Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified above, under Risk Factors in Part I, Item 1A of this 10-K, and elsewhere herein. Therefore, our actual results could differ materially from those discussed in the forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason. Please also see the cautionary language at the beginning of Part I of this 10-K regarding forward-looking statements.

General

Our fiscal year ends on the Sunday closest to September 30. All references to coffeehouse counts, including data for new coffeehouse openings, are reported net of related coffeehouse closures, unless otherwise noted. Fiscal years 2026, 2025, and 2024 included 52 weeks.

The discussion of our financial condition and results of operations for the fiscal year ended September 29, 2024, included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) can be found in the Annual Report on Form 10-K for the fiscal year ended September 28, 2025.

Overview

We have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America, and the Caribbean; and 3) Channel Development. Unallocated corporate expenses are reported within Corporate and Other.

We believe our financial results and long-term growth model will continue to be driven by new coffeehouse openings, comparable coffeehouse sales, and operating margin management, underpinned by disciplined capital allocation. The comparable coffeehouse sales metric includes company-operated coffeehouses open 13 months or longer, and excludes the effects of foreign currency exchange rates. Coffeehouses that are temporarily closed for fewer than three weeks or operating at reduced hours remain in comparable coffeehouse sales while permanent coffeehouse closures are removed in the month following closure. We analyze comparable coffeehouse sales on a constant currency basis as this helps identify underlying business trends without distortion from the effects of currency movements.

Throughout this MD&A, we commonly discuss the following key operating metrics, which we believe are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies:

• New coffeehouse openings and coffeehouse count

• Comparable coffeehouse sales

• Operating margin

Starbucks results for fiscal 2026 reflected continued progress on key initiatives supporting our “Back to Starbucks” strategy, including investments in the coffeehouse experience and our partners, as we continue to build a stronger Starbucks and transition from a strategy focused on business transformation into our plan for long-term growth. These investments include the Green Apron Service model, and additional investments in staffing and hours at the right times to deliver enhanced customer service. Consolidated net revenues increased 2% to $37.9 billion in fiscal 2026 compared to $37.2 billion in fiscal 2025, primarily driven by higher comparable coffeehouse sales, higher revenues from our international licensed coffeehouse business, including the newly formed China joint venture, and an increase in revenue in the Global Coffee Alliance. This increase was partially offset by lower company-operated coffeehouse revenues in our International segment following the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026.

Divestiture of Starbucks Retail Operations in China

In the first quarter of fiscal 2026, we announced that the Company entered into an agreement to form a joint venture with Boyu Capital to operate Starbucks retail in China (the “disposal group”), marking a significant milestone in the Company’s long-term strategy to unlock sustainable, disciplined growth in one of the Company’s critical growth markets.

In the third quarter of fiscal 2026, the transaction closed, and under the terms of the agreement, Boyu Capital acquired a 60% stake in Starbucks China retail operations, while Starbucks retained a 40% ownership interest and continues to own and license the brand and intellectual property to the joint venture. The disposal group was deconsolidated from our financial statements and we transitioned from recording revenues and expenses of the disposal group to recording our share of income from the joint venture, recognized as income from equity investees under the equity method of accounting, and recording revenues related to product sales to, and royalty revenues from, the joint venture. We expect that the conversion to our licensed joint venture model will continue to drive lower revenues and higher operating margin for Starbucks, as compared to the historical, company-

operated model. We expect this transition to affect the comparability of our International segment results between periods that include pre-transition results and periods following the transition.

We used a portion of our transaction proceeds for debt reduction, strengthening our balance sheet and allowing us to execute our long-term growth strategy with greater financial flexibility. The joint venture is expected to reinvigorate sustainable growth in China through a focus on expansion, innovation and elevated customer experiences, with a shared long-term aspiration to grow to as many as 20,000 locations in China over time. By bringing together the trusted Starbucks brand, and Boyu Capital’s deep local expertise, we believe we will be able to serve more customers, enter more cities, strengthen profitability, and better compete in China’s dynamic and evolving market.

Restructuring

In support of our “Back to Starbucks” strategy, as part of the restructuring plan announced and executed in the fourth quarter of fiscal 2025, we closed coffeehouses that did not demonstrate a viable path to profitability or meet our standards of delivering a warm, welcoming space for our customers and partners. Those coffeehouse closures in North America were substantially completed in fiscal 2025, and the majority of those International coffeehouse closures were completed in the first quarter of fiscal 2026.

