What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-19 compared with 2020-11-12 · 300 added, 412 removed, 1094 unchanged (39% of the section changed)

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(in millions, except per share data)

Fiscal Year Ended Sep 27,

Fiscal Year Ended Oct 3,

Net revenues:

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Operating income 4,872.1 1,561.7 4,077.9

Gain resulting from acquisition of joint venture — — 1,376.4

Net gain resulting from divestiture of certain operations 864.5 — 622.8

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Net earnings including noncontrolling interests 4,200.3 924.7 3,594.6

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

Net earnings/(loss) attributable to noncontrolling interests 1.0 ( 3.6 ) ( 4.6 )

Net earnings attributable to Starbucks $ 4,199.3 $ 928.3 $ 3,599.2

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(in millions)

Fiscal Year Ended Sep 27,

Fiscal Year Ended Oct 3,

Net earnings including noncontrolling interests $ 4,200.3 $ 924.7 $ 3,594.6

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Tax (expense)/benefit 2.2 1.5 2.5

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments and translation adjustment ( 20.1 ) 1.3 24.7

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, translation adjustment and other 41.8 ( 20.1 ) 1.3

Tax expense/(benefit) ( 5.0 ) 5.2 1.6

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Retained deficit ( 6,315.7 ) ( 7,815.6 )

Accumulated other comprehensive loss ( 364.6 ) ( 503.3 )

Accumulated other comprehensive income/(loss) 147.2 ( 364.6 )

Total shareholders’ deficit ( 5,321.2 ) ( 7,805.1 )

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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)

$ 31,392.6 $ 29,374.5

See Notes to Consolidated Financial Statements.

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(in millions)

Fiscal Year Ended Sep 27,

Fiscal Year Ended Oct 3,

OPERATING ACTIVITIES:

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Distributions received from equity method investees 336.0 227.7 216.8

Gain resulting from acquisition of joint venture — — ( 1,376.4 )

Net gain resulting from divestiture of certain retail operations — ( 622.8 ) ( 499.2 )

Net gain resulting from divestiture of certain operations ( 864.5 ) — ( 622.8 )

Stock-based compensation 319.1 248.6 308.0

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Maturities and calls of investments 345.5 73.7 59.8

Acquisitions, net of cash acquired — — ( 1,311.3 )

Additions to property, plant and equipment ( 1,470.0 ) ( 1,483.6 ) ( 1,806.6 )

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FINANCING ACTIVITIES:

Repayments of commercial paper ( 296.5 ) — —

Proceeds from issuance of short-term debt 215.1 1,406.6 —

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Shares Amount

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

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

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

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

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

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

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

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

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Sale of common stock 0.4 — 42.4 — — 42.4 — 42.4

Repurchase of common stock ( 20.3 ) — ( 126.4 ) ( 1,548.6 ) — ( 1,675.0 ) — ( 1,675.0 )

Cash dividends declared, $ 2.29 per share

— — — ( 2,697.2 ) — ( 2,697.2 ) — ( 2,697.2 )

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

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

Balance, October 3, 2021 1,180.0 $ 1.2 $ 846.1 $ ( 6,315.7 ) $ 147.2 $ ( 5,321.2 ) $ 6.7 $ ( 5,314.5 )

See Notes to Consolidated Financial Statements.

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INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Summary of Significant Accounting Policies

Note 1 Summary of Significant Accounting Policies and Estimates

Note 2 Acquisitions, Divestitures and Strategic Alliance

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Note 17 Segment Reporting

Note 18 Selected Quarterly Financial Information (unaudited)

STARBUCKS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Summary of Significant Accounting Policies

Fiscal Years ended October 3, 2021, September 27, 2020 and September 29, 2019

Summary of Significant Accounting Policies and Estimates

Description of Business

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

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

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

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

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

In the fourth quarter of fiscal 2021, certain changes were made to our management team, and our operating segment reporting structure was realigned as a result.

We realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment.

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.

We also made certain other immaterial changes between our International operating segment and Corporate and Other.

Certain prior period information for our North America and International operating segments and our Corporate and Other reportable segment has been reclassified to conform to the current year presentation.

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

We have three reportable operating segments:

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

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

1) North America, which is inclusive of the U.S.

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

and 3) Channel Development.

Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other.

Additional details on the nature of our business and our reportable operating segments are included in Note 17 , Segment Reporting.

Principles of Consolidation

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Our fiscal year ends on the Sunday closest to September 30.

Fiscal 2020, 2019 and 2018 included 52 weeks.

Fiscal year 2021 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter.

Fiscal years 2020 and 2019 included 52 weeks.

Estimates and Assumptions

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

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

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

Restructuring

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

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

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

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

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

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

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

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

The remaining $ 15.4 million related to employee termination costs.

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

These restructuring costs include accelerated amortization or impairments of ROU assets due to

planned store closures prior to the end of contractual lease terms ($ 150 million to $ 190 million), store impairment and disposal costs not previously recorded as part of our ongoing store impairment process ($ 100 million to $ 190 million) and the remaining amount relates to employee termination costs.

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

These costs will depend on the asset carrying value and remaining lease term of the specific stores identified.

Future restructuring costs are expected to be incurred over the next 18 months as stores are specifically identified for closure or, in the case of lease exit costs, when the stores either cease operations or when a reduced lease term due to early termination is reasonably certain.

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

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

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

Cash payments were immaterial for fiscal 2020.

In fiscal 2020, we announced a restructuring 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 October 3, 2021, 807 stores in the U.S.

and Canada had been identified for closure, and substantially all were closed under the plan.

During fiscal years 2021 and 2020, we recorded approximately $ 155.4 million and $ 254.7 million, respectively, to restructuring and impairments on our consolidated statements of earnings.

These totals included $ 53.1 million and $ 151.0 million, respectively, related to disposal and impairment of company-operated store assets and $ 89.5 million and $ 87.7 million, respectively, primarily associated with accelerated amortization of ROU lease assets and other lease costs due to store closures prior to the end of contractual lease terms.

Company-operated store asset impairments were the result of either a triggering event that occurred where the assets were determined not to be recoverable or the store was permanently closed.

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 have closed substantially all of these identified stores.

As of October 3, 2021, we expect total future restructuring costs under this plan, which are attributable to our North America segment, to be immaterial.

Restructuring-related accrued employee termination costs included in accrued payroll and benefits on the consolidated balance sheets were immaterial as of October 3, 2021 and September 27, 2020.

Additionally on the consolidated balance sheets, other accrued restructuring costs included in accrued liabilities were immaterial as of October 3, 2021 and there were no other accrued restructuring costs outstanding as of September 27, 2020.

