STARBUCKS CORPORATION CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements herein are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, these statements can be identified by the use of words such as "aim," "anticipate," "believe," "continue," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "outlook," "plan," "potential," "project," "seek," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, the anticipated timing and effects of recovery of our business, the conversion of several market operations to fully licensed models, our plans for streamlining our operations, including store openings, closures, and changes in store formats and models, expanding our licensing to Nestlé of our consumer packaged goods and Foodservice businesses and its effects on our Channel Development segment results, tax rates, business opportunities and expansion, strategic acquisitions, expenses, dividends, share repurchases, commodity costs and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, repatriation of cash to theU.S. , the likelihood of the issuance of additional debt and the applicable interest rate, the impact of the COVID-19 outbreak on our financial results, credits available to us under the CARES Act and other government credits, the expected effects of new accounting pronouncements and the estimated impact of changes inU.S. tax law, including on tax rates, investments funded by these changes, and potential outcomes and effects of legal proceedings. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to: further spread of COVID-19 and related disruptions to our business; regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; the potential for a resurgence of COVID-19 infections in a given geographic region after it has hit its "peak"; fluctuations inU.S. and international economies and currencies; our ability to preserve, grow and leverage our brands; the ability of our business partners and third-party providers to fulfill their responsibilities and commitments; potential negative effects of incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling; potential negative effects of material breaches of our information technology systems to the extent we experience a material breach; material failures of our information technology systems; costs associated with, and the successful execution of, the Company's initiatives and plans, including the successful expansion of ourGlobal Coffee Alliance with Nestlé; our ability to obtain financing on acceptable terms; the acceptance of the Company's products by our customers, evolving consumer preferences and tastes and changes in consumer spending behavior; changes in the availability and cost of labor; the impact of competition; inherent risks of operating a global business; the prices and availability of coffee, dairy and other raw materials; the effect of legal proceedings; the effects of changes in tax laws and related guidance and regulations that may be implemented and other risks detailed in our filings with theSEC , including in Part I Item IA "Risk Factors" in the 10-K. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K. Introduction and OverviewStarbucks is the premier coffee roaster and retailer of specialty coffee with operations in 83 markets around the world. As ofDecember 27, 2020 ,Starbucks had over 32,900 company-operated and licensed stores, an increase of 4% from the prior year. Additionally, we sell a variety of consumer-packaged goods, or CPG, primarily through theGlobal Coffee Alliance established with Nestlé and other partnerships and joint ventures. Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. Comparable store sales represent company-operated stores open for 13 months or longer, and exclude the impact of foreign currency translation. Stores that are temporarily closed or operating at reduced hours due to the COVID-19 outbreak remain in comparable store sales while stores identified for permanent closure have been removed. During the quarter endedDecember 27, 2020 , our global comparable store sales declined 5%, including the negative impacts of COVID-19. We have three reportable operating segments:Americas , International and Channel Development. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. 26 -------------------------------------------------------------------------------- Table of Contents Our fiscal year ends on the Sunday closest toSeptember 30 . Our 2021 fiscal year includes 53 weeks, with the 53rd week falling in the fourth fiscal quarter, while fiscal year 2020 included 52 weeks. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. COVID-19 UpdateStarbucks results for the first quarter of fiscal 2021 reflect continued recovery from the effects of the COVID-19 pandemic. The sequential improvements in our quarterly results demonstrate the resilience of our business model and the strength of our brand. Consolidated net revenues declined 5% to$6.7 billion in first quarter of fiscal 2021 compared to$7.1 billion in the first quarter of fiscal 2020, driven primarily by reduced customer traffic, modified business operations, reduced store operating hours and temporary closures of our company-operated and licensed stores. As ofDecember 27, 2020 , nearly all of our company-operated and licensed stores were re-opened; however, many were operating at less than full capacity. For theAmericas segment, comparable store sales declined by 6% for the first quarter of fiscal 2021, primarily due to reduced customer traffic, temporary store closures and modified store operations. As ofDecember 27, 2020 , approximately 40% of ourU.S. company-operated stores offered limited seating. Our business in theU.S. continued its steady recovery, with a 5% decline in comparable store sales for the first quarter of fiscal 2021 compared to declines of 9% and 40% for the fourth and third fiscal quarters of 2020, respectively. We continued to incur incremental costs attributable to COVID-19, including catastrophe pay programs for company-operated store partners (employees). These were partially offset by qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and theCanada Emergency Wage Subsidy ("CEWS"). In fiscal year 2020, we announced a plan to optimize ourAmericas store portfolio, primarily in dense, metropolitan markets, by blending store formats to better cater to changing customer tastes and preferences. During the first quarter of fiscal 2021, we closed approximately 170 stores in theU.S. andCanada , and we expect to close an additional 500 stores in those markets primarily over the next 9 to 12 months to complete our restructuring efforts. 