Item 1. Financial Statements
Item 1. Financial Statements
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
(unaudited)
Quarter Ended Three Quarters Ended
Jun 27,
2021 Jun 28,
2020 Jun 27,
2021 Jun 28,
2020
Net revenues:
Company-operated stores $ 6,363.1 $ 3,444.4 $ 17,742.8 $ 13,991.0
Licensed stores 680.2 300.5 1,889.0 1,782.4
Other 453.2 477.2 1,282.1 1,541.5
Total net revenues 7,496.5 4,222.1 20,913.9 17,314.9
Product and distribution costs 2,206.0 1,484.0 6,247.5 5,718.2
Store operating expenses 2,966.9 2,537.8 8,657.6 8,080.7
Other operating expenses 71.4 133.6 250.8 330.3
Depreciation and amortization expenses 354.3 361.0 1,087.0 1,068.3
General and administrative expenses 494.9 399.9 1,431.4 1,240.6
Restructuring and impairments 19.8 78.1 115.0 83.7
Total operating expenses 6,113.3 4,994.4 17,789.3 16,521.8
Income from equity investees 105.5 68.4 265.3 210.3
Operating income/(loss) 1,488.7 ( 703.9 ) 3,389.9 1,003.4
Interest income and other, net 36.0 12.7 68.6 30.7
Interest expense ( 113.4 ) ( 120.8 ) ( 349.2 ) ( 312.1 )
Earnings/(loss) before income taxes 1,411.3 ( 812.0 ) 3,109.3 722.0
Income tax expense/(benefit) 257.1 ( 133.9 ) 673.6 190.0
Net earnings/(loss) including noncontrolling interests 1,154.2 ( 678.1 ) 2,435.7 532.0
Net earnings/(loss) attributable to noncontrolling interests 0.8 0.3 0.8 ( 3.7 )
Net earnings/(loss) attributable to Starbucks $ 1,153.4 $ ( 678.4 ) $ 2,434.9 $ 535.7
Earnings/(loss) per share - basic $ 0.98 $ ( 0.58 ) $ 2.07 $ 0.46
Earnings/(loss) per share - diluted $ 0.97 $ ( 0.58 ) $ 2.06 $ 0.45
Weighted average shares outstanding:
Basic 1,178.5 1,168.5 1,177.0 1,173.6
Diluted 1,186.2 1,168.5 1,184.7 1,182.7
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, unaudited)
Quarter Ended Three Quarters Ended
Jun 27,
2021 Jun 28,
2020 Jun 27,
2021 Jun 28,
2020
Net earnings/(loss) including noncontrolling interests $ 1,154.2 $ ( 678.1 ) $ 2,435.7 $ 532.0
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) on available-for-sale debt securities ( 0.1 ) 5.1 ( 3.1 ) 8.2
Tax (expense)/benefit — ( 1.1 ) 0.6 ( 1.8 )
Unrealized gains/(losses) on cash flow hedging instruments 34.0 ( 28.6 ) 138.9 ( 124.1 )
Tax (expense)/benefit ( 1.1 ) 6.3 ( 27.9 ) 30.9
Unrealized gains/(losses) on net investment hedging instruments 32.4 ( 24.6 ) 49.9 56.7
Tax (expense)/benefit ( 8.2 ) 6.2 ( 12.7 ) ( 14.4 )
Translation adjustment and other 40.2 29.0 195.5 25.2
Tax (expense)/benefit — — 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 ( 1.6 ) ( 0.9 ) ( 13.1 ) ( 18.0 )
Tax expense/(benefit) 1.0 0.5 4.6 4.4
Other comprehensive income/(loss) 96.6 ( 8.1 ) 334.9 ( 31.4 )
Comprehensive income/(loss) including noncontrolling interests 1,250.8 ( 686.2 ) 2,770.6 500.6
Comprehensive income/(loss) attributable to noncontrolling interests 0.8 0.3 0.8 ( 3.7 )
Comprehensive income/(loss) attributable to Starbucks $ 1,250.0 $ ( 686.5 ) $ 2,769.8 $ 504.3
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
Jun 27,
2021 Sep 27,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 4,753.1 $ 4,350.9
Short-term investments 153.6 281.2
Accounts receivable, net 911.2 883.4
Inventories 1,548.2 1,551.4
Prepaid expenses and other current assets 565.6 739.5
Total current assets 7,931.7 7,806.4
Long-term investments 285.9 206.1
Equity investments 535.3 478.7
Property, plant and equipment, net 6,151.4 6,241.4
Operating lease, right-of-use asset 8,065.2 8,134.1
Deferred income taxes, net 1,851.0 1,789.9
Other long-term assets 586.3 568.6
Other intangible assets 398.0 552.1
Goodwill 3,672.0 3,597.2
TOTAL ASSETS $ 29,476.8 $ 29,374.5
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable $ 1,127.0 $ 997.9
Accrued liabilities 1,791.4 1,160.7
Accrued payroll and benefits 741.0 696.0
Income taxes payable 204.8 98.2
Current portion of operating lease liability 1,308.4 1,248.8
Stored value card liability and current portion of deferred revenue 1,628.3 1,456.5
Short-term debt — 438.8
Current portion of long-term debt 998.9 1,249.9
Total current liabilities 7,799.8 7,346.8
Long-term debt 13,619.2 14,659.6
Operating lease liability 7,597.8 7,661.7
Deferred revenue 6,491.4 6,598.5
Other long-term liabilities 762.9 907.3
Total liabilities 36,271.1 37,173.9
Shareholders' deficit:
Common stock ($ 0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,179.0 and 1,173.3 shares, respectively
1.2 1.2
Additional paid-in capital 729.3 373.9
Retained deficit ( 7,501.6 ) ( 7,815.6 )
Accumulated other comprehensive loss ( 29.7 ) ( 364.6 )
Total shareholders’ deficit ( 6,800.8 ) ( 7,805.1 )
Noncontrolling interests 6.5 5.7
Total deficit ( 6,794.3 ) ( 7,799.4 )
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 29,476.8 $ 29,374.5
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
Three Quarters Ended
Jun 27,