Cash payments relating to these liabilities were immaterial for the fiscal years ended October 3, 2021 and September 27, 2020.

Cash and Cash Equivalents

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Equity Investments

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

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

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

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

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

Cash collateral was immaterial as of September 29, 2019.

As of October 3, 2021 and September 27, 2020, cash collateral held under collateral security arrangements was $ 44.7 million and $ 34.9 million, respectively, and is included in other long-term liabilities on our consolidated balance sheets.

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

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Refer to Note 3 , Derivative Financial Instruments, and Note 5 , Inventories, for further discussion of our derivative instruments and green coffee purchase commitments.

Receivables, net of Allowance for Doubtful Accounts

Receivables, net of Allowance for Credit Losses

Our receivables are mainly comprised of receivables for product and equipment sales to and royalties from our licensees, as well as receivables from our Global Coffee Alliance and other Channel Development customers.

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

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

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

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

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

The primary indicators of the credit quality of our receivables are aging, payment history, economic sector information and outside credit monitoring, and are assessed on a quarterly basis.

Our credit loss exposure is mainly concentrated in our accounts receivable portfolio.

Our allowance for credit losses is calculated using a loss-rate method based on historical experience, current market conditions and reasonable forecasts.

We also assessed incremental risks due to COVID-19 on our licensees’ financial viability.

For the year ended October 3, 2021, we did not observe a significant deterioration of our receivable portfolio that required a significant increase in our allowance for credit losses.

As of October 3, 2021, our allowance for credit losses was $ 25.6 million.

As of September 27, 2020, prior to adoption of the new estimated credit losses methodology, our allowance for doubtful accounts was $ 27.1 million.

To assist certain international licensed partners with their business recovery from the impact of the COVID-19 pandemic, we provided payment extensions for their outstanding receivables to help them dedicate their capital to further develop stores and build the brand.

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

Normal royalty billings and collections resumed during the fourth quarter of fiscal 2020.

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

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

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

Inventories are stated at the lower of cost (primarily moving average cost) or net realizable value.

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Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method.

As of September 27, 2020 and September 29, 2019, inventory reserves were $ 48.4 million and $ 33.7 million , respectively.

As of October 3, 2021 and September 27, 2020, inventory reserves were $ 36.6 million and $ 48.4 million , respectively.

Property, Plant and Equipment

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

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

an asset are capitalized.

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

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

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

net earnings.

Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell.

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

We recognized net disposition charges of $ 84.9 million, $ 64.6 million and $ 32.8 million in fiscal 2020, 2019 and 2018, respectively.

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

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

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

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

We recognized net disposition and impairment charges of $ 153.1 million, $ 294.9 million and $ 108.0 million in fiscal 2021, 2020 and 2019, respectively.

Of the total net impairment and disposition charges, $ 53.1 million, $ 151.0 million and $ 7.3 million in fiscal 2021, 2020 and 2019, respectively, were restructuring related and recorded in restructuring and impairment expenses.

For fiscal 2021 and 2020, we evaluated COVID-19 business recovery trends and their estimated impacts on future revenue growth and profitability for assessing impairment of our company-operated retail store and related operating lease ROU assets.

As a result, we recorded $ 44.4 million and $ 59.6 million of impairment losses within store operating expenses on our consolidated statements of earnings during the years ended October 3, 2021 and September 27, 2020, respectively.

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

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

For operating leases, ROU assets are

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

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

For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method.

For finance leases, ROU assets are amortized on a straight-line basis over the

shorter of the useful life of the leased asset or the lease term.

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

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

During fiscal 2021, the COVID-19-related rent concessions we received for stores, primarily in our International segment, were immaterial.

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

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See Note 10 , Leases, for additional details.

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

Additionally, for the years ended October 3, 2021 and September 27, 2020, we recognized accelerated amortization of ROU lease assets and other lease costs of $ 89.5 million and $ 87.7 million, respectively, due to planned store closures prior to the end of contractual lease terms, which were recorded in restructuring and impairments on the consolidated statement of earnings.

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

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

We recorded no goodwill impairment during fiscal 2020.

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

We recorded no goodwill impairment during fiscal 2021 and fiscal 2020.

In fiscal 2019, we recorded goodwill impairment of $ 10.5 million.

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

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

There were no significant other intangible asset impairment charges recorded during fiscal 2021.

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

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

There were no significant other intangible asset impairments charges recorded during fiscal 2019.

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

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

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

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

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

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

Breakage is recognized as company-operated stores and licensed stores revenue within the consolidated statement of earnings.

For the fiscal years ended October 3, 2021, September 27, 2020 and September 29, 2019, we recognized breakage revenue of $ 164.5 million, $ 130.3 million and $ 125.1 million in company-operated store revenues, respectively, and $ 16.6 million, $ 14.3 million and $ 15.7 million in licensed store revenues, respectively.

Loyalty Program

Customers in the U.S., Canada and certain other countries who register their Starbucks Card are automatically enrolled in the Starbucks ® Rewards program, which is primarily a spend-based loyalty program.

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

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

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

Starbucks ® Rewards members can earn Stars by paying with cash, credit or debit cards, or selected mobile wallets at company-operated stores in the U.S.

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

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

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

Other Revenues

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Sales of these products are generally recognized upon shipment to customers, depending on contract terms.

Beginning in late fiscal 2018, other revenues also include product sales to and licensing revenue from Nestlé related to our Global Coffee Alliance.

Other revenues also include product sales to and licensing revenue from Nestlé related to our Global Coffee Alliance.

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

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

Deferred Revenues

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General and Administrative Expenses

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

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

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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.

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.

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

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

After netting the qualified U.S.

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

The qualified payroll credits reduced our store operating expenses by $ 210.0 million and $ 349.6 million on our consolidated statement of earnings during fiscal 2021 and 2020, respectively.

After netting the qualified credits against our payable, a receivable balance of $ 172.4 million and $ 155.1 million was included in prepaid expenses and other current assets as of October 3, 2021 and September 27, 2020, respectively.

During the year ended October 3, 2021, we deferred $ 81.7 million of qualified payroll tax payments.

As of October 3, 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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Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as a gain or loss in store operating expense on our consolidated statements of earnings.

As of September 27, 2020 and September 29, 2019, our net ARO assets included in property, plant and equipment were $ 30.7 million and $ 23.5 million, respectively, and our net ARO liabilities included in other long-term liabilities were $ 111.0 million and $ 95.5 million, respectively.

As of October 3, 2021 and September 27, 2020, our net ARO assets included in property, plant and equipment were $ 30.9 million and $ 30.7 million, respectively, and our net ARO liabilities included in other long-term liabilities were $ 116.5 million and $ 111.0 million, respectively.

