STARBUCKS CORP 10-K

Item 8. Financial Statements and Supplementary Data STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in millions, except per share data) Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Net revenues: Company-operated stores $ 24,607.0 $ 19,164.6 $ 21,544.4 Licensed stores 2,683.6 2,327.1 2,875.0 Other 1,770.0 2,026.3 2,089.2 Total net revenues 29,060.6 23,518.0 26,508.6 Product and distribution costs 8,738.7 7,694.9 8,526.9 Store operating expenses 11,930.9 10,764.0 10,493.6 Other operating expenses 359.5 430.3 371.0 Depreciation and amortization expenses 1,441.7 1,431.3 1,377.3 General and administrative expenses 1,932.6 1,679.6 1,824.1 Restructuring and impairments 170.4 278.7 135.8 Total operating expenses 24,573.8 22,278.8 22,728.7 Income from equity investees 385.3 322.5 298.0 Operating income 4,872.1 1,561.7 4,077.9 Net gain resulting from divestiture of certain operations 864.5 — 622.8 Interest income and other, net 90.1 39.7 96.5 Interest expense ( 469.8 ) ( 437.0 ) ( 331.0 ) Earnings before income taxes 5,356.9 1,164.4 4,466.2 Income tax expense 1,156.6 239.7 871.6 Net earnings including noncontrolling interests 4,200.3 924.7 3,594.6 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 Earnings per share — basic $ 3.57 $ 0.79 $ 2.95 Earnings per share — diluted $ 3.54 $ 0.79 $ 2.92 Weighted average shares outstanding: Basic 1,177.6 1,172.8 1,221.2 Diluted 1,185.5 1,181.8 1,233.2 See Notes to Consolidated Financial Statements. 41 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Net earnings including noncontrolling interests $ 4,200.3 $ 924.7 $ 3,594.6 Other comprehensive income/(loss), net of tax: Unrealized holding gains/(losses) on available-for-sale securities ( 3.4 ) 8.3 10.5 Tax (expense)/benefit 0.7 ( 1.8 ) ( 2.3 ) Unrealized gains/(losses) on cash flow hedging instruments 283.8 ( 126.3 ) ( 14.1 ) Tax (expense)/benefit ( 43.6 ) 31.3 3.4 Unrealized gains/(losses) on net investment hedging instruments 63.1 38.7 ( 39.8 ) Tax (expense)/benefit ( 16.0 ) ( 9.8 ) 10.1 Translation adjustment and other 188.2 206.9 ( 146.2 ) 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, translation adjustment and other 41.8 ( 20.1 ) 1.3 Tax expense/(benefit) ( 5.0 ) 5.2 1.6 Other comprehensive income/(loss) 511.8 133.9 ( 173.0 ) Comprehensive income including noncontrolling interests 4,712.1 1,058.6 3,421.6 Comprehensive income/(loss) attributable to noncontrolling interests 1.0 ( 3.6 ) ( 4.6 ) Comprehensive income attributable to Starbucks $ 4,711.1 $ 1,062.2 $ 3,426.2 See Notes to Consolidated Financial Statements. 42 Table of Contents STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (in millions, except per share data) Oct 3, 2021 Sep 27, 2020 ASSETS Current assets: Cash and cash equivalents $ 6,455.7 $ 4,350.9 Short-term investments 162.2 281.2 Accounts receivable, net 940.0 883.4 Inventories 1,603.9 1,551.4 Prepaid expenses and other current assets 594.6 739.5 Total current assets 9,756.4 7,806.4 Long-term investments 281.7 206.1 Equity investments 268.5 478.7 Property, plant and equipment, net 6,369.5 6,241.4 Operating lease, right-of-use asset 8,236.0 8,134.1 Deferred income taxes, net 1,874.8 1,789.9 Other long-term assets 578.5 568.6 Other intangible assets 349.9 552.1 Goodwill 3,677.3 3,597.2 TOTAL ASSETS $ 31,392.6 $ 29,374.5 LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) Current liabilities: Accounts payable $ 1,211.6 $ 997.9 Accrued liabilities 1,973.2 1,160.7 Accrued payroll and benefits 772.3 696.0 Income taxes payable 348.0 98.2 Current portion of operating lease liability 1,251.3 1,248.8 Stored value card liability and current portion of deferred revenue 1,596.1 1,456.5 Short-term debt — 438.8 Current portion of long-term debt 998.9 1,249.9 Total current liabilities 8,151.4 7,346.8 Long-term debt 13,616.9 14,659.6 Operating lease liability 7,738.0 7,661.7 Deferred revenue 6,463.0 6,598.5 Other long-term liabilities 737.8 907.3 Total liabilities 36,707.1 37,173.9 Shareholders’ deficit: Common stock ($ 0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,180.0 and 1,173.3 shares, respectively 1.2 1.2 Additional paid-in capital 846.1 373.9 Retained deficit ( 6,315.7 ) ( 7,815.6 ) Accumulated other comprehensive income/(loss) 147.2 ( 364.6 ) Total shareholders’ deficit ( 5,321.2 ) ( 7,805.1 ) Noncontrolling interests 6.7 5.7 Total deficit ( 5,314.5 ) ( 7,799.4 ) TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT) $ 31,392.6 $ 29,374.5 See Notes to Consolidated Financial Statements. 43 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 OPERATING ACTIVITIES: Net earnings including noncontrolling interests $ 4,200.3 $ 924.7 $ 3,594.6 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,524.1 1,503.2 1,449.3 Deferred income taxes, net ( 146.2 ) ( 25.8 ) ( 1,495.4 ) Income earned from equity method investees ( 347.3 ) ( 280.7 ) ( 250.6 ) Distributions received from equity method investees 336.0 227.7 216.8 Net gain resulting from divestiture of certain operations ( 864.5 ) — ( 622.8 ) Stock-based compensation 319.1 248.6 308.0 Goodwill impairments — — 10.5 Non-cash lease cost 1,248.6 1,197.6 — Loss on retirement and impairment of assets 226.2 454.4 142.6 Other ( 6.0 ) 24.5 45.3 Cash provided by/(used in) changes in operating assets and liabilities: Accounts receivable ( 43.0 ) ( 2.7 ) ( 197.7 ) Inventories ( 49.8 ) ( 10.9 ) ( 173.0 ) Prepaid expenses and other current assets 251.1 ( 317.5 ) 922.0 Income taxes payable 286.1 ( 1,214.6 ) 1,237.1 Accounts payable 189.9 ( 210.8 ) 31.9 Deferred revenue ( 6.1 ) 31.0 ( 30.5 ) Operating lease liability ( 1,488.1 ) ( 1,231.4 ) — Other operating assets and liabilities 358.7 280.5 ( 141.1 ) Net cash provided by operating activities 5,989.1 1,597.8 5,047.0 INVESTING ACTIVITIES: Purchases of investments ( 432.0 ) ( 443.9 ) ( 190.4 ) Sales of investments 143.2 186.7 298.3 Maturities and calls of investments 345.5 73.7 59.8 Additions to property, plant and equipment ( 1,470.0 ) ( 1,483.6 ) ( 1,806.6 ) Net proceeds from the divestiture of certain operations 1,175.0 — 684.3 Other ( 81.2 ) ( 44.4 ) ( 56.2 ) Net cash used in investing activities ( 319.5 ) ( 1,711.5 ) ( 1,010.8 ) FINANCING ACTIVITIES: Repayments of commercial paper ( 296.5 ) — — Proceeds from issuance of short-term debt 215.1 1,406.6 — Repayments of short-term debt ( 349.8 ) ( 967.7 ) — Proceeds from issuance of long-term debt — 4,727.6 1,996.0 Repayments of long-term debt ( 1,250.0 ) — ( 350.0 ) Proceeds from issuance of common stock 246.2 298.8 409.8 Cash dividends paid ( 2,119.0 ) ( 1,923.5 ) ( 1,761.3 ) Repurchase of common stock — ( 1,698.9 ) ( 10,222.3 ) Minimum tax withholdings on share-based awards ( 97.0 ) ( 91.9 ) ( 111.6 ) Other — ( 37.7 ) ( 17.5 ) Net cash provided by/(used in) financing activities ( 3,651.0 ) 1,713.3 ( 10,056.9 ) Effect of exchange rate changes on cash and cash equivalents 86.2 64.7 ( 49.0 ) Net increase/(decrease) in cash and cash equivalents 2,104.8 1,664.3 ( 6,069.7 ) CASH AND CASH EQUIVALENTS: Beginning of period 4,350.9 2,686.6 8,756.3 End of period $ 6,455.7 $ 4,350.9 $ 2,686.6 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of capitalized interest $ 501.1 $ 396.9 $ 299.5 Income taxes $ 756.3 $ 1,699.1 $ 470.1 See Notes to Consolidated Financial Statements. 44 Table of Contents STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY (in millions, except per share data) Common Stock Additional Paid-in Capital Retained Earnings/(Deficit) Accumulated Other Comprehensive Income/(Loss) Shareholders’ Equity/(Deficit) Noncontrolling Interests Total Shares Amount 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 Other comprehensive income/(loss) — — — — ( 173.0 ) ( 173.0 ) — ( 173.0 ) Stock-based compensation expense — — 311.3 — — 311.3 — 311.3 Exercise of stock options/vesting of RSUs 14.7 — 264.9 — — 264.9 — 264.9 Sale of common stock 0.4 — 33.4 — — 33.4 — 33.4 Repurchase of common stock ( 139.6 ) ( 0.1 ) ( 609.6 ) ( 9,521.8 ) — ( 10,131.5 ) — ( 10,131.5 ) Cash dividends declared, $ 1.49 per share — — — ( 1,801.6 ) — ( 1,801.6 ) — ( 1,801.6 ) Net distributions to noncontrolling interests — — — — — — ( 0.5 ) ( 0.5 ) Balance, September 29, 2019 1,184.6 $ 1.2 $ 41.1 $ ( 5,771.2 ) $ ( 503.3 ) $ ( 6,232.2 ) $ 1.2 $ ( 6,231.0 ) Cumulative effect of adoption of new accounting guidance — — — 12.5 4.8 17.3 — 17.3 Net earnings/(loss) — — — 928.3 — 928.3 ( 3.6 ) 924.7 Other comprehensive income/(loss) — — — — 133.9 133.9 — 133.9 Stock-based compensation expense — — 252.1 — — 252.1 — 252.1 Exercise of stock options/vesting of RSUs 8.5 — 169.9 — — 169.9 — 169.9 Sale of common stock 0.5 — 37.2 — — 37.2 — 37.2 Repurchase of common stock ( 20.3 ) — ( 126.4 ) ( 1,548.6 ) — ( 1,675.0 ) — ( 1,675.0 ) Cash dividends declared, $ 1.23 per share — — — ( 1,436.6 ) — ( 1,436.6 ) ( 0.2 ) ( 1,436.8 ) Noncontrolling interest resulting from divestiture — — — — — — 8.3 8.3 Balance, September 27, 2020 1,173.3 $ 1.2 $ 373.9 $ ( 7,815.6 ) $ ( 364.6 ) $ ( 7,805.1 ) $ 5.7 $ ( 7,799.4 ) Cumulative effect of adoption of new accounting guidance — — — ( 2.2 ) — ( 2.2 ) — ( 2.2 ) Net earnings/(loss) — — — 4,199.3 — 4,199.3 1.0 4,200.3 Other comprehensive income/(loss) — — — — 511.8 511.8 — 511.8 Stock-based compensation expense — — 322.8 — — 322.8 — 322.8 Exercise of stock options/vesting of RSUs 6.3 — 107.0 — — 107.0 — 107.0 Sale of common stock 0.4 — 42.4 — — 42.4 — 42.4 Cash dividends declared, $ 2.29 per share — — — ( 2,697.2 ) — ( 2,697.2 ) — ( 2,697.2 ) 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. 