filings.toolsItem 1. Financial Statements
102K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
(unaudited)
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Company-operated stores | $ | 7,083.5 | $ | 6,722.4 | |||||||||||||||||||
| Licensed stores | 1,119.5 | 850.8 | |||||||||||||||||||||
| Other | 510.9 | 477.2 | |||||||||||||||||||||
| Total net revenues | 8,713.9 | 8,050.4 | |||||||||||||||||||||
| Product and distribution costs | 2,810.2 | 2,526.9 | |||||||||||||||||||||
| Store operating expenses | 3,665.3 | 3,400.0 | |||||||||||||||||||||
| Other operating expenses | 129.3 | 101.7 | |||||||||||||||||||||
| Depreciation and amortization expenses | 327.1 | 366.0 | |||||||||||||||||||||
| General and administrative expenses | 580.9 | 525.8 | |||||||||||||||||||||
| Restructuring and impairments | 5.8 | (7.5) | |||||||||||||||||||||
| Total operating expenses | 7,518.6 | 6,912.9 | |||||||||||||||||||||
| Income from equity investees | 57.8 | 40.3 | |||||||||||||||||||||
| Operating income | 1,253.1 | 1,177.8 | |||||||||||||||||||||
| Interest income and other, net | 11.6 | (0.1) | |||||||||||||||||||||
| Interest expense | (129.7) | (115.3) | |||||||||||||||||||||
| Earnings before income taxes | 1,135.0 | 1,062.4 | |||||||||||||||||||||
| Income tax expense | 279.8 | 246.3 | |||||||||||||||||||||
| Net earnings including noncontrolling interests | 855.2 | 816.1 | |||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | — | 0.2 | |||||||||||||||||||||
| Net earnings attributable to Starbucks | $ | 855.2 | $ | 815.9 | |||||||||||||||||||
| Earnings per share - basic | $ | 0.74 | $ | 0.70 | |||||||||||||||||||
| Earnings per share - diluted | $ | 0.74 | $ | 0.69 | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 1,148.5 | 1,169.6 | |||||||||||||||||||||
| Diluted | 1,152.9 | 1,176.6 |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, unaudited)
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Net earnings including noncontrolling interests | $ | 855.2 | $ | 816.1 | |||||||||||||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||||||||||||||
| Unrealized holding gains/(losses) on available-for-sale debt securities | 2.0 | (3.4) | |||||||||||||||||||||
| Tax (expense)/benefit | (0.5) | 0.8 | |||||||||||||||||||||
| Unrealized gains/(losses) on cash flow hedging instruments | (180.7) | 88.7 | |||||||||||||||||||||
| Tax (expense)/benefit | 29.5 | (11.8) | |||||||||||||||||||||
| Unrealized gains/(losses) on net investment hedging instruments | (64.6) | 41.5 | |||||||||||||||||||||
| Tax (expense)/benefit | 16.3 | (10.5) | |||||||||||||||||||||
| Translation adjustment and other | 208.9 | 14.2 | |||||||||||||||||||||
| Tax (expense)/benefit | — | — | |||||||||||||||||||||
| Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale debt securities, hedging instruments, and translation adjustment | (98.4) | (16.1) | |||||||||||||||||||||
| Tax expense/(benefit) | 11.8 | 2.9 | |||||||||||||||||||||
| Other comprehensive income/(loss) | (75.7) | 106.3 | |||||||||||||||||||||
| Comprehensive income including noncontrolling interests | 779.5 | 922.4 | |||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | — | 0.2 | |||||||||||||||||||||
| Comprehensive income attributable to Starbucks | $ | 779.5 | $ | 922.2 | |||||||||||||||||||
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,186.5 | $ | 2,818.4 | |||||||
| Short-term investments | 123.9 | 364.5 | |||||||||
| Accounts receivable, net | 1,162.9 | 1,175.5 | |||||||||
| Inventories | 2,088.1 | 2,176.6 | |||||||||
| Prepaid expenses and other current assets | 373.5 | 483.7 | |||||||||
| Total current assets | 6,934.9 | 7,018.7 | |||||||||
| Long-term investments | 283.6 | 279.1 | |||||||||
| Equity investments | 330.5 | 311.2 | |||||||||
| Property, plant and equipment, net | 6,699.5 | 6,560.5 | |||||||||
| Operating lease, right-of-use asset | 8,133.8 | 8,015.6 | |||||||||
| Deferred income taxes, net | 1,811.8 | 1,799.7 | |||||||||
| Other long-term assets | 527.6 | 554.2 | |||||||||
| Other intangible assets | 151.4 | 155.9 | |||||||||
| Goodwill | 3,383.0 | 3,283.5 | |||||||||