2021 Jun 28,
2020
OPERATING ACTIVITIES:
Net earnings including noncontrolling interests $ 2,435.7 $ 532.0
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 1,146.2 1,124.0
Deferred income taxes, net ( 113.2 ) 20.0
Income earned from equity method investees ( 238.3 ) ( 182.3 )
Distributions received from equity method investees 226.7 165.6
Stock-based compensation 255.3 188.0
Non-cash lease costs 931.7 902.4
Loss on retirement and impairment of assets 204.7 124.6
Other ( 6.8 ) 63.7
Cash provided by/(used in) changes in operating assets and liabilities:
Accounts receivable ( 13.1 ) 13.4
Inventories 8.4 ( 51.7 )
Prepaid expenses and other current assets 216.8 ( 492.1 )
Income taxes payable 128.9 ( 1,224.5 )
Accounts payable 108.2 ( 320.3 )
Deferred revenue 52.4 92.0
Operating lease liability ( 1,029.8 ) ( 918.2 )
Other operating assets and liabilities 154.6 70.5
Net cash provided by operating activities 4,468.4 107.1
INVESTING ACTIVITIES:
Purchases of investments ( 367.3 ) ( 297.4 )
Sales of investments 130.4 133.5
Maturities and calls of investments 298.7 10.0
Additions to property, plant and equipment ( 985.7 ) ( 1,138.4 )
Other ( 62.3 ) ( 39.4 )
Net cash used in investing activities ( 986.2 ) ( 1,331.7 )
FINANCING ACTIVITIES:
Repayments of commercial paper ( 296.5 ) —
Net proceeds from issuance of short-term debt 215.6 1,157.2
Repayments of short-term debt ( 346.2 ) ( 220.7 )
Proceeds from issuance of long-term debt — 4,727.6
Repayments of long-term debt ( 1,250.0 ) —
Proceeds from issuance of common stock 191.6 98.9
Cash dividends paid ( 1,588.2 ) ( 1,444.2 )
Repurchase of common stock — ( 1,698.9 )
Minimum tax withholdings on share-based awards ( 94.2 ) ( 89.1 )
Other — ( 37.8 )
Net cash provided by/(used in) financing activities ( 3,167.9 ) 2,493.0
Effect of exchange rate changes on cash and cash equivalents 87.9 10.9
Net increase in cash and cash equivalents 402.2 1,279.3
CASH AND CASH EQUIVALENTS:
Beginning of period 4,350.9 2,686.6
End of period $ 4,753.1 $ 3,965.9
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of capitalized interest $ 373.6 $ 274.3
Income taxes $ 407.9 $ 1,691.1
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
For the Quarters Ended June 27, 2021 and June 28, 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, March 28, 2021
1,177.9 $ 1.2 $ 595.4 $ ( 8,124.3 ) $ ( 126.3 ) $ ( 7,654.0 ) $ 5.7 $ ( 7,648.3 )
Net earnings — — — 1,153.4 — 1,153.4 0.8 1,154.2
Other comprehensive income/(loss) — — — — 96.6 96.6 — 96.6
Stock-based compensation expense — — 80.9 — — 80.9 — 80.9
Exercise of stock options/vesting of RSUs 1.0 — 41.7 — — 41.7 — 41.7
Sale of common stock 0.1 — 11.3 — — 11.3 — 11.3
Cash dividends declared, $ 0.45 per share
— — — ( 530.7 ) — ( 530.7 ) — ( 530.7 )
Balance, June 27, 2021
1,179.0 $ 1.2 $ 729.3 $ ( 7,501.6 ) $ ( 29.7 ) $ ( 6,800.8 ) $ 6.5 $ ( 6,794.3 )
Balance, March 29, 2020
1,168.1 $ 1.2 $ 41.1 $ ( 7,050.6 ) $ ( 521.8 ) $ ( 7,530.1 ) $ ( 2.8 ) $ ( 7,532.9 )
Net earnings/(loss) — — — ( 678.4 ) — ( 678.4 ) 0.3 ( 678.1 )
Other comprehensive income/(loss) — — — — ( 8.1 ) ( 8.1 ) — ( 8.1 )
Stock-based compensation expense — — 42.3 — — 42.3 — 42.3
Exercise of stock options/vesting of RSUs 0.6 — 22.2 — — 22.2 — 22.2
Sale of common stock 0.2 — 9.8 — — 9.8 — 9.8
Cash dividends declared, $ 0.41 per share
— — — ( 479.3 ) — ( 479.3 ) ( 0.2 ) ( 479.5 )
Balance, June 28, 2020
1,168.9 $ 1.2 $ 115.4 $ ( 8,208.3 ) $ ( 529.9 ) $ ( 8,621.6 ) $ ( 2.7 ) $ ( 8,624.3 )
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Quarters Ended June 27, 2021 and June 28, 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 — — — 2,434.9 — 2,434.9 0.8 2,435.7
Other comprehensive income/(loss) — — — — 334.9 334.9 — 334.9
Stock-based compensation expense — — 258.1 — — 258.1 — 258.1
Exercise of stock options/vesting of RSUs 5.4 — 65.7 — — 65.7 — 65.7
Sale of common stock 0.3 — 31.6 — — 31.6 — 31.6
Cash dividends declared, $ 1.80 per share
— — — ( 2,118.7 ) — ( 2,118.7 ) — ( 2,118.7 )
Balance, June 27, 2021
1,179.0 $ 1.2 $ 729.3 $ ( 7,501.6 ) $ ( 29.7 ) $ ( 6,800.8 ) $ 6.5 $ ( 6,794.3 )
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) — — — 535.7 — 535.7 ( 3.7 ) 532.0
Other comprehensive income/(loss) — — — — ( 31.4 ) ( 31.4 ) — ( 31.4 )
Stock-based compensation expense — — 190.7 — — 190.7 — 190.7
Exercise of stock options/vesting of RSUs 4.2 — ( 18.3 ) — — ( 18.3 ) — ( 18.3 )
Sale of common stock 0.4 — 28.3 — — 28.3 — 28.3
Repurchase of common stock ( 20.3 ) — ( 126.4 ) ( 1,548.6 ) — ( 1,675.0 ) — ( 1,675.0 )
Cash dividends declared, $ 1.23 per share
— — — ( 1,436.7 ) — ( 1,436.7 ) ( 0.2 ) ( 1,436.9 )
Balance, June 28, 2020
1,168.9 $ 1.2 $ 115.4 $ ( 8,208.3 ) $ ( 529.9 ) $ ( 8,621.6 ) $ ( 2.7 ) $ ( 8,624.3 )
See Notes to Consolidated Financial Statements.