45 Table of Contents STARBUCKS CORPORATION INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies and Estimates 47 Note 2 Acquisitions, Divestitures and Strategic Alliance 57 Note 3 Derivative Financial Instruments 57 Note 4 Fair Value Measurements 61 Note 5 Inventories 63 Note 6 Equity Investments 64 Note 7 Supplemental Balance Sheet and Statement of Earnings Information 65 Note 8 Other Intangible Assets and Goodwill 66 Note 9 Debt 67 Note 10 Leases 69 Note 11 Deferred Revenue 71 Note 12 Equity 71 Note 13 Employee Stock and Benefit Plans 73 Note 14 Income Taxes 75 Note 15 Earnings per Share 78 Note 16 Commitments and Contingencies 78 Note 17 Segment Reporting 79 46 Table of Contents STARBUCKS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years ended October 3, 2021, September 27, 2020 and September 29, 2019 Note 1: Summary of Significant Accounting Policies and Estimates Description of Business We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh and prepared food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice. The grocery and foodservice business is primarily through our Global Coffee Alliance with Nestlé established in August 2018. In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.” 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. and Canada. 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) North America, which is inclusive of the U.S. and Canada; 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 Our consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly-owned subsidiaries and investees that we control. Intercompany transactions and balances have been eliminated. Fiscal Year End Our fiscal year ends on the Sunday closest to September 30. 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 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 global COVID-19 pandemic. Restructuring 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 47 Table of Contents 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 We consider all highly liquid instruments with maturities of three months or less at the time of purchase, as well as credit card receivables for sales to customers in our company-operated stores that generally settle within two to five business days, to be cash equivalents. We maintain cash and cash equivalent balances with financial institutions that exceed federally-insured limits. We have not experienced any losses related to these balances, and we believe credit risk to be minimal. Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which creates book overdrafts. Book overdrafts are presented as a current liability in accrued liabilities on our consolidated balance sheets. Investments Available-for-sale Debt Securities Our short-term and long-term investments consist primarily of investment-grade debt securities, all of which are classified as available-for-sale. Available-for-sale debt securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at the time of purchase to be used to fund operations within one year are classified as short-term. All other available-for-sale securities are classified as long-term. We evaluate our available-for-sale securities for other-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. We review several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the intent to sell or will more likely than not be required to sell before the securities' anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis. Marketable Equity Securities We also have a marketable equity securities portfolio, which is comprised of marketable equity mutual funds and equity exchange-traded funds. Marketable equity securities are recorded at fair value and approximates a portion of our liability under our Management Deferred Compensation Plan (“MDCP”). Gains or losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings. Equity Investments 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. The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in interest income and other, net on our consolidated statements of earnings. We account for equity investments for which we do not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price or impairments as permitted by the measurement alternative. Investments for which the measurement alternative has been elected are assessed for impairment quarterly, or if a triggering event indicates impairment may be present. Any adjustments as a result of price changes or impairments are recorded in interest income and other, net on our consolidated statements of earnings. Fair Value Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following: 48 Table of Contents Level 1: The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of these instruments. For equity and U.S. government treasury securities and commodity futures contracts, we use quoted prices in active markets for identical assets to determine fair value. Level 2: When quoted prices in active markets for identical assets are not available, we determine the fair value of our available-for-sale securities and our over-the-counter forward contracts, collars and swaps based upon factors such as the quoted market price of similar assets or a discounted cash flow model using readily observable market data, which may include interest rate curves and forward and spot prices for currencies and commodities, depending on the nature of the investment. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. Level 3: We determine the fair value of our auction rate securities using an internally-developed valuation model, using inputs that include interest rate curves, credit and liquidity spreads and effective maturity. Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. We determine the fair value of these items using Level 3 inputs, as described in the related sections below. Derivative Instruments We manage our exposure to various risks within our consolidated financial statements according to a market price risk management policy. Under this policy, we may engage in transactions involving various derivative instruments to hedge interest rates, commodity prices and foreign currency-denominated revenue streams, inventory purchases, assets and liabilities and investments in certain foreign operations. In order to manage our exposure to these risks, we use various types of derivative instruments including forward contracts, commodity futures contracts, collars and swaps. Forward contracts and commodity futures contracts are agreements to buy or sell a quantity of a currency or commodity at a predetermined future date and at a predetermined rate or price. A collar is a strategy that uses a combination of a purchased call option and a sold put option with equal premiums to hedge a portion of anticipated cash flows, or to limit possible gains or losses on an underlying asset or liability to a specific range. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. We do not enter into derivative instruments for speculative purposes. We record all derivatives on our consolidated balance sheets at fair value and typically do not offset derivative assets and liabilities. Excluding interest rate hedging instruments, cross-currency swaps and foreign currency debt hedging instruments, we generally do not enter into derivative instruments with maturities longer than three years. However, we are allowed to net settle transactions with respective counterparties for certain derivative contracts, inclusive of interest rate swaps and foreign currency forwards, with a single, net amount payable by one party to the other. We also enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. 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. By using these derivative instruments, we expose ourselves to potential credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. We minimize this credit risk by entering into transactions with carefully selected, credit-worthy counterparties and distribute contracts among several financial institutions to reduce the concentration of credit risk. Cash Flow Hedges For derivative instruments that are designated and qualify as a cash flow hedge, the derivative's gain or loss is reported as a component of other comprehensive income (“OCI”) and recorded in accumulated other comprehensive income (“AOCI”) on our consolidated balance sheets. The gain or loss is subsequently reclassified into net earnings when the hedged exposure affects net earnings, in the same line item as the underlying hedged item on our consolidated statements of earnings. Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the transactions are no longer likely to occur, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings based on the nature of the underlying transaction. Net Investment Hedges For derivative instruments that are designated and qualify as a net investment hedge, the derivative's, or qualifying non-derivative instrument’s gain or loss is reported as a component of OCI and recorded in AOCI. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. 