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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Starbucks Corporation    SBUX

STARBUCKS CORPORATION

(SBUX)
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STARBUCKS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

11/12/2020 | 05:03pm EST

General

Our fiscal year ends on the Sunday closest to September 30. All references to
store counts, including data for new store openings, are reported net of related
store closures, unless otherwise noted.
Overview
Starbucks results for fiscal 2020 reflect the challenges our business faced with
the COVID-19 pandemic, which severely impacted our results, particularly during
the second and third fiscal quarters. Consolidated revenues declined 11% to
$23.5 billion in fiscal 2020 compared to $26.5 billion in fiscal 2019 driven by
temporary closures of a significant number of our company-operated and licensed
stores, as well as modified business operations and reduced customer traffic. We
gradually reopened our stores and, since then, have seen sequential improvements
in comparable store sales in both our Americas and International segments as
transaction volumes continue to climb, reflecting the resilience of our business
model and the strength of our brand.
Comparable store sales for the Americas segment declined by 12% for fiscal 2020,
primarily due to the temporary store closures, reduced customer traffic and
shortened store hours. The most negative impacts occurred during the third
quarter of fiscal 2020. Most company-operated and licensed stores were re-opened
as of early May, and over 60% of company-operated stores in the U.S. provided
limited seating by the end of the fiscal year. To help protect the health and
welfare of our partners, we incurred incremental labor costs, including paying
the wages and benefits to partners who were either unable or uncomfortable
working from mid-March through May, a temporary wage increase for partners who
continued working during this period and additional benefits to furloughed or
separated partners resulting from reduced store hours. The incremental wages
incurred were partially offset by qualified tax credits provided by the
Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and the Canada
Emergency Wage Subsidy ("CEWS"). In June 2020, we announced a plan to optimize
our North America store portfolio, primarily in dense, metropolitan markets, by
blending store formats to better cater to changing customer tastes and
preferences. During the fourth quarter of fiscal 2020, we closed approximately
100 stores in the U.S. and Canada, and we expect to close an additional 700
stores in those markets over the next 18 months. This reflects an additional 200
store closures than the initial announcement estimate of 600 stores. Costs
incurred related to the restructuring efforts are recorded as restructuring and
impairments on our consolidated statement of earnings and will continue to be
recorded in accordance with the anticipated timeline of store closures.
For the International segment, comparable store sales declined by 19% for fiscal
2020, mostly due to the 31% and 37% reduction in comparable store sales during
the second and third fiscal quarters of 2020, respectively. Company-operated
stores in the China market began re-opening in the fiscal second quarter, and
nearly all company-operated stores were open by the end of the fiscal third
quarter. To support our international licensees in their recovery efforts, we
extended more flexible development and financial terms, including waiving
royalty payments during the fiscal third quarter.
Revenue for our Channel Development segment declined $68 million, or 3%, when
compared with fiscal 2019. This is largely due to the lapping of Global Coffee
Alliance transition-related activities, including higher inventory sales in the
prior year as Nestlé prepared to fulfill customer orders. These are partially
offset by the continued growth of the Global Coffee Alliance during fiscal 2020.
Throughout the second half of fiscal 2020, we experienced initial business
recovery as our stores gradually reopened under modified operations to meet
public health guidelines and evolving customer behaviors and expectations. As of
September 27, 2020, nearly all of our company-operated and licensed stores were
re-opened. Those that have remained closed are located in travel or
transportation hubs as well as central business districts. Our global business
is recovering steadily, with China approaching comparable store sales recovery
and the U.S. demonstrating continued upward momentum in sales and profitability.
Our Channel Development segment continues to grow category share as customers
adjust to their at-home routines. In fiscal 2021, we expect lower revenues for
the segment as we transitioned our single-serve coffee business to a more
royalty-based model. We do not expect the change to have a material impact on
our earnings. However, the change is anticipated to have an accretive impact on
operating margin for the segment.
We continue to invest in technologies and innovations to elevate the customer
and partner experience and to drive long-term growth. By reimagining our store
formats, we are moving swiftly to adapt to new customer behaviors. Absent
significant COVID-19 relapses or global economic disruptions, and 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 believe we are well positioned to regain the positive business momentum we
had demonstrated prior to the pandemic.
Financial Highlights
•Total net revenues decreased 11% to $23.5 billion in fiscal 2020 compared to
$26.5 billion in fiscal 2019.
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•Consolidated operating income decreased to $1.6 billion in fiscal 2020 compared
to operating income of $4.1 billion in fiscal 2019. Fiscal 2020 operating margin
was 6.6% compared to 15.4% in fiscal 2019. Operating margin contraction was
primarily driven by sales deleverage and additional costs incurred attributable
to COVID-19, including catastrophe pay and enhanced pay programs for retail
store partners, net of benefits provided by government subsidies. Higher
restructuring activities related to our Americas store portfolio optimization
and investments to support key business partners also contributed. These
decreases were partially offset by sales leverage realized in the first quarter
of fiscal 2020 prior to the onset of COVID-19 impacts and supply chain
efficiencies.
•Earnings per share ("EPS") for fiscal 2020 decreased to $0.79, compared to EPS
of $2.92 in fiscal 2019. The decrease was primarily driven by the adverse
impacts of COVID-19, including lower revenues due to temporary store closures,
reduced customer traffic and modified operations, as well as incremental labor
expenses and restructuring costs.
•Capital expenditures were $1.5 billion in fiscal 2020 compared to $1.8 billion
in fiscal 2019 primarily due to a pause in new store openings due to COVID-19.
•We returned $3.6 billion to our shareholders in fiscal 2020 through share
repurchases and dividends compared to $12.0 billion in fiscal 2019. We
temporarily suspended our share repurchase program in March 2020.
Acquisitions and Divestitures
See   Note 2  , Acquisitions, Divestitures and Strategic Alliance, to the
consolidated financial statements included in Item 8 of Part II of this 10-K for
information regarding acquisitions and divestitures.
RESULTS OF OPERATIONS - FISCAL 2020 COMPARED TO FISCAL 2019
Consolidated results of operations (in millions):
Revenues
                             Sep 27,         Sep 29,           %
Fiscal Year Ended              2020            2019         Change
Net revenues:
Company-operated stores    $ 19,164.6$ 21,544.4       (11.0) %
Licensed stores               2,327.1         2,875.0       (19.1)
Other                         2,026.3         2,089.2        (3.0)
Total net revenues         $ 23,518.0$ 26,508.6       (11.3) %


Total net revenues decreased $3.0 billion, or 11%, over fiscal 2019, primarily
due to lower revenues from company-operated stores ($2.4 billion). The decline
in company-operated store revenue was due to a 14% decrease in comparable store
sales ($2.9 billion), attributable to a 22% decrease in comparable transactions,
partially offset by a 10% increase in average ticket. Also contributing to the
decrease were the conversions of our retail businesses in Thailand, France and
the Netherlands to fully licensed markets during fiscal 2019 ($204 million).
Partially offsetting these decreases were the incremental revenues from 806 net
new Starbucks® company-operated store openings, or a 5% increase, over the past
12 months ($718 million).
Licensed stores revenue declined by $548 million, driven by lower product and
equipment sales to and royalty revenues from our licensees.
Other revenues decreased $63 million, primarily due to the lapping of a higher
volume of transition activities related to the Global Coffee Alliance and the
Tazo brand sale, partially offset by higher sales from the growth of the Global
Coffee Alliance.
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Operating Expenses
                                     Sep 27,              Sep 29,                 Sep 27,                    Sep 29,
Fiscal Year Ended                      2020                 2019                    2020                      2019
                                                                                           As a % of Total
                                                                                             Net Revenues