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STARBUCKS CORPORATION
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
10
Note 2 Derivative Financial Instruments
12
Note 3 Fair Value Measurements
17
Note 4 Inventories
19
Note 5 Supplemental Balance Sheet and Statement of Earnings Information
19
Note 6 Other Intangible Assets and Goodwill
20
Note 7 Debt
21
Note 8 Leases
23
Note 9 Deferred Revenue
24
Note 10 Equity
26
Note 11 Employee Stock Plans
27
Note 12 Income Taxes
28
Note 13 Earnings/(Loss) per Share
28
Note 14 Commitments and Contingencies
28
Note 15 Segment Reporting
29
Note 16 Subsequent Event
30
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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 June 27, 2021, and for the quarter and three quarters ended June 27, 2021 and June 28, 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 three quarters ended June 27, 2021 and June 28, 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.”
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 three quarters ended June 27, 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 COVID-19 pandemic, 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 demonstrated powerful momentum beyond recovery from the COVID-19 pandemic, despite certain markets in our International segment continuing to experience pandemic-related restrictions during the quarter. As of the end of the third quarter of fiscal 2021, nearly all our company-operated and licensed stores had re-opened.
Segment Update
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Effective June 28, 2021, certain changes were made to our management team, and our operating segment reporting structure was re-aligned in the fourth quarter of fiscal 2021 as a result. Specifically, we realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment. Additionally, we renamed the Americas operating segment to the North America operating segment, since it is comprised of our company-operated and licensed stores in the U.S. and Canada. The financial information presented herein does not reflect this realignment as these changes were not effective until the fourth quarter of fiscal 2021 and our ceo, who is our Chief Operating Decision Maker, continued to manage the business under the existing segment structure through the end of the third quarter of fiscal 2021.
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 pandemic 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 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 three quarters ended June 27, 2021, qualified payroll and other credits reduced our store operating expenses by $ 56.4 million and $ 173.7 million, respectively, on our consolidated statements of earnings. During the quarter and three quarters ended June 28, 2020, the qualified payroll credits reduced our store operating expenses by $ 266.0 million and $ 301.0 million on our consolidated statements of earnings, respectively. After netting the qualified credits against our payable, a receivable of $ 161.7 million and $ 155.1 million was included in prepaid expenses and other current assets as of June 27, 2021 and September 27, 2020, respectively. During the three quarters ended June 27, 2021, we deferred $ 81.7 million of qualified payroll tax payments. During the quarter ended June 27, 2021, there were no similar deferrals. As of June 27, 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. 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.
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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 June 27, 2021, we expect the total number of closures to be approximately 820 stores in the U.S. and Canada and have closed or identified for closure approximately 790 stores under our restructuring plan. As a result, we recorded approximately $ 19.8 million and $ 115.0 million to restructuring and impairments on our consolidated statements of earnings during the quarter and three quarters ended June 27, 2021, respectively. Of these totals, $ 7.8 million and $ 59.0 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 three quarters ended June 27, 2021, an additional $ 12.2 million and $ 56.2 million, respectively, were associated with accelerated amortization of right-of-use (“ROU”) lease assets and other lease costs 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 charges given that we plan to fully exit the majority of these identified stores over the next 6 to 12 months.
As of June 27, 2021, we expect total future restructuring costs, which are attributable to our Americas segment, to be approximately $ 20 million to $ 30 million. These restructuring costs primarily include accelerated amortization 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 as well as 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 during 2021 as stores are 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.
Restructuring-related accrued employee termination costs included in accrued payroll and benefits on the consolidated balance sheets were $ 1.8 million and $ 15.2 million as of June 27, 2021 and September 27, 2020, respectively. Additionally, other accrued restructuring costs included in accrued liabilities on the consolidated balance sheets were $ 8.7 million as of June 27, 2021. There were no other accrued restructuring costs outstanding as of September 27, 2020. Cash payments relating to these liabilities were immaterial for the quarter and three quarters ended June 27, 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.
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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 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. There were no significant cash flow hedge de-designations in fiscal 2021. During the second and third quarters of fiscal 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.
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.
