interest income and other, net Dairy 1.6 ( 5.0 ) 2.0 0.7 Product and distribution costs — ( 0.6 ) Interest income and other, net (1) Foreign currency - other ( 18.8 ) 22.1 0.2 2.6 Licensed stores revenues ( 1.9 ) ( 1.3 ) Product and distribution costs — 2.0 Interest income and other, net (1) Interest rates 94.0 ( 120.6 ) ( 1.1 ) 1.3 Interest expense ( 3.6 ) — Interest income and other, net Net Investment Hedges: Cross-currency swaps ( 10.4 ) 68.7 6.6 7.2 Interest expense Foreign currency debt 27.9 12.6 — — (1) As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the two quarters ended March 29, 2020. 13 Table of Contents 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 Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Non-Designated Derivatives: Diesel fuel and other commodities Interest income and other, net $ 0.8 $ ( 8.9 ) $ 2.0 $ ( 8.0 ) Foreign currency - other Interest income and other, net ( 0.8 ) 4.9 ( 1.7 ) 8.3 Fair Value Hedges: Interest rate swap Interest expense ( 1.5 ) 35.2 ( 1.1 ) 24.3 Long-term debt (hedged item) Interest expense 4.8 ( 27.5 ) 7.7 ( 23.3 ) Notional amounts of outstanding derivative contracts (in millions) : Mar 28, 2021 Sep 27, 2020 Coffee $ 210 $ 63 Cross-currency swaps 838 870 Dairy 18 61 Diesel fuel and other commodities 12 5 Foreign currency - other 1,183 1,140 Interest rate swap 1,750 1,750 14 Table of Contents Fair value of outstanding derivative contracts ( in millions ) including the location of the asset and/or liability on the consolidated balance sheets: Derivative Assets Balance Sheet Location Mar 28, 2021 Sep 27, 2020 Designated Derivative Instruments: Coffee Prepaid expenses and other current assets $ 12.9 $ 2.6 Cross-currency swaps Other long-term assets 28.6 37.7 Dairy Prepaid expenses and other current assets 0.6 2.1 Foreign currency - other Prepaid expenses and other current assets 6.4 8.6 Other long-term assets 4.3 3.8 Interest rates Other long-term assets 24.7 — Interest rate swap Other long-term assets 38.5 45.8 Non-designated Derivative Instruments: Diesel fuel and other commodities Prepaid expenses and other current assets 1.4 — Foreign currency Prepaid expenses and other current assets 0.7 2.3 Derivative Liabilities Balance Sheet Location Mar 28, 2021 Sep 27, 2020 Designated Derivative Instruments: Coffee Accrued liabilities $ — $ 1.4 Other long-term liabilities — 0.1 Cross-currency swaps Other long-term liabilities 4.7 7.3 Dairy Accrued liabilities 0.4 1.4 Foreign currency - other Accrued liabilities 11.2 1.6 Other long-term liabilities 8.9 2.6 Interest rates Other long-term liabilities — 69.3 Non-designated Derivative Instruments: Diesel fuel and other commodities Accrued liabilities 0.1 1.7 Foreign currency Accrued liabilities 1.6 1.2 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships: Carrying amount of hedged item Cumulative amount of fair value hedging adjustment included in the carrying amount Mar 28, 2021 Sep 27, 2020 Mar 28, 2021 Sep 27, 2020 Location on the balance sheet Long-term debt $ 777.9 $ 785.6 $ 27.9 $ 35.6 Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 10 , Equity. 