| TOTAL ASSETS | $ | 28,256.1 | $ | 27,978.4 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,348.2 | $ | 1,441.4 | |||||||
| Accrued liabilities | 2,089.6 | 2,137.1 | |||||||||
| Accrued payroll and benefits | 664.6 | 761.7 | |||||||||
| Current portion of operating lease liability | 1,257.5 | 1,245.7 | |||||||||
| Stored value card liability and current portion of deferred revenue | 2,137.0 | 1,641.9 | |||||||||
| Short-term debt | — | 175.0 | |||||||||
| Current portion of long-term debt | 1,749.3 | 1,749.0 | |||||||||
| Total current liabilities | 9,246.2 | 9,151.8 | |||||||||
| Long-term debt | 13,176.7 | 13,119.9 | |||||||||
| Operating lease liability | 7,635.4 | 7,515.2 | |||||||||
| Deferred revenue | 6,263.2 | 6,279.7 | |||||||||
| Other long-term liabilities | 600.5 | 610.5 | |||||||||
| Total liabilities | 36,922.0 | 36,677.1 | |||||||||
| Shareholders' deficit: | |||||||||||
| Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,148.5 and 1,147.9 shares, respectively | 1.1 | 1.1 | |||||||||
| Additional paid-in capital | 67.2 | 205.3 | |||||||||
| Retained deficit | (8,203.2) | (8,449.8) | |||||||||
| Accumulated other comprehensive income/(loss) | (538.9) | (463.2) | |||||||||
| Total shareholders’ deficit | (8,673.8) | (8,706.6) | |||||||||
| Noncontrolling interests | 7.9 | 7.9 | |||||||||
| Total deficit | (8,665.9) | (8,698.7) | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) | $ | 28,256.1 | $ | 27,978.4 |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
| Quarter Ended | |||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net earnings including noncontrolling interests | $ | 855.2 | $ | 816.1 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 342.5 | 386.4 | |||||||||
| Deferred income taxes, net | 15.8 | (0.3) | |||||||||
| Income earned from equity method investees | (56.9) | (46.6) | |||||||||
| Distributions received from equity method investees | 45.7 | 44.9 | |||||||||
| Stock-based compensation | 85.2 | 95.8 | |||||||||
| Non-cash lease costs | 263.7 | 330.4 | |||||||||
| Loss on retirement and impairment of assets | 21.1 | 50.7 | |||||||||
| Other | 6.7 | (4.9) | |||||||||
| Cash provided by/(used in) changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 42.0 | (91.6) | |||||||||
| Inventories | 108.5 | (36.0) | |||||||||
| Accounts payable | (117.3) | 84.0 | |||||||||
| Deferred revenue | 461.0 | 461.3 | |||||||||
| Operating lease liability | (281.4) | (363.3) | |||||||||
| Other operating assets and liabilities | (198.6) | 144.0 | |||||||||
| Net cash provided by operating activities | 1,593.2 | 1,870.9 | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments | (10.5) | (61.0) | |||||||||
| Sales of investments | 0.8 | 72.6 | |||||||||
| Maturities and calls of investments | 253.3 | 45.6 | |||||||||
| Additions to property, plant and equipment | (516.8) | (416.8) | |||||||||
| Other | (6.1) | (41.4) | |||||||||
| Net cash used in investing activities | (279.3) | (401.0) | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Net proceeds/(payments) from issuance of commercial paper | (175.0) | 200.0 | |||||||||
| Proceeds from issuance of common stock | 45.9 | 41.3 | |||||||||
| Cash dividends paid | (608.3) | (576.0) | |||||||||
| Repurchase of common stock | (191.4) | (3,520.9) | |||||||||
| Minimum tax withholdings on share-based awards | (79.0) | (113.6) | |||||||||
| Net cash provided by/(used in) financing activities | (1,007.8) | (3,969.2) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 62.0 | 13.0 | |||||||||
| Net increase/(decrease) in cash and cash equivalents | 368.1 | (2,486.3) | |||||||||
| CASH AND CASH EQUIVALENTS: | |||||||||||
| Beginning of period | 2,818.4 | 6,455.7 | |||||||||
| End of period | $ | 3,186.5 | $ | 3,969.4 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest, net of capitalized interest | $ | 116.7 | $ | 108.3 | |||||||
| Income taxes | $ | 106.2 | $ | 161.4 | |||||||
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
For the Quarters Ended January 1, 2023 and January 2, 2022