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 as stores are identified for closure and are eventually closed. For the International segment, comparable store sales declined 3% for the first quarter of fiscal 2021, primarily due to modifications of store operations in our our company-operated international markets. Our business inChina has substantially recovered. Comparable store sales increased 5%, inclusive of a nearly 5% benefit from the temporary VAT exemption ending inDecember 2020 . TheChina market continued to demonstrate upward momentum in sales and profitability. As ofDecember 27, 2020 , nearly all company-operated stores within the International segment were open. Most of our International licensed stores were also open at the end of the first quarter of fiscal 2021. Net revenues for our Channel Development segment declined$123 million , or 25%, when compared with the first quarter of fiscal 2020. This was largely due to the transition of certain single-serve product activities to Nestlé beginning in the fourth quarter of fiscal 2020 and lappingGlobal Coffee Alliance transition-related activities. Also contributing were lowerGlobal Coffee Alliance revenues, primarily driven by the Foodservice business, which experienced softening due to COVID-19. Our Channel Development segment continues to grow category share as customers adjust to their at-home routines. We continue to invest in technologies and innovations to elevate the customer and partner experience and to drive long-term growth. 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, enhance digital capabilities and drive beverage innovation, we believe we are well positioned to regain the positive business momentum we had demonstrated prior to the pandemic. Comparable Store SalesStarbucks comparable store sales for the first quarter of fiscal 2021:
Quarter Ended
Change in Comparable Change in Change in
Store Sales Transactions Ticket
Consolidated (5)% (19)% 17%
Americas (6)% (21)% 20%
International (3)% (10)% 8%
The above comparable store sales for the quarter ended December 27, 2020
decreased primarily due to reduced customer traffic, temporary store closures
and stores with modified operations and business hours as a result of COVID-19.
Refer to our Quarterly Store Data , also included in Item 2 of Part I of this
10-Q, for additional information on our company operated and licensed store
portfolio.
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Results of Operations (in millions)
Revenues
Quarter Ended
Dec 27, Dec 29, $ %
2020 2019 Change Change
Company-operated stores $ 5,726.5 $ 5,780.7 $ (54.2) (0.9) %
Licensed stores 613.8 792.0 (178.2) (22.5)
Other 409.1 524.4 (115.3) (22.0)
Total net revenues $ 6,749.4 $ 7,097.1 $ (347.7) (4.9) %
For the quarter ended December 27, 2020 compared with the quarter ended
December 29, 2019
Total net revenues for the first quarter of fiscal 2021 decreased $348 million .
Company-operated stores revenue declined $54 million , reflecting a 5% decrease
in comparable store sales ($279 million ) attributed to a 19% decrease in
transactions partially offset by a 17% increase in average ticket. This decrease
was partially offset by 667 net new Starbucks® company-operated stores, or a 4%
increase, over the past 12 months ($170 million ) and favorable foreign currency
translation ($69 million ).
Licensed stores revenue decreased $178 million , primarily driven by lower
product and equipment sales to and royalty revenues from our licensees.
Other revenues decreased $115 million , primarily due to the transition of
certain single-serve product activities to Nestlé and lapping of transition
activities related to the Global Coffee Alliance in the prior year. Also
contributing were lower Global Coffee Alliance revenues, mainly driven by the
Foodservice business, which experienced softening due to COVID-19.
Operating Expenses
Quarter Ended
Dec 27, Dec 29, $ Dec 27, Dec 29,
2020 2019 Change 2020 2019
As a % of Total
Net Revenues
Product and distribution costs $ 2,049.1 $ 2,236.4 $ (187.3) 30.4 % 31.5 %
Store operating expenses 2,867.3 2,821.5 45.8 42.5 39.8
Other operating expenses 91.8 101.8 (10.0) 1.4 1.4
Depreciation and amortization expenses 366.1 351.0 15.1 5.4 4.9
General and administrative expenses 472.1 434.2 37.9 7.0 6.1
Restructuring and impairments 72.2 6.3 65.9 1.1 0.1
Total operating expenses 5,918.6 5,951.2 (32.6) 87.7 83.9
Income from equity investees 82.7 73.9 8.8 1.2 1.0
Operating income $ 913.5 $ 1,219.8 $ (306.3) 13.5 % 17.2 %
Store operating expenses as a % of company-operated store revenues
50.1 % 48.8 %
For the quarter ended December 27, 2020 compared with the quarter ended
December 29, 2019
Product and distribution costs as a percentage of total net revenues decreased
110 basis points for the first quarter of fiscal 2021, primarily due to the
transfer of certain single-serve products to Nestlé beginning in the fourth
quarter of fiscal 2020 (approximately 90 basis points) and pricing in Americas .