In the second quarter of fiscal 2026, management approved and executed a restructuring plan to relocate certain functions of our support organization to an additional office in Nashville, Tennessee, further supporting the Company’s “Back to Starbucks” strategy and the intention to establish a more strategic presence in the Southeast region of the United States. Our new office in Nashville reflects three key advantages: proximity to key suppliers, access to a deep and growing talent pool in the region, notably in technology, and alignment with where we expect future coffeehouse growth.

In the third quarter of fiscal 2026, we announced and executed an additional fiscal 2026 restructuring plan focused on further transformation of our global support organization and non-retail facilities, as well as reducing the future operational complexity of our Starbucks Reserve and Roastery locations resulting in a reassessment and impairment of the associated asset group. Under the plan, the Company expects to capture cost savings through a more streamlined support structure, and a simplified operating model for Starbucks Reserve and Roastery locations.

In the fourth quarter of fiscal 2026, we announced and executed an additional fiscal 2026 restructuring plan involving the further closure of coffeehouses. As part of this plan, we conducted an additional assessment of our existing North America coffeehouse portfolio and closed, or plan to close, coffeehouses that did not deliver the coffeehouse experience and financial performance expected of the brand. These actions are intended to support a healthier coffeehouse portfolio in North America.

Strategic Initiatives

We will continue to refine and execute our initiatives in support of our “Back to Starbucks” strategy to drive topline momentum and build sales leverage while investing in our coffeehouses and customer experience. Our focus will be on executing the fundamentals by working to deliver exceptional service with speed, driving greater operating precision, providing seamless and more personalized digital experiences, reimagining the drive-thru to make it faster, more convenient and more personal, strengthening our supply chain, enabling technological efficiencies — including the use of artificial intelligence to enhance our digital and drive-thru channels — and improvements related to our staffing, scheduling and point-of-sale systems. We will continue to amplify our brand, engaging with our customers authentically and distinctly as Starbucks, through broad-based marketing, menu innovation designed to make our menu more relevant throughout the day, and Starbucks Rewards engagement, with the goal of deepening customer connection, brand loyalty and affinity. We will also continue to create more opportunity for our coffeehouse partners, supported by additional training, development opportunities, and better tools for leaders to build and manage strong teams.

We will apply continued discipline to how we grow our global footprint, with a focus on ensuring new coffeehouses meet our expectations for returns and long-term growth. As our international business shifts toward a more predominantly licensed model, we will continue evolving how we support our licensed business partners. We expect our international business to continue to lead our global coffeehouse growth, supported by our licensed business model and significant opportunities for development in markets globally. In North America, we will continue to grow our licensed business and invest in uplifts across our existing company-operated coffeehouse portfolio, while rebuilding our coffeehouse development capabilities to meet our standards, which we expect to result in fewer company-operated coffeehouse openings in fiscal 2027.

We expect moderation in net revenues in fiscal 2027, primarily driven by our International segment as we lap the divestiture of Starbucks retail operations in China and the impact of recent North America coffeehouse closures. While we believe we are making the right strategic investments to improve our operating foundations, our focus going forward will continue to be on driving consistency at scale while balancing and maintaining a healthier cost structure. We will continue to test, learn, and refine our approach to deliver the best of Starbucks to drive durable, profitable, long-term growth.

Financial Highlights

• Total net revenues increased 2% to $37.9 billion in fiscal 2026 compared to $37.2 billion in fiscal 2025.

• Consolidated operating income increased to $3.7 billion in fiscal 2026 compared to $2.9 billion in fiscal 2025. Fiscal 2026 operating margin was 9.7% compared to 7.9% in fiscal 2025. Operating margin expansion of 180 basis points was primarily due to sales leverage (approximately 210 basis points), partially offset by labor investments largely in support of our “Back to Starbucks” strategy (approximately 130 basis points).

• Diluted earnings per share (“EPS”) for fiscal 2026 increased to $2.21, compared to EPS of $1.63 in fiscal 2025. The increase was primarily driven by the net gain resulting from the divestiture of Starbucks retail operations in China in the third quarter of fiscal 2026 and the expansion in operating margin due to sales leverage, partially offset by labor investments largely in support of the “Back to Starbucks” strategy. Also offsetting the increase were tax impacts from changes in indefinite reinvestment assertions as a result of classifying our Starbucks retail operations in China as held for sale in the first quarter of 2026.

• Capital expenditures were $1.3 billion in fiscal 2026 and $2.3 billion in fiscal 2025.

• We returned $2.8 billion to our shareholders in both fiscal 2026 and fiscal 2025, through dividends.