(in millions, except per share data, unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings/(Deficit) | Accumulated Other Comprehensive Income/(Loss) | Shareholders’ Equity/(Deficit) | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, October 2, 2022 | 1,147.9 | $ | 1.1 | $ | 205.3 | $ | (8,449.8) | $ | (463.2) | $ | (8,706.6) | $ | 7.9 | $ | (8,698.7) | ||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | 855.2 | — | 855.2 | — | 855.2 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (75.7) | (75.7) | — | (75.7) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 86.4 | — | — | 86.4 | — | 86.4 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options/vesting of RSUs | 2.4 | — | (44.7) | — | — | (44.7) | — | (44.7) | |||||||||||||||||||||||||||||||||||||||
| Sale of common stock | 0.1 | — | 11.6 | — | — | 11.6 | — | 11.6 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (1.9) | — | (191.4) | — | — | (191.4) | — | (191.4) | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $0.53 per share | — | — | — | (608.6) | — | (608.6) | — | (608.6) | |||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | 1,148.5 | $ | 1.1 | $ | 67.2 | $ | (8,203.2) | $ | (538.9) | $ | (8,673.8) | $ | 7.9 | $ | (8,665.9) | ||||||||||||||||||||||||||||||||
| Balance, October 3, 2021 | 1,180.0 | $ | 1.2 | $ | 846.1 | $ | (6,315.7) | $ | 147.2 | $ | (5,321.2) | $ | 6.7 | $ | (5,314.5) | ||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | 815.9 | — | 815.9 | 0.2 | 816.1 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 106.3 | 106.3 | — | 106.3 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 97.1 | — | — | 97.1 | — | 97.1 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options/vesting of RSUs | 2.6 | — | (84.1) | — | — | (84.1) | — | (84.1) | |||||||||||||||||||||||||||||||||||||||
| Sale of common stock | 0.1 | — | 11.8 | — | — | 11.8 | — | 11.8 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (31.1) | — | (829.8) | (2,691.1) | — | (3,520.9) | — | (3,520.9) | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $0.49 per share | — | — | — | (562.1) | — | (562.1) | — | (562.1) | |||||||||||||||||||||||||||||||||||||||
| Balance, January 2, 2022 | 1,151.6 | $ | 1.2 | $ | 41.1 | $ | (8,753.0) | $ | 253.5 | $ | (8,457.2) | $ | 6.9 | $ | (8,450.3) |
See Notes to Consolidated Financial Statements.
STARBUCKS CORPORATION
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Summary of Significant Accounting Policies and Estimates
Financial Statement Preparation
The unaudited consolidated financial statements as of January 1, 2023, and for the quarters ended January 1, 2023 and January 2, 2022, have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for the quarters ended January 1, 2023 and January 2, 2022 reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q (“10-Q”), Starbucks Corporation is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.
Certain prior period information on the consolidated statements of cash flows have been reclassified to conform to the current presentation.
The financial information as of October 2, 2022 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2, 2022 (“fiscal 2022”) included in Item 8 in the Fiscal 2022 Annual Report on Form 10-K (“10-K”). The information included in this 10-Q should be read in conjunction with the footnotes and management’s discussion and analysis of the consolidated financial statements in the 10-K.
The results of operations for the quarter ended January 1, 2023 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 1, 2023 (“fiscal 2023”).
The novel coronavirus, known as the global COVID-19 pandemic, was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores. We have since established the necessary protocols to operate safely, and in many of our markets, our businesses demonstrated powerful momentum beyond recovery from the COVID-19 pandemic. During the first quarter of fiscal 2023, our China market continued to experience pandemic-related business interruptions, including escalating COVID outbreaks that suppressed customer mobility. We continue to monitor the COVID-19 pandemic and its effect on our business and results of operations; however, we cannot predict the duration, scope or severity of the COVID-19 pandemic or its future impact on our business, results of operations, cash flows and financial condition.