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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)
Jun 27, 2021 Sep 27, 2020
Cash Flow Hedges:
Coffee $ 73.0 $ ( 2.5 ) $ 35.7 9
Cross-currency swaps 4.9 5.2 — 41
Dairy ( 1.4 ) 0.5 ( 1.4 ) 8
Foreign currency - other ( 11.7 ) 5.3 ( 7.3 ) 34
Interest rates ( 35.5 ) ( 90.6 ) ( 1.3 ) 136
Net Investment Hedges:
Cross-currency swaps 32.8 32.6 — 99
Foreign currency 16.0 16.0 — 0
Foreign currency debt ( 7.5 ) ( 37.1 ) — 33
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Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in other comprehensive income (“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)
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Cash Flow Hedges:
Coffee $ 62.8 $ ( 13.2 ) $ ( 2.5 ) $ — Product and distribution costs
Cross-currency swaps 3.1 ( 1.0 ) 0.2 1.5 Interest expense
3.4 ( 6.9 ) Interest income and other, net
Dairy ( 1.7 ) 8.6 0.5 4.1 Product and distribution costs
— ( 1.1 ) Interest income and other, net (1)
Foreign currency - other ( 5.1 ) ( 14.5 ) — — Licensed stores revenues
( 3.1 ) ( 5.0 ) Product and distribution costs
— 3.9 Interest income and other, net (1)
Interest rates ( 25.1 ) ( 8.5 ) ( 0.3 ) ( 0.7 ) Interest expense
— — Interest income and other, net
Net Investment Hedges:
Cross-currency swaps 20.6 ( 7.3 ) 3.3 2.9 Interest expense
Foreign currency debt 11.8 ( 17.3 ) — —
(1) As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the quarter ended June 28, 2020.
Three Quarters Ended
Gains/(Losses) Recognized in
OCI Before Reclassifications Gains/(Losses) Reclassified from
AOCI to Earnings Location of gain/(loss)
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Cash Flow Hedges:
Coffee 80.5 ( 14.3 ) ( 5.2 ) — Product and distribution costs
Cross-currency swaps 13.5 8.1 1.8 0.9 Interest expense
12.1 ( 1.1 ) Interest income and other, net
Dairy ( 0.1 ) 3.6 2.5 4.8 Product and distribution costs
— ( 1.7 ) Interest income and other, net (1)
Foreign currency - other ( 23.9 ) 7.6 0.2 4.0 Licensed stores revenues
( 5.0 ) ( 7.7 ) Product and distribution costs
— 6.1 Interest income and other, net (1)
Interest rates 68.9 ( 129.1 ) ( 1.4 ) 0.6 Interest expense
( 3.6 ) — Interest income and other, net
Net Investment Hedges:
Cross-currency swaps 10.2 61.4 9.9 10.1 Interest expense
Foreign currency debt 39.7 ( 4.7 ) — —
(1) As a result of the global COVID-19 impacts, Starbucks discontinued cash flow hedges during the quarters ended March 29, 2020 and June 28, 2020.
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Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings ( in millions ):
Gains/(Losses) Recognized in Earnings
Location of gain/(loss) recognized in earnings Quarter Ended Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Non-Designated Derivatives:
Dairy Interest income and other, net $ — $ ( 1.7 ) $ — $ ( 1.6 )
Diesel fuel and other commodities Interest income and other, net 0.7 ( 0.8 ) 2.7 ( 8.7 )
Foreign currency - other Interest income and other, net 4.5 ( 5.0 ) 2.8 3.3
Fair Value Hedges:
Interest rate swap Interest expense ( 0.3 ) 3.9 ( 1.4 ) 28.3
Long-term debt (hedged item) Interest expense 3.6 ( 3.1 ) 11.3 ( 26.4 )
Notional amounts of outstanding derivative contracts (in millions) :
Jun 27, 2021 Sep 27, 2020
Coffee $ 463 $ 63
Cross-currency swaps 822 870
Dairy 39 61
Diesel fuel and other commodities 13 5
Foreign currency - other 1,129 1,140
Interest rate swap 1,750 1,750
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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 Jun 27, 2021 Sep 27, 2020
Designated Derivative Instruments:
Coffee Prepaid expenses and other current assets $ 63.0 $ 2.6
Cross-currency swaps Other long-term assets 48.0 37.7
Dairy Prepaid expenses and other current assets 0.3 2.1
Foreign currency - other Prepaid expenses and other current assets 7.2 8.6
Other long-term assets 5.1 3.8
Interest rates Other long-term assets 2.9 —
Interest rate swap Other long-term assets 27.6 45.8
Non-designated Derivative Instruments:
Dairy Prepaid expenses and other current assets 0.1 —
Diesel fuel and other commodities Prepaid expenses and other current assets 0.5 —
Foreign currency Prepaid expenses and other current assets 5.7 2.3
Derivative Liabilities
Balance Sheet Location Jun 27, 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 3.7 7.3
Dairy Accrued liabilities 2.1 1.4
Foreign currency - other Accrued liabilities 14.5 1.6
Other long-term liabilities 9.5 2.6
Interest rates Other long-term liabilities 3.3 69.3
Non-designated Derivative Instruments:
Dairy Accrued liabilities 0.3 —
Diesel fuel and other commodities Accrued liabilities — 1.7
Foreign currency Accrued liabilities 0.7 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
Jun 27, 2021 Sep 27, 2020 Jun 27, 2021 Sep 27, 2020
Location on the balance sheet
Long-term debt $ 774.4 $ 785.6 $ 24.4 $ 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.