49 Table of Contents Fair Value Hedges For derivative instruments that are designated and qualify as a fair value hedge, the changes in fair value of the derivative instrument and the offsetting changes in fair value of the underlying hedged item due to changes in the hedged risk are recorded in interest income and other, net or interest expense on our consolidated statements of earnings. Derivatives Not Designated As Hedging Instruments We also enter into certain foreign currency forward contracts, commodity futures contracts, collars and swaps that are not designated as hedging instruments for accounting purposes. The changes in the fair values of these contracts are immediately recognized in interest income and other, net on our consolidated statements of earnings. Normal Purchase Normal Sale We enter into fixed-price and price-to-be-fixed green coffee purchase commitments, which are described further in Note 5 , Inventories. For both fixed-price and price-to-be-fixed purchase commitments, we expect to take delivery of green coffee and to utilize the coffee in a reasonable period of time in the ordinary course of business. Since these types of purchase commitments qualify for the normal purchase normal sale exemption, they are not recorded as derivative instruments on our consolidated balance sheets. 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 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. 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. Inventories Inventories are stated at the lower of cost (primarily moving average cost) or net realizable value. We record inventory reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method. As of October 3, 2021 and September 27, 2020, inventory reserves were $ 36.6 million and $ 48.4 million , respectively. Property, Plant and Equipment Property, plant and equipment is carried at cost less accumulated depreciation. Cost includes all direct costs necessary to acquire and prepare assets for use, including internal labor and overhead in some cases. Depreciation is computed using the straight-line method over estimated useful lives of the assets, generally ranging from 2 to 15 years for equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years. For leases with renewal periods at our option, we generally use the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of the appropriate estimated useful lives. The portion of depreciation expense related to production and distribution facilities is included in 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 50 Table of Contents 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. We evaluate property, plant and equipment for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The fair value of the asset is estimated using a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections. Property, plant and equipment assets and ROU assets related to the store lease are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level. 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. Leases The majority of our leases are operating leases for our company-operated retail store locations. We also lease, among other things, roasting, distribution and warehouse facilities and office space for corporate administrative purposes. We categorize leases as either operating or finance leases at the commencement date of the lease. Operating lease agreements may contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component for all underlying classes of assets. We recognize a ROU asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term. Our leases often include options to extend or terminate at our sole discretion, which are included in the determination of lease term when they are reasonably certain to be exercised. Our lease liability represents the present value of future lease payments over the lease term. Given our policy election to combine lease and non-lease components, we also consider fixed common area maintenance (“CAM”) part of our fixed future lease payments; therefore, fixed CAM is also included in our lease liability. We cannot determine the interest rate implicit in each of our leases. Therefore, we use market and term-specific incremental borrowing rates. Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not borrow on a collateralized basis, we consider a combination of factors, including our credit-adjusted risk-free interest rate, the risk profile and funding cost of the specific geographic market of the lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral. Our credit-adjusted risk-free rate takes into consideration interest rates we pay on our unsecured long-term bonds as well as quoted interest rates obtained from financial institutions. Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs. Most of our real estate leases require we pay certain expenses, such as CAM costs, real estate taxes and other executory costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs also include amounts based on a percentage of gross sales in excess of specified levels and are recognized when probable and are not included in determining the present value of our lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. A significant majority of our leases are related to our company-operated stores, and their related costs are recorded within store operating expenses. The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, initial direct costs and any tenant improvement allowances received. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the 51 Table of Contents shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required. During fiscal 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. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we elected to treat COVID-19-related rent concessions as variable rent. Rent concessions were recognized as an offset to our rent expense within store operating expenses on our consolidated statement of earnings. See Note 10 , Leases, for additional details. Additionally, for the 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. Goodwill 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. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit. Fair value is typically calculated using a discounted cash flow model. For certain reporting units, where deemed appropriate, we may also utilize a market approach for estimating fair value. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. As part of our ongoing operations, we may close certain stores within a reporting unit containing goodwill due to underperformance of the store or inability to renew our lease, among other reasons. We may abandon certain assets associated with a closed store, including leasehold improvements and other non-transferable assets. When a portion of a reporting unit that constitutes a business is to be disposed of, goodwill associated with the business is included in the carrying amount of the business in determining any loss on disposal. Our evaluation of whether the portion of a reporting unit being disposed of constitutes a business occurs on the date of abandonment. Although an operating store meets the accounting definition of a business prior to abandonment, it does not constitute a business on the closure date because the remaining assets on that date do not constitute an integrated set of activities (substantive processes) and assets that are capable of being managed for the purpose of providing a return to investors. 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 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. Other Intangible Assets Other intangible assets include finite-lived intangible assets, which mainly consist of acquired and reacquired rights, trade secrets, licensing agreements, contract-based patents and copyrights. These assets are amortized over their estimated useful lives and are tested for impairment using a similar methodology to our property, plant and equipment, as described above. Indefinite-lived intangibles, which consist primarily of trade names and trademarks, are tested for impairment annually during the third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. When evaluating other intangible assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that an intangible asset group is impaired. If we do not perform the qualitative assessment, or if we determine that it is not more likely than not that the fair value of the intangible asset group exceeds its carrying amount, we calculate the estimated fair value of the intangible asset group. Fair value is the price a willing buyer would pay for the intangible asset group and is typically calculated using an income approach, such as a relief-from-royalty model. If the carrying amount of the intangible asset group exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. 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 impairments charges recorded during fiscal 2019. See Note 8 , Other Intangible Assets and Goodwill, for further information. 52 Table of Contents Insurance Reserves We use a combination of insurance and self-insurance mechanisms, including a wholly-owned captive insurance entity and participation in a reinsurance treaty, to provide for the potential liabilities for certain risks, including workers’ compensation, healthcare benefits, general liability, property insurance and director and officers’ liability insurance. Liabilities associated with the risks that are retained by us are not discounted and are estimated, in part, by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions. Revenue Recognition Consolidated revenues are presented net of intercompany eliminations for wholly-owned subsidiaries and investees controlled by us and for product sales to and royalty and other fees from licensees accounted for under the equity method. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates. Company-operated Store Revenues Company-operated store revenues are recognized when payment is tendered at the point of sale as the performance obligation has been satisfied. Company-operated store revenues are reported excluding sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities. Licensed Store Revenues Licensed store revenues consist of product and equipment sales, royalties and other fees paid by licensees using the Starbucks brand. Sales of coffee, tea, food and related products are generally recognized upon shipment to licensees, depending on contract terms. Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in product and distribution costs on our consolidated statements of earnings. We consider pre-opening services, including site evaluation and selection, store architectural/design and development and operational training, to be performance obligations that are separate from the license to operate under the Starbucks brand. These services provide distinct value to our licensees, including business and industry insight and knowledge that transfers value apart from the license. Revenues associated with pre-opening services are recognized upon completion of the related performance obligations, generally when a store is opened. Royalty revenues are recognized based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized as the performance obligations are met. Stored Value Cards Stored value cards can be activated through various channels, including at our company-operated and most licensed store locations, online at Starbucks.com or via mobile devices held by our customers and at certain other third-party websites and locations, such as grocery stores, although they cannot be reloaded at these third-party websites or locations. Amounts loaded onto stored value cards are initially recorded as deferred revenue and recognized as revenue upon redemption. Historically, the majority of stored value cards are redeemed within one year. In many of our company-owned markets, including the U.S., our stored value cards do not have an expiration date nor do we charge service fees that cause a decrement to customer balances. Based on historical redemption rates, a portion of stored value cards is not expected to be redeemed and will be recognized as breakage over time in proportion to stored value card redemptions. The redemption rates are based on historical redemption patterns for each market, including the timing and business channel in which the card was activated 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. 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. 53 Table of Contents 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”) 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. and Canada. 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. We defer revenue associated with the estimated selling price of Stars earned by Starbucks ® Rewards members towards free product as each Star is earned and a corresponding liability is established in deferred revenue. This deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed Stars. Stars generally expire after six months. When a customer redeems an earned reward, we recognize revenue for the redeemed product and reduce the related deferred revenue. Other Revenues Other revenues primarily include royalty revenues, sales of packaged coffee, tea and a variety of ready-to-drink beverages and single-serve coffee and tea products to customers outside of our company-operated and licensed stores. Sales of these products are generally recognized upon shipment to customers, depending on contract terms. 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. Deferred Revenues Our deferred revenue primarily consists of the up-front prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, and our unredeemed stored value card liability and unredeemed Stars associated with our loyalty program. See Note 11 , Deferred Revenue, for further information. Disaggregation of Revenues Revenues disaggregated by segment, product type and geographic area are disclosed in Note 17 , Segment Reporting. Product and Distribution Costs Product and distribution costs primarily consist of raw materials, purchased goods and packaging costs as well as operational costs of our supply chain organization, such as wages and benefits, occupancy costs and depreciation expenses, in support of sourcing, procuring, manufacturing, warehousing and transportation activities of products sold at our company-operated and licensed stores as well as through Channel Development and our other businesses. Also included are inventory and supply chain asset impairment costs. Store Operating Expenses Store operating expenses consist of costs incurred in our company-operated stores, primarily wages and benefits related to store partners (employees), occupancy costs and other costs that directly support the operation and sales-related activities of those stores. General and Administrative Expenses General and administrative expenses primarily consist of wages and benefits, professional service fees and occupancy costs for corporate headquarter and regional offices that support our corporate functions, including technology, finance, legal and partner resources . Advertising We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising takes place. Advertising expenses totaled $ 305.1 million, $ 258.8 million and $ 245.7 million in fiscal 2021, 2020 and 2019, respectively. 54 Table of Contents Government Subsidies On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future. Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) to help employers offset a portion of their employee wages for a limited period. We elected to treat qualified government subsidies from the U.S., Canada and other governments as offsets to the related operating expenses. 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. Store Preopening Expenses Costs incurred in connection with the start-up and promotion of new company-operated store openings are expensed as incurred. Asset Retirement Obligations We recognize a liability for the fair value of required asset retirement obligations (“ARO”) when such obligations are incurred. Our AROs are primarily associated with leasehold improvements, which, at the end of a lease, we are contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, we record an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. We estimate the liability using a number of assumptions, including store closing costs, cost inflation rates and discount rates, and accrete the liability to its projected future value over time. The capitalized asset is depreciated using the same depreciation convention as leasehold improvement assets. 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 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 We maintain several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”) or stock appreciation rights to employees, non-employee directors and consultants. We also have an employee stock purchase plan (“ESPP”). RSUs issued by us are equivalent to nonvested shares under the applicable accounting guidance. We record stock-based compensation expense based on the fair value of stock awards at the grant date and recognize the expense over the related service period following a graded vesting expense schedule. Expense for performance-based RSUs is recognized when it is probable the performance goal will be achieved. Performance goals are determined by the Board of Directors and may include measures such as earnings per share, operating income and return on invested capital. The fair value of each stock option granted is estimated on the grant date using the Black-Scholes-Merton option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our historical experience. 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 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. Foreign Currency Translation Our international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are reported as a component of OCI and recorded in AOCI on our consolidated balance sheets. 55 Table of Contents Income Taxes 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. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized. In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available. Starbucks recognizes interest and penalties related to income tax matters in income tax expense on our consolidated statements of earnings. Accrued interest and penalties are included within the related tax balances on our consolidated balance sheets. Global intangible low-taxed income (“GILTI”) provisions are applied, providing an incremental tax on foreign income. We have made a policy election to classify taxes due under the GILTI provision as a current period expense. Earnings per Share Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock and the effect of dilutive potential common shares outstanding during the period, calculated using the treasury stock method. Dilutive potential common shares include outstanding stock options and RSUs. Performance-based RSUs are considered dilutive when the related performance criterion has been met. 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 Exchange Act. 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 (deficit). Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements 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 In March 2020, the FASB issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We expect to adopt the guidance and begin transitioning from 56 Table of Contents 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. Note 2: Acquisitions, Divestitures and Strategic Alliance Fiscal 2021 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. Fiscal 2019 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. Ltd, converting this operation to a fully licensed market. This transaction resulted in a pre-tax gain of $ 601.9 million, which was included in net gains resulting from divestiture of certain operations on our consolidated statements of earnings. In the second quarter of fiscal 2019, we sold our company-operated retail businesses in France and the Netherlands to Alsea, S.A.B. de C.V. converting these operations to fully licensed markets. These transactions did not have a material impact on our consolidated financial statements. Note 3: Derivative Financial Instruments Interest Rates From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in AOCI and is subsequently reclassified to interest expense over the life of the related debt. To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 9 , Debt, for additional information on our long-term debt. Foreign Currency To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases and intercompany borrowing and lending activities. The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, product and distribution costs, or interest income and other, net, respectively, when the hedged exposures affect net earnings. From time to time, we may enter into financial instruments, including, but not limited to, forward and swap contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated. Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables and receivables; these gains and losses are recorded in interest income and other, net. Commodities Depending on market conditions, we may enter into coffee forward contracts, futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5 , Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings. Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand. The resulting gains or losses are 57 Table of Contents recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings. Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the underlying transactions are no longer probable of occurring, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings. There were no significant cash flow hedge de-designations in fiscal 2021. During the second and third quarters of fiscal 2020, we de-designated certain cash flow hedges due to the global COVID-19 impacts, which resulted in the release of an insignificant net gain from AOCI to our consolidated statement of earnings. To mitigate the price uncertainty of a portion of our future purchases, including diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in product and distribution costs on our consolidated statements of earnings. Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax ( in millions ): Net Gains/(Losses) Included in AOCI Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months Outstanding Contract/Debt Remaining Maturity (Months) Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Cash Flow Hedges: Coffee $ 197.8 $ ( 2.5 ) $ ( 1.0 ) $ 117.4 8 Cross-currency swaps 4.4 5.2 ( 1.4 ) — 38 Dairy ( 0.4 ) 0.5 — ( 0.4 ) 11 Foreign currency - other 1.3 5.3 12.9 ( 0.6 ) 34 Interest rates ( 44.8 ) ( 90.6 ) 0.5 ( 1.6 ) 133 Net Investment Hedges: Cross-currency swaps 37.9 32.6 — — 96 Foreign currency 16.0 16.0 16.0 — 0 Foreign currency debt ( 5.3 ) ( 37.1 ) ( 26.1 ) — 30 58 Table of Contents Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in OCI and reclassifications from AOCI to earnings ( in millions ): Year Ended Gains/(Losses) Recognized in OCI Before Reclassifications Gains/(Losses) Reclassified from AOCI to Earnings Location of gain/(loss) Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Cash Flow Hedges: Coffee $ 223.5 $ ( 1.2 ) $ ( 1.2 ) $ ( 3.5 ) $ 0.5 $ ( 0.3 ) Product and distribution costs Cross-currency swaps 13.7 4.4 ( 5.9 ) 1.9 2.3 0.1 Interest expense 12.7 ( 6.1 ) ( 19.8 ) Interest income and other, net Dairy 0.5 3.0 — 1.7 4.0 — Product and distribution costs — ( 1.7 ) — Interest income and other, net (1) Foreign currency - other ( 10.0 ) ( 6.4 ) 20.8 1.8 5.5 7.0 Licensed stores revenues ( 7.3 ) ( 8.7 ) 4.4 Product and distribution costs — 6.1 — Interest income and other, net (1) 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 debt 42.6 ( 18.1 ) ( 39.8 ) — — — (1) As a result of the global COVID-19 impacts, we discontinued cash flow hedges during the year ended September 27, 2020. Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings ( in millions ): Gains/(Losses) Recognized in Earnings Location of gain/(loss) recognized in earnings Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Non-Designated Derivatives: Dairy Interest income and other, net $ — $ — $ ( 1.9 ) Diesel fuel and other commodities Interest income and other, net 2.6 ( 8.8 ) ( 5.9 ) Foreign currency - other Interest income and other, net 7.5 0.3 ( 8.1 ) Fair Value Hedges: Interest rate swap Interest expense ( 0.5 ) 28.7 54.7 Long-term debt (hedged item) Interest expense 14.0 ( 23.8 ) ( 50.7 ) Notional amounts of outstanding derivative contracts (in millions) : Oct 3, 2021 Sep 27, 2020 Coffee $ 481 $ 63 Cross-currency swaps 806 870 Dairy 53 61 Diesel fuel and other commodities 10 5 Foreign currency - other 1,009 1,140 Interest rate swaps 1,250 1,750 59 Table of Contents Fair value of outstanding derivative contracts ( in millions ) including the location of the asset and/or liability on the consolidated balance sheets: Derivative Assets Balance Sheet Location Oct 3, 2021 Sep 27, 2020 Designated Derivative Instruments: Coffee Prepaid expenses and other current assets $ 130.5 $ 2.6 Cross-currency swaps Other long-term assets 54.7 37.7 Dairy Prepaid expenses and other current assets 0.8 2.1 Foreign currency - other Prepaid expenses and other current assets 8.9 8.6 Other long-term assets 6.9 3.8 Interest rate swap Other long-term assets 22.7 45.8 Non-designated Derivative Instruments: Diesel fuel and other commodities Prepaid expenses and other current assets 0.1 — Foreign currency Prepaid expenses and other current assets 7.3 2.3 Derivative Liabilities Balance Sheet Location Oct 3, 2021 Sep 27, 2020 Designated Derivative Instruments: Coffee Accrued liabilities $ — $ 1.4 Other long-term liabilities — 0.1 Cross-currency swaps Other long-term liabilities 3.3 7.3 Dairy Accrued liabilities 0.9 1.4 Foreign currency - other Accrued liabilities 7.4 1.6 Other long-term liabilities 3.6 2.6 Interest rates Other long-term liabilities 1.3 69.3 Non-designated Derivative Instruments: Dairy Accrued liabilities 0.2 — Diesel fuel and other commodities Accrued liabilities — 1.7 Foreign currency Accrued liabilities 0.1 1.2 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships: Carrying amount of hedged item Cumulative amount of fair value hedging adjustment included in the carrying amount Oct 3, 2021 Sep 27, 2020 Oct 3, 2021 Sep 27, 2020 Location on the balance sheet Long-term debt $ 771.7 $ 785.6 $ 21.7 $ 35.6 Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 12 , Equity . 60 Table of Contents Note 4: Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions): Fair Value Measurements at Reporting Date Using Balance at October 3, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 6,455.7 $ 6,455.7 $ — $ — Short-term investments: Available-for-sale debt securities Commercial paper 63.0 — 63.0 — Corporate debt securities 24.7 — 24.7 — Mortgage and other asset-backed securities 0.1 — 0.1 — Total available-for-sale debt securities 87.8 — 87.8 — Marketable equity securities 74.4 74.4 — — Total short-term investments 162.2 74.4 87.8 — Prepaid expenses and other current assets: Derivative assets 147.6 131.1 16.5 — Long-term investments: Available-for-sale debt securities Auction rate securities 6.0 — — 6.0 Corporate debt securities 162.0 — 162.0 — Foreign government obligations 4.0 — 4.0 — Mortgage and other asset-backed securities 31.9 — 31.9 — State and local government obligations 1.5 — 1.5 — U.S. government treasury securities 76.3 76.3 — — Total long-term investments 281.7 76.3 199.4 6.0 Other long-term assets: Derivative assets 84.3 — 84.3 — Total assets $ 7,131.5 $ 6,737.5 $ 388.0 $ 6.0 Liabilities: Accrued liabilities: Derivative liabilities $ 8.6 $ 0.3 $ 8.3 $ — Other long-term liabilities: Derivative liabilities 8.2 — 8.2 — Total liabilities $ 16.8 $ 0.3 $ 16.5 $ — 61 Table of Contents Fair Value Measurements at Reporting Date Using Balance at September 27, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 4,350.9 $ 4,350.9 $ — $ — Short-term investments: Available-for-sale debt securities Certificates of deposit 1.6 — 1.6 — Commercial paper 66.8 — 66.8 — Corporate debt securities 123.6 — 123.6 — Foreign government obligations 8.5 — 8.5 — Mortgage and other asset-backed securities 15.8 — 15.8 — Total available-for-sale debt securities 216.3 — 216.3 — Marketable equity securities 64.9 64.9 — — Total short-term investments 281.2 64.9 216.3 — Prepaid expenses and other current assets: Derivative assets 15.6 3.6 12.0 — Long-term investments: Available-for-sale debt securities Auction rate securities 5.7 — — 5.7 Corporate debt securities 82.6 — 82.6 — Mortgage and other asset-backed securities 19.3 — 19.3 — State and local government obligations 3.6 — 3.6 — U.S. government treasury securities 94.9 94.9 — — Total long-term investments 206.1 94.9 105.5 5.7 Other long-term assets: Derivative assets 87.3 — 87.3 — Total assets $ 4,941.1 $ 4,514.3 $ 421.1 $ 5.7 Liabilities: Accrued liabilities: Derivative liabilities $ 7.3 $ 1.9 $ 5.4 $ — Other long-term liabilities: Derivative liabilities 79.3 0.1 79.2 — Total $ 86.6 $ 2.0 $ 84.6 $ — There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists. Available-for-sale Debt Securities 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 October 3, 2021 and September 27, 2020. 