Stock-based Compensation

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The fair value of RSUs is based on the closing price of Starbucks common stock on the award date, less the present value of expected dividends not received during the vesting period.

If applicable, our total shareholder return relative to our peer group is incorporated into the underlying assumptions used to calculate grant date fair value.

If applicable, our total shareholder return relative to our peer group is incorporated into the underlying assumptions using a Monte Carlo simulation valuation model to calculate grant date fair value.

Compensation expense is recognized over the requisite service period for each separately vesting portion of the award, and only for those awards expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations.

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

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

we expect the temporary differences to reverse.

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

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

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Common Stock Share Repurchases

We may repurchase shares of Starbucks common stock under a program authorized by our Board of Directors, including pursuant to a contract, instruction or written plan meeting the requirements of Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934.

Under applicable Washington State law, shares repurchased are retired and not displayed separately as treasury stock on the financial statements.

Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital and from retained earnings.

Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital and from retained earnings (deficit).

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In June 2016, the FASB issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected credit losses on financial assets, including receivables and available-for-sale securities.

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

The guidance 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

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

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

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

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

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

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

We expect to adopt the guidance and begin transitioning from

LIBOR to alternative reference rates in the first quarter of fiscal 2022.

We do not expect adoption and transition to alternative reference rates to have a material impact on our consolidated financial statements.

Acquisitions, Divestitures and Strategic Alliance

In the fourth quarter of fiscal 2021, we sold our 50 % ownership interest in Starbucks Coffee Korea Co., Ltd.

where our joint venture partner, E-Mart Inc., acquired an additional 17.5 % interest and Apfin Investment Pte Ltd, an affiliate of GIC Private Limited, which is a Singapore sovereign wealth fund, acquired the remaining 32.5 %.

The sale had a combined price of $ 1.175 billion.

This transaction resulted in a pre-tax gain of $ 864.5 million, which is included in net gain resulting from divestiture of certain operations on our consolidated statements of earnings.

In the third quarter of fiscal 2019, we sold our company-operated retail business in Thailand to Coffee Concepts Thailand, a joint-venture between Maxim's Caterers Limited and F&N Retail Connection Co.

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These transactions did not have a material impact on our consolidated financial statements.

We entered into an agreement on May 6, 2018 to establish the Global Coffee Alliance with Nestlé.

On August 26, 2018, Nestlé licensed the rights to market, sell and distribute Starbucks consumer packaged goods and foodservice products in authorized channels.

We received an up-front payment of approximately $ 7 billion consisting primarily of prepaid royalties which was recorded to current and long-term deferred revenue.

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

Also see Note 11 , Deferred Revenue.

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

This transaction did not have a material impact on our consolidated financial statements.

On December 31, 2017, we acquired the remaining 50 % interest of our East China joint venture (“East China”) from President Chain Store (Hong Kong) Holding Ltd.

and Kai Yu (BVI) collectively, “Uni-President Group” or “UPG”, for approximately $ 1.4 billion.

Approximately $ 90.5 million of pre-existing liabilities owed by East China to Starbucks were effectively settled upon the acquisition.

Acquiring the remaining interest of East China, which at the time operated over 1,400 stores in the Shanghai, Jiangsu and Zhejiang Provinces, built on the Company's ongoing investment in China.

The estimated fair values of the assets acquired and liabilities assumed are based on valuation and analysis performed by management.

Concurrently with the purchase of our East China joint venture, we sold our 50 % interest in President Starbucks Coffee Taiwan Limited, our joint venture operations in Taiwan, to UPG for approximately $ 181.2 million.

The transaction resulted in a pre-tax gain of $ 156.6 million which was included in net gain resulting from divestiture of certain operations on our consolidated statements of earnings.

The following table summarizes the preliminary allocation of the total consideration to the fair values of the assets acquired and liabilities assumed as of December 31, 2017 , which are reported within our International segment (in millions) :

Consideration:

Cash paid for UPG 50% equity interest $ 1,440.8

Fair value of our pre-existing 50% equity interest 1,440.8

Settlement of pre-existing liabilities 90.5

Total consideration $ 2,972.1

Fair value of assets acquired and liabilities assumed:

Cash and cash equivalents $ 129.5

Accounts receivable 14.3

Inventories 16.1

Prepaid expenses and other current assets 20.6

Property, plant and equipment 254.1

Other long-term assets 44.6

Other intangible assets 818.0

Goodwill 2,164.1

Total assets acquired $ 3,461.3

Accounts payable 34.7

Accrued liabilities 187.7

Stored value card liability 21.7

Other long-term liabilities 245.1

Total liabilities assumed 489.2

Total consideration $ 2,972.1

As a result of this acquisition, we remeasured the carrying value of our preexisting 50 % equity method investment to fair value, which resulted in a total gain of $ 1.4 billion that is not subject to income tax, and was presented as gain resulting from acquisition of joint venture on our consolidated statements of earnings.

The fair value of $ 1.4 billion was calculated using an income approach, which was based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy.

Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, as well as the selection of an appropriate discount rate.

Estimates of revenue growth and operating expenses were based on internal projections and considered the historical performance of stores, local market economics and the business environments impacting store performance.

The discount rate applied was based on East China's weighted-average cost of capital and included company-specific and size risk premiums.

The assets acquired and liabilities assumed are reported within our International segment.

Other current and long-term assets acquired primarily include lease deposits and prepaid rent.

Accrued liabilities and other long-term liabilities assumed primarily include deferred income tax, dividend payable, accrued payroll, income tax payable and accrued occupancy costs.

The definite-lived intangibles primarily relate to reacquired rights to operate stores exclusively in East China.

The reacquired rights of $ 798.0 million represent the fair value calculated over the remaining original contractual period and will be amortized on a straight-line basis through September 2022.

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

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

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

The entire balance was allocated to the International segment and is not deductible for income tax purposes.

Due to foreign currency translation, the balance of goodwill related to the acquisition decreased $ 102.8 million since the date of acquisition to $ 2.1 billion as of September 27, 2020.

We began consolidating East China's results of operations and cash flows into our consolidated financial statements after December 31, 2017.

For the year ended September 30, 2018, East China's revenue included in our consolidated statements of earnings was $ 903.0 million.

For the year ended September 30, 2018, East China's net earnings included in our consolidated statements of earnings was $ 73.1 million.

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

Revenue $ 24,990.4

Net earnings attributable to Starbucks 3,196.8

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

These pro forma results are unaudited and are not necessarily indicative of results of operations that would have occurred had the acquisition actually closed in the prior period or indicative of the results of operations for any future period.