Store operating expenses as a percentage of total net revenues increased 270
basis points for the first quarter of fiscal 2021. Store operating expenses as a
percentage of company-operated store revenues increased 130 basis points,
primarily due to sales deleverage attributable to COVID-19 impacts, as well as
catastrophe pay programs for retail partners, net of benefits provided by
temporary subsidies from the U.S. and certain foreign governments (approximately
50 basis points), and growth in wages and benefits (approximately 180 basis
points). These were partially offset by labor efficiencies (approximately 250
basis points).
Other operating expenses decreased $10 million for the first quarter of fiscal
2021, primarily due to lapping prior year incremental costs to develop and grow
the Global Coffee Alliance .
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Depreciation and amortization expenses as a percentage of total net revenues
increased 50 basis points, primarily due to sales deleverage.
General and administrative expenses increased $38 million , primarily due to
incremental strategic investments in technology ($28 million ) and higher
performance-based compensation, recognizing the strength of the company's
overall recovery from pandemic-related business impacts ($18 million ).
Restructuring and impairment expenses increased $66 million , primarily due to
higher asset impairment related to store portfolio optimization ($42 million )
and accelerated amortization of right-of-use lease assets associated with the
closure of certain company-operated stores ($26 million ).
Income from equity investees increased $9 million , primarily due to higher
income from our North American Coffee Partnership joint venture, partially
offset by temporary store closures and reduced operating hours in our South
Korea and India joint ventures.
The combination of these changes resulted in an overall decrease in operating
margin of 370 basis points for the first quarter of fiscal 2021.
Other Income and Expenses
Quarter Ended
Dec 27, Dec 29, $ Dec 27, Dec 29,
2020 2019 Change 2020 2019
As a % of Total
Net Revenues
Operating income $ 913.5 $ 1,219.8 $ (306.3) 13.5 % 17.2 %
Interest income and other, net 15.5 15.9 (0.4) 0.2 0.2
Interest expense (120.7) (91.9) (28.8) (1.8) (1.3)
Earnings before income taxes 808.3 1,143.8 (335.5) 12.0 16.1
Income tax expense 186.1 258.5 (72.4) 2.8 3.6
Net earnings including noncontrolling interests 622.2 885.3 (263.1) 9.2 12.5
Net loss attributable to noncontrolling interests - (0.4) 0.4 - -
Net earnings attributable to Starbucks $ 622.2 $ 885.7 $ (263.5) 9.2 % 12.5 %
Effective tax rate including noncontrolling interests 23.0 % 22.6 %
For the quarter ended December 27, 2020 compared with the quarter ended
December 29, 2019
Interest expense increased $29 million , primarily due to additional interest
incurred on long-term debt issued in March 2020 and May 2020 .
The effective tax rate for the quarter ended December 27, 2020 was 23.0%
compared to 22.6% for the same quarter in fiscal 2020. The increase was
primarily due to the effect of lower pre-tax earnings and the proportionate
impacts from certain permanent differences and discrete items, as well as the
foreign rate differential on our jurisdictional mix of earnings. This was
partially offset by an increase in stock-based compensation excess tax benefits
(approximately 190 basis points).