Restructuring
In fiscal 2022, we announced our plan in the U.S. market to increase efficiency while elevating the partner and customer experience (the “Reinvention Plan”). We believe the investments in partner wages and trainings will increase retention and productivity while the acceleration of purpose-built store concepts and innovations in technologies will provide additional convenience and connection with our customers. As a result of the restructuring efforts in connection with the Reinvention Plan, we recorded an immaterial charge on our consolidated statements of earnings during the quarter ended January 1, 2023. Future restructuring and impairment costs attributable to our Reinvention Plan are not expected to be material.
As of January 1, 2023 and October 2, 2022, there were no material restructuring-related accrued liabilities on our consolidated balance sheets.
Recently Adopted Accounting Pronouncements
In the first quarter of fiscal 2022, we adopted the Financial Accounting Standards Board (“FASB”) issued guidance related to reference rate reform. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2024. The adoption of the new guidance did not have a material impact on our financial statements.
Note 2: Acquisitions, Divestitures and Strategic Alliance
In the fourth quarter of fiscal 2022, we sold our Evolution Fresh brand and business to Bolthouse Farms. This transaction did not have a material impact on our consolidated financial statements.
Note 3: Derivative Financial Instruments
Interest Rates
From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. Treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement's gain or loss is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified to interest expense over the life of the related debt.
To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 8, Debt, for additional information on our long-term debt.
Foreign Currency
To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, product and distribution costs, or interest income and other, net, respectively, when the hedged exposures affect net earnings.
From time to time, we may enter into financial instruments, including, but not limited to, forward and swap contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are recorded in AOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.
Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables and receivables, and these gains and losses are recorded in interest income and other, net.
Commodities
Depending on market conditions, we may enter into coffee forward contracts, futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5, Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.
Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand. The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the underlying transactions are no longer probable of occurring, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings. These derivatives may be accounted for prospectively as non-designated derivatives until maturity, re-designated to new hedging relationships or terminated early. We continue to believe transactions related to our other designated cash flow hedges are probable to occur.
To mitigate the price uncertainty of a portion of our future purchases, including diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. The resulting gains and losses are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in product and distribution costs on our consolidated statements of earnings.
Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (in millions):
| Net Gains/(Losses) Included in AOCI | Net Gains/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months | Outstanding Contract/Debt Remaining Maturity (Months) | |||||||||||||||||||||
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||
| Coffee | $ | (36.4) | $ | 153.9 | $ | (20.7) | 5 | ||||||||||||||||
| Cross-currency swaps | (1.7) | (1.9) | — | 23 | |||||||||||||||||||
| Dairy | (4.2) | (2.6) | (4.2) | 8 | |||||||||||||||||||
| Foreign currency - other | 12.8 | 55.3 | 12.1 | 33 | |||||||||||||||||||
| Interest rates | (5.4) | (5.8) | 0.7 | 0 | |||||||||||||||||||
| Net Investment Hedges: | |||||||||||||||||||||||
| Cross-currency swaps | 52.7 | 67.3 | — | 111 | |||||||||||||||||||
| Foreign currency | 16.1 | 16.1 | — | 0 | |||||||||||||||||||
| Foreign currency debt | 88.1 | 125.7 | — | 15 |
Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in other comprehensive income (“OCI”) and reclassifications from AOCI to earnings (in millions):
| Quarter Ended | ||||||||||||||||||||||||||||||||||||||