During the year ended September 30, 2018, we incurred approximately $ 3.6 million of acquisition-related costs, such as regulatory, legal and advisory fees, which were recorded in general and administrative expenses.

In the first quarter of fiscal 2018, we sold the assets associated with our Tazo brand including Tazo ® signature recipes, intellectual property and inventory to Unilever for a total of $ 383.8 million.

The transaction resulted in a pre-tax gain of $ 347.9 million, which was included in the net gain from divestiture of certain operations on our consolidated statements of earnings.

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

Derivative Financial Instruments

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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.

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.

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

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

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

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.

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Interest rates 56.1 ( 126.1 ) ( 27.8 ) ( 1.8 ) — 4.7 Interest expense

( 3.6 ) — — Interest income and other, net

Net Investment Hedges:

Cross-currency swaps 20.5 56.8 — 13.4 13.3 — Interest expense

Foreign currency — — ( 0.1 ) — — —

Foreign currency debt 42.6 ( 18.1 ) ( 39.8 ) — — —

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

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

Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Non-Designated Derivatives:

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Notional amounts of outstanding derivative contracts (in millions) :

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Coffee $ 481 $ 63

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Derivative Assets

Balance Sheet Location Sep 27, 2020 Sep 29, 2019

Balance Sheet Location Oct 3, 2021 Sep 27, 2020

Designated Derivative Instruments:

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Other long-term assets 6.9 3.8

Interest rates Other long-term assets — 0.1

Interest rate swap Other long-term assets 22.7 45.8

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Derivative Liabilities

Balance Sheet Location Sep 27, 2020 Sep 29, 2019

Balance Sheet Location Oct 3, 2021 Sep 27, 2020

Designated Derivative Instruments:

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Non-designated Derivative Instruments:

Dairy Accrued liabilities 0.2 —

Diesel fuel and other commodities Accrued liabilities — 1.7

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

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

Oct 3, 2021 Sep 27, 2020 Oct 3, 2021 Sep 27, 2020

Location on the balance sheet

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Fair Value Measurements at Reporting Date Using

September 27, 2020 Quoted Prices

October 3, 2021 Quoted Prices

Identical Assets

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Available-for-sale debt securities

Certificates of deposit 1.6 — 1.6 —

Commercial paper 63.0 — 63.0 —

Corporate debt securities 24.7 — 24.7 —

Foreign government obligations 8.5 — 8.5 —

Mortgage and other asset-backed securities 0.1 — 0.1 —

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Corporate debt securities 162.0 — 162.0 —

Foreign government obligations 4.0 — 4.0 —

Mortgage and other asset-backed securities 31.9 — 31.9 —

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Available-for-sale debt securities

Certificates of deposit 1.6 — 1.6 —

Commercial paper 66.8 — 66.8 —

Corporate debt securities 123.6 — 123.6 —

Foreign government obligations 8.5 — 8.5 —

Mortgage and other asset-backed securities 15.8 — 15.8 —

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

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Available-for-sale Debt Securities

Long-term investments generally mature within 4 years.

Long-term in vestments generally mature within 4 years.

Proceeds from sales of securities were $ 134.1 million, $ 177.4 million and $ 291.1 million for fiscal 2021, 2020 and 2019, respectively.

Realized gains and losses were not material for fiscal 2021, 2020 and 2019.

Gross unrealized holding gains and losses were not material as of September 27, 2020 and September 29, 2019.

Gross unrealized holding gains and losses were not material as of October 3, 2021 and September 27, 2020.

Marketable Equity Securities

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Our marketable equity securities portfolio approximates a portion of our liability under our MDCP, a defined contribution plan.

Our MDCP liability was $ 91.4 million and $ 92.1 million as of September 27, 2020 and September 29, 2019, respectively.

Our MDCP liability was $ 105.2 million and $ 91.4 million as of October 3, 2021 and September 27, 2020, respectively.

The changes in net unrealized holding gains and losses in the marketable equity securities portfolio included in earnings for fiscal 2021, 2020 and 2019 were not material.

Gross unrealized holding gains and losses on marketable equity securities were not material as of September 27, 2020 and September 29, 2019.

Gross unrealized holding gains and losses on marketable equity securities were not material as of October 3, 2021 and September 27, 2020.

Derivative Assets and Liabilities

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

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

We have recognized impairments during fiscal 2021 and 2020 primarily related to our North America restructuring plan.

See Note 1 , Summary of Significant Accounting Policies, Note 10 , Leases and Note 8 , Other Intangible Assets and Goodwill for additional discussion of these impairments.

Fair Value of Other Financial Instruments

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Inventories (in millions)

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Unroasted $ 670.3 $ 664.7

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Inventory levels vary due to seasonality, commodity market supply and price fluctuations.

As of September 27, 2020, we had committed to purchasing green coffee totaling $ 687 million under fixed-price contracts and an estimated $ 458 million under price-to-be-fixed contracts.

As of October 3, 2021, we had committed to purchasing green coffee totaling $ 599 million under fixed-price contracts and an estimated $ 1,126 million under price-to-be-fixed contracts.

A portion of our price-to-be-fixed contacts are effectively fixed through the use of futures.

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

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

During 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.

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

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

We did not record significant write-offs related to COVID-19 during the fiscal year ended October 3, 2021.

Equity Investments (in millions)

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Equity method investments $ 216.0 $ 426.4

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Equity Method Investments

As of September 27, 2020, we had 50 % ownership interests in Starbucks Coffee Korea Co., Ltd.

and Tata Starbucks Limited (India).

These international entities operate licensed Starbucks ® retail stores.

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

As of October 3, 2021, we had a 50 % ownership interest in Tata Starbucks Limited (India), which operates licensed Starbucks ® retail stores.

Prior to its divestiture in September 2021, we had a 50 % ownership interest in Starbucks Coffee Korea Co., Ltd.

Additional disclosure regarding changes in our equity method investments due to acquisition or divestiture is included in Note 2 , Acquisitions, Divestitures and Strategic Alliance.

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

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

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Revenues generated from these entities were $ 160.8 million, $ 123.9 million and $ 130.7 million in fiscal 2021, 2020 and 2019, respectively.

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

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

Related product and distribution costs were $ 92.1 million, $ 79.8 million and $ 73.2 million in fiscal 2021, 2020 and 2019, respectively.

As of October 3, 2021 and September 27, 2020, there were $ 7.9 million and $ 28.7 million of accounts receivable from equity investees, respectively, on our consolidated balance sheets, primarily related to product sales and royalty revenues.