15 Table of Contents Note 3: Fair Value Measurements Assets and liabilities measured at fair value on a recurring basis (in millions) : Fair Value Measurements at Reporting Date Using Balance at March 28, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 3,880.7 $ 3,880.7 $ — $ — Short-term investments: Available-for-sale debt securities Commercial paper 38.5 — 38.5 — Corporate debt securities 14.0 — 14.0 — State and local government obligations 1.0 — 1.0 — Total available-for-sale debt securities 53.5 — 53.5 — Marketable equity securities 69.5 69.5 — — Total short-term investments 123.0 69.5 53.5 — Prepaid expenses and other current assets: Derivative assets 22.0 13.2 8.8 — Long-term investments: Available-for-sale debt securities Auction rate securities 5.7 — — 5.7 Corporate debt securities 167.4 — 167.4 — Foreign government obligations 4.0 — 4.0 — Mortgage and other asset-backed securities 18.0 — 18.0 — State and local government obligations 4.1 — 4.1 — U.S. government treasury securities 85.6 85.6 — — Total long-term investments 284.8 85.6 193.5 5.7 Other long-term assets: Derivative assets 96.1 — 96.1 — Total assets $ 4,406.6 $ 4,049.0 $ 351.9 $ 5.7 Liabilities: Accrued liabilities: Derivative liabilities $ 13.3 $ 0.2 $ 13.1 $ — Other long-term liabilities: Derivative liabilities 13.6 — 13.6 — Total liabilities $ 26.9 $ 0.2 $ 26.7 $ — 16 Table of Contents Fair Value Measurements at Reporting Date Using Balance at September 27, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 4,350.9 $ 4,350.9 $ — $ — Short-term investments: Available-for-sale debt securities Certificates of deposit 1.6 — 1.6 — Commercial paper 66.8 — 66.8 — Corporate debt securities 123.6 — 123.6 — Foreign government obligations 8.5 — 8.5 — Mortgage and other asset-backed securities 15.8 — 15.8 — Total available-for-sale debt securities 216.3 — 216.3 — Marketable equity securities 64.9 64.9 — — Total short-term investments 281.2 64.9 216.3 — Prepaid expenses and other current assets: Derivative assets 15.6 3.6 12.0 — Long-term investments: Available-for-sale debt securities Auction rate securities 5.7 — — 5.7 Corporate debt securities 82.6 — 82.6 — Mortgage and other asset-backed securities 19.3 — 19.3 — State and local government obligations 3.6 — 3.6 — U.S. government treasury securities 94.9 94.9 — — Total long-term investments 206.1 94.9 105.5 5.7 Other long-term assets: Derivative assets 87.3 — 87.3 — Total assets $ 4,941.1 $ 4,514.3 $ 421.1 $ 5.7 Liabilities: Accrued liabilities: Derivative liabilities $ 7.3 $ 1.9 $ 5.4 $ — Other long-term liabilities: Derivative liabilities 79.3 0.1 79.2 — Total liabilities $ 86.6 $ 2.0 $ 84.6 $ — There were no material transfers between levels, and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists. Gross unrealized holding gains and losses on available-for-sale debt securities and marketable equity securities were not material as of March 28, 2021 and September 27, 2020. 17 Table of Contents Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, ROU assets, goodwill and other intangible assets and other assets. These assets are measured at fair value if determined to be impaired. During our first two quarters of fiscal 2021, we recorded asset impairment charges, primarily related to restructuring efforts for our North America store portfolio. See Note 1 , Summary of Significant Accounting Policies, for further discussion. The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 7 , Debt. There were no material fair value adjustments during the two quarters ended March 28, 2021 and March 29, 2020. Note 4: Inventories (in millions) : Mar 28, 2021 Sep 27, 2020 Coffee: Unroasted $ 690.0 $ 664.7 Roasted 221.7 223.5 Other merchandise held for sale 266.6 293.9 Packaging and other supplies 325.3 369.3 Total $ 1,503.6 $ 1,551.4 Other merchandise held for sale includes, among other items, serveware, food and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations. As of March 28, 2021, we had committed to purchasing