| Gains/(Losses) Recognized in OCI Before Reclassifications | Gains/(Losses) Reclassified from AOCI to Earnings | Location of gain/(loss) | ||||||||||||||||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | Jan 1, 2023 | Jan 2, 2022 | |||||||||||||||||||||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||||||||||||||||
| Coffee | $ | (119.4) | $ | 71.5 | $ | 96.7 | $ | 6.5 | Product and distribution costs | |||||||||||||||||||||||||||||
| Cross-currency swaps | (11.7) | 4.5 | (2.7) | (0.8) | Interest expense | |||||||||||||||||||||||||||||||||
| (9.1) | 6.9 | Interest income and other, net | ||||||||||||||||||||||||||||||||||||
| Dairy | (3.6) | 4.6 | (1.5) | (0.4) | Product and distribution costs | |||||||||||||||||||||||||||||||||
| Foreign currency - other | (46.0) | 6.9 | 8.0 | 2.2 | Licensed stores revenue | |||||||||||||||||||||||||||||||||
| 2.2 | (1.5) | Product and distribution costs | ||||||||||||||||||||||||||||||||||||
| 0.2 | — | Interest income and other, net | ||||||||||||||||||||||||||||||||||||
| Interest rates | — | 1.2 | (0.5) | (0.4) | Interest expense | |||||||||||||||||||||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||||||||||||||||
| Cross-currency swaps | (14.0) | 16.3 | 5.3 | 3.4 | Interest expense | |||||||||||||||||||||||||||||||||
| Foreign currency debt | (50.6) | 25.2 | — | — | ||||||||||||||||||||||||||||||||||
Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings (in millions):
| Gains/(Losses) Recognized in Earnings | |||||||||||||||||||||||||||||
| Location of gain/(loss) recognized in earnings | Quarter Ended | ||||||||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||||||||
| Non-Designated Derivatives: | |||||||||||||||||||||||||||||
| Foreign currency - other | Interest income and other, net | $ | (11.6) | $ | 10.2 | ||||||||||||||||||||||||
| Coffee | Interest income and other, net | (5.5) | 3.1 | ||||||||||||||||||||||||||
| Diesel fuel and other commodities | Interest income and other, net | (0.2) | — | ||||||||||||||||||||||||||
| Fair Value Hedges: | |||||||||||||||||||||||||||||
| Interest rate swap | Interest expense | (1.6) | (4.8) | ||||||||||||||||||||||||||
| Long-term debt (hedged item) | Interest expense | (3.3) | 8.2 |
Notional amounts of outstanding derivative contracts (in millions):
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| Coffee | $ | 401 | $ | 649 | |||||||
| Cross-currency swaps | 1,124 | 741 | |||||||||
| Dairy | 68 | 94 | |||||||||
| Diesel fuel and other commodities | 25 | 33 | |||||||||
| Foreign currency - other | 1,305 | 1,269 | |||||||||
| Interest rate swaps | 1,100 | 1,100 |
Fair value of outstanding derivative contracts (in millions) including the location of the asset and/or liability on the consolidated balance sheets:
| Derivative Assets | |||||||||||||||||
| Balance Sheet Location | Jan 1, 2023 | Oct 2, 2022 | |||||||||||||||
| Designated Derivative Instruments: | |||||||||||||||||
| Cross-currency swaps | Other long-term assets | $ | 85.4 | $ | 115.4 | ||||||||||||
| Dairy | Prepaid expenses and other current assets | 0.2 | 0.5 | ||||||||||||||
| Foreign currency - other | Prepaid expenses and other current assets | 22.4 | 39.9 | ||||||||||||||
| Other long-term assets | 13.8 | 33.5 | |||||||||||||||
| Non-designated Derivative Instruments: | |||||||||||||||||
| Diesel fuel and other commodities | Prepaid expenses and other current assets | 0.1 | 0.4 | ||||||||||||||
| Foreign currency | Prepaid expenses and other current assets | 15.8 | 34.3 | ||||||||||||||
| Other long-term assets | — | 7.3 | |||||||||||||||
| Derivative Liabilities | |||||||||||||||||
| Balance Sheet Location | Jan 1, 2023 | Oct 2, 2022 | |||||||||||||||
| Designated Derivative Instruments: | |||||||||||||||||
| Cross-currency swaps | Other long-term liabilities | $ | 1.6 | $ | — | ||||||||||||
| Dairy | Accrued liabilities | 3.1 | 2.9 | ||||||||||||||
| Foreign currency - other | Accrued liabilities | 10.0 | 0.3 | ||||||||||||||
| Other long-term liabilities | 10.1 | — | |||||||||||||||
| Interest rate | Accrued liabilities | 20.4 | 12.0 | ||||||||||||||
| Interest rate swap | Other long-term liabilities | 33.6 | 34.0 | ||||||||||||||
| Non-designated Derivative Instruments: | |||||||||||||||||
| Diesel fuel and other commodities | Accrued liabilities | 0.4 | — | ||||||||||||||
| Foreign currency | Accrued liabilities | 1.3 | 5.8 | ||||||||||||||
The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships (in millions):
| Carrying amount of hedged item | Cumulative amount of fair value hedging adjustment included in the carrying amount | ||||||||||||||||||||||
| Jan 1, 2023 | Oct 2, 2022 | Jan 1, 2023 | Oct 2, 2022 | ||||||||||||||||||||
| Location on the balance sheet | |||||||||||||||||||||||
| Long-term debt | $ | 1,051.0 | $ | 1,047.7 | $ | (49.0) | $ | (52.3) |
Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 11, Equity.