Acquisitions and Divestitures

See Note 2, Acquisitions and Divestitures, 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 2026 COMPARED TO FISCAL 2025

Consolidated results of operations (in millions)****:

Revenues

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						% Change
Net revenues:
Company-operated coffeehouses			$	30,940.2					$	30,744.8					0.6		%
Licensed coffeehouses			4,615.8						4,350.4						6.1
Other			2,354.6						2,089.2						12.7
Total net revenues			$	37,910.6					$	37,184.4					2.0		%

Total net revenues increased $726 million, or 2%, over fiscal 2025, primarily due to higher revenues from licensed coffeehouses ($265 million), other revenues ($265 million), and company-operated coffeehouses ($195 million).

Company-operated coffeehouse revenue increased $195 million, primarily driven by a 6.2% increase in comparable coffeehouse sales ($1.7 billion) attributable to a 3.2% increase in comparable transactions and a 3.0% increase in average ticket. This was partially offset by the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 ($1.5 billion).

Licensed coffeehouses revenue increased $265 million, primarily driven by higher product sales to, and royalty revenues from, our existing licensees in our International segment ($217 million) and our newly formed China joint venture ($105 million) following the conversion of Starbucks retail operations in China to our licensed joint venture model. This was partially offset by lower equipment sales to our licensees globally ($56 million).

Other revenues increased $265 million, primarily due to an increase in revenue in the Global Coffee Alliance ($266 million) largely due to elevated coffee prices.

Operating Expenses

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						Sep 27, 2026						Sep 28, 2025
															As a % of Total Net Revenues
Product and distribution costs			$	12,235.2					$	11,658.2					32.3		%				31.4		%
Coffeehouse operating expenses			17,189.8						17,058.9						45.3						45.9
Other operating expenses			544.5						584.6						1.4						1.6
Depreciation and amortization expenses			1,483.3						1,684.7						3.9						4.5
General and administrative expenses			2,372.9						2,617.2						6.3						7.0
Restructuring and impairments			688.6						892.0						1.8						2.4
Total operating expenses			34,514.3						34,495.6						91.0						92.8
Income from equity investees			294.8						247.8						0.8						0.7
Operating income			$	3,691.1					$	2,936.6					9.7		%				7.9		%
Coffeehouse operating expenses as a % of related revenues															55.6		%				55.5		%

Product and distribution costs as a percentage of total net revenues increased 90 basis points largely due to mix shifts (90 basis points).

Coffeehouse operating expenses as a percentage of total net revenues decreased 60 basis points. Coffeehouse operating expenses as a percentage of company-operated coffeehouse revenues increased 10 basis points, primarily due to labor investments largely in support of our “Back to Starbucks” strategy (approximately 210 basis points), partially offset by sales leverage.

Other operating expenses decreased $40 million, primarily due to savings from simplifying our licensed business support organization.

Depreciation and amortization expenses as a percentage of total net revenues decreased 60 basis points, primarily driven by ceasing depreciation upon classifying our Starbucks retail operations in China as held for sale in the first quarter of fiscal 2026 and converting Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026.

General and administrative expenses decreased $244 million, largely due to restructuring-related savings and operational efficiencies ($292 million), the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 ($83 million), and lapping of the Leadership Experience 2025 ($81 million). This was partially offset by increases in performance-based compensation ($152 million), and transaction and transition-related expenses for the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 ($71 million).

Restructuring and impairments decreased $203 million, driven by lower impacts compared to the prior year associated with the simplification of our support organization and the closure of coffeehouses, partially offset by increased costs associated with the current year impairment of Starbucks Reserve and Roastery (“Siren Retail”) coffeehouse locations. See Note 18, Restructuring and Impairments, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion.

Income from equity investees increased $47 million, primarily due to income from our China joint venture, which was formed upon the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026.

The combination of these changes resulted in an overall increase in operating margin of 180 basis points in fiscal 2026 when compared to fiscal 2025.

Other Income and Expenses

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						Sep 27, 2026						Sep 28, 2025
															As a % of Total Net Revenues
Operating income			$	3,691.1					$	2,936.6					9.7		%				7.9		%
Net gain resulting from divestiture of certain operations			536.3						—						1.4						—
Interest income and other, net			145.0						113.3						0.4						0.3
Interest expense			(531.3)						(542.6)						(1.4)						(1.5)
Earnings before income taxes			3,841.1						2,507.3						10.1						6.7
Income tax expense			1,315.0						650.6						3.5						1.7
Net earnings including noncontrolling interests			2,526.1						1,856.7						6.7						5.0
Net earnings/(loss) attributable to noncontrolling interests			(0.6)						0.3						0.0						0.0
Net earnings attributable to Starbucks			$	2,526.7					$	1,856.4					6.7		%				5.0		%
Effective tax rate including noncontrolling interests															34.2		%				25.9		%

Net gain resulting from divestiture of certain operations was $536.3 million, due to the divestiture of Starbucks retail operations in China during the third quarter of fiscal 2026.