green coffee totaling $ 637 million under fixed-price contracts and an estimated $ 654 million under price-to-be-fixed contracts. We expect to take physical delivery for these contracts. A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on established relationships with our suppliers and continuous monitoring, the risk of non-delivery on these purchase commitments is remote. During the second quarter of fiscal 2020, we wrote off approximately $ 50 million of inventory that was expiring or expected to expire due to COVID-19 related store closures, primarily perishable food and beverage ingredients located at our stores, distribution centers and suppliers. We did not record significant write-offs related to COVID-19 during the first half of fiscal 2021. Note 5: Supplemental Balance Sheet and Statement of Earnings Information (in millions) : Prepaid Expenses and Other Current Assets Mar 28, 2021 Sep 27, 2020 Income tax receivable $ 180.6 $ 356.9 Government subsidies receivable 158.6 155.1 Other prepaid expenses and current assets 252.8 227.5 Total prepaid expenses and current assets $ 592.0 $ 739.5 18 Table of Contents Property, Plant and Equipment, net Mar 28, 2021 Sep 27, 2020 Land $ 46.2 $ 46.0 Buildings 592.3 586.8 Leasehold improvements 8,246.4 8,262.6 Store equipment 2,817.1 2,800.3 Roasting equipment 807.0 796.6 Furniture, fixtures and other 1,288.6 1,285.7 Work in progress 389.9 377.3 Property, plant and equipment, gross 14,187.5 14,155.3 Accumulated depreciation ( 8,064.4 ) ( 7,913.9 ) Property, plant and equipment, net $ 6,123.1 $ 6,241.4 Accrued Liabilities Mar 28, 2021 Sep 27, 2020 Accrued occupancy costs $ 76.1 $ 76.9 Accrued dividends payable 530.1 — Accrued capital and other operating expenditures 757.7 677.2 Self-insurance reserves 236.4 243.9 Accrued business taxes 171.3 162.7 Total accrued liabilities $ 1,771.6 $ 1,160.7 Store Operating Expenses Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Wages and benefits $ 1,664.9 $ 1,608.0 $ 3,271.1 $ 3,206.0 Occupancy costs 626.2 593.9 1,254.3 1,212.6 Other expenses 532.2 519.5 1,165.3 1,124.3 Total store operating expenses $ 2,823.3 $ 2,721.4 $ 5,690.7 $ 5,542.9 Note 6: Other Intangible Assets and Goodwill Indefinite-Lived Intangible Assets (in millions) Mar 28, 2021 Sep 27, 2020 Trade names, trademarks and patents $ 95.7 $ 95.0 19 Table of Contents Finite-Lived Intangible Assets Mar 28, 2021 Sep 27, 2020 (in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Acquired and reacquired rights $ 1,137.8 $ ( 880.8 ) $ 257.0 $ 1,116.1 $ ( 765.0 ) $ 351.1 Acquired trade secrets and processes 27.6 ( 23.4 ) 4.2 27.6 ( 22.0 ) 5.6 Trade names, trademarks and patents 125.4 ( 42.1 ) 83.3 124.8 ( 32.1 ) 92.7 Licensing agreements 16.0 ( 15.7 ) 0.3 16.6 ( 15.0 ) 1.6 Other finite-lived intangible assets 23.7 ( 19.9 ) 3.8 22.8 ( 16.7 ) 6.1 Total finite-lived intangible assets $ 1,330.5 $ ( 981.9 ) $ 348.6 $ 1,307.9 $ ( 850.8 ) $ 457.1 Amortization expense for finite-lived intangible assets was $ 62.2 million and $ 123.4 million for the quarter and two quarters ended March 28, 2021, respectively and $ 54.5 million and $ 108.6 million for the quarter and two quarters ended March 29, 2020, respectively. Estimated future amortization expense as of March 28, 2021 ( in millions ): Fiscal Year Total 2021 (excluding the two quarters ended March 28, 2021) $ 103.6 2022 190.3 2023 19.6 2024 19.0 2025 13.1 Thereafter 3.0 Total estimated future amortization expense $ 348.6 Goodwill Changes in the carrying amount of goodwill by reportable operating segment (in