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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
June 27, 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 $ 4,753.1 $ 4,753.1 $ — $ —
Short-term investments:
Available-for-sale debt securities
Commercial paper 57.0 — 57.0 —
Corporate debt securities 22.1 — 22.1 —
Total available-for-sale debt securities 79.1 — 79.1 —
Marketable equity securities 74.5 74.5 — —
Total short-term investments 153.6 74.5 79.1 —
Prepaid expenses and other current assets:
Derivative assets 76.8 63.2 13.6 —
Long-term investments:
Available-for-sale debt securities
Auction rate securities 5.8 — — 5.8
Corporate debt securities 164.0 — 164.0 —
Foreign government obligations 4.0 — 4.0 —
Mortgage and other asset-backed securities 25.1 — 25.1 —
State and local government obligations 1.5 — 1.5 —
U.S. government treasury securities 85.5 85.5 — —
Total long-term investments 285.9 85.5 194.6 5.8
Other long-term assets:
Derivative assets 83.6 — 83.6 —
Total assets $ 5,353.0 $ 4,976.3 $ 370.9 $ 5.8
Liabilities:
Accrued liabilities:
Derivative liabilities $ 17.6 $ 1.1 $ 16.5 $ —
Other long-term liabilities:
Derivative liabilities 16.5 — 16.5 —
Total liabilities $ 34.1 $ 1.1 $ 33.0 $ —
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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 June 27, 2021 and September 27, 2020.
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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 fiscal third quarter, 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 three quarters ended June 27, 2021 and June 28, 2020.
Note 4: Inventories (in millions) :
Jun 27, 2021 Sep 27, 2020
Coffee:
Unroasted $ 709.5 $ 664.7
Roasted 211.0 223.5
Other merchandise held for sale 268.4 293.9
Packaging and other supplies 359.3 369.3
Total $ 1,548.2 $ 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 June 27, 2021, we had committed to purchasing green coffee totaling $ 517 million under fixed-price contracts and an estimated $ 834 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 three quarters ended ended June 27, 2021.
Note 5: Supplemental Balance Sheet and Statement of Earnings Information (in millions) :
Prepaid Expenses and Other Current Assets
Jun 27, 2021 Sep 27, 2020
Income tax receivable $ 67.9 $ 356.9
Government subsidies receivable 161.7 155.1
Other prepaid expenses and current assets 336.0 227.5
Total prepaid expenses and current assets $ 565.6 $ 739.5
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Property, Plant and Equipment, net
Jun 27, 2021 Sep 27, 2020
Land $ 46.2 $ 46.0
Buildings 588.0 586.8
Leasehold improvements 8,402.4 8,262.6
Store equipment 2,854.1 2,800.3
Roasting equipment 844.3 796.6
Furniture, fixtures and other 1,340.5 1,285.7
Work in progress 397.0 377.3
Property, plant and equipment, gross 14,472.5 14,155.3
Accumulated depreciation ( 8,321.1 ) ( 7,913.9 )
Property, plant and equipment, net $ 6,151.4 $ 6,241.4
Accrued Liabilities
Jun 27, 2021 Sep 27, 2020
Accrued occupancy costs $ 80.6 $ 76.9
Accrued dividends payable 530.7 —
Accrued capital and other operating expenditures 767.7 677.2
Self-insurance reserves 222.6 243.9
Accrued business taxes 189.8 162.7
Total accrued liabilities $ 1,791.4 $ 1,160.7
Store Operating Expenses
Quarter Ended Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Wages and benefits $ 1,750.7 $ 1,477.7 $ 5,021.8 $ 4,683.7
Occupancy costs 628.7 555.5 1,883.0 1,768.1
Other expenses 587.5 504.6 1,752.8 1,628.9
Total store operating expenses $ 2,966.9 $ 2,537.8 $ 8,657.6 $ 8,080.7
Note 6: Other Intangible Assets and Goodwill
Indefinite-Lived Intangible Assets
(in millions) Jun 27, 2021 Sep 27, 2020
Trade names, trademarks and patents $ 96.0 $ 95.0
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Finite-Lived Intangible Assets
Jun 27, 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 $ 1,144.0 $ ( 932.6 ) $ 211.4 $ 1,116.1 $ ( 765.0 ) $ 351.1
Acquired trade secrets and processes 27.6 ( 24.1 ) 3.5 27.6 ( 22.0 ) 5.6
Trade names, trademarks and patents 125.8 ( 47.0 ) 78.8 124.8 ( 32.1 ) 92.7
Licensing agreements 14.6 ( 8.9 ) 5.7 16.6 ( 15.0 ) 1.6
Other finite-lived intangible assets 23.9 ( 21.3 ) 2.6 22.8 ( 16.7 ) 6.1
Total finite-lived intangible assets $ 1,335.9 $ ( 1,033.9 ) $ 302.0 $ 1,307.9 $ ( 850.8 ) $ 457.1
Amortization expense for finite-lived intangible assets was $ 50.0 million and $ 173.4 million for the quarter and three quarters ended June 27, 2021, respectively, and $ 55.9 million and $ 164.5 million for the quarter and three quarters ended June 28, 2020, respectively. During the third quarter of fiscal 2020, we recorded a charge of $ 22.1 million to restructuring and impairments on our consolidated statement of earnings related to changes in branding and marketing strategy.
Estimated future amortization expense as of June 27, 2021 ( in millions ):
Fiscal Year Total
2021 (excluding the three quarters ended June 27, 2021)
$ 49.7
2022 193.5
2023 20.9
2024 20.3
2025 14.5
Thereafter 3.1
Total estimated future amortization expense $ 302.0
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)
2.2 72.5 — 0.1 74.8
Goodwill balance at June 27, 2021
$ 498.7 $ 3,137.5 $ 34.7 $ 1.1 $ 3,672.0
(1) “Other” consists of changes in the goodwill balance resulting from foreign currency translation.
During the third quarter of fiscal 2021, 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.
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 June 27, 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:
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• A ¥ 5 billion, or $ 45.1 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 %.