Product and distribution costs $ 7,694.9$ 8,526.9

             32.7  %                   32.2  %
Store operating expenses             10,764.0             10,493.6                       45.8                      39.6
Other operating expenses                430.3                371.0                        1.8                       1.4
Depreciation and amortization
expenses                              1,431.3              1,377.3                        6.1                       5.2
General and administrative
expenses                              1,679.6              1,824.1                        7.1                       6.9
Restructuring and impairments           278.7                135.8                        1.2                       0.5

Total operating expenses             22,278.8             22,728.7                       94.7                      85.7
Income from equity investees            322.5                298.0                        1.4                       1.1
Operating income                  $   1,561.7$   4,077.9                        6.6  %                   15.4  %
Store operating expenses as a %
of related revenues                                                                      56.2  %                   48.7  %


Product and distribution costs as a percentage of total net revenues increased
50 basis points, 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 60
basis points).
Store operating expenses as a percentage of total net revenues increased 620
basis points. Store operating expenses as a percentage of company-operated store
revenues increased 750 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 the U.S. and certain foreign governments (approximately 150 basis
points).
Other operating expenses increased $59 million, primarily due to incremental
costs to develop and grow the Global Coffee Alliance.
Depreciation and amortization expenses as a percentage of total net revenues
increased 90 basis points, primarily due to sales deleverage.
General and administrative expenses decreased $145 million, primarily driven by
lower performance-based compensation ($63 million), lapping of the 2018 U.S
stock award granted in fiscal 2018, which was funded by savings from the Tax
Cuts and Jobs Act enacted in December 2017 ("Tax Act") and vested in fiscal 2019
($61 million), and lapping of the 2019 Starbucks Leadership Experience in
Chicago ($52 million), partially offset by incremental strategic investments in
technology.
Restructuring and impairment expenses increased $143 million, primarily due to
higher asset impairment related to our North America store portfolio
optimization ($136 million), higher lease-related costs associated with the
closure of certain company-operated stores ($28 million) and intangible asset
impairment related to changes in our branding and marketing strategies ($22
million). Partially offsetting theses increases were lower severance costs ($38
million) and lapping the impairment related to our Switzerland retail market
($10 million).
Income from equity investees increased $25 million, primarily due to higher
income from our North American Coffee Partnership joint venture and growth in
our South Korea joint venture.
The combination of these changes resulted in an overall decrease in operating
margin of 880 basis points in fiscal 2020 when compared to fiscal 2019.
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Other Income and Expenses
                                     Sep 27,              Sep 29,                 Sep 27,                    Sep 29,
Fiscal Year Ended                      2020                 2019                    2020                      2019
                                                                                           As a % of Total
                                                                                             Net Revenues
Operating income                  $   1,561.7$   4,077.9                        6.6  %                   15.4  %
Net gain resulting from
divestiture of certain operations           -                622.8                          -                       2.3
Interest income and other, net           39.7                 96.5                        0.2                       0.4
Interest expense                       (437.0)              (331.0)                      (1.9)                     (1.2)
Earnings before income taxes          1,164.4              4,466.2                        5.0                      16.8
Income tax expense                      239.7                871.6                        1.0                       3.3
Net earnings including
noncontrolling interests                924.7              3,594.6                        3.9                      13.6
Net loss attributable to
noncontrolling interests                 (3.6)                (4.6)                         -                         -
Net earnings attributable to
Starbucks                         $     928.3$   3,599.2                        3.9  %                   13.6  %
Effective tax rate including
noncontrolling interests                                                                 20.6  %                   19.5  %


Net gain resulting from divestiture of certain operations decreased $623 million
due to lapping the sale of retail operations in Thailand, France and the
Netherlands in fiscal 2019.
Interest income and other, net decreased $57 million, primarily due to lower
interest rates and lapping the gain on the sale of a non-operating asset.
Interest expense increased $106 million primarily due to additional interest
incurred on long-term debt issued in March 2020 and May 2020.
The effective tax rate for fiscal 2020 was 20.6% compared to 19.5% for fiscal
2019. The increase was primarily due to the valuation allowances recorded
against deferred tax assets of certain international jurisdictions
(approximately 980 basis points). This unfavorable impact was partially offset
by lower pre-tax earnings including the foreign rate differential on our
jurisdictional mix of earnings (approximately 340 basis points), stock-based
compensation excess tax benefits in relation to pre-tax earnings (approximately
250 basis points), remeasurement of deferred tax assets due to enacted corporate
rate change (approximately 220 basis points) and the impact of changes in
indefinite reinvestment assertions for certain foreign subsidiaries in the first
quarter of fiscal 2019 (approximately 170 basis points). See   Note 14  , Income
Taxes, for further discussion.
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Segment Information
Results of operations by segment (in millions):
Americas
                                            Sep 27,         Sep 29,           Sep 27,         Sep 29,
Fiscal Year Ended                             2020            2019             2020            2019
                                                                               As a % of Americas
                                                                               Total Net Revenues
Net revenues:
Company-operated stores                   $ 14,778.8$ 16,288.2              90.2  %      89.2  %
Licensed stores                              1,592.9         1,958.0               9.7         10.7
Other                                            7.5            12.8                 -          0.1
Total net revenues                          16,379.2        18,259.0             100.0        100.0
Product and distribution costs               4,611.5         5,174.7              28.2         28.3
Store operating expenses                     8,488.0         8,064.8              51.8         44.2
Other operating expenses                       166.8           159.8               1.0          0.9
Depreciation and amortization expenses         762.0           696.1               4.7          3.8
General and administrative expenses            268.0           323.9               1.6          1.8
Restructuring and impairments                  257.6            56.9               1.6          0.3
Total operating expenses                    14,553.9        14,476.2              88.9         79.3

Operating income                          $  1,825.3$  3,782.8              11.1  %      20.7  %


Revenues
Americas total net revenues for fiscal 2020 decreased $1.9 billion, or 10%,
primarily due to a 12% decrease in comparable store sales ($1.9 billion) driven
by a 21% decrease in transactions, partially offset by an 11% increase in
average ticket. Also contributing were lower product and equipment sales to and
royalty revenues from our licensees ($354 million). These decreases were
partially offset by 134 net new Starbucks® company-operated stores, or a 1%
increase, over the past 12 months ($436 million).
Operating Margin
Americas operating income for fiscal 2020 decreased 52% to $1.8 billion,
compared to $3.8 billion in fiscal 2019. Operating margin decreased 960 basis
points to 11.1%, primarily due to sales deleverage attributed to reduced labor
productivity and additional costs incurred as a result of COVID-19, mainly
catastrophe pay and enhanced pay programs for retail store partners incurred
primarily during the fiscal third quarter, net of benefits provided by the CARES
Act and CEWS (approximately 180 basis points). Higher restructuring expenses
relating to our North America portfolio optimization (approximately 130 basis
points) also contributed to the decrease. Partially offsetting these decreases
were sales leverage realized prior to the onset of COVID-19 and pricing
increases.
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International
                                        Sep 27,              Sep 29,                   Sep 27,                     Sep 29,
Fiscal Year Ended                         2020                 2019                     2020                        2019
                                                                                            As a % of International
                                                                                              Total Net Revenues
Net revenues:
Company-operated stores              $   4,385.8$   5,256.2                          85.2  %                   84.9  %
Licensed stores                            734.2                917.0                          14.3                      14.8
Other                                       27.6                 17.5                           0.5                       0.3
Total net revenues                       5,147.6              6,190.7                         100.0                     100.0
Product and distribution costs           1,682.0              1,894.9                          32.7                      30.6
Store operating expenses                 2,276.0              2,428.5                          44.2                      39.2
Other operating expenses                   141.3                116.4                           2.7                       1.9
Depreciation and amortization
expenses                                   518.4                511.5                          10.1                       8.3
General and administrative expenses        279.4                317.9                           5.4                       5.1
Restructuring and impairments               (1.2)                59.2                             -                       1.0
Total operating expenses                 4,895.9              5,328.4                          95.1                      86.1
Income from equity investees               102.3                102.4                           2.0                       1.7
Operating income                     $     354.0$     964.7                           6.9  %                   15.6  %