millions) : Americas International Channel Development Corporate and Other Total Goodwill balance at September 27, 2020 $ 496.5 $ 3,065.0 $ 34.7 $ 1.0 $ 3,597.2 Other (1) 1.6 60.1 — — 61.7 Goodwill balance at March 28, 2021 $ 498.1 $ 3,125.1 $ 34.7 $ 1.0 $ 3,658.9 (1) “Other” consists of changes in the goodwill balance resulting from foreign currency translation. Note 7: Debt Short-term Debt Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $ 3 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As of March 28, 2021, we had no borrowings outstanding under the program. Additionally, we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within our Japanese market: • A ¥ 5 billion, or $ 45.8 million, facility is currently set to mature on December 30, 2021 . Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400 %. 20 Table of Contents • A ¥ 10 billion, or $ 91.6 million, facility is currently set to mature on March 26, 2022 . Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350 %. As of March 28, 2021, we had ¥ 2 billion , or $ 18.3 million, of borrowings outstanding under these credit facilities. Long-term Debt Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity ( in millions, except interest rates) : Mar 28, 2021 Sep 27, 2020 Stated Interest Rate Effective Interest Rate (1) Issuance Amount Estimated Fair Value Amount Estimated Fair Value November 2020 notes (2) $ — $ — $ 500.0 $ 501.5 2.200 % 2.228 % February 2021 notes (2) — — 500.0 502.3 2.100 % 2.293 % February 2021 notes (2) — — 250.0 251.1 2.100 % 1.600 % May 2022 notes 500.0 505.3 500.0 506.5 1.300 % 1.334 % June 2022 notes 500.0 512.3 500.0 517.5 2.700 % 2.819 % March 2023 notes 1,000.0 1,049.1 1,000.0 1,058.8 3.100 % 3.107 % October 2023 notes (3) 750.0 807.9 750.0 817.5 3.850 % 2.859 % March 2024 notes (4) 778.5 766.8 806.4 794.4 0.372 % 0.462 % August 2025 notes 1,250.0 1,382.3 1,250.0 1,414.5 3.800 % 3.721 % June 2026 notes 500.0 525.0 500.0 542.6 2.450 % 2.511 % March 2027 notes 500.0 509.3 500.0 528.9 2.000 % 2.058 % March 2028 notes 600.0 650.6 600.0 679.5 3.500 % 3.529 % November 2028 notes 750.0 841.5 750.0 886.0 4.000 % 3.958 % August 2029 notes 1,000.0 1,088.7 1,000.0 1,147.1 3.550 % 3.840 % March 2030 notes 750.0 736.5 750.0 778.0 2.250 % 3.084 % November 2030 notes 1,250.0 1,252.5 1,250.0 1,325.9 2.550 % 2.582 % June 2045 notes 350.0 385.8 350.0 412.4 4.300 % 4.348 % December 2047 notes 500.0 515.0 500.0 546.6 3.750 % 3.765 % November 2048 notes 1,000.0 1,150.2 1,000.0 1,222.8 4.500 % 4.504 % August 2049 notes 1,000.0 1,137.4 1,000.0 1,215.5 4.450 % 4.447 % March 2050 notes 500.0 482.9 500.0 517.1 3.350 % 3.362 % November 2050 notes 1,250.0 1,247.7 1,250.0 1,332.2 3.500 % 3.528 % Total 14,728.5 15,546.8 16,006.4 17,498.7 Aggregate debt issuance costs and unamortized premium/(discount), net ( 126.1 ) ( 132.5 ) Hedge accounting fair value adjustment (3) 27.9 35.6 Total $ 14,630.3 $ 15,909.5 (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 interest rate risk prior to the debt issuance. (2) November 2020 and February 2021 notes were repaid in the first and second quarters of fiscal 2021, respectively. (3) Amount includes the change in fair value due to changes in benchmark interest rates related to our October 2023 notes. Refer to Note 2 , Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge. (4) Japanese yen-denominated long-term debt. 21 Table of Contents The following table summarizes our long-term debt maturities as of March 28, 2021 by fiscal year ( in millions ): Fiscal Year Total 2021 $ — 2022 1,000.0 2023 