Additionally, we hold equity interests in other entities to support our corporate and investment strategies.

The related financial statements activities were not material during the periods presented.

Other Investments

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Prepaid Expenses and Other Current Assets

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Income tax receivable $ 20.7 $ 356.9

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Property, Plant and Equipment, net

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Land $ 46.2 $ 46.0

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Accrued Liabilities

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Accrued occupancy costs $ 107.1 $ 76.9

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Store Operating Expenses

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

Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Wages and benefits $ 6,989.3 $ 6,131.9 $ 5,941.7

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Other Intangible Assets and Goodwill

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

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

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

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

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

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

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

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

Indefinite-Lived Intangible Assets

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

(in millions) Oct 3, 2021 Sep 27, 2020

Trade names, trademarks and patents $ 96.4 $ 95.0

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

Finite-Lived Intangible Assets

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

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

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Amortization expense for finite-lived intangible assets was $ 223.4 million, $ 223.7 million and $ 232.8 million during fiscal 2021, 2020 and 2019, respectively.

Estimated future amortization expense as of September 27, 2020 ( in millions ):

During the fiscal year ended September 27, 2020, we recorded a charge of $ 22.1 million to restructuring and impairments on our consolidated statement of earnings as the analysis indicated the carrying value of one of the assets exceeded its fair value.

Our fiscal 2021 analysis indicated excess fair values over carrying values for these assets, and therefore no impairment charge was recorded.

Estimated future amortization expense as of October 3, 2021 ( in millions ):

Fiscal Year Ending

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

Americas International Channel

North America (1)

International (1)

Development Corporate and Other Total

Goodwill balance at September 29, 2019 $ 492.0 $ 2,963.1 $ 34.7 $ 1.0 $ 3,490.8

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

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

( 0.2 ) 106.6 — — 106.4

Goodwill balance at September 27, 2020 $ 491.8 $ 3,069.7 $ 34.7 $ 1.0 $ 3,597.2

Acquisition/(divestiture) — — — — —

Impairment — — — — —

1.4 78.6 — 0.1 80.1

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

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

Goodwill balance at October 3, 2021 $ 493.2 $ 3,148.3 $ 34.7 $ 1.1 $ 3,677.3

(1) North America and International goodwill as of September 27, 2020 and September 29, 2019, was restated to conform with current period presentation.

(2) "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.

Revolving Credit Facility

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

The 2018 credit facility, of which $ 150 million may be used for issuances of letters of credit, is currently set to mature on October 25, 2022 .

We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $ 500 million.

During the fourth quarter of fiscal 2021, we replaced our $ 2.0 billion unsecured 5-year revolving credit facility (the "2018 credit facility") and our $ 1.0 billion unsecured 364-Day credit facility (the "364-day credit facility") with a new $ 3.0 billion unsecured 5-year revolving credit facility (the "2021 credit facility").

The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases.

The 2021 credit facility, of which $ 150 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026 .

We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $ 1.0 billion.

Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, for U.S.

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

The applicable margin is based on the better of (i) the Company's long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in the five-year credit agreement.

The current applicable margin is 1.100 % for Eurocurrency Rate Loans and 0.000 % (nil) for Base Rate Loans.

The 364-day credit facility, of which no amount may be used for issuances of letters of credit, has been extended to mature on September 22, 2021 .

We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $ 500 million.

Borrowings under the credit facility bear interest at a variable rate based on LIBOR, and, for U.S.

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

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

Both credit facilities contain provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses.

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

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

The applicable margin is based on the Company’s long-term credit ratings assigned by Moody’s and Standard & Poor’s rating agencies.

The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.

The “Base Rate” of interest is the highest of (i) the Federal Funds Rate plus 0.025 %, (ii) Bank of America’s prime rate, and (iii) the Eurocurrency Rate (as defined in the credit facility) plus 1.025 %.

The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses.

As of October 3, 2021, we were in compliance with all applicable covenants.

No amounts were outstanding under our 2021 credit facility as of October 3, 2021.

Short-term Debt

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

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

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

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

As of October 3, 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 $ 44.9 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 %.

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

This facility is currently

set to mature on March 26, 2021 .

• A ¥ 10 billion, or $ 89.9 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 0.350 %.

As of September 27, 2020, we had ¥ 15 billion, or $ 142.3 million, of borrowings outstanding under these Japanese Yen-denominated credit facilities.

As of October 3, 2021, we had no borrowings outstanding under these credit facilities.

For the year ended September 27, 2020, we had ¥ 15 billion, or $ 142.3 million, outstanding under these Japanese yen-denominated credit facilities.

Long-term Debt

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

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

Oct 3, 2021 Sep 27, 2020 Stated Interest Rate Effective Interest Rate (1)

Issuance Face Value Estimated Fair Value Face Value 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)

May 2022 notes (5)

— — 250.0 251.1 2.100 % 1.600 %

May 2022 notes 500.0 503.1 500.0 506.5 1.300 % 1.334 %

June 2022 notes 500.0 506.7 500.0 517.5 2.700 % 2.819 %

7 unchanged sentences

March 2027 notes 500.0 513.0 500.0 528.9 2.000 % 2.058 %

500.0 529 — — 2.000 % 2.058 %

March 2028 notes 600.0 663.2 600.0 679.5 3.500 % 3.529 %

2 unchanged sentences

March 2030 notes 750.0 758.6 750.0 778.0 2.250 % 3.084 %

750.0 778 — — 2.250 % 3.084 %

November 2030 notes 1,250.0 1,286.9 1,250.0 1,325.9 2.550 % 2.582 %

1,250.0 1,326 — — 2.550 % 2.582 %

June 2045 notes 350.0 414.1 350.0 412.4 4.300 % 4.348 %

3 unchanged sentences

March 2050 notes 500.0 527.5 500.0 517.1 3.350 % 3.362 %

500.0 517 — — 3.350 % 3.362 %

November 2050 notes 1,250.0 1,339.5 1,250.0 1,332.2 3.500 % 3.528 %

1,250.0 1,332 — — 3.500 % 3.528 %

Total 14,713.8 16,014.1 16,006.4 17,498.7

3 unchanged sentences

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

(2) 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.

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

(4) Issued in March 2020.

(5) Issued in May 2020.

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

The following table summarizes our long-term debt maturities as of October 3, 2021 by fiscal year ( in millions ):

Fiscal Year Total

2 unchanged sentences

Total $ 14,713.8

During the years ended October 3, 2021 and September 27, 2020, we recognized accelerated amortization of ROU lease assets and other lease costs of $ 89.5 million and $ 87.7 million, respectively, which were recognized within restructuring and impairments on the consolidated statements of earnings.