Revenues
International total net revenues for fiscal 2020 decreased $1.0 billion, or 17%,
primarily due to a 19% decrease in comparable store sales ($931 million) driven
by a 23% decrease in transactions, partially offset by a 5% increase in average
ticket. Also contributing were lower product sales and equipment sales to and
royalty revenues from licensees ($199 million) and the conversions of our retail
businesses in Thailand, France and the Netherlands to fully licensed markets
during fiscal 2019 ($186 million). These decreases were partially offset by 672
net new Starbucks® company-operated stores, or an 11% increase, over the past 12
months ($282 million).
Operating Margin
International operating income for fiscal 2020 decreased 63% to $354 million,
compared to $965 million in fiscal 2019. Operating margin decreased 870 basis
points to 6.9%, primarily driven by sales deleverage concentrated in the second
and third quarters of fiscal 2020 attributable to COVID-19, including continued
partner wages and benefits as well as occupancy costs. Royalty relief granted to
licensees during the third fiscal quarter also contributed to the decline
(approximately 80 basis points).
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Channel Development
                                    Sep 27,              Sep 29,                   Sep 27,                     Sep 29,
Fiscal Year Ended                     2020                 2019                     2020                        2019
                                                                                     As a % of Channel Development
                                                                                          Total Net Revenues
Net revenues                     $   1,925.0$   1,992.6
Product and distribution costs       1,338.1              1,390.0                          69.5                      69.8
Other operating expenses               108.2                 76.2                           5.6                       3.8
Depreciation and amortization
expenses                                 1.2                 13.0                           0.1                       0.7
General and administrative
expenses                                10.5                 11.5                           0.5                       0.6
Total operating expenses             1,458.0              1,490.7                          75.7                      74.8
Income from equity investees           220.2                195.6                          11.4                       9.8
Operating income                 $     687.2$     697.5                          35.7  %                   35.0  %


Revenues
Channel Development total net revenues for fiscal 2020 decreased $68 million, or
3% compared to fiscal 2019, primarily due to the lapping of higher transition
activities related to the Global Coffee Alliance ($115 million) and product
sales to Unilever as a result of the sale and transition of the Tazo brand ($34
million). These were partially offset by the expansion of the Global Coffee
Alliance ($70 million), as at-home coffee consumption grew while the Foodservice
business experienced softening due to COVID-19.
Operating Margin
Channel Development operating income for fiscal 2020 decreased 1% to $687
million, compared to $698 million in fiscal 2019. Operating margin increased 70
basis points to 35.7%, primarily due to the transfer of certain single-serve
products to Nestlé as part of the Global Coffee Alliance (approximately 150
basis points), strong performance from our North American Coffee Partnership
joint venture (approximately 80 basis points) and lapping the correction of
amortization expense (approximately 60 basis points) in the prior year,
partially offset by certain transition items related to the Global Coffee
Alliance (approximately 190 basis points).
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Corporate and Other
                                            Sep 27,         Sep 29,           %
Fiscal Year Ended                             2020            2019         Change
Net revenues:

Other                                     $     66.2$     66.3        (0.2) %
Total net revenues                              66.2            66.3        (0.2)
Product and distribution costs                  63.3            67.3        (5.9)
Store operating expenses                           -             0.3             nm
Other operating expenses                        14.0            18.6       (24.7)
Depreciation and amortization expenses         149.7           156.7        

(4.5)

General and administrative expenses 1,121.7 1,170.8 (4.2) Restructuring and impairments

                   22.3            19.7        13.2
Total operating expenses                     1,371.0         1,433.4        (4.4)

Operating loss                            $ (1,304.8)$ (1,367.1)       (4.6) %


Corporate and Other primarily consists of our unallocated corporate expenses and
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.
Corporate and Other operating loss decreased to $1.3 billion for fiscal 2020, or
5%, compared to $1.4 billion in fiscal 2019. This decrease was primarily driven
by lower performance-based compensation and lapping of the 2018 U.S stock award
granted in fiscal 2018, which was funded by savings from the Tax Act and vested
in fiscal 2019, partially offset by incremental strategic investments in
technology.
RESULTS OF OPERATIONS - FISCAL 2019 COMPARED TO FISCAL 2018
Consolidated results of operations (in millions):
Revenues
                             Sep 29,         Sep 30,           %
Fiscal Year Ended              2019            2018         Change
Net revenues:
Company-operated stores    $ 21,544.4$ 19,690.3         9.4  %
Licensed stores               2,875.0         2,652.2         8.4
Other                         2,089.2         2,377.0       (12.1)
Total net revenues         $ 26,508.6$ 24,719.5         7.2  %


Total net revenues increased $1.8 billion, or 7%, over fiscal 2018, primarily
driven by higher revenues from company-operated stores ($1.9 billion). The
growth in company-operated store revenues was driven by incremental revenues
from 947 net new Starbucks® company-operated store openings over the past 12
months ($957 million) and a 5% increase in comparable store sales ($879
million), attributable to a 3% increase in average ticket and a 2% increase in
comparable transactions. These increases were partially offset by unfavorable
foreign currency translation ($189 million) and the conversion of our Thailand,
France and the Netherlands retail businesses to fully licensed markets during
fiscal 2019 ($161 million).
Licensed store revenue growth also contributed to the increase in total net
revenues ($223 million), primarily due to higher product and equipment sales to
and royalty revenues from our licensees ($228 million), largely due to the
opening of 992 net new Starbucks® licensed stores over the past 12 months, and
the conversion of our Thailand, France and the Netherlands retail businesses to
fully licensed markets ($35 million), partially offset by unfavorable foreign
currency translation ($41 million).
Other revenues decreased $288 million, primarily driven by the licensing of our
CPG and Foodservice businesses to Nestlé. Partially offsetting this decrease was
growth in product revenue, primarily premium single-serve products, in
connection with the Global Coffee Alliance.
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Operating Expenses
                                     Sep 29,              Sep 30,                 Sep 29,                    Sep 30,
Fiscal Year Ended                      2019                 2018                    2019                      2018
                                                                                           As a % of Total
                                                                                             Net Revenues

Product and distribution costs $ 8,526.9$ 7,930.7

             32.2  %                   32.1  %
Store operating expenses             10,493.6              9,472.2                       39.6                      38.3
Other operating expenses                371.0                554.9                        1.4                       2.2
Depreciation and amortization
expenses                              1,377.3              1,247.0                        5.2                       5.0
General and administrative
expenses                              1,824.1              1,708.2                        6.9                       6.9
Restructuring and impairments           135.8                224.4                        0.5                       0.9

Total operating expenses             22,728.7             21,137.4                       85.7                      85.5
Income from equity investees            298.0                301.2                        1.1                       1.2
Operating income                  $   4,077.9$   3,883.3                       15.4  %                   15.7  %
Store operating expenses as a %
of related revenues                                                                      48.7  %                   48.1  %