1,000.0 2024 1,528.5 2025 1,250.0 Thereafter 9,950.0 Total $ 14,728.5 Note 8: Leases For the quarter and two quarters ended March 28, 2021, we recognized accelerated lease ROU asset amortization costs of $ 14.4 million and $ 44.0 million, which was recognized within restructuring and impairments on the consolidated statements of earnings. The components of lease costs (in millions) : Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Operating lease costs (1) $ 389.3 $ 377.4 $ 798.7 $ 750.5 Variable lease costs 224.3 197.2 446.7 426.0 Short-term lease costs 7.6 8.3 16.3 16.6 Total lease costs $ 621.2 $ 582.9 $ 1,261.7 $ 1,193.1 (1) Operating lease costs were net of immaterial amounts of sublease income. For the quarter and two quarters ended March 28, 2021, operating lease costs were also net of immaterial amounts of rent concessions. The following table includes supplemental information (in millions) : Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Cash paid related to operating lease liabilities $ 792.4 $ 726.0 Operating lease liabilities arising from obtaining ROU assets 659.6 506.6 Mar 28, 2021 Mar 29, 2020 Weighted-average remaining operating lease term 8.7 years 8.9 years Weighted-average operating lease discount rate 2.4 % 2.5 % Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. There were no material finance leases as of March 28, 2021. 22 Table of Contents Minimum future maturities of operating lease liabilities (in millions) : Fiscal Year Total 2021 (excluding the two quarters ended March 28, 2021) $ 780.6 2022 1,486.5 2023 1,343.6 2024 1,202.9 2025 1,056.6 Thereafter 4,137.9 Total lease payments 10,008.1 Less imputed interest ( 1,134.0 ) Total $ 8,874.1 As of March 28, 2021, we have entered into operating leases that have not yet commenced of $ 761.9 million, primarily related to real estate leases. These leases will commence between fiscal year 2021 and fiscal year 2027 with lease terms ranging from 3 years to 20 years. Note 9: Deferred Revenue Our deferred revenue primarily consists of the prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, our unredeemed stored value card liability and unredeemed loyalty points (“Stars”) associated with our loyalty program. As of March 28, 2021, the current and long-term deferred revenue related to Nestlé was $ 178.9 million and $ 6.4 billion, respectively. During both quarters and two quarters ended March 28, 2021 and March 29, 2020, we recognized $ 44.2 million and $ 88.4 million of prepaid royalty revenue related to Nestlé, respectively. Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions) : Quarter Ended March 28, 2021 Total Stored value cards and loyalty program at December 27, 2020 $ 1,750.0 Revenue deferred - card activations, card reloads and Stars earned 2,709.7 Revenue recognized - card and Stars redemptions and breakage ( 2,977.8 ) Other (1) ( 6.7 ) Stored value cards and loyalty program at March 28, 2021 (2) $ 1,475.2 Quarter Ended March 29, 2020 Total Stored value cards and loyalty program at December 29, 2019 $ 1,561.0 Revenue deferred - card activations, card reloads and Stars earned 2,453.6 Revenue recognized - card and Stars redemptions and breakage ( 2,736.4 ) Other (1) ( 5.1 ) Stored value cards and loyalty program at March 29, 2020 (2) $ 1,273.1 23 Table of Contents Two Quarters Ended March 28, 2021 Total Stored value cards and loyalty program at September 27, 2020 $ 1,280.5 Revenue deferred - card activations, card reloads and Stars earned 6,147.1 Revenue recognized - card and Stars redemptions and breakage ( 