Interest income and other, net increased $32 million, primarily due to unrealized gains on non-core equity method investments.

Interest expense decreased $11 million, primarily due to reduced debt balances in the current year, partially offset by reduced savings from cross-currency interest rate hedging.

The effective tax rate for fiscal 2026 was 34.2% compared to 25.9% for fiscal 2025. The increase was primarily due to the $273 million discrete impact of changes in indefinite reinvestment assertions as a result of classifying Starbucks retail operations in China as held for sale in the first quarter of fiscal 2026 (approximately 420 basis points), impacts resulting from the divestiture of Starbucks retail operations in China during the third quarter of fiscal 2026 (approximately 240 basis points), and lapping the discrete impact of a tax status change for a certain foreign entity in the first quarter of fiscal 2025 (approximately 120 basis points). See Note 14, Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion.

Segment Information

Results of operations by segment (in millions):

North America

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						Sep 27, 2026						Sep 28, 2025
															As a % of North America Total Net Revenues
Net revenues:
Company-operated coffeehouses			$	26,363.9					$	24,793.0					91.2		%				90.6		%
Licensed coffeehouses			2,529.1						2,575.6						8.8						9.4
Other			4.8						4.5						0.0						0.0
Total net revenues			28,897.8						27,373.1						100.0						100.0
Product and distribution costs			8,279.3						7,628.7						28.7						27.9
Coffeehouse operating expenses			14,878.9						13,973.3						51.5						51.0
Other operating expenses			228.7						281.6						0.8						1.0
Depreciation and amortization expenses			1,192.6						1,196.3						4.1						4.4
General and administrative expenses			374.3						483.3						1.3						1.8
Restructuring and impairments			489.8						653.2						1.7						2.4
Total operating expenses			25,443.6						24,216.4						88.0						88.5
Operating income			$	3,454.2					$	3,156.7					12.0		%				11.5		%
Coffeehouse operating expenses as a % of related revenues															56.4		%				56.4		%

Revenues

North America total net revenues for fiscal 2026 increased $1.5 billion, or 6%, primarily driven by an increase in company-operated coffeehouses revenue due to a 6.6% increase in comparable coffeehouse sales ($1.6 billion), driven by a 3.6% increase in comparable transactions and a 3.0% increase in average ticket, primarily due to higher delivery sales, pricing, product mix and customer food attach.

Operating Margin

North America operating income for fiscal 2026 increased 9% to $3.5 billion, compared to $3.2 billion in fiscal 2025. Operating margin expanded 50 basis points to 12.0%, primarily driven by sales leverage (approximately 290 basis points), partially offset by labor investments largely in support of our “Back to Starbucks” strategy (approximately 180 basis points).

International

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						Sep 27, 2026						Sep 28, 2025
															As a % of International Total Net Revenues
Net revenues:
Company-operated coffeehouses			$	4,576.3					$	5,951.8					67.9		%				76.1		%
Licensed coffeehouses			2,086.7						1,774.8						30.9						22.7
Other			81.4						93.3						1.2						1.2
Total net revenues			6,744.4						7,819.9						100.0						100.0
Product and distribution costs			2,520.7						2,749.8						37.4						35.2
Coffeehouse operating expenses			2,310.9						3,085.6						34.3						39.5
Other operating expenses			244.3						242.0						3.6						3.1
Depreciation and amortization expenses			169.5						363.9						2.5						4.7
General and administrative expenses			255.7						344.3						3.8						4.4
Restructuring and impairments			95.0						82.5						1.4						1.1
Total operating expenses			5,596.1						6,868.1						83.0						87.8
Income/(loss) from equity investees			42.8						(1.8)						0.6						0.0
Operating income			$	1,191.1					$	950.0					17.7		%				12.1		%
Coffeehouse operating expenses as a % of related revenues															50.5		%				51.8		%

Revenues

International total net revenues for fiscal 2026 decreased $1.1 billion, or 14%, primarily driven by lower company-operated coffeehouse revenues following the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 ($1.5 billion). This decline was partially offset by higher product sales to, and royalty revenues from licensees, including existing licensees ($217 million) and our newly formed China joint venture ($105 million) and an increase in company-operated coffeehouses revenue due to a 3.7% increase in comparable coffeehouse sales ($152 million), driven by a 2.0% increase in average ticket and a 1.6% increase in comparable transactions.

