STARBUCKS CORPORATION CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements herein are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, these statements can be identified by the use of words such as "aim," "anticipate," "believe," "continue," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "outlook," "plan," "potential," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several market operations to fully licensed models, our plans for streamlining our operations, including store openings, closures, and changes in store formats and models, expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results, tax rates, business opportunities and expansion, strategic acquisitions, expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, repatriation of cash to theU.S. , the likelihood of the issuance of additional debt and the applicable interest rate, the impact of the COVID-19 outbreak on our financial results, credits available to us under the CARES Act and other government credits, the expected effects of new accounting pronouncements and the estimated impact of changes inU.S. tax law, including on tax rates, investments funded by these changes, and potential outcomes and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: further spread of COVID-19 and related disruptions to our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the potential for a resurgence of COVID-19 infections in a given geographic region after it has hit its "peak"; fluctuations inU.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the Company's initiatives and plans, including the integration of the East China business and the successful expansion of ourGlobal Coffee Alliance with Nestlé; our ability to obtain financing on acceptable terms; the acceptance of the Company's products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; changes in the availability and cost of labor; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with theSEC , including in Part I Item IA "Risk Factors" in the 10-K and in the 10-Q filedApril 28, 2020 . A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K. Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 83 markets around the world. As ofJune 28, 2020 ,Starbucks had over 32,000 company-operated and licensed stores, an increase of 5% from the prior year. Additionally, we sell a variety of consumer-packaged goods, or CPG, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. Comparable store sales represent company-operated stores open for 13 months or longer, and exclude the impact of foreign currency translation. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 outbreak remain in comparable store sales while stores identified for permanent closure have been removed. During the quarter endedJune 28, 2020 , our global comparable store sales declined 40%, including the negative impacts of COVID-19. We have three reportable operating segments:Americas , International and Channel Development. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. 32 -------------------------------------------------------------------------------- Table of Contents Our fiscal year ends on the Sunday closest toSeptember 30 . All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. COVID-19 Update The novel coronavirus, known as the global pandemic COVID-19, was first identified inDecember 2019 . In response to the outbreak, we temporarily closed a significant number of our company-operated stores and modified the operation and business hours for stores that remained open in the second quarter of fiscal 2020. By prioritizing the health and safety of our partners and customers, we gradually re-opened stores inChina in late second fiscal quarter and in other markets during the third fiscal quarter under modified operations to meet public health guidelines and evolving customer behaviors and expectations. Comparable store sales for theAmericas segment declined by 41% during the third quarter of fiscal 2020, due to temporary store closures, reduced customer traffic and limitations of modified operations. Most stores were re-opened beginning in early May for this segment, with approximately 96% of the company-operated stores and over 80% of licensed stores open as ofJune 28, 2020 . We achieved notable improvements in comparable store sales as the quarter progressed. To help protect our partners' health and welfare, we paid all of ourU.S. andCanada company-operated store partners who were either unable or uncomfortable working in a retail environment through early May. Partners who were able to work during this period received a temporary wage increase as a recognition of their service. The incremental salaries and wages incurred were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and theCanada Emergency Wage Subsidy ("CEWS"). As we began re-opening stores, we realigned labor schedules and hours due to reduced customer traffic and demand, which required a portion of our retail store partners to be furloughed or separated from the Company and resulted in additional benefit payments to impacted partners. Due to the extended store closures and changing customer behaviors, the Company accelerated plans to optimize our store portfolio inU.S. urban markets and restructure our company-operated business inCanada , announcing the expected closure of up to 400 incremental stores in theU.S. over the next 18 months and up to 200 incremental stores inCanada over the next two years. Costs incurred related to the restructuring efforts are recorded as restructuring and impairments on our consolidated statement of earnings, which will continue in future quarters in accordance with the anticipated timeline of store closures. Our licensed business in theAmericas segment was also impacted by the outbreak during the fiscal quarter with many stores closed temporarily during the quarter, although most licensed stores have since been re-opened. For the International segment, comparable store sales declined 37% during the third quarter of fiscal 2020, reflecting the temporary closures and modifications of operations at our company-operated international markets. Due to the early onset of the virus and subsequent control of the outbreak inChina , we began re-opening stores during the latter part of fiscal second quarter while