Product and distribution costs as a percentage of total net revenues increased
10 basis points, primarily due to licensing our CPG and Foodservice businesses
to Nestlé (approximately 80 basis points), partially offset by cost savings
initiatives (approximately 70 basis points) and leverage on product and
distribution costs, largely driven by price increases.
Store operating expenses as a percentage of total net revenues increased 130
basis points. Store operating expenses as a percentage of company-operated store
revenues increased 60 basis points, primarily driven by investments in our store
partners that are funded by savings from the Tax Act and growth in wages and
benefits (approximately 120 basis points), largely in the Americas segment,
partially offset by sales leverage driven by price increases and the impact of
the adoption of new revenue recognition guidance on stored value card breakage.
Other operating expenses decreased $184 million, primarily due to cost savings
related to licensing our CPG and Foodservice businesses to Nestlé ($176 million)
and lapping prior year costs associated with the establishment of the Global
Coffee Alliance ($34 million), including business taxes associated with the
up-front prepaid royalty from Nestlé and headcount-related costs, primarily
relating to employee bonus and retention costs.
Depreciation and amortization expenses as a percentage of total net revenues
increased 20 basis points, primarily due to the impact of our ownership change
in East China (approximately 20 basis points).
General and administrative expenses increased $116 million, primarily driven by
higher performance-based compensation ($89 million) and the 2019 Starbucks
Leadership Experience in Chicago, heavily concentrated in our fiscal fourth
quarter ($52 million).
Restructuring and impairment expenses decreased $89 million, primarily due to
lower restructuring and impairment costs related to TeavanaTM/MC retail store
closures ($128 million) and lower impairments related to our Switzerland retail
market ($27 million), partially offset by higher exit costs associated with the
closure of certain Starbucks® company-operated stores ($32 million) and
severance costs ($25 million).
Income from equity investees decreased $3 million, primarily due to the impact
of our ownership changes in East China. This decrease was partially offset by
improved comparable store sales from our joint venture in South Korea and higher
income from our North American Coffee Partnership joint venture.
The combination of these changes resulted in an overall decrease in operating
margin of 30 basis points in fiscal 2019 when compared to fiscal 2018.
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Other Income and Expenses
                                     Sep 29,              Sep 30,                 Sep 29,                    Sep 30,
Fiscal Year Ended                      2019                 2018                    2019                      2018
                                                                                           As a % of Total
                                                                                             Net Revenues
Operating income                  $   4,077.9$   3,883.3                       15.4  %                   15.7  %
Gain resulting from acquisition
of joint venture                            -              1,376.4                          -                       5.6
Net gain resulting from
divestiture of certain operations       622.8                499.2                        2.3                       2.0

Interest income and other, net           96.5                191.4                        0.4                       0.8
Interest expense                       (331.0)              (170.3)                      (1.2)                     (0.7)
Earnings before income taxes          4,466.2              5,780.0                       16.8                      23.4
Income tax expense                      871.6              1,262.0                        3.3                       5.1
Net earnings including
noncontrolling interests              3,594.6              4,518.0                       13.6                      18.3
Net earnings attributable to
noncontrolling interests                 (4.6)                (0.3)                         -                         -
Net earnings attributable to
Starbucks                         $   3,599.2$   4,518.3                       13.6  %                   18.3  %
Effective tax rate including
noncontrolling interests                                                                 19.5  %                   21.8  %


Gain resulting from acquisition of joint venture in fiscal 2018 was due to
remeasuring our preexisting 50% ownership interest in our East China joint
venture to fair value upon acquisition.
Net gain resulting from divestiture of certain operations was primarily due to
the sale of our Thailand, France and the Netherlands retail operations in fiscal
2019. The gain in fiscal 2018 was primarily due to the sale of our Tazo brand
and Taiwan joint venture, partially offset by the net loss from the sale of our
Brazil retail operations in fiscal 2018.
Interest income and other, net decreased $95 million, primarily due to the
adoption of the new revenue recognition guidance on a prospective basis, which
required estimated breakage on unredeemed store value cards to be recorded as
revenue. We recorded stored value card breakage in interest income and other,
net in the prior year.
Interest expense increased $161 million primarily due to additional interest
incurred on long-term debt issued in November 2017, March 2018, August 2018 and
May 2019.
The effective tax rate for fiscal 2019 was 19.5% compared to 21.8% for fiscal
2018. The decrease in the effective tax rate was primarily due to the lower
corporate tax rate as a result of the Tax Act (approximately 350 basis points),
lapping prior year's transition tax on our accumulated undistributed foreign
earnings and remeasurement of our deferred tax liabilities (approximately 300
basis points), higher stock-based compensation excess tax benefit (approximately
140 basis points), the release of income tax reserves related to the settlement
of a U.S. tax examination and the expiration of statute of limitations
(approximately 130 basis points) and the tax impacts of the gain on the sale of
our Thailand retail operations (approximately 130 basis points). These favorable
impacts were partially offset by the lapping of prior year's gain on the
purchase of our East China joint venture that was not subject to income tax
(approximately 580 basis points) and the impact of changes in indefinite
reinvestment assertions for certain foreign subsidiaries during the first
quarter of fiscal 2019 (approximately 170 basis points). See   Note 14  , Income
Taxes, for further discussion.
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Segment Information
Results of operations by segment (in millions):
Americas
                                            Sep 29,         Sep 30,           Sep 29,         Sep 30,
Fiscal Year Ended                             2019            2018             2019            2018
                                                                               As a % of Americas
                                                                               Total Net Revenues
Net revenues:
Company-operated stores                   $ 16,288.2$ 14,921.5              89.2  %      89.1  %
Licensed stores                              1,958.0         1,814.0              10.7         10.8
Other                                           12.8            13.1               0.1          0.1
Total net revenues                          18,259.0        16,748.6             100.0        100.0
Product and distribution costs               5,174.7         4,884.1              28.3         29.2
Store operating expenses                     8,064.8         7,248.6              44.2         43.3
Other operating expenses                       159.8           151.2               0.9          0.9
Depreciation and amortization expenses         696.1           641.0               3.8          3.8
General and administrative expenses            323.9           305.1               1.8          1.8
Restructuring and impairments                   56.9            33.4               0.3          0.2
Total operating expenses                    14,476.2        13,263.4              79.3         79.2

Operating income                          $  3,782.8$  3,485.2              20.7  %      20.8  %


Revenues
Americas total net revenues for fiscal 2019 increased $1.5 billion, or 9%,
primarily driven by a 5% increase in comparable store sales ($744 million) and
282 net new Starbucks® company-operated stores, or a 3% increase, over the past
12 months ($580 million). Also contributing were higher product sales to and
royalty revenues from our licensees ($144 million), primarily resulting from
comparable store sales growth and the opening of 323 net new Starbucks® licensed
stores, or 4% increase, over the past 12 months and the impact of the adoption
of revenue recognition guidance on stored value card breakage ($119 million).
Operating Margin
Americas operating income for fiscal 2019 increased 9% to $3.8 billion, compared
to $3.5 billion in fiscal 2018. Operating margin decreased 10 basis points to
20.7%, primarily driven by higher partner investments, largely funded by savings
from the Tax Act, growth in wages and benefits (approximately 130 basis points)
and to a much lesser extent, investments in labor hours heavily concentrated in
our fiscal fourth quarter. Partially offsetting these were cost savings
initiatives, primarily in product and distribution costs (approximately 90 basis
points), the impact of the adoption of revenue recognition guidance on stored
value card breakage (approximately 50 basis points) and sales leverage.
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International
                                        Sep 29,              Sep 30,                   Sep 29,                     Sep 30,
Fiscal Year Ended                         2019                 2018                     2019                        2018
                                                                                            As a % of International
                                                                                              Total Net Revenues
Net revenues:
Company-operated stores              $   5,256.2$   4,702.1                          84.9  %                   84.7  %
Licensed stores                            917.0                837.0                          14.8                      15.1
Other                                       17.5                 12.1                           0.3                       0.2
Total net revenues                       6,190.7              5,551.2                         100.0                     100.0
Product and distribution costs           1,894.9              1,709.4                          30.6                      30.8
Store operating expenses                 2,428.5              2,182.3                          39.2                      39.3
Other operating expenses                   116.4                 98.9                           1.9                       1.8
Depreciation and amortization
expenses                                   511.5                447.6                           8.3                       8.1
General and administrative expenses        317.9                302.5                           5.1                       5.4
Restructuring and impairments               59.2                 55.1                           1.0                       1.0
Total operating expenses                 5,328.4              4,795.8                          86.1                      86.4
Income from equity investees               102.4                117.4                           1.7                       2.1
Operating income                     $     964.7$     872.8                          15.6  %                   15.7  %