5,958.0 ) Other (1) 5.6 Stored value cards and loyalty program at March 28, 2021 (2) $ 1,475.2 Two Quarters Ended March 29, 2020 Total Stored value cards and loyalty program at September 29, 2019 $ 1,113.7 Revenue deferred - card activations, card reloads and Stars earned 5,961.1 Revenue recognized - card and Stars redemptions and breakage ( 5,798.3 ) Other (1) ( 3.4 ) Stored value cards and loyalty program at March 29, 2020 (2) $ 1,273.1 (1) “Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation. (2) As of March 28, 2021 and March 29, 2020, approximately $ 1,370.4 million and $ 1,191.5 million of these amounts were current, respectively. 24 Table of Contents Note 10: Equity Changes in AOCI by component, net of tax (in millions) : Quarter Ended Available-for-Sale Debt Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total March 28, 2021 Net gains/(losses) in AOCI, beginning of period $ 4.1 $ ( 75.5 ) $ ( 13.5 ) $ ( 61.0 ) $ ( 145.9 ) Net gains/(losses) recognized in OCI before reclassifications ( 2.0 ) 73.3 35.6 ( 81.2 ) 25.7 Net (gains)/losses reclassified from AOCI to earnings ( 0.1 ) ( 3.5 ) ( 2.5 ) — ( 6.1 ) Other comprehensive income/(loss) attributable to Starbucks ( 2.1 ) 69.8 33.1 ( 81.2 ) 19.6 Net gains/(losses) in AOCI, end of period $ 2.0 $ ( 5.7 ) $ 19.6 $ ( 142.2 ) $ ( 126.3 ) March 29, 2020 Net gains/(losses) in AOCI, beginning of period $ 3.2 $ 33.7 $ 7.7 $ ( 432.0 ) $ ( 387.4 ) Net gains/(losses) recognized in OCI before reclassifications 2.5 ( 96.7 ) 43.0 ( 78.4 ) ( 129.6 ) Net (gains)/losses reclassified from AOCI to earnings ( 0.1 ) ( 1.8 ) ( 2.9 ) — ( 4.8 ) Other comprehensive income/(loss) attributable to Starbucks 2.4 ( 98.5 ) 40.1 ( 78.4 ) ( 134.4 ) Net gains/(losses) in AOCI, end of period $ 5.6 $ ( 64.8 ) $ 47.8 $ ( 510.4 ) $ ( 521.8 ) Two Quarters Ended Available-for-Sale Debt Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total March 28, 2021 Net gains/(losses) in AOCI, beginning of period $ 5.7 $ ( 82.1 ) $ 11.5 $ ( 299.7 ) $ ( 364.6 ) Net gains/(losses) recognized in OCI before reclassifications ( 2.4 ) 78.1 13.0 157.5 246.2 Net (gains)/losses reclassified from AOCI to earnings ( 1.3 ) ( 1.7 ) ( 4.9 ) — ( 7.9 ) Other comprehensive income/(loss) attributable to Starbucks ( 3.7 ) 76.4 8.1 157.5 238.3 Net gains/(losses) in AOCI, end of period $ 2.0 $ ( 5.7 ) $ 19.6 $ ( 142.2 ) $ ( 126.3 ) March 29, 2020 Net gains/(losses) in AOCI, beginning of period $ 3.9 $ 11.0 $ ( 10.1 ) $ ( 508.1 ) $ ( 503.3 ) Net gains/(losses) recognized in OCI before reclassifications 2.4 ( 70.9 ) 60.7 ( 2.3 ) ( 10.1 ) Net (gains)/losses reclassified from AOCI to earnings — ( 7.9 ) ( 5.3 ) — ( 13.2 ) Other comprehensive income/(loss) attributable to Starbucks 2.4 ( 78.8 ) 55.4 ( 2.3 ) ( 23.3 ) Cumulative effect of accounting adoption ( 0.7 ) 3.0 2.5 — 4.8 Net gains/(losses) in AOCI, end of period $ 5.6 $ ( 64.8 ) $ 47.8 $ ( 510.4 ) $ ( 521.8 ) 25 Table of Contents Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions) : Quarter Ended AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Statements of Earnings Mar 28, 2021 Mar 29, 2020 Gains/(losses) on available-for-sale debt securities $ 0.2 $ 0.2 Interest income and other, net Gains/(losses) on cash flow hedges 4.3 2.3 Please refer to Note 2 , Derivative Financial Instruments for additional information. Gains/(losses) on net investment hedges 3.4 3.9 Interest expense 7.9 6.4 Total before tax ( 1.8 ) ( 1.6 ) Tax (expense)/benefit $ 6.1 $ 4.8 Net of tax Two Quarters Ended AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Statements