our company-operated markets inJapan and EMEA began re-opening stores during the middle of fiscal third quarter. As ofJune 28, 2020 , nearly all company-operated stores were open in these markets. Most of our International licensed stores have also re-opened. To support our international licensees, we extended more flexible development and financial terms, including waiving royalty payments during the fiscal third quarter.The Channel Development segment was not materially impacted by COVID-19 during the fiscal third quarter as a result of at-home coffee offerings offsetting softness in the Foodservice channel. The revenue decline when compared with the same quarter in the prior year was largely due to lappingGlobal Coffee Alliance transition-related activities, including higher inventory sales in the prior year as Nestlé prepared to fulfill customer orders. Based on the current trend of our retail business recovery and our focused efforts to expand contactless customer experiences, digital capabilities and beverage innovation, we expect continued improvement in comparable store sales and operating margin in our fiscal fourth quarter. Absent significant COVID-19 relapses, we expect to return to profitability in the fourth quarter. Comparable Store SalesStarbucks comparable store sales for the third quarter of fiscal 2020: Quarter Ended Jun 28, 2020 Three Quarters Ended Jun 28, 2020 Sales Change in Change in Sales Change in Change in Growth Transactions Ticket Growth Transactions Ticket Consolidated (40)% (51)% 23% (15)% (21)% 8% Americas (41)% (53)% 27% (13)% (20)% 9% International (37)% (44)% 13% (23)% (26)% 4% The above comparable store sales for the quarter and three quarters endedJune 28, 2020 decreased due to temporary store closures and stores with modified operations and business hours as a result of COVID-19. Refer to our Quarterly Store Data , also included in Item 2 of Part I of this 10-Q, for additional information on our company operated and licensed store portfolio. 33 -------------------------------------------------------------------------------- Table of Contents Results of Operations (in millions) Revenues Quarter Ended Three Quarters Ended Jun 28, Jun 30, $ % Jun 28, Jun 30, $ % 2020 2019 Change Change 2020 2019 Change Change Company-operated stores$ 3,444.4 $ 5,535.0 $ (2,090.6) (37.8) %$ 13,991.0 $ 16,064.3 $ (2,073.3) (12.9) % Licensed stores 300.5 725.0 (424.5) (58.6) 1,782.4 2,140.3 (357.9) (16.7) Other 477.2 563.0 (85.8) (15.2) 1,541.5 1,557.0 (15.5) (1.0) Total net revenues$ 4,222.1 $ 6,823.0 $ (2,600.9) (38.1) %$ 17,314.9 $ 19,761.6 $ (2,446.7) (12.4) % Quarter endedJune 28, 2020 compared with quarter endedJune 30, 2019 Total net revenues for the third quarter of fiscal 2020 decreased$2,601 million , primarily due to decreased revenues from company-operated stores ($2,091 million ). The decline in company-operated stores revenues was due to a 40% decrease in comparable store sales ($2,122 million ), primarily driven by a 51% decrease in transactions. Also contributing to the decrease was the conversion of our retail business inThailand to a fully licensed market during fiscal 2019 ($37 million ). Partially offsetting these decreases were the incremental revenues from 770 net new Starbucks® company-operated store openings, or a 5% increase, over the past 12 months ($128 million ). Licensed stores revenue decreased$425 million driven by lower product and equipment sales to and royalty revenues from our licensees ($420 million ). Other revenues decreased$86 million , primarily due to lapping of higher product sales to Nestlé in prior year related to transitioning activities of theGlobal Coffee Alliance . Three quarters endedJune 28, 2020 compared with three quarters endedJune 30, 2019 Total net revenues for the first three quarters of fiscal 2020 decreased$2,447 million , primarily due to decreased revenues from company-operated stores ($2,073 million ). The decline in company-operated store revenues was due to a 15% decrease in comparable store sales ($2,350 million ), primarily driven by a 21% decrease in transactions. Also contributing to the decrease were the conversions of our retail businesses inThailand ,France andthe Netherlands to fully licensed markets during fiscal 2019 ($204 million ). Partially offsetting these decreases were the incremental revenues from 770 net new Starbucks® company-operated store openings, or a 5% increase, over the past 12 months ($526 million ). Licensed stores revenue decline also contributed to the decrease in total net revenues ($358 million ), driven by lower product and royalty revenues from our licensees ($351 million ). The decrease was partially offset by the conversions of our retail businesses inThailand ,France andthe Netherlands to fully licensed markets ($25 million ). Other revenues decreased$16 million , primarily due to lapping prior year product sales related to transitioning activities of theGlobal Coffee Alliance and the Tazo brand transition agreement, partially offset by the expansion of theGlobal Coffee Alliance , including the benefit related to the transfer of certain single-serve product activities to Nestlé beginning in the second quarter of fiscal 2020. 34 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Quarter Ended Three Quarters EndedJun 28 ,Jun 30 , $Jun 28 ,Jun 30 ,Jun 28 ,Jun 30 , $Jun 28 ,Jun 30, 2020 2019 Change 2020 2019 2020 2019 Change 2020 2019 As a % of Total As a % of Total Net Revenues Net Revenues Product and distribution costs$ 1,484.0 $ 2,199.6 $ (715.6) 35.1 % 32.2 %$ 5,718.2 $ 6,387.4 $ (669.2) 33.0 % 32.3 % Store operating expenses 2,537.8 2,643.2 (105.4) 60.1 38.7 8,080.7 7,784.2 296.5 46.7 39.4 Other operating expenses 133.6 94.4 39.2 3.2 1.4 330.3 279.4 50.9 1.9 1.4 Depreciation and amortization expenses 361.0 343.1 17.9 8.6 5.0 1,068.3 1,032.5 35.8 6.2 5.2 General and administrative expenses 399.9 459.7 (59.8) 9.5 6.7 1,240.6 1,365.7 (125.1) 7.2 6.9 Restructuring and impairments 78.1 37.7 40.4 1.8 0.6 83.7 123.9 (40.2) 0.5 0.6 Total operating expenses 4,994.4 5,777.7 (783.3) 118.3 84.7 16,521.8 16,973.1 (451.3) 95.4 85.9 Income from equity investees 68.4 76.0 (7.6) 1.6 1.1 210.3 206.1 4.2 1.2
1.0