The components of lease costs (in millions) :

Oct 3, 2021 Sep 27, 2020

Operating lease costs (1)

$ 1,579.2 $ 1,573.6

Variable lease costs 949.6 833.4

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Total lease costs $ 2,559.7 $ 2,441.1

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

(1) Includes immaterial amounts of sublease income and rent concessions.

The following table includes supplemental information (in millions) :

Oct 3, 2021 Sep 27, 2020

Cash paid related to operating lease liabilities $ 1,707.1 $ 1,463.3

Operating lease liabilities arising from obtaining ROU assets (1)

(1) Excludes the initial impact of adoption.

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

Weighted-average remaining operating lease term 8.8 years

1,590.3 1,093.0

(1) Excludes the initial impact of adoption during the year ended September 27, 2020.

Oct 3, 2021 Sep 27, 2020

Weighted-average remaining operating lease term 8.7 years 8.8 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 on the consolidated balance sheet.

Finance leases were immaterial as of September 27, 2020.

Finance leases were immaterial as of October 3, 2021 and September 27, 2020.

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

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Total $ 8,989.3

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

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

years to 20 years.

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

As of October 3, 2021, we have entered into operating leases that have not yet commenced of $ 830.9 million, primarily related to real estate leases.

These leases will commence between fiscal year 2022 and fiscal year 2028 with lease terms of 10 years to 20 years.

Previous Lease Guidance Disclosures

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

Sep 29, 2019 Sep 30, 2018

Minimum rent $ 1,441.7

1 unchanged sentence

Total 1,666.0

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

Fiscal Year Operating Leases Lease Financing Arrangements

2020 $ 1,432.9 $ 5.2

2021 1,342.2 5.2

2022 1,247.4 5.0

2023 1,124.3 5.0

2024 996.4 4.9

Thereafter 4,087.7 42.6

Total minimum lease payments $ 10,230.9 $ 67.9

We have subleases related to certain of our operating leases.

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

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

We recognized $ 10.9 million of sublease income during the fiscal year ended September 29, 2019.

Additionally, as of September 29, 2019, the gross carrying value of assets related to build-to-suit lease arrangements accounted for as financing leases was $ 122.3 million, with associated accumulated depreciation of $ 17.2 million.

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

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

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

Deferred Revenue

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

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

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

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

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

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

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

At October 3, 2021, the current and long-term deferred revenue related to the Nestlé up-front payment was $ 177.0 million and $ 6.4 billion, respectively.

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

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

During the fiscal years ended October 3, 2021, September 27, 2020 and September 29, 2019, we recognized $ 176.6 million, $ 176.8 million and $ 175.2 million of current deferred revenue, respectively, related to amortization of the up-front payment.

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

Fiscal Year Ended September 27, 2020

Fiscal Year Ended October 3, 2021

Stored value cards and loyalty program at September 27, 2020

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Revenue recognized - card and Stars redemptions and breakage ( 12,401.7 )

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

Stored value cards and loyalty program at October 3, 2021 (2)

Fiscal Year Ended September 27, 2020

Stored value cards and loyalty program at September 29, 2019

Revenue recognition adoption impact ( 358.0 )

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

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

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

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

(2) As of October 3, 2021, approximately $ 1.3 billion of this amount was current.

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

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

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

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

We made a $ 5.0 billion up-front payment to the financial institutions and received an initial delivery of 72.0 million shares.

In March 2019 , we received an additional 4.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $ 65.03 .

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

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

We temporarily suspended share repurchases in March 2020.

In March 2020, we announced a temporary suspension of our share repurchase program until we restored certain financial leverage targets.

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

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

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

Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022.

During the fourth quarter of fiscal 2021, our Board of Directors declared a quarterly cash dividend to shareholders of $ 0.49 per share to be paid on November 26, 2021 to shareholders of record as of the close of business on November 12, 2021.

Comprehensive Income

2 unchanged sentences

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

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

Changes in AOCI by component for the years ended October 3, 2021, September 27, 2020 and September 29, 2019, net of tax, are as follows:

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

September 27, 2020

October 3, 2021

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

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Other comprehensive income/(loss) attributable to Starbucks ( 4.2 ) 240.4 37.1 238.5 511.8

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

Net gains/(losses) in AOCI, end of period $ 1.5 $ 158.3 $ 48.6 $ ( 61.2 ) $ 147.2

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

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

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

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the Statements of Earnings

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

Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Gains/(losses) on available-for-sale securities $ 1.8 $ 4.9 $ 0.9 Interest income and other, net

1 unchanged sentence

Gains/(losses) on net investment hedges 13.4 13.3 — Interest expense

Translation adjustment (1)

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

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

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

Translation adjustment and other (1)

Korea ( 58.9 ) — — Net gain resulting from divestiture of certain operations

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

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

( 41.8 ) 20.1 ( 1.3 ) Total before tax

1 unchanged sentence

$ ( 36.8 ) $ 14.9 $ ( 2.9 ) Net of tax

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

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

Employee Stock and Benefit Plans

2 unchanged sentences

We also have an employee stock purchase plan (“ESPP”).

As of September 27, 2020, there were 46.5 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 11.9 million shares available for issuance under our ESPP.

As of October 3, 2021, there were 41.0 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 11.3 million shares available for issuance under our ESPP.

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

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

Options $ 7.5 $ 20.0 $ 28.0

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

RSUs $ 316.9 $ 241.0 $ 288.0

Options 2.2 7.5 20.0

Total stock-based compensation expense recognized in the consolidated statements of earnings $ 319.1 $ 248.5 $ 308.0

1 unchanged sentence

Total capitalized stock-based compensation included in net property, plant and equipment on the consolidated balance sheets $ 3.7 $ 3.6 $ 3.4

We have both time-vested and performance-based RSUs.

Time-vested RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of a vesting period, subject solely to the employee’s continuing employment.

The time-vested RSUs either vest in two or four equal annual installments beginning a year from the grant date.

Our performance-based RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock if we achieve specified performance goals during the performance period and the grantee remains employed through the vesting period.

RSU transactions for the year ended October 3, 2021 (in millions, except per share and contractual life amounts) :

Shares Weighted

per Share Weighted

Life (Years) Aggregate

Nonvested, September 27, 2020 8.3 $ 74.23 1.1 $ 699

Granted 4.1 96.05

Vested ( 3.2 ) 69.99

Forfeited/canceled ( 1.5 ) 87.72

Nonvested, October 3, 2021 7.7 86.23 0.9 869

As of October 3, 2021, total unrecogniz ed stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $ 145 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.0 years.