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Segment Information Results of operations by segment (in millions):Americas Quarter Ended Dec 27, Dec 29, $ Dec 27, Dec 29, 2020 2019 Change 2020 2019 As a % of Americas Total Net Revenues Net revenues: Company-operated stores$ 4,284.8 $ 4,471.0 $ (186.2) 91.1 % 89.2 % Licensed stores 416.2 537.3 (121.1) 8.8 10.7 Other 2.2 2.6 (0.4) - 0.1 Total net revenues 4,703.2 5,010.9 (307.7) 100.0 100.0 Product and distribution costs 1,276.2 1,388.4 (112.2) 27.1 27.7 Store operating expenses 2,238.8 2,214.4 24.4 47.6 44.2 Other operating expenses 42.8 42.5 0.3 0.9 0.8 Depreciation and amortization expenses 188.9 189.2 (0.3) 4.0 3.8 General and administrative expenses 70.8 72.4 (1.6) 1.5 1.4 Restructuring and impairments 72.2 5.2 67.0 1.5 0.1 Total operating expenses 3,889.7 3,912.1 (22.4) 82.7 78.1 Operating income$ 813.5 $ 1,098.8 $ (285.3) 17.3 % 21.9 %
Store operating expenses as a % of company-operated store revenues
52.2 % 49.5 %
For the quarter ended December 27, 2020 compared with the quarter ended
December 29, 2019
Revenues
Americas total net revenues for the first quarter of fiscal 2021 decreased $308
million , or 6%, primarily due to a 6% decrease in comparable store sales ($242
million ) driven by a 21% decrease in transactions, partially offset by a 20%
increase in average ticket. These declines were slightly offset by the opening
of new company-operated stores ($62 million ).
Licensed stores revenues declined by $121.1 million , primarily due to lower
product and equipment sales to and royalty revenues from our licensees.
Operating Margin
Americas operating income for the first quarter of fiscal 2021 decreased 26% to
$814 million , compared to $1.1 billion in the first quarter of fiscal 2020.
Operating margin decreased 460 basis points to 17.3%, primarily due to sales
deleverage attributed to COVID-19 impacts. In addition, we also incurred
additional costs, primarily catastrophe pay programs for retail store partners
incurred, net of benefits provided by the CARES Act and CEWS (approximately 40
basis points), and growth in wages and benefits (approximately 200 basis
points). Higher restructuring expenses relating to our Americas portfolio
optimization (approximately 140 basis points) also contributed to the decrease.
Partially offsetting these decreases were improved labor efficiencies
(approximately 260 basis points) and pricing (approximately 110 basis points).
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International
Quarter Ended
Dec 27, Dec 29, $ Dec 27, Dec 29,
2020 2019 Change 2020 2019
As a % of International
Total Net Revenues
Net revenues:
Company-operated stores $ 1,441.7 $ 1,309.7 $ 132.0 87.1 % 83.4 %
Licensed stores 197.6 254.7 (57.1) 11.9 16.2
Other 15.0 6.7 8.3 0.9 0.4
Total net revenues 1,654.3 1,571.1 83.2 100.0 100.0
Product and distribution costs 520.4 488.5 31.9 31.5 31.1
Store operating expenses 628.5 607.1 21.4 38.0 38.6
Other operating expenses 34.3 35.9 (1.6) 2.1 2.3
Depreciation and amortization expenses 140.0 126.6 13.4 8.5 8.1
General and administrative expenses 82.6 67.2 15.4 5.0 4.3
Restructuring and impairments - 0.8 (0.8) - 0.1
Total operating expenses 1,405.8 1,326.1 79.7 85.0 84.4
Income from equity investees 26.3 30.9 (4.6) 1.6 2.0
Operating income $ 274.8 $ 275.9 $ (1.1) 16.6 % 17.6 %
Store operating expenses as a % of company-operated store revenues
43.6 % 46.4 %
For the quarter endedDecember 27, 2020 compared with the quarter endedDecember 29, 2019 Revenues International total net revenues for the first quarter of fiscal 2021 increased$83 million , or 5%. Company-operated store revenues increased$132 million , primarily driven by 658 net new Starbucks® company-operated stores, or an 11% increase, over the past 12 months ($108 million ) and favorable foreign currency translation ($71 million ). These were partially offset by a 3% decline in comparable store sales ($37 million ), driven by a 10% decrease in transactions, partially offset by an 8% increase in average ticket. Licensed stores revenues declined by$57.1 million , primarily due to lower product and equipment sales to and royalty revenues from our licensees. Operating Margin International operating income for the first quarter of fiscal 2021 was$275 million , compared to$276 million in the first quarter of fiscal 2020. Operating margin decreased 100 basis points to 16.6%, primarily due to sales deleverage attributable to COVID-19, as well as additional costs incurred to invest in partner wages and benefits (approximately 70 basis points). These were partially offset by labor efficiencies (approximately 80 basis points). 31 --------------------------------------------------------------------------------
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Channel Development
Quarter Ended
Dec 27, Dec 29, $ Dec 27, Dec 29,
2020 2019 Change 2020 2019
As a % of Channel Development
Total Net Revenues
Net revenues $ 371.4 $ 494.6 $ (123.2)
Product and distribution costs 233.5 338.8 (105.3) 62.9 % 68.5 %
Other operating expenses 11.1 20.6 (9.5) 3.0 4.2
Depreciation and amortization expenses 0.2 0.3 (0.1) 0.1 0.1
General and administrative expenses 2.2 2.4 (0.2) 0.6 0.5
Total operating expenses 247.0 362.1 (115.1) 66.5 73.2
Income from equity investees 56.4 43.0 13.4 15.2 8.7
Operating income $ 180.8 $ 175.5 $ 5.3 48.7 % 35.5 %
For the quarter ended December 27, 2020 compared with the quarter ended
December 29, 2019
Revenues
Channel Development total net revenues for the first quarter of fiscal 2021
decreased $123 million , or 25%, primarily due to the transition of certain
single-serve product activities to Nestlé ($91 million ) and lapping of
transition activities related to the Global Coffee Alliance ($21 million ). Also
contributing were lower Global Coffee Alliance revenues ($18 million ), mainly
driven by the Foodservice business, which experienced softening due to COVID-19.