Operating income/(loss)$ (703.9) $ 1,121.3 $ (1,825.2) (16.7) % 16.4 %$ 1,003.4 $ 2,994.6 $ (1,991.2) 5.8 % 15.2 % Store operating expenses as a % of company-operated 73.7 % 47.8 % 57.8 % 48.5 % store revenues Quarter endedJune 28, 2020 compared with quarter endedJune 30, 2019 Product and distribution costs as a percentage of total net revenues increased 290 basis points for the third quarter of fiscal 2020, primarily due to sales deleverage attributable to COVID-19 impacts, which included manufacturing deleverage due to lower production volume (approximately 390 basis points). The sales deleverage was partially offset by supply chain efficiencies (approximately 30 basis points). Store operating expenses as a percentage of total net revenues increased 2,140 basis points for the third quarter of fiscal 2020. Store operating expenses as a percentage of company-operated store revenues increased 2,590 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included catastrophe pay and enhanced pay programs for retail partners, net of benefits provided by temporary subsidies from theU.S. and certain foreign governments (approximately 470 basis points). Other operating expenses increased$39 million for the third quarter of fiscal 2020, primarily due to incremental costs to develop and grow theGlobal Coffee Alliance ($35 million ). General and administrative expenses decreased$60 million , primarily due to lower performance-based compensation ($45 million ), and lapping the 2018 U.S stock award granted in the third quarter of fiscal 2018 ($14 million ), which was funded by savings from the Tax Act and vested in the third quarter of fiscal 2019, partially offset by incremental strategic investments in technology. Restructuring and impairment expenses increased$40 million , primarily due to higher asset impairment related to store portfolio optimization ($35 million ) and intangible asset impairment related to changes in our branding and marketing strategies ($22 million ), partially offset by lower severance costs ($8 million ). Income from equity investees decreased$8 million , primarily due to lower royalty income, temporary store closures and reduced operating hours in ourSouth Korea andIndia joint ventures. The combination of these changes resulted in an overall decrease in operating margin of 3,310 basis points for the third quarter of fiscal 2020. 35 -------------------------------------------------------------------------------- Table of Contents Three quarters endedJune 28, 2020 compared with three quarters endedJune 30, 2019 Product and distribution costs as a percentage of total net revenues increased 70 basis points for the first three quarters of fiscal 2020, primarily due to sales deleverage attributable to COVID-19 impacts, which included inventory write-offs and product waste (approximately 10 basis points), partially offset by supply chain efficiencies (approximately 70 basis points). Store operating expenses as a percentage of total net revenues increased 730 basis points for the first three quarters of fiscal 2020. Store operating expenses as a percentage of company-operated store revenues increased 930 basis points, primarily due to sales deleverage attributable to COVID-19 impacts, which included catastrophe pay and enhanced pay programs for retail partners, net of benefits provided by temporary subsidies from theU.S. and certain foreign governments (approximately 210 basis points). Other operating expenses increased$51 million for the first three quarters of fiscal 2020, primarily due to incremental costs to develop and grow theGlobal Coffee Alliance . General and administrative expenses decreased$125 million , primarily due to lower performance-based compensation ($64 million ) and the lapping of the 2018U.S stock award granted in the third quarter of fiscal 2018, which was funded by savings from the Tax Act and vested in the third quarter of fiscal 2019 ($61 million ), partially offset by incremental strategic investments in technology. Restructuring and impairment expenses decreased$40 million , primarily due to lower severance costs ($41 million ), lower exit costs associated with the closure of certain company-operated stores ($29 million ) and lapping the impairment related to ourSwitzerland retail market ($10 million ). Partially offsetting these decreases were higher asset impairment related to store portfolio optimization ($27 million ) and intangible asset impairment related to changes in our branding and marketing strategies ($22 million ). Income from equity investees increased$4 million , primarily due to growth in ourSouth Korea joint venture and higher income from ourNorth American Coffee Partnership joint venture. The combination of these changes resulted in an overall decrease in operating margin of 940 basis points for the first three quarters of fiscal 2020. 36 -------------------------------------------------------------------------------- Table of Contents Other Income and Expenses Quarter Ended Three Quarters EndedJun 28 ,Jun 30 , $Jun 28 ,Jun 30 ,Jun 28 ,Jun 30 , $Jun 28 ,Jun 30, 2020 2019 Change 2020 2019 2020 2019 Change 2020 2019 As a % of Total As a % of Total Net Revenues Net Revenues Operating income/(loss)$ (703.9) $ 1,121.3 $ (1,825.2) (16.7) % 16.4 %$ 1,003.4 $ 2,994.6 $ (1,991.2) 5.8 %
15.2 %
Net gain resulting from divestiture of certain operations - 601.8 (601.8) - 8.8 - 622.8 (622.8) -
3.2
Interest income and other, net 12.7 40.2 (27.5) 0.3 0.6 30.7 80.2 (49.5) 0.2 0.4 Interest expense (120.8) (86.4) (34.4) (2.9) (1.3) (312.1) (235.3) (76.8) (1.8) (1.2) Earnings/(loss) before income taxes (812.0) 1,676.9 (2,488.9) (19.2) 24.6 722.0 3,462.3 (2,740.3) 4.2
17.5
Income tax expense/(benefit) (133.9) 303.7 (437.6) (3.2) 4.5 190.0 670.1 (480.1) 1.1
3.4
Net earnings/(loss) including noncontrolling interests (678.1) 1,373.2 (2,051.3) (16.1) 20.1 532.0 2,792.2 (2,260.2) 3.1
14.1