The total fair value of RSUs vested was $ 226 million, $ 211 million and $ 255 million during fiscal 2021, 2020 and 2019, respectively.

For fiscal 2020 and 2019, the weighted average fair value per RSU granted was $ 81.96 and $ 68.14 , respectively.

Stock Option Plans

We provide stock options as a form of employee compensation, which are primarily time-vested.

We may provide stock options as a form of employee compensation, which are primarily time-vested.

The majority of time-vested options become exercisable in four equal installments beginning a year from the grant date and generally expire 10 years from the grant date.

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The amounts shown above for the estimated fair value per option granted are before the estimated effect of forfeitures, which reduce the amount of expense recorded in the consolidated statements of earnings.

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

Stock option transactions for the year ended October 3, 2021 (in millions, except per share and contractual life amounts) :

Options Weighted

5 unchanged sentences

Expired/forfeited 0.0 56.69

Outstanding, September 27, 2020 9.2 53.06 5.4 287

Exercisable, September 27, 2020 6.8 51.16 4.8 226

Vested and expected to vest, September 27, 2020 9.1 53.03 5.4 286

Outstanding, October 3, 2021 5.2 54.58 4.5 303

Exercisable, October 3, 2021 4.4 53.06 4.1 261

Vested and expected to vest, October 3, 2021 5.2 54.57 4.5 302

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

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

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

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

As of October 3, 2021, total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested options was approximately $ 0.1 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 0.5 years.

The total intrinsic value of options exercised was $ 219 million, $ 236 million and $ 466 million during fiscal 2021, 2020 and 2019, respectively.

The total fair value of options vested was $ 14 million, $ 25 million and $ 31 million during fiscal 2021, 2020 and 2019, respectively.

We have both time-vested and performance-based RSUs.

Time-vested RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of a vesting period, subject solely to the employee’s continuing employment.

The time-vested RSUs either vest in two or four equal annual installments beginning a year from the grant date.

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

Shares Weighted

per Share Weighted

Life (Years) Aggregate

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

Granted 4.0 81.96

Vested ( 3.5 ) 59.97

Forfeited/canceled ( 1.1 ) 71.88

Nonvested, September 27, 2020 8.3 74.23 1.1 699

For fiscal 2019 and 2018, the weighted average fair value per RSU granted was $ 68.14 and $ 56.48 , respectively.

As of September 27, 2020, total unrecogniz ed stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $ 134 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 1.9 years.

The total fair value of RSUs vested was $ 211 million, $ 255 million and $ 166 million during fiscal 2020, 2019 and 2018, respectively.

Our ESPP allows eligible employees to contribute up to 10 % of their base earnings toward the quarterly purchase of our common stock, subject to an annual maximum dollar amount.

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Components of earnings before income taxes (in millions):

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

United States $ 4,138.5 $ 904.6 $ 3,518.7

2 unchanged sentences

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

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Current taxes:

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federal income tax rate with our effective income tax rate:

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Statutory rate 21.0 % 21.0 % 21.0 %

1 unchanged sentence

Foreign rate differential 0.5 ( 3.2 ) ( 0.1 )

Valuation allowances 10.0 — —

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

Change in tax rates ( 1.3 ) ( 2.2 ) —

Charitable contributions ( 1.7 ) — —

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

Foreign derived intangible income ( 0.5 ) ( 1.4 ) ( 1.5 )

Charitable contributions ( 0.4 ) ( 1.7 ) —

Valuation allowances 0.2 10.0 —

Residual tax on foreign earnings — — 1.7

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

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

Impact of the Tax Act — — 2.8

Other, net 0.3 0.1 ( 0.3 )

Effective tax rate 21.6 % 20.6 % 19.5 %

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

As of October 3, 2021, in certain foreign subsidiaries in which we are partially indefinitely reinvested, the gross taxable temporary difference between the accounting basis and tax basis was approximately $ 1.8 billion f or which there could be up to approximately $ 290 million o f unrecognized tax liability.

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

Sep 27, 2020 Sep 29, 2019

Oct 3, 2021 Sep 27, 2020

Deferred tax assets:

2 unchanged sentences

Intangible assets and goodwill 317.7 248.6

Accrued occupancy costs — 121.6

Other 641.0 554.4

5 unchanged sentences

Property, plant and equipment ( 451.2 ) ( 463.3 )

Intangible assets and goodwill ( 145.1 ) ( 209.9 )

Other ( 284.0 ) ( 268.3 )

4 unchanged sentences

Net deferred tax asset (liability) $ 1,726.3 $ 1,631.8

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

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

The valuation allowances as of October 3, 2021 and September 27, 2020 were primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.

As of October 3, 2021, we had federal net operating loss carryforwards of $ 70.8 million which have an indefinite carryforward period, state net operating loss carryforwards of $ 109.7 million which will begin to expire in fiscal 2024 , federal tax credit carryforwards of $ 21.8 million which will begin to expire in fiscal 2030, state tax credit carryforwards of $ 1.2 million which will begin to expire in fiscal 2024 and foreign net operating loss carryforwards of $ 327.9 million, of which $ 118.8 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2022.

Uncertain Tax Positions

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

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

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

As of October 3, 2021, we had $ 82.6 million of gross unrecognized tax benefits of which $ 62.8 million, if recognized, would affect our effective tax rate.

We recognized a benefit of $ 4.6 million, an expense of $ 3.0 million and a benefit of $ 2.8 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2021, 2020 and 2019, respectively.

As of October 3, 2021 and September 27, 2020, we had accrued interest and penalties of $ 7.1 million and $ 13.0 million, respectively, within our consolidated balance sheets.

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

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

Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Beginning balance $ 123.7 $ 132.1 $ 224.6

8 unchanged sentences

We are no longer subject to U.S.

federal examination for years prior to fiscal 2017.

We are no longer subject to U.S.

state and local examinations for years prior to fiscal 2011.

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

It is reasonably possible that up to $ 39 million of the Company's gross unrecognized tax benefits may be recognized by the end of fiscal 2021 for reasons such as a lapse of the statute of limitations or resolution of examinations with tax authorities.

federal examination for years prior to fiscal 2018, U.S.

state and local examinations for years prior to fiscal 2014 or examination in any material international markets prior to 2015.

We do not expect a significant amount of Company's gross unrecognized tax benefits to be recognized by the end of fiscal 2022 for reasons such as a lapse of the statute of limitations or resolution of examinations with tax authorities .

Earnings per Share

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

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Net earnings attributable to Starbucks $ 4,199.3 $ 928.3 $ 3,599.2

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Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method.