Discussion of our International segment results below reflects the impact of
fully consolidating our East China business from an equity method joint venture
to a company-operated market since the acquisition date of December 31, 2017.
Under the joint venture model, we recognized royalties and product sales within
revenue and related product and distribution costs as well as our proportionate
share of East China's net earnings, which resulted in a higher margin business.
Under the company-operated ownership model, East China's operating results are
reflected in most income statement lines of this segment.
Revenues
International total net revenues for fiscal 2019 increased $640 million, or
12%%, primarily driven by 665 net new Starbucks® company-operated stores, or a
12% increase, over the past 12 months ($377 million), the ownership change in
East China ($280 million) and a 3% increase in comparable store sales ($135
million). Also contributing were increased product sales to and royalty revenues
from licensees ($84 million), primarily resulting from opening of 669 net new
Starbucks® licensed stores, or an 11% increase, over the past 12 months and the
impact of the adoption of revenue recognition guidance on stored value card
breakage ($20 million). These increases were partially offset by unfavorable
foreign currency translation ($183 million) and the conversion of our Thailand,
France and the Netherlands retail businesses to fully licensed markets ($126
million).
Operating Margin
International operating income for fiscal 2019 increased 11% to $965 million,
compared to $873 million in fiscal 2018. Operating margin decreased 10 basis
points to 15.6%, primarily driven by strategic investments to support growth in
China (approximately 80 basis points) and growth in wages and benefits
(approximately 70 basis points), primarily offset by cost savings initiatives
(approximately 80 basis points) and labor efficiencies (approximately 70 basis
points).
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Channel Development
                                    Sep 29,              Sep 30,                   Sep 29,                     Sep 30,
Fiscal Year Ended                     2019                 2018                     2019                        2018
                                                                                     As a % of Channel Development
                                                                                          Total Net Revenues
Total net revenues               $   1,992.6$   2,297.3
Product and distribution costs       1,390.0              1,252.3                          69.8                      54.5
Other operating expenses                76.2                286.5                           3.8                      12.5
Depreciation and amortization
expenses                                13.0                  1.3                           0.7                       0.1
General and administrative
expenses                                11.5                 13.9                           0.6                       0.6
Total operating expenses             1,490.7              1,554.0                          74.8                      67.6
Income from equity investees           195.6                183.8                           9.8                       8.0
Operating income                 $     697.5$     927.1                          35.0  %                   40.4  %


Our Channel Development segment results reflect the impact of the licensing of
our CPG and Foodservice businesses to Nestlé late in the fourth quarter of
fiscal 2018, which we lapped late in the fourth quarter of fiscal 2019. Our
collaborative business relationships for our global ready-to-drink products and
the associated revenues remain unchanged due to the Global Coffee Alliance.
Revenues
Channel Development net revenues for fiscal 2019 decreased $305 million, or 13%,
when compared to the prior year period, primarily driven by licensing our CPG
and Foodservice businesses to Nestlé ($329 million), offset by growth in product
revenue, primarily premium single-serve products, in connection with our Global
Coffee Alliance ($25 million).
Operating Margin
Channel Development operating income for fiscal 2019 decreased 25% to $698
million, compared to $927 million in fiscal 2018. Operating margin decreased 540
basis points to 35.0%, primarily driven by licensing our CPG and Foodservice
businesses to Nestlé (approximately 640 basis points), partially offset by
lapping prior year costs associated with the establishment of the Global Coffee
Alliance (approximately 140 basis points), including business taxes associated
with the up-front prepaid royalty and headcount-related costs, primarily related
to employee bonus and retention costs.
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Corporate and Other
                                            Sep 29,         Sep 30,           %
Fiscal Year Ended                             2019            2018          Change
Net revenues:
Company-operated stores                   $        -      $     66.7       (100.0) %
Licensed stores                                    -             1.2       (100.0)
Other                                           66.3            54.5         21.7
Total net revenues                              66.3           122.4        (45.8)
Product and distribution costs                  67.3            84.9        (20.7)
Store operating expenses                         0.3            41.3        (99.3)
Other operating expenses                        18.6            18.3          1.6
Depreciation and amortization expenses         156.7           157.1        

(0.3)

General and administrative expenses 1,170.8 1,086.7

7.7

Restructuring and impairments                   19.7           135.9        (85.5)
Total operating expenses                     1,433.4         1,524.2         (6.0)