Net earnings/(loss) attributable to noncontrolling interests 0.3 0.4 (0.1) - - (3.7) (4.2) 0.5 - - Net earnings/(loss) attributable toStarbucks $ (678.4) $ 1,372.8 $ (2,051.2) (16.1) % 20.1 %$ 535.7 $ 2,796.4 $ (2,260.7) 3.1 % 14.2 % Effective tax rate including noncontrolling interests 16.5 % 18.1 % 26.3 % 19.4 % Quarter endedJune 28, 2020 compared with quarter endedJune 30, 2019 Net gain resulting from divestiture of certain operations decreased$602 million due to lapping the sale of our retail operation inThailand in fiscal 2019. Interest income and other, net decreased$28 million , primarily due to lapping the gain on the sale of a non-operating asset and lapping interest income earned last year on excess cash related to our Nestlé transaction. Interest expense increased$34 million , primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . The effective tax rate for the quarter endedJune 28, 2020 was 16.5% compared to 18.1% for the same quarter in fiscal 2019. The decrease was primarily due to a change in the absolute pre-tax operating results when compared to the same period of the prior year and thereby changing the proportionate impact of discrete items, as well as the foreign rate differential on our jurisdictional mix of earnings. This was partially offset by valuation allowances recorded against deferred tax assets of certain international jurisdictions. Three quarters endedJune 28, 2020 compared with three quarters endedJune 30, 2019 Net gain resulting from divestiture of certain operations decreased$623 million due to lapping the sale of retail operations inThailand ,France , andthe Netherlands in fiscal 2019. Interest income and other, net decreased$50 million , primarily due to lapping interest income earned last year on excess cash related to our Nestlé transaction and lapping the gain on the sale of a non-operating asset. Interest expense increased$77 million , primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . 37 -------------------------------------------------------------------------------- Table of Contents The effective tax rate for the first three quarters endedJune 28, 2020 was 26.3% compared to 19.4% for the same period in fiscal 2019. The increase was primarily due to the valuation allowances recorded against deferred tax assets of certain international jurisdictions (approximately 1,390 basis points). This unfavorable impact was partially offset by the impact of changes in indefinite reinvestment assertions for certain foreign subsidiaries in the first quarter of fiscal 2019 (approximately 220 basis points), release of income tax reserves (approximately 210 basis points) and lower pre-tax earnings including the foreign rate differential on our jurisdictional mix of earnings. Segment Information Results of operations by segment (in millions):Americas Quarter Ended Three Quarters EndedJun 28 ,Jun 30 , $Jun 28 ,Jun 30 ,Jun 28 ,Jun 30 , $Jun 28 ,Jun 30, 2020 2019 Change 2020 2019 2020 2019 Change 2020 2019 As a % ofAmericas As a % ofAmericas Total Net Revenues Total Net Revenues Net revenues: Company-operated stores$ 2,568.9 $ 4,182.2 $ (1,613.3) 91.6 % 89.3 %$ 10,903.5 $ 12,124.0 $ (1,220.5) 89.8 % 89.1 % Licensed stores 235.5 496.3 (260.8) 8.4 10.6 1,237.0 1,474.0 (237.0) 10.2
10.8
Other 1.1 2.6 (1.5) - 0.1 5.8 9.6 (3.8) - 0.1
Total net revenues 2,805.5 4,681.1 (1,875.6) 100.0 100.0
12,146.3 13,607.6 (1,461.3) 100.0 100.0
Product and distribution costs 805.6 1,324.0 (518.4) 28.7 28.3 3,442.2 3,895.8 (453.6) 28.3 28.6
Store operating expenses 2,054.4 2,034.0 20.4 73.2 43.5 6,427.3 5,952.8 474.5 52.9
43.7
Other operating expenses 40.7 41.7 (1.0) 1.5 0.9 125.1 125.6 (0.5) 1.0 0.9
Depreciation and amortization expenses 191.3 175.6 15.7 6.8 3.8 571.9 515.5 56.4 4.7 3.8
General and administrative expenses 62.2 72.0 (9.8) 2.2 1.5 202.8 217.9 (15.1) 1.7 1.6
Restructuring and impairments 56.2 15.1 41.1 2.0 0.3 61.9 56.2 5.7 0.5 0.4
Total operating expenses 3,210.4 3,662.4 (452.0) 114.4 78.2
10,831.2 10,763.8 67.4 89.2 79.1
Operating income/(loss) $ (404.9) $ 1,018.7 $ (1,423.6) (14.4) % 21.8 % $ 1,315.1 $ 2,843.8 $ (1,528.7) 10.8 % 20.9 %
Store operating expenses as a % of company-operated store 80.0 % 48.6 % 58.9 % 49.1 %
revenues
Quarter ended June 28, 2020 compared with quarter ended June 30, 2019
Revenues
Americas total net revenues for the third quarter of fiscal 2020 decreased
$1,876 million , or 40%, primarily due to a 41% decrease in comparable store
sales ($1,661 million ), driven by a 53% decrease in transactions. Also
contributing were lower product sales to and royalty revenues from our licensees
($244 million ). These decreases were partially offset by 159 net new Starbucks®
company-operated store openings, or a 2% increase, over the past 12 months ($75
million ).
38
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Table of Contents
Operating Margin
Americas operating income for the third quarter of fiscal 2020 decreased 140% to
a loss of $405 million , compared to an operating income of $1,019 million in the
third quarter of fiscal 2019. Operating margin decreased 3,620 basis points to
(14.4)%, due to sales deleverage, primarily attributable to reduced labor
productivity and fixed occupancy costs, as well as additional costs incurred
attributable to COVID-19, mainly catastrophe pay and enhanced pay programs for
retail store partners, net of benefits provided by the CARES Act and CEWS
(approximately 530 basis points). Higher restructuring expenses relating to our
U.S. portfolio optimization (approximately 170 basis points) also contributed to
the decrease.
Three quarters ended June 28, 2020 compared with three quarters ended June 30,
2019
Revenues
Americas total net revenues for the first three quarters of fiscal 2020
decreased $1,461 million , or 11%, primarily due to a 13% decrease in comparable
store sales ($1,541 million ), driven by a 20% decrease in transactions. Also
contributing were lower product sales to and royalty revenues from our licensees
($218 million ). These decreases were partially offset by 159 net new Starbucks®
company-operated store openings, or a 2% increase, over the past 12 months ($335
million ).
Operating Margin
Americas operating income for the first three quarters of fiscal 2020 decreased
54% to $1.3 billion , compared to $2.8 billion for the same period in fiscal
2019. Operating margin decreased 1,010 basis points to 10.8%, primarily due to
sales deleverage attributed to reduced labor productivity and additional costs
incurred attributable to COVID-19, mainly catastrophe pay and enhanced pay
programs for retail store partners, net of benefits provided by the CARES Act
and CEWS (approximately 210 basis points). Partially offsetting these decreases
was sales leverage realized during the first fiscal quarter, prior to the onset
of COVID-19.