• A ¥ 10 billion, or $ 90.2 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 June 27, 2021, we had no 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) :
Jun 27, 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 500.0 504.6 500.0 506.5 1.300 % 1.334 %
June 2022 notes 500.0 510.1 500.0 517.5 2.700 % 2.819 %
March 2023 notes 1,000.0 1,043.1 1,000.0 1,058.8 3.100 % 3.107 %
October 2023 notes (3)
750.0 801.0 750.0 817.5 3.850 % 2.859 %
March 2024 notes (4)
766.7 768.0 806.4 794.4 0.372 % 0.462 %
August 2025 notes 1,250.0 1,382.7 1,250.0 1,414.5 3.800 % 3.721 %
June 2026 notes 500.0 526.6 500.0 542.6 2.450 % 2.511 %
March 2027 notes 500.0 513.9 500.0 528.9 2.000 % 2.058 %
March 2028 notes 600.0 670.0 600.0 679.5 3.500 % 3.529 %
November 2028 notes 750.0 862.7 750.0 886.0 4.000 % 3.958 %
August 2029 notes 1,000.0 1,115.5 1,000.0 1,147.1 3.550 % 3.840 %
March 2030 notes 750.0 757.0 750.0 778.0 2.250 % 3.084 %
November 2030 notes 1,250.0 1,295.1 1,250.0 1,325.9 2.550 % 2.582 %
June 2045 notes 350.0 410.0 350.0 412.4 4.300 % 4.348 %
December 2047 notes 500.0 550.2 500.0 546.6 3.750 % 3.765 %
November 2048 notes 1,000.0 1,237.5 1,000.0 1,222.8 4.500 % 4.504 %
August 2049 notes 1,000.0 1,236.1 1,000.0 1,215.5 4.450 % 4.447 %
March 2050 notes 500.0 517.7 500.0 517.1 3.350 % 3.362 %
November 2050 notes 1,250.0 1,328.0 1,250.0 1,332.2 3.500 % 3.528 %
Total 14,716.7 16,029.8 16,006.4 17,498.7
Aggregate debt issuance costs and unamortized premium/(discount), net ( 123.0 ) ( 132.5 )
Hedge accounting fair value adjustment (3)
24.4 35.6
Total $ 14,618.1 $ 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.
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The following table summarizes our long-term debt maturities as of June 27, 2021 by fiscal year ( in millions ):
Fiscal Year Total
2021 $ —
2022 1,000.0
2023 1,000.0
2024 1,516.7
2025 1,250.0
Thereafter 9,950.0
Total $ 14,716.7
Note 8: Leases
For the quarter and three quarters ended June 27, 2021, we recognized accelerated amortization of ROU lease assets and other lease costs of $ 12.2 million and $ 56.2 million, respectively, which were recognized within restructuring and impairments on the consolidated statements of earnings. For the quarter and three quarters ended June 28, 2020, we recognized accelerated amortization of ROU lease assets and other lease costs of $ 13.4 million and $ 17.0 million, respectively, and an immaterial ROU asset impairment charge, which were recorded within restructuring and impairments on the consolidated statements of earnings.
The components of lease costs (in millions) :
Quarter Ended Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Operating lease costs (1)
$ 386.9 $ 363.3 $ 1,185.6 $ 1,113.9
Variable lease costs 224.6 184.3 671.3 610.2
Short-term lease costs 7.4 8.1 23.7 24.7
Total lease costs $ 618.9 $ 555.7 $ 1,880.6 $ 1,748.8
(1) Operating lease costs were net of immaterial amounts of sublease income. For the quarter and three quarters ended June 27, 2021, operating lease costs were also net of immaterial amounts of rent concessions. For the quarter and three quarters ended June 28, 2020, we received $ 21.7 million in rent concessions, which was recorded as a reduction to store operating expenses on our consolidated statement of earnings.
The following table includes supplemental information (in millions) :
Three Quarters Ended
Jun 27, 2021 Jun 28, 2020
Cash paid related to operating lease liabilities $ 1,200.6 $ 1,089.4
Operating lease liabilities arising from obtaining ROU assets 1,030.7 770.4
Jun 27, 2021 Jun 28, 2020
Weighted-average remaining operating lease term 8.6 years 8.9 years
Weighted-average operating lease discount rate 2.5 % 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 June 27, 2021.
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Minimum future maturities of operating lease liabilities (in millions) :
Fiscal Year Total
2021 (excluding the three quarters ended June 27, 2021)
$ 392.7
2022 1,533.3
2023 1,388.0
2024 1,251.2
2025 1,101.4
Thereafter 4,366.0
Total lease payments 10,032.6
Less imputed interest ( 1,126.4 )
Total $ 8,906.2
As of June 27, 2021, we have entered into operating leases that have not yet commenced of $ 846.7 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 June 27, 2021, the current and long-term deferred revenue related to Nestlé was $ 177.9 million and $ 6.4 billion, respectively. During the quarter and three quarters ended June 27, 2021, we recognized $ 44.2 million and $ 132.5 million of prepaid royalty revenue related to Nestlé, respectively. During the quarter and three quarters ended June 28, 2020, we recognized $ 44.2 million and $ 132.6 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 June 27, 2021
Total
Stored value cards and loyalty program at March 28, 2021
$ 1,475.2
Revenue deferred - card activations, card reloads and Stars earned 3,170.7
Revenue recognized - card and Stars redemptions and breakage ( 3,160.0 )
Other (1)
2.1
Stored value cards and loyalty program at June 27, 2021 (2)
$ 1,488.0
Quarter Ended June 28, 2020
Total
Stored value cards and loyalty program at March 29, 2020
$ 1,273.1
Revenue deferred - card activations, card reloads and Stars earned 1,875.4
Revenue recognized - card and Stars redemptions and breakage ( 1,842.4 )
Other (1)
3.1
Stored value cards and loyalty program at June 28, 2020 (2)
$ 1,309.2
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Three Quarters Ended June 27, 2021
Total
Stored value cards and loyalty program at September 27, 2020
$ 1,280.5
Revenue deferred - card activations, card reloads and Stars earned 9,317.8
Revenue recognized - card and Stars redemptions and breakage ( 9,118.0 )
Other (1)
7.7
Stored value cards and loyalty program at June 27, 2021 (2)
$ 1,488.0
Three Quarters Ended June 28, 2020
Total
Stored value cards and loyalty program at September 29, 2019
$ 1,113.7
Revenue deferred - card activations, card reloads and Stars earned 7,836.5
Revenue recognized - card and Stars redemptions and breakage ( 7,640.7 )
Other (1)
( 0.3 )
Stored value cards and loyalty program at June 28, 2020 (2)
$ 1,309.2
(1) “Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.