62 Table of Contents Marketable Equity Securities Marketable equity securities include equity mutual funds and exchange-traded funds. Our marketable equity securities portfolio approximates a portion of our liability under our MDCP, a defined contribution plan. 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 October 3, 2021 and September 27, 2020. Derivative Assets and Liabilities Derivative assets and liabilities include foreign currency forward contracts, commodity futures contracts, collars and swaps, which are described further in Note 3 , Derivative Financial Instruments. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. These assets are measured at fair value if determined to be impaired. Impairment of property, plant and equipment and ROU assets is included in Note 1 , Summary of Significant Accounting Policies. 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 The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 9 , Debt. Note 5: Inventories (in millions) Oct 3, 2021 Sep 27, 2020 Coffee: Unroasted $ 670.3 $ 664.7 Roasted 233.5 223.5 Other merchandise held for sale 329.3 293.9 Packaging and other supplies 370.8 369.3 Total $ 1,603.9 $ 1,551.4 Other merchandise held for sale includes, among other items, serveware, food and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations. As of 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. See Note 3 , Derivative Financial Instruments for further discussion. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on 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 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 fiscal year ended October 3, 2021. 63 Table of Contents Note 6: Equity Investments (in millions) Oct 3, 2021 Sep 27, 2020 Equity method investments $ 216.0 $ 426.4 Other investments 52.5 52.3 Total $ 268.5 $ 478.7 Equity Method Investments 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. Also included in this line item is our proportionate share of gross profit resulting from coffee and other product sales to, and royalty and license fee revenues generated from, equity investees. Revenues generated from these entities were $ 160.8 million, $ 123.9 million and $ 130.7 million in fiscal 2021, 2020 and 2019, respectively. 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 We have equity interests in entities that develop and operate Starbucks licensed stores in several global markets, as well as in companies that support our strategic initiatives. We do not have significant influence over these entities and their fair values are not readily determinable. Therefore, we elected to measure these investments at cost with adjustments for observable changes in price or impairment. 64 Table of Contents Note 7: Supplemental Balance Sheet and Statement of Earnings Information (in millions) Prepaid Expenses and Other Current Assets Oct 3, 2021 Sep 27, 2020 Income tax receivable $ 20.7 $ 356.9 Government subsidies receivable 172.4 155.1 Other prepaid expenses and current assets 401.5 227.5 Total prepaid expenses and current assets $ 594.6 $ 739.5 Property, Plant and Equipment, net Oct 3, 2021 Sep 27, 2020 Land $ 46.2 $ 46.0 Buildings 587.6 586.8 Leasehold improvements 8,637.6 8,262.6 Store equipment 2,934.1 2,800.3 Roasting equipment 857.2 796.6 Furniture, fixtures and other 1,392.0 1,285.7 Work in progress 374.1 377.3 Property, plant and equipment, gross 14,828.8 14,155.3 Accumulated depreciation ( 8,459.3 ) ( 7,913.9 ) Property, plant and equipment, net $ 6,369.5 $ 6,241.4 Accrued Liabilities Oct 3, 2021 Sep 27, 2020 Accrued occupancy costs $ 107.1 $ 76.9 Accrued dividends payable 578.1 — Accrued capital and other operating expenditures 840.7 677.2 Self-insurance reserves 229.3 243.9 Accrued business taxes 218.0 162.7 Total accrued liabilities $ 1,973.2 $ 1,160.7 Store Operating Expenses Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Wages and benefits $ 6,989.3 $ 6,131.9 $ 5,941.7 Occupancy costs 2,561.5 2,388.0 2,411.2 Other expenses 2,380.1 2,244.1 2,140.7 Total store operating expenses $ 11,930.9 $ 10,764.0 $ 10,493.6 65 Table of Contents Note 8: Other Intangible Assets and Goodwill Indefinite-Lived Intangible Assets (in millions) Oct 3, 2021 Sep 27, 2020 Trade names, trademarks and patents $ 96.4 $ 95.0 Finite-Lived Intangible Assets Oct 3, 2021 Sep 27, 2020 (in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Acquired and reacquired rights $ 1,141.5 $ ( 971.9 ) $ 169.6 $ 1,116.1 $ ( 765.0 ) $ 351.1 Acquired trade secrets and processes 27.6 ( 24.8 ) 2.8 27.6 ( 22.0 ) 5.6 Trade names, trademarks and patents 126.3 ( 51.9 ) 74.4 124.8 ( 32.1 ) 92.7 Licensing agreements 18.8 ( 13.5 ) 5.3 16.6 ( 15.0 ) 1.6 Other finite-lived intangible assets 24.0 ( 22.6 ) 1.4 22.8 ( 16.7 ) 6.1 Total finite-lived intangible assets $ 1,338.2 $ ( 1,084.7 ) $ 253.5 $ 1,307.9 $ ( 850.8 ) $ 457.1 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. 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 2022 $ 194.3 2023 21.0 2024 20.4 2025 14.4 2026 1.4 Thereafter 2.0 Total estimated future amortization expense $ 253.5 Goodwill Changes in the carrying amount of goodwill by reportable operating segment (in millions) : North America (1) International (1) Channel Development Corporate and Other Total Goodwill balance at September 29, 2019 $ 492.0 $ 2,963.1 $ 34.7 $ 1.0 $ 3,490.8 Other (2) ( 0.2 ) 106.6 — — 106.4 Goodwill balance at September 27, 2020 $ 491.8 $ 3,069.7 $ 34.7 $ 1.0 $ 3,597.2 Other (2) 1.4 78.6 — 0.1 80.1 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. 66 Table of Contents Note 9: Debt Revolving Credit Facility 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 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 Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $ 3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our credit facility discussed above. The proceeds from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other corporate purposes, including, but not limited to, business expansion, payment of cash dividends on our common stock and share repurchases. As of 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 %. • 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 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. 67 Table of Contents 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): 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) — — 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 % March 2023 notes 1,000.0 1,035.9 1,000.0 1,058.8 3.100 % 3.107 % October 2023 notes (3) 750.0 794.8 750.0 817.5 3.850 % 2.859 % March 2024 notes (4) 763.8 761.0 806.4 794.4 0.372 % 0.462 % August 2025 notes 1,250.0 1,371.5 1,250.0 1,414.5 3.800 % 3.721 % June 2026 notes 500.0 526.4 500.0 542.6 2.450 % 2.511 % March 2027 notes 500.0 513.0 500.0 528.9 2.000 % 2.058 % March 2028 notes 600.0 663.2 600.0 679.5 3.500 % 3.529 % November 2028 notes 750.0 855.9 750.0 886.0 4.000 % 3.958 % August 2029 notes 1,000.0 1,109.9 1,000.0 1,147.1 3.550 % 3.840 % March 2030 notes 750.0 758.6 750.0 778.0 2.250 % 3.084 % November 2030 notes 1,250.0 1,286.9 1,250.0 1,325.9 2.550 % 2.582 % June 2045 notes 350.0 414.1 350.0 412.4 4.300 % 4.348 % December 2047 notes 500.0 556.5 500.0 546.6 3.750 % 3.765 % November 2048 notes 1,000.0 1,248.6 1,000.0 1,222.8 4.500 % 4.504 % August 2049 notes 1,000.0 1,241.0 1,000.0 1,215.5 4.450 % 4.447 % March 2050 notes 500.0 527.5 500.0 517.1 3.350 % 3.362 % November 2050 notes 1,250.0 1,339.5 1,250.0 1,332.2 3.500 % 3.528 % Total 14,713.8 16,014.1 16,006.4 17,498.7 Aggregate debt issuance costs and unamortized premium/(discount), net ( 119.7 ) ( 132.5 ) Hedge accounting fair value adjustment (3) 21.7 35.6 Total $ 14,615.8 $ 15,909.5 (1) Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge 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. Refer to Note 3 , Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge. (4) Japanese yen-denominated long-term debt. 68 Table of Contents The following table summarizes our long-term debt maturities as of October 3, 2021 by fiscal year ( in millions ): Fiscal Year Total 2022 $ 1,000.0 2023 1,000.0 2024 1,513.8 2025 1,250.0 2026 500.0 Thereafter 9,450.0 Total $ 14,713.8 Note 10: Leases 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) : Year Ended Oct 3, 2021 Sep 27, 2020 Operating lease costs (1) $ 1,579.2 $ 1,573.6 Variable lease costs 949.6 833.4 Short-term lease costs 30.9 34.1 Total lease costs $ 2,559.7 $ 2,441.1 (1) Includes immaterial amounts of sublease income and rent concessions. The following table includes supplemental information (in millions) : Year Ended 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) 1,590.3 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 October 3, 2021 and September 27, 2020. 69 Table of Contents Minimum future maturities of operating lease liabilities (in millions) : Fiscal Year Total 2022 $ 1,504.6 2023 1,441.3 2024 1,310.2 2025 1,156.6 2026 1,012.5 Thereafter 3,704.7 Total lease payments 10,129.9 Less imputed interest ( 1,140.6 ) Total $ 8,989.3 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) : Year Ended Sep 29, 2019 Minimum rent $ 1,441.7 Contingent rent 224.3 Total 1,666.0 We have subleases related to certain of our operating leases. 