International
Quarter Ended Three Quarters Ended
Jun 28 , Jun 30 , $ Jun 28 , Jun 30 , Jun 28 , Jun 30 , $ Jun 28 , Jun 30,
2020 2019 Change 2020 2019 2020 2019 Change 2020 2019
As a % of International As a % of International
Total Net Revenues Total Net RevenuesNet revenues: Company-operated stores$ 875.5 $ 1,352.8 $ (477.3) 92.2 % 85.3 %$ 3,087.5 $ 3,940.3 $ (852.8) 84.5 % 85.3 % Licensed stores 65.0 228.7 (163.7) 6.8 14.4 545.4 666.3 (120.9) 14.9 14.4 Other 9.1 3.8 5.3 1.0 0.2 22.4 12.0 10.4 0.6 0.3 Total net revenues 949.6 1,585.3 (635.7) 100.0 100.0 3,655.3 4,618.6 (963.3) 100.0 100.0 Product and distribution costs 337.7 476.1 (138.4) 35.6 30.0 1,213.9 1,408.9 (195.0) 33.2 30.5 Store operating expenses 483.4 609.2 (125.8) 50.9 38.4 1,653.4 1,831.4 (178.0) 45.2 39.7 Other operating expenses 37.5 26.7 10.8 3.9 1.7 105.1 84.5 20.6 2.9 1.8 Depreciation and amortization expenses 128.5 127.7 0.8 13.5 8.1 385.2 385.0 0.2 10.5 8.3 General and administrative expenses 66.1 86.0 (19.9) 7.0 5.4 196.9 235.5 (38.6) 5.4 5.1 Restructuring and impairments (0.2) 16.6 (16.8) - 1.0 (0.6) 47.2 (47.8) - 1.0 Total operating expenses 1,053.0 1,342.3 (289.3) 110.9 84.7 3,553.9 3,992.5 (438.6) 97.2 86.4 Income from equity investees 17.4 27.2 (9.8) 1.8 1.7 73.1 75.7 (2.6) 2.0 1.6 Operating income/(loss)$ (86.0) $ 270.2 $ (356.2) (9.1) % 17.0 %$ 174.5 $ 701.8 $ (527.3) 4.8 % 15.2 % Store operating expenses as a % of company-operated store 55.2 % 45.0 % 53.6 % 46.5 % revenues 39
-------------------------------------------------------------------------------- Table of Contents Quarter endedJune 28, 2020 compared with quarter endedJune 30, 2019 Revenues International total net revenues for the third quarter of fiscal 2020 decreased$636 million , or 40%, primarily due to a 37% decrease in comparable company-operated store sales ($461 million ), driven by a 44% decrease in transactions. Also contributing were lower product sales to and royalty revenues from our licensees ($158 million ) and the conversion of our retail business inThailand to a fully licensed market during 2019 ($37 million ). These decreases were partially offset by 611 net new Starbucks® company-operated store openings, or an 11% increase, over the past 12 months ($53 million ). Operating Margin International operating loss for the third quarter of fiscal 2020 was$86 million , compared to$270 million of operating income in the third quarter of fiscal 2019. Operating margin decreased 2,610 basis points to (9.1)%, primarily due to sales deleverage attributable to COVID-19, including continued partner wages and benefits and occupancy costs. Royalty relief provided to licensees (approximately 480 basis points) and catastrophe pay (approximately 170 basis points) also contributed to the decrease. These were partially offset by temporary government subsidies (approximately 220 basis points) and rent concessions (approximately 140 basis points). Three quarters endedJune 28, 2020 compared with three quarters endedJune 30, 2019 Revenues International total net revenues for the first three quarters of fiscal 2020 decreased$963 million , or 21%, due to a 23% decrease in comparable company-operated store sales ($809 million ), driven by a 26% decrease in transactions. Also contributing were the conversions of our retail businesses inThailand ,France andthe Netherlands to fully licensed markets during 2019 ($179 million ) and lower product sales to and royalty revenues from licensees ($133 million ). These decreases were partially offset by 611 net new Starbucks® company-operated store openings, or an 11% increase, over the past 12 months ($191 million ). Operating Margin International operating income for the first three quarters of fiscal 2020 decreased 75% to$175 million , compared to$702 million for the same period in fiscal 2019. Operating margin decreased 1,040 basis points to 4.8%, primarily due to sales deleverage attributable to COVID-19, including continued partner wages and benefits and occupancy costs. Royalty relief granted to licensees during the fiscal third quarter also contributed to the decrease (approximately 120 basis points). 40 -------------------------------------------------------------------------------- Table of Contents Channel Development Quarter Ended Three Quarters EndedJun 28 ,Jun 30 , $Jun 28 ,Jun 30 ,Jun 28 ,Jun 30 , $Jun 28 ,Jun 30, 2020 2019 Change 2020 2019 2020 2019 Change 2020 2019 As a % of Channel As a % of Channel Development Development Total Net Revenues Total Net Revenues Net revenues$ 447.3 $ 533.3 $ (86.0) $ 1,461.0 $ 1,484.5 $ (23.5) Product and distribution costs 319.9 377.1 (57.2) 71.5 % 70.7 % 1,010.3 1,030.9 (20.6) 69.2 % 69.4 % Other operating expenses 51.4 20.2 31.2 11.5 3.8 89.7 55.9 33.8 6.1 3.8 Depreciation and amortization expenses 0.3 0.2 0.1 0.1 - 0.9 12.6 (11.7) 0.1 0.8 General and administrative expenses 2.5 2.7 (0.2) 0.6 0.5 8.0 8.9 (0.9) 0.5 0.6 Total operating expenses 374.1 400.2 (26.1) 83.6 75.0 1,108.9 1,108.3 0.6 75.9 74.7 Income from equity investees 51.0 48.8 2.2 11.4 9.2 137.2 130.4 6.8 9.4 8.8 Operating income$ 124.2 $ 181.9 $ (57.7) 27.8 % 34.1 %$ 489.3 $ 506.6 $ (17.3) 33.5 % 34.1 % Quarter endedJune 28, 2020 compared with quarter endedJune 30, 2019 Revenues Channel Development total net revenues for the third quarter of fiscal 2020 decreased$86 million , or 16%, primarily due to lapping of higher product sales to Nestlé in prior year related to transitioning activities of theGlobal Coffee Alliance ($85 million ). Operating Margin Channel Development operating income for the third quarter of fiscal 2020 decreased 32% to$124 million , compared to$182 million for the