Operating Margin

International operating income for fiscal 2026 increased 25% to $1.2 billion, compared to $950.0 million in fiscal 2025. Operating margin expanded 560 basis points to 17.7%, primarily due to the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 (approximately 330 basis points) and lower coffeehouse operating and depreciation and amortization costs after classifying assets for Starbucks retail operations in China as held for sale in the first and second quarters of fiscal 2026 (approximately 200 basis points).

Channel Development

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						Sep 27, 2026						Sep 28, 2025
															As a % of Channel Development Total Net Revenues
Net revenues			$	2,172.7					$	1,871.7
Product and distribution costs			1,343.4						1,168.3						61.8		%				62.4		%
Other operating expenses			61.8						60.2						2.8						3.2
General and administrative expenses			3.4						5.8						0.2						0.3
Restructuring and impairments			(0.1)						1.9						—						0.1
Total operating expenses			1,408.5						1,236.2						64.8						66.0
Income from equity investees			252.0						249.6						11.6						13.3
Operating income			$	1,016.2					$	885.1					46.8		%				47.3		%

Revenues

Channel Development total net revenues for fiscal 2026 increased $301 million, or 16%, compared to fiscal 2025, primarily due to an increase in revenue in the Global Coffee Alliance ($266 million) driven largely by elevated coffee prices.

Operating Margin

Channel Development operating income for fiscal 2026 increased 15% to $1.0 billion, compared to $885 million in fiscal 2025. Operating margin contracted 50 basis points to 46.8%, primarily driven by lower North American Coffee Partnership joint venture income (Refer to Note 6, Equity Investments, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion) growth relative to segment revenue growth (approximately 170 basis points).

Corporate and Other

Fiscal Year Ended			Sep 27, 2026						Sep 28, 2025						% Change
Net revenues:
Other			$	95.7					$	119.7					(20.1)		%
Total net revenues			95.7						119.7						(20.1)
Product and distribution costs			91.8						111.4						(17.6)
Other operating expenses			9.7						0.8						nm
Depreciation and amortization expenses			121.2						124.5						(2.7)
General and administrative expenses			1,739.5						1,783.8						(2.5)
Restructuring and impairments			103.9						154.4						(32.7)
Total operating expenses			2,066.1						2,174.9						(5.0)
Operating loss			$	(1,970.4)					$	(2,055.2)					(4.1)		%

Corporate and Other primarily consists of our unallocated corporate expenses and sales of cocoa butter to third parties. 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 4% to $2.0 billion for fiscal 2026 compared to $2.1 billion for fiscal 2025, primarily due to restructuring-related savings and operational efficiencies ($227 million) and lower restructuring costs in support of our “Back to Starbucks” strategy ($51 million). This was partially offset by performance-based compensation ($114 million), and transaction and transition-related expenses for the conversion of Starbucks retail operations in China to our licensed joint venture model in the third quarter of fiscal 2026 ($66 million).

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Cash and Investment Overview

Our cash and investments were $4.2 billion and $3.7 billion as of September 27, 2026, and September 28, 2025, respectively. We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, fund 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 and U.S. government treasury securities. As of September 27, 2026, approximately $1.3 billion of cash and short-term investments were held in foreign subsidiaries.

Borrowing Capacity

Revolving Credit Facility

Our $3.0 billion unsecured five-year revolving credit facility (the “2025 credit facility”), of which $150.0 million may be used for issuances of letters of credit, is currently set to mature on June 13, 2030. The 2025 credit facility is available for working capital, capital expenditures, and other general corporate purposes, including acquisitions and share repurchases. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $1.0 billion.

Borrowings under the 2025 credit facility will bear interest at a fluctuating rate based on the Term Secured Overnight Financing Rate (“Term SOFR”), and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2025 credit facility), in each case plus an applicable rate. The applicable rate is based on the Company’s long-term credit ratings assigned by Moody’s and Standard & Poor’s rating agencies. The 2025 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time Term SOFR ceases to be available as a benchmark due to reference rate reform. The “Base Rate” of interest is the highest of (i) the Federal Funds Rate plus 0.50%, (ii) Bank of America’s prime rate, (iii) Term SOFR plus 1.00%, and (iv) 1.00%. Upon the occurrence of any event of default under the

2025 credit facility, interest on the outstanding amount of the indebtedness under the 2025 credit facility will bear interest at a rate per annum equal to 2% in excess of the interest then borne by such borrowings.