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 was recorded in restructuring and impairments on the consolidated statement of earnings in fiscal 2019. 70 Table of Contents Note 11: Deferred Revenue In the fourth quarter of fiscal 2018, we licensed the rights to sell and market our products in authorized channels through the Global Coffee Alliance and received an up-front prepaid royalty from Nestlé. The up-front payment of approximately $ 7 billion was recorded as deferred revenue as we have continuing performance obligations to support the Global Coffee Alliance, including providing Nestlé access to certain intellectual properties and products for future resale. The up-front payment 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 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 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 October 3, 2021 Total Stored value cards and loyalty program at September 27, 2020 $ 1,280.5 Revenue deferred - card activations, card reloads and Stars earned 12,563.4 Revenue recognized - card and Stars redemptions and breakage ( 12,401.7 ) Other (1) 6.3 Stored value cards and loyalty program at October 3, 2021 (2) $ 1,448.5 Fiscal Year Ended September 27, 2020 Total Stored value cards and loyalty program at September 29, 2019 $ 1,113.7 Revenue deferred - card activations, card reloads and Stars earned 10,527.7 Revenue recognized - card and Stars redemptions and breakage ( 10,367.9 ) Other (1) 7.0 Stored value cards and loyalty program at September 27, 2020 (2) $ 1,280.5 (1) “Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation. (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 . Note 12: Equity 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 October 3, 2021. In March 2019, we entered into ASR agreements with third-party financial institutions totaling $ 2.0 billion, effective March 22, 2019. We made a $ 2.0 billion up-front payment to the financial institutions and received an initial delivery of 22.2 million shares. In June 2019 , we received an additional 3.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of $ 76.50 . Outside of the ASR agreements noted above, we repurchased 36.6 million shares of common stock for $ 3.1 billion on the open market during the year ended September 29, 2019. In total, we repurchased 139.6 million shares at a total cost of $ 10.1 billion for the year ended September 29, 2019. Our Board of Directors authorized the repurchase of up to an additional 120 million and 40 million shares under our ongoing share repurchase program during the fiscal first quarter of 2019 and fiscal second quarter of 2020, respectively. 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. 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. 71 Table of Contents 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 Comprehensive income includes all changes in equity during the period, except those resulting from transactions with our shareholders. Comprehensive income is comprised of net earnings and other comprehensive income. 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 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 October 3, 2021 Net gains/(losses) in AOCI, beginning of period $ 5.7 $ ( 82.1 ) $ 11.5 $ ( 299.7 ) $ ( 364.6 ) Net gains/(losses) recognized in OCI before reclassifications ( 2.7 ) 240.2 47.1 190.4 475.0 Net (gains)/losses reclassified from AOCI to earnings ( 1.5 ) 0.2 ( 10.0 ) 48.1 36.8 Other comprehensive income/(loss) attributable to Starbucks ( 4.2 ) 240.4 37.1 238.5 511.8 Net gains/(losses) in AOCI, end of period $ 1.5 $ 158.3 $ 48.6 $ ( 61.2 ) $ 147.2 (in millions) Available-for-Sale Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total September 27, 2020 Net gains/(losses) in AOCI, beginning of period $ 3.9 $ 11.0 $ ( 10.1 ) $ ( 508.1 ) $ ( 503.3 ) Net gains/(losses) recognized in OCI before reclassifications 6.5 ( 95.0 ) 28.9 208.4 148.8 Net (gains)/losses reclassified from AOCI to earnings ( 4.0 ) ( 1.1 ) ( 9.8 ) — ( 14.9 ) Other comprehensive income/(loss) attributable to Starbucks 2.5 ( 96.1 ) 19.1 208.4 133.9 Cumulative effect of accounting adoption ( 0.7 ) 3.0 2.5 — 4.8 Net gains/(losses) in AOCI, end of period $ 5.7 $ ( 82.1 ) $ 11.5 $ ( 299.7 ) $ ( 364.6 ) (in millions) Available-for-Sale Securities Cash Flow Hedges Net Investment Hedges Translation Adjustment and Other Total September 29, 2019 Net gains/(losses) in AOCI, beginning of period $ ( 4.9 ) $ 17.7 $ 19.6 $ ( 362.7 ) $ ( 330.3 ) Net gains/(losses) recognized in OCI before reclassifications 8.2 ( 10.7 ) ( 29.7 ) ( 143.7 ) ( 175.9 ) Net (gains)/losses reclassified from AOCI to earnings 0.6 4.0 — ( 1.7 ) 2.9 Other comprehensive income/(loss) attributable to Starbucks 8.8 ( 6.7 ) ( 29.7 ) ( 145.4 ) ( 173.0 ) Net gains/(losses) in AOCI, end of period $ 3.9 $ 11.0 $ ( 10.1 ) $ ( 508.1 ) $ ( 503.3 ) 72 Table of Contents Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions) : AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Statements of Earnings Year Ended 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 Gains/(losses) on cash flow hedges 1.9 1.9 ( 3.9 ) Please refer to Note 3 , Derivative Instruments for additional information. Gains/(losses) on net investment hedges 13.4 13.3 — Interest expense 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 ( 41.8 ) 20.1 ( 1.3 ) Total before tax 5.0 ( 5.2 ) ( 1.6 ) Tax (expense)/benefit $ ( 36.8 ) $ 14.9 $ ( 2.9 ) Net of tax (1) Release of cumulative translation adjustments and other activities to earnings upon sale or liquidation of foreign businesses. Note 13: Employee Stock and Benefit Plans We maintain several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSUs”) or stock appreciation rights to employees, non-employee directors and consultants. We issue new shares of common stock upon exercise of stock options and the vesting of RSUs. We also have an employee stock purchase plan (“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 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 Total related tax benefit $ 51.6 $ 47.8 $ 59.3 Total capitalized stock-based compensation included in net property, plant and equipment on the consolidated balance sheets $ 3.7 $ 3.6 $ 3.4 RSUs 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. 73 Table of Contents RSU transactions for the year ended October 3, 2021 (in millions, except per share and contractual life amounts) : Number of Shares Weighted Average Grant Date Fair Value per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value 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 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. Options granted to non-employee directors generally vest immediately or one year from grant. All outstanding stock options are non-qualified stock options. The fair value of stock option awards was estimated at the grant date with the following weighted average assumptions for fiscal 2021, 2020 and 2019: Stock Options Granted During the Period Fiscal Year Ended 2021 2020 2019 Expected term (in years) 8.1 7.8 4.1 Expected stock price volatility 26.3 % 27.3 % 21.6 % Risk-free interest rate 1.4 % 1.2 % 2.9 % Expected dividend yield 1.6 % 2.9 % 2.1 % Weighted average grant price $ 110.46 $ 56.33 $ 67.33 Estimated fair value per option granted $ 27.59 $ 11.30 $ 11.06 The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on a combination of historical volatility of our stock and the one-year implied volatility of Starbucks traded options, for the related vesting periods. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The dividend yield assumption is based on our anticipated cash dividend payouts. 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. 74 Table of Contents Stock option transactions for the year ended October 3, 2021 (in millions, except per share and contractual life amounts) : Shares Subject to Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding, September 27, 2020 9.2 $ 53.06 5.4 $ 286 Granted 0.0 110.46 Exercised ( 4.0 ) 51.31 Expired/forfeited 0.0 56.69 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 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. ESPP 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. The purchase price is 95 % of the fair market value of the stock on the last business day of the quarterly offering period. The number of shares issued under our ESPP was 0.5 million in fiscal 2021. Deferred Compensation Plan We have a Deferred Compensation Plan for Non-Employee Directors under which non-employee directors may, for any fiscal year, irrevocably elect to defer receipt of shares of common stock the director would have received upon vesting of restricted stock units. The number of deferred shares outstanding related to deferrals made under this plan is not material. Defined Contribution Plans We maintain voluntary defined contribution plans, both qualified and non-qualified, covering eligible employees as defined in the plan documents. Participating employees may elect to defer and contribute a portion of their eligible compensation to the plans up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. Our matching contributions to all U.S. and non-U.S. plans were $ 145.1 million, $ 132.7 million and $ 122.1 million in fiscal 2021, 2020 and 2019, respectively. Note 14: Income Taxes Components of earnings before income taxes (in millions): Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 United States $ 4,138.5 $ 904.6 $ 3,518.7 Foreign 1,218.4 259.8 947.5 Total earnings before income taxes $ 5,356.9 $ 1,164.4 $ 4,466.2 75 Table of Contents Provision/(benefit) for income taxes (in millions): Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Current taxes: U.S. federal $ 681.8 $ 49.9 $ 1,414.3 U.S. state and local 190.0 36.9 447.8 Foreign 409.8 181.4 458.3 Total current taxes 1,281.6 268.2 2,320.4 Deferred taxes: U.S. federal 10.4 ( 8.4 ) ( 1,074.5 ) U.S. state and local ( 6.4 ) ( 4.8 ) ( 322.4 ) Foreign ( 129.0 ) ( 15.3 ) ( 51.9 ) Total deferred taxes ( 125.0 ) ( 28.5 ) ( 1,448.8 ) Total income tax expense $ 1,156.6 $ 239.7 $ 871.6 Reconciliation of the statutory U.S. federal income tax rate with our effective income tax rate: Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 2.7 2.2 2.1 Foreign rate differential 0.5 ( 3.2 ) ( 0.1 ) Change in tax rates ( 1.3 ) ( 2.2 ) — 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 ) Other, net 0.3 0.1 ( 0.3 ) Effective tax rate 21.6 % 20.6 % 19.5 % 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. 