same period in fiscal 2019. Operating margin decreased 630 basis points to 27.8%, primarily driven by certain transition items related to theGlobal Coffee Alliance (approximately 750 basis points), partially offset by lapping the transfer of certain products to Nestlé as part of theGlobal Coffee Alliance in the prior year. Three quarters endedJune 28, 2020 compared with the three quarters endedJune 30, 2019 Revenues Channel Development total net revenues for the first three quarters of fiscal 2020 decreased$24 million , or 2%, primarily due to the lapping of higher product sales in prior year related to transitioning order fulfillment of theGlobal Coffee Alliance ($40 million ). Also contributing was lapping prior year product sales to Unilever as a result of the sale and transition of the Tazo brand ($33 million ). These decreases were partially offset by the expansion of theGlobal Coffee Alliance , including the benefit related to the transfer of certain single-serve product activities to Nestlé beginning in the second quarter of fiscal 2020 ($50 million ). Operating Margin Channel Development operating income for the first three quarters of fiscal 2020 decreased 3% to$489 million , compared to$507 million for the same period in fiscal 2019. Operating margin decreased 60 basis points to 33.5%, primarily driven by certain transition items related to theGlobal Coffee Alliance (approximately 250 basis points), partially offset by lapping the correction of amortization expense (approximately 80 basis points) in the prior year and the transfer of certain single-serve products to Nestlé as part of theGlobal Coffee Alliance . 41 -------------------------------------------------------------------------------- Table of Contents Corporate and Other Quarter Ended Three Quarters Ended Jun 28, Jun 30, $ % Jun 28, Jun 30, $ % 2020 2019 Change Change 2020 2019 Change Change Net revenues: Other$ 19.7 $ 23.3 $ (3.6) (15.5) %$ 52.3 $ 50.9 $ 1.4 2.8 % Total net revenues 19.7 23.3 (3.6) (15.5) 52.3 50.9 1.4 2.8 Product and distribution costs 20.8 22.4 (1.6) (7.1) 51.8 51.8 - - Other operating expenses 4.0 5.8 (1.8) (31.0) 10.4 13.4 (3.0) (22.4) Depreciation and amortization expenses 40.9 39.6 1.3 3.3 110.3 119.4 (9.1) (7.6) General and administrative expenses 269.1 299.0 (29.9) (10.0) 832.9 903.4 (70.5) (7.8) Restructuring and impairments 22.1 6.0 16.1 268.3 22.4 20.5 1.9 9.3 Total operating expenses 356.9 372.8 (15.9) (4.3) 1,027.8 1,108.5 (80.7) (7.3) Operating loss$ (337.2) $ (349.5) $ 12.3 (3.5) %$ (975.5) $ (1,057.6) $ 82.1 (7.8) % Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. The decreases for the quarter and three quarters endingJune 28, 2020 were primarily driven by lower performance-based compensation and lapping of the 2018 stock award granted in the third quarter of fiscal 2018, partially offset by incremental strategic investments in technology. 42 -------------------------------------------------------------------------------- Table of Contents Quarterly Store Data Our store data for the periods presented is as follows: Net
stores opened/(closed) and
transferred during the period
Stores open as
Quarter Ended Three Quarters Ended of
Jun 28, Jun 30, Jun 28, Jun 30, Jun 28, Jun 30,
2020 2019 2020 2019 2020 2019
Americas
Company-operated stores (34) 81 43 167 10,017 9,857
Licensed stores (2) 53 125 226 8,218 7,996
Total Americas (36) 134 168 393 18,235 17,853
International
Company-operated stores 117 (233) 394 (5) 6,254 5,646
Licensed stores 49 541 362 926 7,691 7,127
Total International 166 308 756 921 13,945 12,773
Corporate and Other
Licensed stores - - - (12) - -
Total Corporate and Other - - - (12) - -
Total Company 130 442 924 1,302 32,180 30,626
Financial Condition, Liquidity and Capital Resources
Investment Overview
Our cash and investments totaled $4.4 billion as of June 28, 2020 and $3.0
billion as of September 29, 2019 . We actively manage our cash and investments in
order to internally fund operating needs, make scheduled interest and principal
payments on our borrowings, make acquisitions and return cash to shareholders
through common stock cash dividend payments and share repurchases. Our
investment portfolio primarily includes highly liquid available-for-sale
securities, including corporate debt securities, government treasury securities
(foreign and domestic) and commercial paper. As of June 28, 2020 , approximately
$1.7 billion of cash was held in foreign subsidiaries.
Borrowing Capacity
The 2018 credit facility
Our $2.0 billion unsecured 5-year revolving credit facility ("the 2018 credit
facility"), of which $150 million may be used for issuances of letters of
credit, is currently set to mature on October 25, 2022 . We have the option,
subject to negotiation and agreement with the related banks, to increase the
maximum commitment amount by an additional $500 million . Borrowings under the
credit facility are subject to terms defined within the 2018 credit facility and
will bear interest at a variable rate based on LIBOR, and, for U.S.
dollar-denominated loans under certain circumstances, a Base Rate, in each case
plus an applicable margin. The applicable margin is based on the better of (i)
the Company's long-term credit ratings assigned by Moody's and Standard & Poor's
rating agencies and (ii) the Company's fixed charge coverage ratio, pursuant to
a pricing grid set forth in the five-year credit agreement. The current
applicable margin is 0.910% for Eurocurrency Rate Loans and 0.000% (nil) for
Base Rate Loans. The 2018 credit facility is available for general corporate
purposes. As of June 28, 2020 , we had no borrowings under the 2018 credit
facility.