The 2025 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of September 27, 2026, we were in compliance with all applicable covenants. No amounts were outstanding under our 2025 credit facility as of September 27, 2026 or September 28, 2025.

Short-term Debt

Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our 2025 credit facility. 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, 2026, and September 28, 2025, we had no borrowings outstanding under our commercial paper program. Our total available contractual borrowing capacity for general corporate purposes was $3.0 billion as of September 27, 2026.

Additionally, we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within our Japanese market:

• A ¥5.0 billion, or $31.5 million, credit facility is currently set to mature on December 30, 2026. Borrowings under this credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate (“TIBOR”) plus an applicable margin of 0.400%.

• A ¥10.0 billion, or $62.9 million, credit facility is currently set to mature on March 27, 2027. Borrowings under this 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%.

As of September 27, 2026 and September 28, 2025, we had no borrowings outstanding under these credit facilities.

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.

Long-Term Debt

In May 2026, the Company completed cash tender offers for certain series of its senior notes and repurchased approximately $1.3 billion aggregate principal amount of such notes using cash proceeds from the divestiture of Starbucks retail operations in China. The notes repurchased consisted of:

• $273.5 million of the $750.0 million, 4.500% Senior Notes (the “May 2028 notes”)

• $321.8 million of the $500.0 million, 4.800% Senior Notes (the “May 2030 notes”)

• $110.4 million of the $500.0 million, 5.000% Senior Notes (the “February 2034 notes”)

• $410.2 million of the $500.0 million, 5.400% Senior Notes (the “May 2035 notes”)

• $200.0 million of the $1.0 billion, 4.500% Senior Notes (the “November 2048 notes”)

In connection with the repurchases, the Company recognized an immaterial gain on partial extinguishment of debt in the third quarter of fiscal 2026, which is included in Interest income and other, net in the consolidated statements of earnings. In determining the value of the gain, the Company expensed the proportional amount of the related unamortized discount, premium, and debt issuance costs attributable to the repurchased notes.

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 long-term notes were issued. As of September 27, 2026, 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 coffeehouse partners, repaying maturing debts, 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. Furthermore, 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. 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 at least the next 12 months. We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. In the third quarter of fiscal 2026 we used a portion of the proceeds from our divestiture of Starbucks retail operations in China for debt reduction, strengthening our balance sheet and allowing us to execute our long-term growth strategy with greater financial flexibility.

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, refinancing debt maturities, as well as investing in new business opportunities. 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 partial indefinite reinvestment of foreign earnings. In the event we determine that all or another portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes, which could be material. Any foreign earnings that are not indefinitely reinvested may be repatriated at management’s discretion. In the first quarter of fiscal 2026, we released all of our remaining indefinite reinvestment assertions and recorded a discrete tax expense of $266 million, which was subsequently increased in the second quarter of fiscal 2026 by $8 million. In connection with our divestiture of Starbucks retail operations in China in the third quarter of fiscal 2026 and the retained equity interest in the joint venture, we recorded $199.5 million of incremental income tax expense, as a component of the annual effective tax rate, of which approximately $147.8 million was recognized in the third quarter of fiscal 2026, with the remainder recognized in the fourth quarter of fiscal 2026. In future periods, any foreign earnings may be repatriated at management’s discretion without any material, incremental tax consequences.

On February 20, 2026, the U.S. Supreme Court ruled that reciprocal tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful. Starbucks imports were previously subject to such tariffs under IEEPA. Effective April 20, 2026, the U.S. Customs and Border Protection launched a platform for importers of record to begin submitting IEEPA tariff refund requests. Starbucks submitted refund requests in the third quarter of fiscal 2026 for qualifying tariffs paid and has received substantially all of the refunds requested, which were recorded in product and distribution costs within the consolidated statements of earnings. The refunds received during the third quarter of fiscal 2026 largely offset related tariffs incurred in the first three quarters of fiscal 2026.

During each of the first three quarters of fiscal 2025, we declared a cash dividend to shareholders of $0.61 per share. During the fourth quarter of fiscal 2025, and for each of the first three quarters of fiscal 2026, we declared a cash dividend of $0.62 per share. During the fourth quarter of fiscal 2026, we declared a cash dividend of $0.63 per share to be paid on November 27, 2026, with an expected payout of approximately $718.2 million. Dividends are generally paid in the quarter following the declaration date. Cash returned to shareholders through dividends in both fiscal 2026 and 2025 totaled $2.8 billion.