Operating loss                            $ (1,367.1)$ (1,401.8)        (2.5) %


Corporate and Other primarily consists of our unallocated corporate expenses, as
well as Evolution Fresh and the legacy operations of the Teavana retail
business, which substantially ceased during fiscal 2018. 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Investment Overview
Our cash and investments were $4.8 billion and $3.0 billion as of September 27,
2020 and September 29, 2019, respectively. In fiscal 2020, cash and investments
increased by $1.8 billion primarily due to the issuance of short-term and
long-term debt as well as lower share repurchases following the temporary
suspension of our share repurchase program in March 2020. These liquidity
increases offset lower retail cash inflows due to temporary store closures and
modified operations resulting from the COVID-19 pandemic. 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 (domestic and foreign) and commercial paper. As of
September 27, 2020, approximately $2.0 billion of cash was held in foreign
subsidiaries.
Borrowing capacity
Credit Facilities and Commercial Paper
Our total contractual borrowing capacity for general corporate purposes was $2.7
billion as of the end of fiscal 2020 when combining the unused commercial paper
program and credit facilities discussed below, less outstanding borrowing.
Revolving Lines of Credit
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 1.100% for Eurocurrency Rate Loans and 0.000% (nil) for
Base Rate Loans. The 2018 credit facility is available for general corporate
purposes. As of September 27, 2020, we had no borrowings under the 2018 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 September 22, 2021. We have the option, subject to
negotiation and agreement with the related banks, to increase the maximum
commitment amount by an additional $500 million. Borrowings under the credit
facility are subject to terms defined within the 364-day credit facility and
will bear interest at a variable rate based on
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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 364-day
credit agreement. The applicable margin is 1.150% for Eurocurrency Rate Loans
and 0.150% for Base Rate Loans. The 364-day credit facility is available for
general corporate purposes. As of September 27, 2020, we had no borrowings under
the 364-day credit facility.
Due to the financial impacts from COVID-19, we reached an agreement with our
lenders to amend the fixed charge coverage ratio covenant for our combined $3.0
billion revolving lines of credit, through the fourth quarter of fiscal 2021.
Commercial Paper
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
September 27, 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.
Credit Facilities in Japan
Additionally, we hold Japanese yen-denominated credit facilities which 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 $47.4 million, as of September 27, 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 0.400%.
Additionally during the third quarter, we expanded our ¥2 billion unsecured
credit facility to ¥10 billion, or $94.9 million, as of September 27, 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 0.300%. As of September 27,
2020, we had $142.3 million of borrowings outstanding under these credit
facilities.
In October 2020, we entered into a new ¥10 billion unsecured facility, or
approximately $95 million as of October 29, 2020. This facility is set to mature
on October 29, 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 0.350%.
Long-Term Debt
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 and for future repayments 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.
On March 12, 2020, we issued long-term debt in an underwritten registered public
offering, which consisted of $500 million of 2.000% Senior Notes (the "2027
notes") due March 2027, $750 million of 2.250% Senior Notes (the "2030 notes")
due March 2030 and $500 million of 3.350% Senior Notes (the "2050 notes") due
March 2050. We are using the net proceeds from the offering for general
corporate purposes, including the repayment of outstanding borrowings under our
commercial paper program. We may temporarily invest funds that are not
immediately needed for these purposes in short-term investments, including
marketable securities. Interest on the 2027 notes, the 2030 notes and the 2050
notes is payable semi-annually on March 12 and September 12, commencing on
September 12, 2020.
See   Note 9  , Debt, to the consolidated financial statements included in Item
8 of Part II of this 10-K 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 September 27, 2020,
we were in compliance with all applicable covenants.
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
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investing in new ways to serve our customers and supporting our store partners,
repaying maturing debts, as well as returning 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. To further
strengthen our liquidity in the near term, we currently expect the suspension of
share repurchases to continue through the end of fiscal 2021. If necessary, we
may pursue additional sources of financing, including both short-term and
long-term borrowings and debt issuances.
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. See   Note 14  , Income Taxes, for
further discussion.
During fiscal 2020, we entered into a new $500 million unsecured 364-day
term-loan facility ("the 2020 term-loan facility") which we drew on and
subsequently repaid within the fiscal year. The 2020 term-loan facility was
originally set to mature on March 19, 2021.
During each of the first three quarters of fiscal 2019, we declared a cash
dividend to shareholders of $0.36 per share. In the fourth quarter of fiscal
2019 and each of the first three quarters of fiscal 2020, we declared a cash
dividend of $0.41 per share. Dividends are paid in the quarter following the
declaration date. Cash returned to shareholders through dividends in fiscal 2020
and 2019 totaled $1.9 billion and $1.8 billion, respectively. Subsequent to the
fourth quarter of fiscal 2020, we declared a cash dividend of $0.45 per share to
be paid on November 27, 2020 with an expected payout of approximately
$527.9 million. As of the date of this report, we do not expect to reduce our
quarterly dividend as a result of the COVID-19 pandemic.
In September 2018, we entered into accelerated share repurchase agreements ("ASR
agreements") with third-party financial institutions totaling $5.0 billion,
effective October 1, 2018. We made a $5.0 billion up-front payment to the
financial institutions and received an initial delivery of 72.0 million shares
of our common stock. In March 2019, we received an additional 4.9 million shares
upon the completion of the program based on a volume-weighted average share
price (less discount) of $65.03.
Additionally, 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 of our common stock. 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 fiscal year ended
September 29, 2019. In total, we repurchased 139.6 million shares at a total
cost of $10.1 billion for the fiscal year ended September 29, 2019.
Our Board of Directors approved an increase of 120 million and 40 million shares
to our ongoing share repurchase program during the fiscal first quarter of 2019
and fiscal second quarter of 2020, respectively. We temporarily suspended our
share repurchase program in March 2020. Prior to the suspension, 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. The existing
share repurchase program remains authorized by the Board of Directors. The
suspension of the share repurchases is currently expected to continue through
fiscal 2021, and we may resume share repurchases in the future at any time,
depending upon operating results, our capital needs and other factors.
Other than normal operating expenses, cash requirements for fiscal 2021 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 2021 are expected to be approximately $1.9 billion.
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Cash Flows
Cash provided by operating activities was $1.6 billion for fiscal 2020, compared
to $5.0 billion for fiscal 2019. The change was primarily due to temporary
retail store closures resulting from the COVID-19 pandemic, 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 totaled $1.7 billion for fiscal 2020, compared
to $1.0 billion for 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 an increase in purchase of investments in
fiscal 2020. This was partially offset by lower capital expenditures for new and
existing stores.
Cash provided by financing activities for fiscal 2020 totaled $1.7 billion,
compared to cash used in financing activities of $10.1 billion for 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
The following table summarizes our contractual obligations and borrowings as of
September 27, 2020, and the timing and effect that such commitments are expected
to have on our liquidity and capital requirements in future periods (in
millions):
                                                                           Payments Due by Period
                                                              Less than 1            1 - 3              3 - 5             More than
Contractual Obligations(1)                  Total                Year                Years              Years              5 Years

Operating lease obligations(2) $ 10,089.6$ 1,528.1

      $ 2,668.7$ 2,112.6$  3,780.2

Debt obligations
Principal payments                        16,445.2               1,688.8            2,000.0            2,806.4             9,950.0
Interest payments                          7,140.5                 501.2              893.4              793.5             4,952.4
Purchase obligations(3)                    1,237.1                 750.3              423.4               63.4                   -
Other obligations(4)                         498.9                 101.0               71.5              115.9               210.5
Total                                   $ 35,411.3$    4,569.4$ 6,057.0$ 5,891.8$ 18,893.1


(1)We have excluded long-term gross unrecognized tax benefits for uncertain tax
positions, including interest and penalties of $137.5 million from the amounts
presented as the timing of these obligations is uncertain.
(2)Amounts include direct lease obligations, excluding any taxes, insurance and
other related expenses.
(3)Purchase obligations include agreements to purchase goods or services that
are enforceable and legally binding on Starbucks and that specify all
significant terms. Green coffee purchase commitments comprise 93% of total
purchase obligations.
(4)Other obligations include other long-term liabilities primarily consisting of
the Tax Act transition tax, asset retirement obligations, Valor Siren Ventures I
L.P. (VSV) investment and hedging instruments.
Starbucks currently expects to fund these commitments primarily with operating
cash flows generated in the normal course of business.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements relate to purchase commitments detailed in the
footnotes to the consolidated financial statements included in   Item 8   of
Part II of this 10-K.
COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
Commodity price risk represents Starbucks 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 impacts 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  , as well as Risk Factors in   Item 1A
of this 10-K.
FINANCIAL RISK MANAGEMENT
Market risk is defined as the risk of losses due to changes in commodity prices,
foreign currency exchange rates, equity security prices and interest rates. We
manage our exposure to various market-based risks according to a market price
risk management policy. Under this policy, market-based risks are quantified and
evaluated for potential mitigation strategies, such as entering into hedging
transactions. The market price risk management policy governs how hedging
instruments may be used to mitigate
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risk. Risk limits are set annually and prohibit speculative trading activity. We
also monitor and limit the amount of associated counterparty credit risk, which
we consider to be low. We use interest rate swap agreements and treasury locks
to primarily hedge against changes in benchmark interest rates related to
anticipated debt issuances and cross-currency swaps and foreign exchange debt
instruments to hedge against changes in the fair value of our fixed-rate debt
and foreign exchange exposure of net investments in Japan. Excluding interest
rate hedging instruments, cross currency swaps and foreign currency debt,
hedging instruments generally do not have maturities in excess of three years.
Refer to   Note 1  , Summary of Significant Accounting Policies, and   Note 3  ,
Derivative Financial Instruments, to the consolidated financial statements
included in Item 8 of Part II of this 10-K for further discussion of our hedging
instruments.
The sensitivity analyses disclosed below provide only a limited, point-in-time
view of the market risk of the financial instruments discussed. The actual
impact of the respective underlying rates and price changes on the financial
instruments may differ significantly from those shown in the sensitivity
analyses.
Commodity Price Risk
We purchase commodity inputs, primarily coffee, dairy products, diesel, cocoa,
sugar and other commodities, that are used in our operations and are subject to
price fluctuations that impact our financial results. We use a combination of
pricing features embedded within supply contracts, such as fixed-price and
price-to-be-fixed contracts for coffee purchases, and financial derivatives to
manage our commodity price risk exposure.
The following table summarizes the potential impact as of September 27, 2020 to
Starbucks future net earnings and other comprehensive income ("OCI") from
changes in commodity prices. The information provided below relates only to the
hedging instruments and does not represent the corresponding changes in the
underlying hedged items (in millions):
                                                              Increase/(Decrease) to Net Earnings                                         