of Earnings Mar 28, 2021 Mar 29, 2020 Gains/(losses) on available-for-sale debt securities $ 1.7 $ — Interest income and other, net Gains/(losses) on cash flow hedges 3.2 9.9 Please refer to Note 2 , Derivative Financial Instruments for additional information. Gains/(losses) on net investment hedges 6.6 7.2 Interest expense 11.5 17.1 Total before tax ( 3.6 ) ( 3.9 ) Tax (expense)/benefit $ 7.9 $ 13.2 Net of tax In addition to 2.4 billion shares of authorized common stock with $ 0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of March 28, 2021. As of March 28, 2021, 48.9 million shares remained available for repurchase under current authorizations. We have suspended our share repurchase program until we restore certain financial leverage targets, which we currently expect to occur in late fiscal 2021. During the second quarter of fiscal 2021, our Board of Directors approved a quarterly cash dividend to shareholders of $ 0.45 per share to be paid on May 28, 2021 to shareholders of record as of the close of business on May 13, 2021. Note 11: Employee Stock Plans As of March 28, 2021, there were 40.1 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 11.7 million shares available for issuance under our employee stock purchase plan. Stock-based compensation expense recognized in the consolidated statements of earnings (in millions) : Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Options $ 0.9 $ 0.7 $ 1.8 $ 2.4 Restricted Stock Units (“RSUs”) 75.1 55.6 173.5 144.2 Total stock-based compensation expense $ 76.0 $ 56.3 $ 175.3 $ 146.6 26 Table of Contents Stock option and RSU transactions from September 27, 2020 through March 28, 2021 ( in millions ): Stock Options RSUs Options outstanding/Nonvested RSUs, September 27, 2020 9.2 8.3 Granted — 3.9 Options exercised/RSUs vested ( 2.2 ) ( 3.0 ) Forfeited/expired ( 0.1 ) ( 0.8 ) Options outstanding/Nonvested RSUs, March 28, 2021 6.9 8.4 Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of March 28, 2021 $ 0.3 $ 253.8 Note 12: Income Taxes The effective tax rate for the quarter ended March 28, 2021 was 25.9 % compared to 16.8 % for the same quarter in fiscal 2020. The increase was primarily due to higher earnings, including the foreign rate differential on our jurisdictional mix of earnings, partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year. The effective tax rate for the first two quarters ended March 28, 2021 was 24.5 % compared to 21.1 % for the same period in fiscal 2020. The increase was primarily due to higher earnings, including the foreign rate differential on our jurisdictional mix of earnings, partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year. Note 13: Earnings per Share Calculation of net earnings per common share (“EPS”) — basic and diluted ( in millions, except EPS ): Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Net earnings attributable to Starbucks $ 659.4 $ 328.4 $ 1,281.6 $ 1,214.1 Weighted average common shares outstanding (for basic calculation) 1,177.5 1,171.8 1,176.3 1,176.1 Dilutive effect of outstanding common stock options and RSUs 7.3 8.9 7.6 9.7 Weighted average common and common equivalent shares outstanding (for diluted calculation) 1,184.8 1,180.7 1,183.9 1,185.8 EPS — basic $ 0.56 $ 0.28 $ 1.09 $ 1.03 EPS — diluted $ 0.56 $ 0.28 $ 1.08 $ 1.02 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding would exclude out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would be antidilutive. As of March 28, 2021 and March 29, 2020, we had no out-of-the-money stock options . Note 14: Commitments and Contingencies Legal Proceedings On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al . On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al .. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff seeks equitable relief, including 27 Table of Contents providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65. The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (OEHHA) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial. On June 3, 2019, the Office of Administrative Law (OAL) approved the coffee exemption regulation. The regulation became effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. At the status conference on August 25, 2020, the trial judge granted the defendants’ motion for summary judgment, ruling that the coffee exemption regulation is a complete defense to the Plaintiff’s complaint. The Notice of Entry of Judgment from the court was served on October 6, 2020 and the Plaintiff filed a Notice of Appeal on November 20, 2020. The court issued a briefing schedule, and the parties are working through the appellate process. Starbucks believes that the likelihood that the Company will ultimately incur a material loss in connection with this litigation is less than reasonably possible. Accordingly, no loss contingency was recorded for this matter. Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Note 15: Segment Reporting Segment information is prepared on the same basis that our ceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results and makes key operating decisions. Consolidated revenue mix by product type (1) ( in millions ): Quarter Ended Two Quarters Ended Mar 28, 2021 Mar 29, 2020 Mar 28, 2021 Mar 29, 2020 Beverage (2) $ 4,212.8 63 % $ 3,530.9 59 % $ 8,464.5 63 % $ 7,789.4 59 % Food (3) 1,131.4 17 % 968.7 16 % 2,272.0 17 % 2,128.4 16 % Other (4) 1,323.8 20 % 1,496.1 25 % 2,681.0 20 % 3,175.0 25 % Total $ 6,668.0 100 % $ 5,995.7 100 % $ 13,417.5 100 % $ 13,092.8 100 % (1) Certain prior period amounts have been reclassified to conform to current period 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, serveware, beverage-related ingredients and ready-to-drink beverages, among other items. 28 Table of Contents The table below presents financial information for our reportable operating segments and Corporate and Other segment (in millions) : Quarter Ended Americas International Channel Development Corporate and Other Total March 28, 2021 Total net revenues $ 4,664.6 $ 1,610.9 $ 369.9 $ 22.6 $ 6,668.0 Depreciation and amortization expenses 186.0 143.4 0.3 37.0 366.7 Income from equity investees — 26.8 50.3 — 77.1 Operating income/(loss) 905.3 251.5 172.6 ( 341.8 ) 987.6 March 29, 2020 Total net revenues $ 4,330.0 $ 1,134.6 $ 519.1 $ 12.0 $ 5,995.7 Depreciation and amortization expenses 191.5 130.0 0.3 34.5 356.3 Income from equity investees — 24.8 43.1 — 67.9 Operating income/(loss) 621.2 ( 15.4 ) 189.6 ( 308.0 ) 487.4 Two Quarters Ended Americas International Channel Development Corporate and Other Total March 28, 2021 Total net revenues $ 9,367.9 $ 3,265.3 $ 741.2 $ 43.1 $ 13,417.5 Depreciation and amortization expenses 374.9 283.4 0.6 73.7 732.6 Income from equity investees — 53.0 106.7 — 159.7 Operating income/(loss) 1,718.7 526.3 353.3 ( 697.1 ) 1,901.2 March 29, 2020 Total net revenues $ 9,340.9 $ 2,705.7 $ 1,013.7 $ 32.5 $ 13,092.8 Depreciation and amortization expenses 380.7 256.7 0.6 69.4 707.4 Income from equity investees — 55.8 86.1 — 141.9 Operating income/(loss) 1,720.0 260.5 365.1 ( 638.4 ) 1,707.2 29 Table of Contents