The 364-day credit facility
Our $1.0 billion unsecured 364-day credit facility (the "364-day credit
facility"), of which no amount may be used for issuances of letters of credit,
is currently set to mature on October 21, 2020 . We have the option, subject to
negotiation and agreement with the related banks, to increase the maximum
commitment amount by an additional $500 million . Borrowings under the credit
facility are subject to terms defined within the 364-day credit facility and
will bear interest at a variable rate based on LIBOR, and, for U.S.
dollar-denominated loans under certain circumstances, a Base Rate, in each case
plus an applicable margin. The applicable margin is 0.920% for Eurocurrency Rate
Loans and 0.000% (nil) for Base Rate Loans. The 364-day credit facility is
available for general purposes. As of June 28, 2020 , we had no borrowings under
the 364-day credit facility.
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Due to the financial impacts from COVID-19, we have reached an agreement with
our lenders to amend the fixed charge coverage ratio covenant for our combined
$3 billion revolving lines of credit, through the fourth quarter of fiscal 2021.
The 2020 term-loan facility
Our $500 million unsecured 364-day term-loan facility ("the 2020 term-loan
facility") is currently set to mature on March 19, 2021 . Borrowings under the
term-loan facility are subject to terms defined within the 2020 term-loan
facility and will bear interest depending on if the loan is a Eurocurrency Rate
Loan or a Base Loan. Eurocurrency Rate Loans will bear interest on the
outstanding principal amount equal to the Eurocurrency Rate for such Interest
Period plus the applicable margin. Each Base Rate Loan will bear interest on the
outstanding principal amount equal to the Base Rate plus the 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 current
applicable margin is 1.000% for Eurocurrency Rate Loans and 0.00% (nil) for Base
Rate Loans. The 2020 term-loan facility is available for general corporate
purposes. As of June 28, 2020 , we had $500.0 million borrowings outstanding
under the 2020 term-loan facility and were in compliance with all applicable
covenants related to our credit facilities.
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 the 2018 and 364-day credit
facilities 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
June 28, 2020 , we had borrowings of $296.5 million outstanding, net of
unamortized discount, under our commercial paper program, of which a majority
will mature during the second quarter of fiscal 2021. As such, our total
contractual borrowing capacity for general corporate purposes as of the end of
our third quarter of fiscal 2020 was $2.7 billion when combining the unused
commercial paper program and credit facilities, less outstanding borrowing.
Credit facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities for the use of
our Japan subsidiary. These are available for working capital needs and capital
expenditures within our Japanese market.
During the third quarter of fiscal 2020, we expanded our ¥1 billion unsecured
credit facility to ¥5 billion, or $46.6 million , as of June 28, 2020 . This
facility is currently set to mature on December 31, 2020 . Borrowings under the
credit facility are subject to terms defined within the facility and will bear
interest at a variable rate based on TIBOR plus an applicable margin of 0.300%
or 0.400%, depending on the tranche borrowed. Additionally during the third
quarter, we expanded our ¥2 billion unsecured credit facility to ¥10 billion, or
$93.4 million , as of June 28, 2020 . This facility is currently set to mature on
March 26, 2021 . Borrowings under the credit facility are subject to terms
defined within the facility and will bear interest at a variable rate based on
TIBOR plus 0.30%. As of June 28, 2020 , we had $140.0 million of borrowings
outstanding under these credit facilities.
On May 7, 2020 , we issued long-term debt in an underwritten registered public
offering, which consisted of $500 million of 1.300% Senior Notes (the"2022
notes") due May 2022 , $1.25 billion of 2.550% Senior Notes (the "2030 notes")
due November 2030 , and $1.25 billion of 3.500% Senior Notes (the "2050 notes")
due November 2050 . We are using the net proceeds from the offering for general
corporate purposes, including the repayment of outstanding indebtedness.
Interest on the 2022 notes is payable semi-annually on May 7 and November 7 ,
commencing on November 7, 2020 . Interest on the 2030 notes and the 2050 notes is
payable semi-annually on May 15 and November 15 , commencing on November 15,
2020 .
See Note 8 , Debt, to the consolidated financial statements included in
Item 1 of Part I of this 10-Q for details of the components of our long-term
debt.
Our ability to incur new liens and conduct sale and leaseback transactions on
certain material properties is subject to compliance with terms of the
indentures under which the Senior Notes were issued. As of June 28, 2020 , we
were in compliance with all applicable covenants.
We returned to positive cash flow during the latter part of the third quarter of
fiscal 2020 and expect a return to profitability in the fiscal fourth quarter.
To further strengthen our liquidity, we expect to continue to curtail
discretionary spending and suspend share repurchases. If necessary, we may
pursue additional sources of financing, including both short-term and long-term
borrowings and debt issuances.
Use of Cash
We expect to use our available cash and investments, including, but not limited
to, additional potential future borrowings under the credit facilities,
commercial paper program and the issuance of debt to support and invest in our
core businesses, including investing in new ways to serve our customers and
supporting our store partners, repaying maturing debts, as well as returning
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cash to shareholders through common stock cash dividend payments and
discretionary share repurchases and investing in new business opportunities
related to our core and developing businesses. Further, we may use our available
cash resources to make proportionate capital contributions to our investees. We
may also seek strategic acquisitions to leverage existing capabilities and
further build our business in support of our "Growth at Scale" agenda.
Acquisitions may include increasing our ownership interests in our investees.
Any decisions to increase such ownership interests will be driven by valuation
and fit with our ownership strategy.
We believe that net future cash flows generated from operations and existing
cash and investments both domestically and internationally combined with our
ability to leverage our balance sheet through the issuance of debt will be
sufficient to finance capital requirements for our core businesses as well as
shareholder distributions for the foreseeable future. Significant new joint
ventures, acquisitions and/or other new business opportunities may require
additional outside funding. We have borrowed funds and continue to believe we
have the ability to do so at reasonable interest rates; however, additional
borrowings would result in increased interest expense in the future. In this
regard, we may incur additional debt, within targeted levels, as part of our
plans to fund our capital programs, including cash returns to shareholders
through future dividends and discretionary share repurchases.