Increase/(Decrease) to OCI

                                                           10% Increase in                          10% Decrease in               10% Increase in                10% Decrease in
                                                           Underlying Rate                          Underlying Rate               Underlying Rate                Underlying Rate
Commodity hedges                           $                1                                     $             (1)         $             13                   $            (13)


Foreign Currency Exchange Risk
The majority of our revenue, expense and capital purchasing activities are
transacted in U.S. dollars. However, because a portion of our operations
consists of activities outside of the U.S., we have transactions in other
currencies, primarily the Chinese renminbi, Japanese yen, Canadian dollar,
British pound, South Korean won and euro. To reduce cash flow volatility from
foreign currency fluctuations, we enter into derivative instruments to hedge
portions of cash flows of anticipated intercompany royalty payments, inventory
purchases, intercompany borrowing and lending activities and certain other
transactions in currencies other than the functional currency of the entity that
enters into the arrangements, as well as the translation risk of certain balance
sheet items. The volatility in the foreign exchange market may lead to
significant fluctuation in foreign currency exchange rates and adversely impact
our financial results in the case of weakening foreign currencies relative to
the U.S. dollar. See   Note 3  , Derivative Financial Instruments, to the
consolidated financial statements included in Item 8 of Part II of this 10-K for
further discussion.
The following table summarizes the potential impact as of September 27, 2020 to
Starbucks future net earnings and other comprehensive income from changes in the
fair value of these derivative financial instruments due to a change in the
value of the U.S. dollar as compared to foreign exchange rates. The information
provided below relates only to the hedging instruments and does not represent
the corresponding changes in the underlying hedged items (in millions):
                                                         Increase/(Decrease) to Net Earnings                                    

Increase/(Decrease) to OCI

                                                      10% Increase in                       10% Decrease in              10% Increase in              

10% Decrease in

                                                      Underlying Rate                       Underlying Rate              Underlying Rate              Underlying Rate
Foreign currency hedges                 $             37                                   $           (37)         $           164                 $           (164)


Equity Security Price Risk
We have minimal exposure to price fluctuations on equity mutual funds and equity
exchange-traded funds within our marketable equity securities portfolio.
Marketable equity securities are recorded at fair value and approximates a
portion of our liability under our Management Deferred Compensation Plan
("MDCP"). Gains and losses from the portfolio and the change in our MDCP
liability are recorded in our consolidated statements of earnings.
We performed a sensitivity analysis based on a 10% change in the underlying
equity prices of our investments as of September 27, 2020 and determined that
such a change would not have a significant impact on the fair value of these
instruments.
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Interest Rate Risk
Long-term Debt
We utilize short-term and long-term financing and may use interest rate hedges
to manage our overall interest expense related to our existing fixed-rate debt,
as well as to hedge the variability in cash flows due to changes in benchmark
interest rates related to anticipated debt issuances. See   Note 3  , Derivative
Financial Instruments and   Note 9  , Debt, to the consolidated financial
statements included in Item 8 of Part II of this 10-K for further discussion of
our interest rate hedge agreements and details of the components of our
long-term debt, respectively, as of September 27, 2020.
The following table summarizes the impact of a change in interest rates as of
September 27, 2020 on the fair value of Starbucks debt (in millions):
                                                                                          Change in Fair Value
                                                                    100 Basis Point Increase in           100 Basis Point Decrease in
                                            Fair Value                    Underlying Rate                       Underlying Rate
Long-term debt(1)                       $         17,500          $                      1,294          $                     (1,294)