Shares under our ongoing share repurchase program, first announced in September 2001 and most recently reauthorized in September 2026, may be repurchased in open market transactions. During the fiscal years ended September 27, 2026 and September 28, 2025, we made no common stock share repurchases. As of September 27, 2026, 29.8 million shares remained available for repurchase under current authorizations.

Other than normal operating expenses, cash requirements for fiscal 2027 are expected to consist primarily of capital expenditures in our new and existing coffeehouses, our supply chain, and corporate facilities. Total capital expenditures for fiscal 2027 are expected to be higher than fiscal 2026.

The following table summarizes current and long-term material cash requirements as of September 27, 2026, which we expect to fund primarily with operating cash flows (in millions):

			Material Cash Requirements
			Total						Less than 1 Year						1 - 3 Years						3 - 5 Years						More than 5 Years
Operating lease obligations(1)			$	10,819.7					$	1,690.2					$	2,910.9					$	2,337.2					$	3,881.4
Debt obligations
Principal payments			13,384.1						1,500.0						2,826.5						2,678.2						6,379.4
Interest payments			5,130.9						472.1						817.8						607.8						3,233.2
Purchase obligations(2)			922.5						847.4						75.1						—						—
Other obligations(3)			352.4						158.5						102.0						22.8						69.1
Total			$	30,609.6					$	4,668.2					$	6,732.3					$	5,646.0					$	13,563.1

(1)Amounts include direct lease obligations, excluding any taxes, insurance, and other related expenses.

(2)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 approximately 88% of total purchase obligations.

(3)Other obligations include other liabilities primarily consisting of long-term asset retirement obligations, non-core equity method investment contributions, and other contractural commitments.

Cash Flows

Cash provided by operating activities was $5.0 billion for fiscal 2026, compared to $4.7 billion for fiscal 2025. The change was primarily driven by higher net earnings and favorable changes in working capital, primarily related to income taxes payable and inventories, partially offset by the impact of non-cash adjustments to net earnings, primarily driven by the gain associated with the divestiture of our China retail operations, lower non-cash lease costs and lower disposal and impairment losses.

Cash provided by investing activities was $1.1 billion for fiscal 2026, compared to cash used of $2.5 billion for fiscal 2025. The change was primarily due to net proceeds of $2.5 billion from the divestiture of Starbucks retail operations in China in the third quarter of fiscal 2026, combined with $1.0 billion in lower capital expenditures, driven by a reduction in retail coffeehouse investments and renovations in North America and China.

Cash used in financing activities was $5.6 billion for fiscal 2026, compared to $2.3 billion for fiscal 2025. The $3.3 billion increase in cash used was primarily due to $2.8 billion in long-term debt repayments funded in part by proceeds from the divestiture of Starbucks retail operations in China, compared to $1.3 billion in debt repayments in fiscal 2025. Also contributing to the change was the absence of new debt issuances in fiscal 2026 compared to the $1.7 billion raised in fiscal 2025.

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 coffeehouses. The price and availability of these commodities, including impacts from volatility in green coffee prices and tariffs, directly impact our results of operations, and we expect commodity prices, particularly coffee, to continue to impact future results of operations. For additional details see Product Supply in Item 1 of Part I of this 10-K, as well as Risk Factors in Item 1A of Part I 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 risk. Risk limits are set annually, and speculative trading activities are prohibited. 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. We also use cross-currency swaps to hedge against changes in the fair value of our net investments in foreign operations. Excluding interest rate hedging instruments and cross currency swaps, hedging instruments generally do not have maturities in excess of three years. Refer to Note 1, Summary of Significant Accounting Policies and Estimates, 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 and financial derivatives, to manage our commodity price risk exposure.

The following table summarizes the potential impact as of September 27, 2026, to Starbucks future net earnings and other comprehensive income (“OCI”) from changes in commodity prices. The information provided below relates only to the derivative 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 Underlying Rate						10% Decrease in Underlying Rate						10% Increase in Underlying Rate						10% Decrease in Underlying Rate
Commodity hedges			$	—					$	—					$	15					$	(15)

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 Japanese yen, Chinese renminbi, 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 is party to the arrangements, as well as the translation risk of certain balance sheet items and net investments in foreign operations. 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.