76 Table of Contents Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions): Oct 3, 2021 Sep 27, 2020 Deferred tax assets: Operating lease liabilities $ 2,395.2 $ 2,313.0 Stored value card liability and deferred revenue 1,679.4 1,678.6 Intangible assets and goodwill 317.7 248.6 Other 641.0 554.4 Total $ 5,033.3 $ 4,794.6 Valuation allowance ( 275.3 ) ( 239.4 ) Total deferred tax asset, net of valuation allowance $ 4,758.0 $ 4,555.2 Deferred tax liabilities: Operating lease, right-of-use assets ( 2,296.5 ) ( 2,191.8 ) Property, plant and equipment ( 451.2 ) ( 463.3 ) Other ( 284.0 ) ( 268.3 ) Total ( 3,031.7 ) ( 2,923.4 ) Net deferred tax asset (liability) $ 1,726.3 $ 1,631.8 Reported as: Deferred income tax assets 1,874.8 1,789.9 Deferred income tax liabilities (included in Other long-term liabilities) ( 148.5 ) ( 158.1 ) Net deferred tax asset (liability) $ 1,726.3 $ 1,631.8 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 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) : Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Beginning balance $ 123.7 $ 132.1 $ 224.6 Increase related to prior year tax positions 4.8 11.1 3.8 Decrease related to prior year tax positions ( 11.9 ) ( 0.5 ) ( 75.3 ) Increase related to current year tax positions 8.9 9.8 18.5 Decreases related to settlements with taxing authorities ( 4.4 ) — ( 16.4 ) Decrease related to lapsing of statute of limitations ( 38.5 ) ( 28.8 ) ( 23.1 ) Ending balance $ 82.6 $ 123.7 $ 132.1 We are currently under examination, or may be subject to examination, by various U.S. federal, state, local and foreign tax jurisdictions for fiscal 2014 through 2020 . We are no longer subject to U.S. 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. 77 Table of Contents 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 . Note 15: Earnings per Share Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS) : 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 Weighted average common shares outstanding (for basic calculation) 1,177.6 1,172.8 1,221.2 Dilutive effect of outstanding common stock options and RSUs 7.9 9.0 12.0 Weighted average common and common equivalent shares outstanding (for diluted calculation) 1,185.5 1,181.8 1,233.2 EPS — basic $ 3.57 $ 0.79 $ 2.95 EPS — diluted $ 3.54 $ 0.79 $ 2.92 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding would exclude out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would be antidilutive. As of October 3, 2021, September 27, 2020 and September 29, 2019, we had no out-of-the-money stock options. Note 16: Commitments and Contingencies Legal Proceedings On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al. On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65. The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (“OEHHA”) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys’ fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial. On June 3, 2019, the Office of Administrative Law approved the coffee exemption regulation. The regulation became effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. At the status conference on August 25, 2020, the trial judge granted the defendants’ motion for summary judgment, ruling that the coffee exemption regulation is a complete defense to the Plaintiff’s complaint. The Notice of Entry of Judgment from the court was served on October 6, 2020, and the Plaintiff filed a Notice of Appeal on November 20, 2020, and its opening brief in the appeals process on April 9, 2021. 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. 78 Table of Contents Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Note 17: Segment Reporting Segment information is prepared on the same basis that our ceo, who is our Chief Operating Decision Maker, manages the segments, evaluates financial results and makes key operating decisions. We have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East and Africa, Latin America and the Caribbean; and 3) Channel Development. 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 Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Beverage (1) $ 18,317.0 63 % $ 14,337.5 61 % $ 15,921.2 60 % Food (2) 5,053.4 17 % 3,799.2 16 % 4,336.3 16 % Other (3) 5,690.2 20 % 5,381.3 23 % 6,251.1 24 % Total $ 29,060.6 100 % $ 23,518.0 100 % $ 26,508.6 100 % (1) Beverage represents sales within our company-operated stores. (2) Food includes sales within our company-operated stores. (3) “Other” primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, beverage-related ingredients, serveware and ready-to-drink beverages, among other items. Information by geographic area ( in millions ): Fiscal Year Ended Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Net revenues: United States $ 20,377.8 $ 16,879.8 $ 18,622.7 China 3,674.8 2,582.8 2,872.0 Other countries 5,008.0 4,055.4 5,013.9 Total $ 29,060.6 $ 23,518.0 $ 26,508.6 Long-lived assets: United States $ 12,819.4 $ 12,624.9 $ 7,330.2 China 4,673.8 4,425.6 3,279.8 Other countries 4,143.0 4,517.6 2,955.7 Total $ 21,636.2 $ 21,568.1 $ 13,565.7 No customer accounts for 10% or more of our revenues . Revenues are shown based on the geographic location of our customers. Revenues from countries other than the U.S. and China consist primarily of revenues from Japan, Canada and the U.K., which together account for approximately 79 % of net revenues from other countries for fiscal 2021. Management evaluates the performance of its operating segments based on net revenues and operating income. The accounting policies of the operating segments are the same as those described in Note 1 , Summary of Significant Accounting Policies. 79 Table of Contents Operating income represents earnings before other income and expenses and income taxes. The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include cash and cash equivalents, ROU assets, net property, plant and equipment, equity and cost investments, goodwill and other intangible assets. Assets not attributed to reportable operating segments are corporate assets and are primarily comprised of cash and cash equivalents available for general corporate purposes, investments, assets of the corporate headquarters and roasting facilities and inventory. The table below presents financial information for our reportable operating segments and Corporate and Other segment for the years ended October 3, 2021, September 27, 2020 and September 29, 2019. ( in millions ) North America International Channel Development Corporate and Other Total Fiscal 2021 Total net revenues $ 20,447.9 $ 6,921.6 $ 1,593.6 $ 97.5 $ 29,060.6 Depreciation and amortization expenses 753.9 544.7 1.2 141.9 1,441.7 Income from equity investees — 135.3 250.0 — 385.3 Operating income/(loss) 4,259.3 1,245.7 789.1 ( 1,422.0 ) 4,872.1 Total assets $ 10,571.8 $ 10,083.3 $ 125.4 $ 10,612.1 $ 31,392.6 Fiscal 2020 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 Income from equity investees — 102.3 220.2 — 322.5 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 Fiscal 2019 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 Income from equity investees — 102.4 195.6 — 298.0 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 (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 . 80 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Starbucks Corporation Opinion on the Financial Statements 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 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. Income Taxes — Indefinite Reinvestment of Foreign Earnings - Refer to Note 14 to the financial statements Critical Audit Matter Description 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. 81 Table of Contents 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; and ◦ Historical profitability of new stores by region; and ◦ Forecasts used by the Company for financial reporting purposes in other areas, such as the evaluation of the recoverability of goodwill; and ◦ Internal communications to management and the Board of Directors; and ◦ Forecasted information included in the Company’s press releases, other external communications and analyst reports; and ◦ 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 Seattle, Washington November 19, 2021 We have served as the Company's auditor since 1987. 82 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.