(2) As of June 27, 2021 and June 28, 2020, approximately $ 1,380.2 million and $ 1,226.4 million of these amounts were current, respectively.
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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
June 27, 2021
Net gains/(losses) in AOCI, beginning of period $ 2.0 $ ( 5.7 ) $ 19.6 $ ( 142.2 ) $ ( 126.3 )
Net gains/(losses) recognized in OCI before reclassifications ( 0.1 ) 32.9 24.2 40.2 97.2
Net (gains)/losses reclassified from AOCI to earnings ( 0.2 ) 2.1 ( 2.5 ) — ( 0.6 )
Other comprehensive income/(loss) attributable to Starbucks ( 0.3 ) 35.0 21.7 40.2 96.6
Net gains/(losses) in AOCI, end of period $ 1.7 $ 29.3 $ 41.3 $ ( 102.0 ) $ ( 29.7 )
June 28, 2020
Net gains/(losses) in AOCI, beginning of period $ 5.6 $ ( 64.8 ) $ 47.8 $ ( 510.4 ) $ ( 521.8 )
Net gains/(losses) recognized in OCI before reclassifications 4.0 ( 22.3 ) ( 18.4 ) 29.0 ( 7.7 )
Net (gains)/losses reclassified from AOCI to earnings ( 1.7 ) 3.4 ( 2.1 ) — ( 0.4 )
Other comprehensive income/(loss) attributable to Starbucks 2.3 ( 18.9 ) ( 20.5 ) 29.0 ( 8.1 )
Net gains/(losses) in AOCI, end of period $ 7.9 $ ( 83.7 ) $ 27.3 $ ( 481.4 ) $ ( 529.9 )
Three Quarters Ended Available-for-Sale Debt Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total
June 27, 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 ( 2.5 ) 111.0 37.2 197.7 343.4
Net (gains)/losses reclassified from AOCI to earnings ( 1.5 ) 0.4 ( 7.4 ) — ( 8.5 )
Other comprehensive income/(loss) attributable to Starbucks ( 4.0 ) 111.4 29.8 197.7 334.9
Net gains/(losses) in AOCI, end of period $ 1.7 $ 29.3 $ 41.3 $ ( 102.0 ) $ ( 29.7 )
June 28, 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 6.4 ( 93.2 ) 42.3 26.7 ( 17.8 )
Net (gains)/losses reclassified from AOCI to earnings ( 1.7 ) ( 4.5 ) ( 7.4 ) — ( 13.6 )
Other comprehensive income/(loss) attributable to Starbucks 4.7 ( 97.7 ) 34.9 26.7 ( 31.4 )
Cumulative effect of accounting adoption ( 0.7 ) 3.0 2.5 — 4.8
Net gains/(losses) in AOCI, end of period $ 7.9 $ ( 83.7 ) $ 27.3 $ ( 481.4 ) $ ( 529.9 )
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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
Jun 27, 2021 Jun 28, 2020
Gains/(losses) on available-for-sale debt securities $ 0.1 $ 2.2 Interest income and other, net
Gains/(losses) on cash flow hedges ( 1.8 ) ( 4.2 ) Please refer to Note 2 , Derivative Financial Instruments for additional information.
Gains/(losses) on net investment hedges 3.3 2.9 Interest expense
1.6 0.9 Total before tax
( 1.0 ) ( 0.5 ) Tax (expense)/benefit
$ 0.6 $ 0.4 Net of tax
Three Quarters Ended
AOCI
Components Amounts Reclassified from AOCI Affected Line Item in
the Statements of Earnings
Jun 27, 2021 Jun 28, 2020
Gains/(losses) on available-for-sale debt securities $ 1.8 $ 2.0 Interest income and other, net
Gains/(losses) on cash flow hedges 1.4 5.9 Please refer to Note 2 , Derivative Financial Instruments for additional information.
Gains/(losses) on net investment hedges 9.9 10.1 Interest expense
13.1 18.0 Total before tax
( 4.6 ) ( 4.4 ) Tax (expense)/benefit
$ 8.5 $ 13.6 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 June 27, 2021.
As of June 27, 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. We currently expect the suspension of share repurchases to continue for the remainder of fiscal 2021.
During the third quarter of fiscal 2021, our Board of Directors approved a quarterly cash dividend to shareholders of 0.45 per share to be paid on August 27, 2021 to shareholders of record as of the close of business on August 12, 2021.