The following table summarizes the potential impact as of September 27, 2026, 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 derivative 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 Underlying Rate						10% Decrease in Underlying Rate						10% Increase in Underlying Rate						10% Decrease in Underlying Rate
Foreign currency hedges			$	37					$	(37)					$	235					$	(235)

Equity Security Price Risk

We have minimal exposure to price fluctuations on equity mutual funds, equity exchange-traded funds, and bond index 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 for equity mutual funds and exchange-traded funds, and a 100 basis point change in the underlying interest rate of our bond index funds as of September 27, 2026, and determined that such changes would not have a significant impact on the fair value of these instruments.

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, 2026.

The following table summarizes the impact of a change in interest rates as of September 27, 2026, on the fair value of Starbucks debt (in millions):

			Fair Value						Decrease in Fair Value for a 100 Basis Point Increase in Underlying Rate
Long-term debt(1)			$	11,629					$	(639)

(1)Amount disclosed is net of $9 million change in the fair value of our designated interest rate swaps. Refer to Note 3, Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K, 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, 2026, and determined that such a change would not have a significant impact on the fair value of these instruments.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that management believes are the 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. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.

Our significant accounting estimates are discussed in additional detail in Note 1, Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K. 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. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below.

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 coffeehouse assets, the impairment test is performed at the individual coffeehouse asset group level, which is inclusive of property, plant and equipment and lease ROU assets. The fair value of a coffeehouse’s assets is typically 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 coffeehouses, estimates of revenue growth and operating expenses are based on internal projections and consider the coffeehouse’s historical performance, the local market economics, and the business environment impacting the coffeehouse’s performance. The discount rate is selected based on what we believe a buyer would assume when determining a purchase price for the coffeehouse. The fair value of a coffeehouse’s ROU asset is estimated considering what a market participant would pay to lease the asset for its highest and best use. 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 the fourth quarter of fiscal 2025, as part of the “Back to Starbucks” strategy, the Company assessed its existing coffeehouse portfolio with respect to both whether coffeehouses had a viable path to offering the physical environment consistent with the brand and a clear path to financial performance, and we closed coffeehouses that did not meet these criteria.

For the fiscal year ended September 28, 2025, we recorded $352.8 million related to impairment and disposition of company-operated coffeehouse assets and $239.3 million primarily associated with accelerated amortization of ROU lease assets and other lease exit costs due to coffeehouse closures prior to the end of contractual lease terms. The costs were recorded in restructuring and impairments on the consolidated statements of earnings.

In the third quarter of fiscal 2026, as part of the “Back to Starbucks” strategy, the Company focused on further transformation of our non-retail facilities, as well as reducing the future operational complexity of our Starbucks Reserve and Roastery locations resulting in a reassessment and impairment of the associated asset group.

In the fourth quarter of fiscal 2026, we announced and executed an additional fiscal 2026 restructuring plan involving the further closure of coffeehouses. As part of this plan, we conducted an additional assessment of our existing North America coffeehouse portfolio and closed, or plan to close, coffeehouses that did not deliver the coffeehouse experience and financial performance expected of the brand.

For the fiscal year ended September 27, 2026, we recorded $372.5 million in restructuring and impairments on the consolidated statements of earnings related to impairment and disposition of company-operated coffeehouse and non-retail facility assets, including $113.0 million of ROU lease asset impairments, and $196.0 million primarily associated with accelerated amortization of ROU lease assets and other lease exit costs due to the closure of certain Starbucks company-operated coffeehouses and non-retail office locations prior to the end of contractual lease terms. Refer to Note 18, Restructuring and Impairments, to the consolidated financial statements included in Item 8 of Part II of this 10-K, for further discussion.

Asset impairment charges are discussed in Note 1, Summary of Significant Accounting Policies and Estimates, 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 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 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, and 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 coffeehouse 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, 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. 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., we do not anticipate incurring significant goodwill impairment in the next 12 months.

Our fiscal 2026 annual goodwill impairment testing was completed in the third fiscal quarter. Using the most recent quantitative assessment performed, the estimated fair value of our reporting units exceeded carrying value by approximately $120 billion.

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 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. 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 pre-tax 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).

In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, such as 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 more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain

tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when new information becomes available.

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. We are not indefinitely reinvested in any foreign earnings and therefore our foreign earnings can be repatriated depending on our estimated working and other capital needs in jurisdictions where those earnings are generated. If these amounts are 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 are currently not expected to be material.

Our income tax expense and deferred tax assets 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 business performance, 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 and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K for a detailed description of recent accounting pronouncements.