These were partially offset by growth in at-home coffee and our ready-to-drink
business.
Operating Margin
Channel Development operating income for the first quarter of fiscal 2021
increased 3% to $181 million , compared to $176 million in the first quarter of
fiscal 2020. Operating margin increased 1,320 basis points to 48.7%, primarily
due to the transfer of certain single-serve products to Nestlé as part of the
Global Coffee Alliance (approximately 820 basis points). Strong performance from
our North American Coffee Partnership joint venture also contributed.
Corporate and Other
Quarter Ended
Dec 27, Dec 29, $ %
2020 2019 Change Change
Net revenues:
Other $ 20.5 $ 20.5 $ - - %
Total net revenues 20.5 20.5 - -
Product and distribution costs 19.0 20.7 (1.7) (8.2)
Other operating expenses 3.6 2.8 0.8 28.6 Depreciation and amortization expenses 37.0 34.9 2.1 6.0 General and administrative expenses 316.5 292.2 24.3 8.3 Restructuring and impairments - 0.3 (0.3) nm Total operating expenses 376.1 350.9 25.2 7.2 Operating loss$ (355.6) $ (330.4) $ (25.2) 7.6 % Corporate and Other primarily consists of our unallocated corporate expenses, as well as Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. Corporate and Other operating loss increased to$356 million for the first fiscal quarter of 2021, or 8%, compared to$330 million for the first fiscal quarter of 2020. This increase was primarily driven by incremental strategic investments in technology and higher performance-based compensation recognizing the strength of the company's overall recovery from pandemic-related business impacts. 32 -------------------------------------------------------------------------------- Table of Contents Quarterly Store Data Our store data for the periods presented is as follows: Net stores opened/(closed) and transferred during the period Quarter Ended Stores open as of Dec 27, Dec 29, Dec 27, Dec 29, 2020 2019 2020 2019 Americas Company-operated stores (80) 46 10,029 10,020 Licensed stores 34 90 8,279 8,183 Total Americas (46) 136 18,308 18,203 International Company-operated stores 185 199 6,713 6,059 Licensed stores 139 204 7,917 7,533Total International 324 403 14,630 13,592Total Company 278 539 32,938 31,795 Financial Condition, Liquidity and Capital Resources Investment Overview Our cash and investments totaled$5.5 billion as ofDecember 27, 2020 and$4.8 billion as ofSeptember 27, 2020 . We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (foreign and domestic) and commercial paper. As ofDecember 27, 2020 , approximately$2.3 billion of cash was held in foreign subsidiaries. Borrowing Capacity The 2018 credit facility Our$2.0 billion unsecured 5-year revolving credit facility ("the 2018 credit facility"), of which$150 million may be used for issuances of letters of credit, is currently set to mature onOctober 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, forU.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 andStandard & 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 0.100% for Base Rate Loans. The 2018 credit facility is available for general corporate purposes. As ofDecember 27, 2020 , we had no borrowings under the 2018 credit facility. The 364-day credit facility Our$1.0 billion unsecured 364-day credit facility (the "364-day credit facility"), of which no amount may be used for issuances of letters of credit, is currently set to mature onSeptember 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 LIBOR, and, forU.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 andStandard & 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 purposes. As ofDecember 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 billion revolving lines of credit, through the fourth quarter of fiscal 2021. 33 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 27, 2020 , we had borrowings of$299.7 million outstanding, net of unamortized discount, under our commercial paper program, of which a majority will mature during the second quarter of fiscal 2021. As such, our total contractual borrowing capacity for general corporate purposes as of the end of our first quarter of fiscal 2021 was$2.7 billion when combining the unused commercial paper program and credit facilities, less outstanding borrowing. Credit facilities inJapan Additionally, we hold Japanese yen-denominated credit facilities for the use of ourJapan subsidiary. These are available for working capital needs and capital expenditures within our Japanese market. •A ¥10 billion, or$96.5 million , facility is currently set to mature onMarch 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 an applicable margin of 0.300%. •A ¥10 billion, or$96.5 million , facility is currently set to mature onOctober 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%. •A ¥5 billion, or$48.2 million , facility is currently set to mature onDecember 30, 2021 . Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%. As ofDecember 27, 2020 , we had$192.9 million of borrowings outstanding under these credit facilities. See Note 7, Debt, to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt. Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the Senior Notes were issued. As ofDecember 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 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 into late 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 34 -------------------------------------------------------------------------------- Table of Contents foreign withholding taxes andU.S. state income taxes, which could be material. We do not anticipate the need for repatriated funds to theU.S. to satisfy domestic liquidity needs. InNovember 2020 , our Board of Directors approved a quarterly cash dividend to shareholders of$0.45 per share to be paid onMarch 5, 2021 to shareholders of record as of the close of business onFebruary 18, 2021 . As of the date of this report, we do not expect to reduce our quarterly dividend as a result of the COVID-19 pandemic. OnApril 8, 2020 , we announced a temporary suspension of our share repurchase program. Repurchases pursuant to this program were last made inmid-March 2020 . As ofDecember 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, however, we have temporarily suspended our share repurchase program until we restore certain financial leverage targets, which we currently expect to occur in late fiscal 2021. Other than normal operating expenses, cash requirements for the remainder of 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 . Cash Flows Cash provided by operating activities was$1.8 billion for the first quarter of fiscal 2021, compared to$1.8 billion for the same period in fiscal 2020. Although our net earnings were negatively impacted by the COVID-19 pandemic, our cash flows from operations were flat when compared to the same period in fiscal 2020. This is largely attributable to the non-cash loss on retirement and impairment of assets and improvements to our working capital. Cash used in investing activities for the first quarter of fiscal 2021 totaled$0.3 billion , compared to cash used in investing activities of$0.4 billion for the same period in fiscal 2020. The change was primarily due to lower existing and new store investments, partially offset by higher maturities and calls of investments. Cash used in financing activities for the first quarter of fiscal 2021 totaled$1.0 billion compared to cash used in financing activities of$1.1 billion for the same period in fiscal 2020. The change was primarily due to temporary suspension of our share repurchase program, partially offset by increased debt repayments and lower net proceeds from new debt issuances. Contractual Obligations In Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K, we disclosed that we had$35.4 billion in total contractual obligations as ofSeptember 27, 2020 . There have been no material changes to our total obligations during the period covered by this 10-Q outside of the normal course of our business. Off-Balance Sheet Arrangements There has been no material change in our off-balance sheet arrangements discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 10-K. Commodity Prices, Availability and General Risk Conditions Commodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details, see Product Supply in Item 1 of the 10-K, as well as Risk Factors in Item 1A of the 10-K. Seasonality and Quarterly Results Our business is subject to moderate seasonal fluctuations, of which our fiscal second quarter typically experiences lower revenues and operating income. However, the COVID-19 outbreak may have an impact on consumer behaviors and customer traffic that result in changes in the seasonal fluctuations of our business. Additionally, as our stored value cards are issued to and loaded by customers during the holiday season, we tend to have higher cash flows from operations during the first quarter of the fiscal year. However, since revenues from our stored value cards are recognized upon redemption and not when cash is loaded, the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced. As a result of moderate seasonal fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. 35 -------------------------------------------------------------------------------- Table of Contents RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements. Item 3.Quantitative and Qualitative Disclosures About Market Risk There has been no material change in the commodity price risk, foreign currency exchange risk, equity security price risk or interest rate risk discussed in Item 7A of the 10-K. Item 4. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. During the first quarter of fiscal 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report (December 27, 2020 ). There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting. The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2 to this 10-Q. 36
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