Note 11: Employee Stock Plans
As of June 27, 2021, there were 40.7 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 11.6 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 Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Options $ 0.2 $ 1.4 $ 2.0 $ 3.8
Restricted Stock Units (“RSUs”) 79.8 40.0 253.3 184.2
Total stock-based compensation expense $ 80.0 $ 41.4 $ 255.3 $ 188.0
Stock option and RSU transactions from September 27, 2020 through June 27, 2021 ( in millions ):
Stock Options RSUs
Options outstanding/Nonvested RSUs, September 27, 2020
9.2 8.3
Granted — 4.0
Options exercised/RSUs vested ( 3.1 ) ( 3.1 )
Forfeited/expired ( 0.1 ) ( 1.2 )
Options outstanding/Nonvested RSUs, June 27, 2021
6.0 8.0
Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of June 27, 2021
$ 0.2 $ 200.3
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Note 12: Income Taxes
The effective tax rate for the quarter ended June 27, 2021 was 18.2 % compared to 16.5 % for the same quarter in fiscal 2020. The increase was primarily due to the foreign rate differential on our mix of earnings by tax jurisdiction, as well as a change in the absolute pre-tax operating results when compared to the same period of the prior year. This was partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 840 basis points), a current year remeasurement of deferred tax assets due to an enacted corporate rate change (approximately 510 basis points) and lapping the release of income tax reserves related to the expiration of statute of limitations in the prior year (approximately 330 basis points).
The effective tax rate for the first three quarters ended June 27, 2021 was 21.7 % compared to 26.3 % for the same period in fiscal 2020. The decrease was primarily due to lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 1,400 basis points) and a current year remeasurement of deferred tax assets due to an enacted corporate rate change (approximately 230 basis points). This was partially offset by the foreign rate differential on our mix of earnings by tax jurisdiction and lapping the release of income tax reserves related to the expiration of statute of limitations in the prior year.
Note 13: Earnings/(Loss) per Share
Calculation of net earnings/(loss) per common share — basic and diluted ( in millions, except earnings/(loss) per share ):
Quarter Ended Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Net earnings/(loss) attributable to Starbucks $ 1,153.4 $ ( 678.4 ) $ 2,434.9 $ 535.7
Weighted average common shares outstanding (for basic calculation) 1,178.5 1,168.5 1,177.0 1,173.6
Dilutive effect of outstanding common stock options and RSUs 7.7 — 7.7 9.1
Weighted average common and common equivalent shares outstanding (for diluted calculation) 1,186.2 1,168.5 1,184.7 1,182.7
Earnings/(loss) per share — basic $ 0.98 $ ( 0.58 ) $ 2.07 $ 0.46
Earnings/(loss) per share — diluted $ 0.97 $ ( 0.58 ) $ 2.06 $ 0.45
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. For the three months ended June 28, 2020, the Company had 8.1 million of outstanding stock options and unvested RSUs that could potentially dilute earnings per share in future periods that were excluded from the computation of diluted earnings per share because the effect would have been antidilutive given the net loss during the period. 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 June 27, 2021 and June 28, 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 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
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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 and its opening brief in the appeals process on April 9, 2021. After the grant of an extension, defendants have until August 9, 2021 to file their brief in response. 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 ( in millions ):
Quarter Ended Three Quarters Ended
Jun 27, 2021 Jun 28, 2020 Jun 27, 2021 Jun 28, 2020
Beverage (1)
$ 4,753.1 63 % $ 2,628.8 62 % $ 13,222.6 63 % $ 10,429.1 60 %
Food (2)
1,311.2 18 % 629.2 15 % 3,578.2 17 % 2,760.6 16 %
Other (3)
1,432.2 19 % 964.1 23 % 4,113.1 20 % 4,125.2 24 %
Total $ 7,496.5 100 % $ 4,222.1 100 % $ 20,913.9 100 % $ 17,314.9 100 %
(1) Beverage represents sales within our company-operated stores.
(2) Food includes sales within our company-operated stores.
(3) “Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, serveware, beverage-related ingredients and ready-to-drink beverages, among other items.
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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
June 27, 2021
Total net revenues $ 5,400.3 $ 1,658.4 $ 414.0 $ 23.8 $ 7,496.5
Depreciation and amortization expenses 188.9 129.7 0.2 35.5 354.3
Income from equity investees — 42.0 63.5 — 105.5
Operating income/(loss) 1,315.7 318.3 216.0 ( 361.3 ) 1,488.7
June 28, 2020
Total net revenues $ 2,805.5 $ 949.6 $ 447.3 $ 19.7 $ 4,222.1
Depreciation and amortization expenses 191.3 128.5 0.3 40.9 361.0
Income from equity investees — 17.4 51.0 — 68.4
Operating income/(loss) ( 404.9 ) ( 86.0 ) 124.2 ( 337.2 ) ( 703.9 )
Three Quarters Ended
Americas International Channel Development Corporate and Other Total
June 27, 2021
Total net revenues $ 14,768.1 $ 4,923.7 $ 1,155.3 $ 66.8 $ 20,913.9
Depreciation and amortization expenses 563.9 413.1 0.9 109.1 1,087.0
Income from equity investees — 95.0 170.3 — 265.3
Operating income/(loss) 3,034.4 844.6 569.3 ( 1,058.4 ) 3,389.9
June 28, 2020
Total net revenues $ 12,146.3 $ 3,655.3 $ 1,461.0 $ 52.3 $ 17,314.9
Depreciation and amortization expenses 571.9 385.2 0.9 110.3 1,068.3
Income from equity investees — 73.1 137.2 — 210.3
Operating income/(loss) 1,315.1 174.5 489.3 ( 975.5 ) 1,003.4
Note 16: Subsequent Event
On July 26, 2021 , we entered into agreements to sell our 50 % ownership in Starbucks Coffee Korea Co., Ltd. such that our in-market joint venture partner, E-Mart Inc., will acquire an additional 17.5 % interest and Apfin Investment Pte Ltd, an affiliate of GIC Private Limited, which is a Singapore sovereign wealth fund, will acquire the remaining 32.5 %. The sale will have a combined price of $ 1.175 billion. The transactions are subject to regulatory approval by the Korean government and are expected to close within the next 90 days . Upon close, the market will be transitioned to a fully licensed model, and we expect to recognize a combined material pre-tax gain on our consolidated statements of earnings.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.