We regularly review our cash positions and our determination of indefinite
reinvestment of foreign earnings. In the event we determine that all or a
portion of such foreign earnings are no longer indefinitely reinvested, we may
be subject to additional foreign withholding taxes and U.S. state income taxes,
which could be material. We do not anticipate the need for repatriated funds to
the U.S. to satisfy domestic liquidity needs.
During the third quarter of fiscal 2020, our Board of Directors declared a
quarterly cash dividend to shareholders of $0.41 per share to be paid on
August 21, 2020 to shareholders of record as of the close of business on
August 7, 2020 . As of the date of this report, we do not expect to reduce our
quarterly dividend as a result of the COVID-19 pandemic.
We repurchased 20.3 million shares of common stock, or $1.7 billion , during the
first three quarters of fiscal 2020 under our ongoing share repurchase program.
On April 8, 2020 , we announced a temporary suspension of our share repurchase
program. Repurchases pursuant to this program were last made in mid-March. As of
June 28, 2020 , 48.9 million shares remained available for repurchase under
current authorizations. In addition to the suspension of our share repurchase
program, to further enhance our financial flexibility, we have taken and may
continue to take steps to defer capital expenditures and reduce discretionary
spending. The existing share repurchase program remains authorized by the Board
of Directors, and we may resume share repurchases in the future at any time,
depending upon market conditions, our capital needs and other factors.
Other than normal operating expenses, cash requirements for the remainder of
fiscal 2020 are expected to consist primarily of capital expenditures for
investments in our new and existing stores and our supply chain and corporate
facilities. Total capital expenditures for fiscal 2020 are expected to be
approximately $1.5 billion .
Cash Flows
Cash provided by operating activities was $107.1 million for the first three
quarters of fiscal 2020, compared to $3.9 billion for the same period in fiscal
2019. The change was primarily due to material retail store closures resulting
from the COVID-19 crisis, the U.S. federal tax payment related to the Nestlé
transaction and the timing of other tax payments and refunds.
Cash used in investing activities for the first three quarters of fiscal 2020
totaled $1.3 billion , compared to cash used in investing activities of $506.5
million for the same period in fiscal 2019. The change was primarily driven by
lapping proceeds from the divestiture of certain operations related to the
conversions of our retail businesses in Thailand , France and the Netherlands to
fully licensed markets during 2019 and lower sales of investments in fiscal
2020.
Cash provided by financing activities for the first three quarters of fiscal
2020 totaled $2.5 billion compared to cash used by financing activities of $7.4
billion for the first three quarters of fiscal 2019. The change was primarily
due to higher repurchases of our common stock under accelerated share repurchase
agreements in fiscal 2019 and higher proceeds from issuance of long-term debt in
fiscal 2020.
Contractual Obligations
In Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 10-K, we disclosed that we had $28.2 billion in total
contractual obligations as of September 29, 2019 . Other than our commercial
paper and credit facilities borrowings, the issuance of our 2027 notes, our 2030
notes and our 2050 notes in the second quarter of fiscal 2020 and the issuance
of our 2022 notes, our 2030 notes and our 2050 notes in the third quarter of
fiscal 2020 as described in Note 8 , Debt, to the consolidated financial
statements included in Item 1 of Part I of this 10-Q, there have been no
material changes to our total obligations during the period covered by this 10-Q
outside of the normal course of our business.
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Off-Balance Sheet Arrangements
Other than the addition of operating leases to the balance sheet in the first
quarter of fiscal 2020 as described in Note 9 , Leases, there has been no
material change in our off-balance sheet arrangements discussed in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the 10-K.
Commodity Prices, Availability and General Risk Conditions
Commodity price risk represents our primary market risk, generated by our
purchases of green coffee and dairy products, among other items. We purchase,
roast and sell high-quality arabica coffee and related products and risk arises
from the price volatility of green coffee. In addition to coffee, we also
purchase significant amounts of dairy products to support the needs of our
company-operated stores. The price and availability of these commodities
directly impact our results of operations, and we expect commodity prices,
particularly coffee, to impact future results of operations. For additional
details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in
Item 1A of the 10-K.
Seasonality and Quarterly Results
Our business is subject to moderate seasonal fluctuations, of which our fiscal
second quarter typically experiences lower revenues and operating income.
However, the COVID-19 outbreak may have an impact on consumer behaviors and
customer traffic that result in changes in the seasonal fluctuations of our
business. Additionally, as our stored value cards are issued to and loaded by
customers during the holiday season, we tend to have higher cash flows from
operations during the first quarter of the fiscal year. However, since revenues
from our stored value cards are recognized upon redemption and not when cash is
loaded, the impact of seasonal fluctuations on the consolidated statements of
earnings is much less pronounced. As a result of moderate seasonal fluctuations,
results for any quarter are not necessarily indicative of the results that may
be achieved for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 , Summary of Significant Accounting Policies, to the consolidated
financial statements included in Item 1 of Part I of this 10-Q, for a detailed
description of recent accounting pronouncements.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the commodity price risk, foreign currency
exchange risk, equity security price risk or interest rate risk discussed in
Item 7A of the 10-K.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed or
submitted under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Our disclosure controls and procedures
are also designed to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer as appropriate, to allow timely decisions regarding required
disclosure.
During the third quarter of fiscal 2020, we carried out an evaluation, under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, of the effectiveness of the
design and operation of the disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective, as of the end of the
period covered by this report (June 28, 2020 ).
There were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most
recently completed fiscal quarter that materially affected or are reasonably
likely to materially affect internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are
filed as exhibits 31.1 and 31.2 to this 10-Q.
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