(1)Amount disclosed is net of $23 million change in the fair value of our
designated interest rate swap. Refer to   Note 3  , Derivative Financial
Instruments, for additional information on our interest rate swap designated as
a fair value hedge.
Available-for-Sale Debt Securities
Our available-for-sale securities comprise a diversified portfolio consisting
mainly of investment-grade debt securities. The primary objective of these
investments is to preserve capital and liquidity. Available-for-sale securities
are recorded on the consolidated balance sheets at fair value with unrealized
gains and losses reported as a component of accumulated other comprehensive
income. We do not hedge the interest rate exposure on our investments. We
performed a sensitivity analysis based on a 100 basis point change in the
underlying interest rate of our available-for-sale securities as of
September 27, 2020 and determined that such a change would not have a
significant impact on the fair value of these instruments.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that management believes are both most
important to the portrayal of our financial condition and results and require
the most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain, especially in light of the current economic environment due to the
COVID-19 pandemic. Judgments and uncertainties affecting the application of
those policies may result in materially different amounts being reported under
different conditions or using different assumptions.
Our significant accounting policies are discussed in   Note 1  , Summary of
Significant Accounting Policies, to the consolidated financial statements
included in Item 8 of Part II of this 10-K. We believe that of our significant
accounting policies, the following policies involve a higher degree of judgment
and/or complexity.
We consider financial reporting and disclosure practices and accounting policies
quarterly to ensure that they provide accurate and transparent information
relative to the current economic and business environment. During the past five
fiscal years, we have not made any material changes to the accounting
methodologies used to assess the areas discussed below, unless noted otherwise.
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Property, Plant and Equipment and Other Finite-Lived Assets
We evaluate property, plant and equipment, operating lease right-of-use ("ROU")
assets and other finite-lived assets 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 adjusted
carrying amount of the asset becomes its new cost basis and is depreciated over
the asset's remaining useful life.
Long-lived assets are grouped with other assets and liabilities 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, which is
inclusive of property, plant and equipment and lease ROU assets. The fair value
of a store's assets is estimated using a discounted cash flow model. For other
long-lived assets, fair value is determined using an approach that is
appropriate based on the relevant facts and circumstances, which may include
discounted cash flows, comparable transactions, or comparable company analyses.
Our impairment calculations contain uncertainties because they require
management to make assumptions and to apply judgment to estimate future cash
flows and asset fair values. Key assumptions used in estimating future cash
flows and asset fair values include projected revenue growth and operating
expenses, as well as forecasting asset useful lives and selecting an appropriate
discount rate. For company-operated stores, estimates of revenue growth and
operating expenses are based on internal projections and consider the store's
historical performance, the local market economics and the business environment
impacting the store's performance. The discount rate is selected based on what
we believe a buyer would assume when determining a purchase price for the store.
These estimates are subjective and our ability to realize future cash flows and
asset fair values is affected by factors such as ongoing maintenance and
improvement of the assets, changes in economic conditions and changes in
operating performance.
In each of the three fiscal years prior to fiscal 2020, our business has
operated at levels of growth and profitability that have not required material
numbers of our store assets to be reviewed for potential impairment. Given the
substantial reduction in our revenues and cash flows as a result of the COVID-19
pandemic, primarily in the third quarter of fiscal 2020, along with our
announced restructuring plans to close up to 800 of our company-operated stores
in the U.S. and Canada in the next 18 months, we identified triggering events
that required us to assess the need for potential impairment charges for a
larger number of company-operated stores in fiscal 2020 than in prior years. As
a result of these activities, we recorded store impairment charges of $298.9
million in fiscal 2020, of which $239.3 million was included in restructuring
and impairment expenses on our consolidated statement of earnings. The magnitude
of these charges was not particularly sensitive to variations in fair value
inputs, as the majority of charges recorded were the result of full impairments
of stores identified for closure, based on factors such as the format and
location of the store or its current operating performance. Excluding stores in
areas impacted by our restructuring plans, our company-operated store portfolio
is projecting a return to pre-COVID-19 levels of operations and cash flow
recoverability within the next 12 months. However, irrespective of the above,
our expectations of business recovery trends may vary materially in future
periods based on the pace of global and market-specific recovery from the
COVID-19 pandemic.
As of September 27, 2020, we had identified 405 stores in the U.S. and Canada
for closure under our restructuring plans. We expect to potentially identify up
to another 395 stores for closure. We expect total future restructuring costs,
which are attributable to our Americas segment, to range from approximately $260
million to $400 million. These restructuring costs include accelerated
amortization or impairments of ROU assets due to planned store closures prior to
the end of contractual lease terms ($150 million to $190 million), store asset
impairment and disposal costs not previously recorded as part of our ongoing
store impairment process ($100 million to $190 million) and the remaining amount
relates to employee termination costs. Our estimates of future restructuring
costs are based on actual costs incurred for recently closed stores of similar
profile under the restructuring plans. As we have previously recorded impairment
charges in fiscal 2020 for stores that may be identified for closure under our
plans, and because store closure decisions are still subject to change, the
final costs associated with these store closures may be different from the
initial estimates. These costs will depend on the asset carrying value and
remaining lease term for each store identified. Future restructuring costs are
expected to be incurred over the next 18 months as stores are specifically
identified for closure or, in the case of lease exit costs, when the stores
cease operations.
Asset impairment charges are discussed in   Note 1  , Summary of Significant
Accounting Policies, to the consolidated financial statements included in Item 8
of Part II of this 10-K.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for impairment
annually during our third fiscal quarter, or more frequently if an event occurs
or circumstances change that would indicate impairment may exist. When
evaluating these assets 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
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value of the reporting unit exceeds its carrying amount, we calculate the
estimated fair value of the reporting unit using discounted cash flows or a
combination of discounted cash flow and market approaches.
When assessing goodwill for impairment, our decision to perform a qualitative
impairment assessment for an individual reporting unit in a given year is
influenced by a number of factors, inclusive of the carrying value of the
reporting unit's goodwill, the significance of the excess of the reporting
unit's estimated fair value over carrying value at the last quantitative
assessment date, the amount of time in between quantitative fair value
assessments and the date of acquisition. If we perform a quantitative assessment
of an individual reporting unit's goodwill, our impairment calculations contain
uncertainties because they require management to make assumptions and to apply
judgment when estimating future cash flows and asset fair values, including
projected revenue growth and operating expenses related to existing businesses,
product innovation and new store concepts, as well as utilizing valuation
multiples of similar publicly traded companies and selecting an appropriate
discount rate. Estimates of revenue growth and operating expenses are based on
internal projections considering the reporting unit's past performance and
forecasted growth, including assumptions regarding business recovery post
COVID-19, strategic initiatives, local market economics and the local business
environment impacting the reporting unit's performance. The discount rate is
selected based on the estimated cost of capital for a market participant to
operate the reporting unit in the region. These estimates, as well as the
selection of comparable companies and valuation multiples used in the market
approaches are highly subjective, and our ability to realize the future cash
flows used in our fair value calculations is affected by factors such as the
success of strategic initiatives, changes in economic conditions, changes in our
operating performance and changes in our business strategies, including retail
initiatives and international expansion. Our goodwill impairment assessments
were not significantly altered as a result of the COVID-19 pandemic. We continue
to believe the fair value of each of our reporting units is significantly in
excess of its carrying value, and absent a sustained multi-year global decline
in our business in key markets such as the U.S. and China, we do not anticipate
incurring significant goodwill impairment in the next 12 months.
When assessing indefinite-lived intangible assets for impairment, where we
perform a qualitative assessment, we evaluate if changes in events or
circumstances have occurred that indicate that impairment may exist. If we do
not perform a qualitative impairment assessment or if changes in events and
circumstances indicate that a quantitative assessment should be performed,
management is required to calculate the fair value of the intangible asset
group. The fair value calculation includes estimates of revenue growth, which
are based on past performance and internal projections for the intangible asset
group's forecasted growth, including assumptions regarding business recovery
post COVID-19, and royalty rates, which are adjusted for our particular facts
and circumstances. The discount rate is selected based on the estimated cost of
capital that reflects the risk profile of the related business. These estimates
are highly subjective, and our ability to achieve the forecasted cash flows used
in our fair value calculations is affected by factors such as the success of
strategic initiatives, changes in economic conditions, changes in our operating
performance and changes in our business strategies, including retail initiatives
and international expansion. During fiscal 2020, we recorded a charge of $22.1
million relating to the impairment of an indefinite-lived intangible asset due
to changes in branding and marketing strategy. The amount of charge taken was
not materially impacted by our choice of fair value assumptions, and we do not
anticipate recording significant impairment charges in the next 12 months.
Definite-lived intangible asset impairment charges are discussed in   Note 8  ,
Other Intangible Assets and Goodwill, to the consolidated financial statements
included in Item 8 of Part II of this 10-K.
Income Taxes
We recognize deferred tax assets and liabilities 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. 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
jurisdiction 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
operations. In projecting future taxable income, we consider historical results
and incorporate assumptions about the amount of future state, federal and
foreign pretax operating income adjusted for items that do not have tax
consequences. Our assumptions regarding future taxable income are consistent
with the plans and estimates we use to manage our underlying businesses. In
evaluating the objective evidence that historical results provide, we consider
three years of cumulative operating income/(loss). During fiscal 2020, we
recorded valuation allowances of $56.5 million to reduce our deferred tax asset
balance as of the beginning of the fiscal year relating to certain foreign
jurisdictions not expected to generate enough future income to offset
accumulated losses. Absent a sustained multi-year global decline in our business
in key markets such as the U.S., China and Japan, we do not anticipate incurring
significant additional valuation allowances against our remaining deferred tax
assets as of September 27, 2020 in the next 12 months.
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
only if it is
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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. 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. As discussed
in   Note     1    4  , Income Taxes, to the consolidated financial statements
included in Item 8 of Part II of this 10-K, there is a reasonable possibility
that our unrecognized tax benefit liability will be adjusted within 12 months
due to the expiration of a statute of limitations and/or resolution of
examinations with taxing authorities.
We have generated income in certain foreign jurisdictions that may be subject to
additional foreign withholding taxes and U.S. state income taxes. We regularly
review our plans for reinvestment or repatriation of unremitted foreign
earnings. These plans have been unaltered as a result of the COVID-19 pandemic.
While we do not expect to repatriate cash to the U.S. to satisfy domestic
liquidity needs, if these amounts were distributed to the U.S., in the form of
dividends or otherwise, we may be subject to additional foreign withholding
taxes and U.S. state income taxes, which could be material.
Our income tax expense, deferred tax assets and liabilities and liabilities for
unrecognized tax benefits reflect management's best assessment of estimated
current and future taxes to be paid. Deferred tax asset valuation allowances and
our liabilities for unrecognized tax benefits require significant management
judgment regarding applicable statutes and their related interpretation, the
status of various income tax audits and our particular facts and circumstances.
Although we believe that the judgments and estimates discussed herein are
reasonable, actual results, including forecasted COVID-19 business recovery,
could differ, and we may be exposed to losses or gains that could be material.
To the extent we prevail in matters for which a liability has been established
or are required to pay amounts in excess of our established liability, our
effective income tax rate in a given financial statement period could be
materially affected.
RECENT ACCOUNTING PRONOUNCEMENTS
See   Note 1  , Summary of Significant Accounting Policies, to the consolidated
financial statements included in Item 8 of Part II of this 10-K for a detailed
description of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Commodity Prices, Availability and General Risk
Conditions" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Risk Management" in Item 7 of this Report.
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