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

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

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 October 3, 2021, September 27, 2020 and September 29, 2019, we had no out-of-the-money stock options.

Commitments and Contingencies

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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 will be effective on October 1, 2019.

On June 3, 2019, the Office of Administrative Law 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.

The plaintiff has not yet filed a Notice of Appeal.

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

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.

Defendants filed their response brief on August 9, 2021, and Plaintiff filed a reply on November 15, 2021.

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.

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We have three reportable operating segments:

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

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

1) North America, which is inclusive of the U.S.

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

and 3) Channel Development.

Americas and International operations sell coffee and other beverages, complementary food, packaged coffees, single-serve coffee products and a focused selection of merchandise through company-operated stores and licensed stores.

Our Americas segment is our most mature business and has achieved significant scale.

Channel Development revenues include packaged coffee sales, tea and ready-to-drink beverages to customers outside of our company-operated and licensed stores.

Historically revenues have included domestic and international sales of our packaged coffee, tea and ready-to-drink products to grocery, warehouse club and specialty retail stores and through institutional foodservice companies which serviced businesses.

Since the fourth quarter of fiscal 2018, most of our Channel Development revenues are from product sales to and royalty revenues from Nestlé.

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

North America and International operations sell coffee and other beverages, complementary food, packaged coffees, single-serve coffee products and a focused selection of merchandise through company-operated stores and licensed stores.

Our North America segment is our most mature business and has achieved significant scale.

Channel Development revenues include packaged coffee, tea, foodservice products and ready-to-drink beverages to customers outside of our company-operated and licensed stores.

Most of our Channel Development revenues are from product sales to and royalty revenues from Nestlé through the Global Coffee Alliance.

Consolidated revenue mix by product type (in millions):

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

$ 18,317.0 63 % $ 14,337.5 61 % $ 15,921.2 60 %

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Total $ 29,060.6 100 % $ 23,518.0 100 % $ 26,508.6 100 %

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

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

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Information by geographic area ( in millions ):

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

Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019

Net revenues:

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

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

The table below presents financial information for our reportable operating segments and Corporate and Other segment for the years ended October 3, 2021, September 27, 2020 and September 29, 2019.

( in millions )

Americas International Channel

North America International Channel

Corporate and Other

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Total net revenues (1)

$ 16,296.2 $ 5,230.6 $ 1,925.0 $ 66.2 $ 23,518.0

Depreciation and amortization expenses 762.0 518.4 1.2 149.7 1,431.3

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Operating income/(loss) (1)

1,801.7 370.6 687.2 ( 1,297.8 ) 1,561.7

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

Total net revenues (1)

$ 18,130.4 $ 6,319.3 $ 1,992.6 $ 66.3 $ 26,508.6

Depreciation and amortization expenses 696.1 511.5 13.0 156.7 1,377.3

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Operating income/(loss) (1)

3,728.1 1,011.3 697.5 ( 1,359.0 ) 4,077.9

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

Selected Quarterly Financial Information (unaudited;

in millions, except EPS)

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

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

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

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

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

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

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

Earnings per share — diluted 0.61 0.53 1.12 0.67 2.92

(1) North America, International and Corporate and Other total net revenues and operating income/(loss) for fiscal years ended September 27, 2020 and September 29, 2019, have been restated to conform with current period presentation .

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the “Company”) as of September 27, 2020 and September 29, 2019, the related consolidated statements of earnings, comprehensive income, equity, and cash flows, for each of the three years in the period ended September 27, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 27, 2020 and September 29, 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 27, 2020, in conformity with accounting principles generally accepted in the United States of America.

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

Changes in Accounting Principle

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

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

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

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

We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the “Company”) as of October 3, 2021 and September 27, 2020, the related consolidated statements of earnings, comprehensive income, equity, and cash flows, for each of the three years in the period ended October 3, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 3, 2021 and September 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 3, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Compliance Committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

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

Income Taxes — Indefinite Reinvestment of Foreign Earnings - Refer to Note 14 to the financial statements

Critical Audit Matter Description

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

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

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

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

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

Under the provisions of ASC 740, Income Taxes, (“ASC 740”), there is a presumption that investments in foreign subsidiaries will be recovered upon sale or through a partial or complete distribution of earnings to the parent entity, and therefore subject the parent entity to additional taxes.

If sufficient evidence shows the foreign subsidiary has invested or will invest the undistributed earnings indefinitely, the ASC 740 presumption may be overcome, and no additional taxes shall be accrued.

The Company has investments in the profitable operations of certain foreign subsidiaries that may be subject to additional foreign withholding taxes and/or U.S.

federal and state income taxes upon sale or a partial or complete distribution of earnings, incremental to local income taxes already paid.

As of October 3, 2021, the Company is partially indefinitely reinvested in certain foreign subsidiaries.

The Company has recorded a deferred tax liability of $83 million related to the taxable temporary difference for which it is not indefinitely reinvested.

For the remaining $1.8 billion of taxable temporary difference, there could be up to approximately $290 million of unrecognized tax liability.

The Company’s assertion of partial indefinite reinvestment for certain foreign subsidiaries requires management to make long-term forecasting assumptions and detailed plans for reinvestment.

The most significant assumption supporting the Company’s indefinite reinvestment assertion is the forecast of capital expenditures in international markets.

Performing audit procedures to evaluate the reasonableness of management’s indefinite reinvestment analysis and capital expenditures forecast required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists.

How the Critical Matter Was Addressed in the Audit

Our principal audit procedures related to management’s indefinite reinvestment analysis and the supporting forecast of capital expenditures for certain foreign subsidiaries, included the following, among others:

• We tested the effectiveness of controls related to management’s forecast of capital expenditures.

• We performed a retrospective review of management’s historical ability to accurately forecast capital expenditures by comparing actual results to management’s historical forecast.

• We inquired of senior executives of the Company to corroborate strategic plans for growth.

• We compared the forecasts obtained to support the indefinite reinvestment assertion to:

◦ Historical capital expenditures, including costs per new store opening;

◦ Historical new store growth;

◦ Historical profitability of new stores by region;

◦ Forecasts used by the Company for financial reporting purposes in other areas, such as the evaluation of the recoverability of goodwill;

◦ Internal communications to management and the Board of Directors;

◦ Forecasted information included in the Company’s press releases, other external communications and analyst reports;

◦ External publications of expected industry growth.

• With the assistance of our tax specialists, we evaluated the appropriateness of management’s analysis under ASC 740 and the sufficiency of the evidence provided by management to support that the Company has the intent and ability to partially indefinitely reinvest the undistributed earnings.

/s/ Deloitte & Touche LLP

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data