Note 4: Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis (in millions):
| Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||
| Balance at January 1, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,186.5 | $ | 3,042.5 | $ | 144.0 | $ | — | |||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Commercial paper | 0.2 | — | 0.2 | — | |||||||||||||||||||
| Corporate debt securities | 23.2 | — | 23.2 | — | |||||||||||||||||||
| U.S. government treasury securities | 8.9 | 8.9 | — | — | |||||||||||||||||||
| Total available-for-sale debt securities | 32.3 | 8.9 | 23.4 | — | |||||||||||||||||||
| Structured deposits | 28.8 | — | 28.8 | — | |||||||||||||||||||
| Marketable equity securities | 62.8 | 62.8 | — | — | |||||||||||||||||||
| Total short-term investments | 123.9 | 71.7 | 52.2 | — | |||||||||||||||||||
| Prepaid expenses and other current assets: | |||||||||||||||||||||||
| Derivative assets | 38.5 | — | 38.5 | — | |||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Corporate debt securities | 136.4 | — | 136.4 | — | |||||||||||||||||||
| Foreign government obligations | 3.8 | — | 3.8 | — | |||||||||||||||||||
| Mortgage and other asset-backed securities | 53.3 | — | 53.3 | — | |||||||||||||||||||
| State and local government obligations | 1.3 | — | 1.3 | — | |||||||||||||||||||
| U.S. government treasury securities | 88.8 | 88.8 | — | — | |||||||||||||||||||
| Total long-term investments | 283.6 | 88.8 | 194.8 | — | |||||||||||||||||||
| Other long-term assets: | |||||||||||||||||||||||
| Derivative assets | 99.2 | — | 99.2 | — | |||||||||||||||||||
| Total assets | $ | 3,731.7 | $ | 3,203.0 | $ | 528.7 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Accrued liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | 35.2 | $ | — | $ | 35.2 | $ | — | |||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Derivative liabilities | 45.3 | — | 45.3 | — | |||||||||||||||||||
| Total liabilities | $ | 80.5 | $ | — | $ | 80.5 | $ | — |
| Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||
| Balance at October 2, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,818.4 | $ | 2,797.3 | $ | 21.1 | $ | — | |||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Corporate debt securities | 22.4 | — | 22.4 | — | |||||||||||||||||||
| U.S. government treasury securities | 9.3 | 9.3 | — | — | |||||||||||||||||||
| Total available-for-sale debt securities | 31.7 | 9.3 | 22.4 | — | |||||||||||||||||||
| Structured deposits | 275.1 | — | 275.1 | — | |||||||||||||||||||
| Marketable equity securities | 57.7 | 57.7 | — | — | |||||||||||||||||||
| Total short-term investments | 364.5 | 67.0 | 297.5 | — | |||||||||||||||||||
| Prepaid expenses and other current assets: | |||||||||||||||||||||||
| Derivative assets | 75.1 | — | 75.1 | — | |||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Corporate debt securities | 134.7 | — | 134.7 | — | |||||||||||||||||||
| Foreign government obligations | 3.8 | — | 3.8 | — | |||||||||||||||||||
| Mortgage and other asset-backed securities | 56.5 | — | 56.5 | — | |||||||||||||||||||
| State and local government obligations | 1.3 | — | 1.3 | — | |||||||||||||||||||
| U.S. government treasury securities | 82.8 | 82.8 | — | — | |||||||||||||||||||
| Total long-term investments | 279.1 | 82.8 | 196.3 | — | |||||||||||||||||||
| Other long-term assets: | |||||||||||||||||||||||
| Derivative assets | 156.2 | — | 156.2 | — | |||||||||||||||||||
| Total assets | $ | 3,693.3 | $ | 2,947.1 | $ | 746.2 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Accrued liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | 21.0 | $ | — | $ | 21.0 | $ | — | |||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Derivative liabilities | 34.0 | — | 34.0 | — | |||||||||||||||||||
| Total liabilities | $ | 55.0 | $ | — | $ | 55.0 | $ | — |
There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented. The fair values of any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.
Gross unrealized holding gains and losses on available-for-sale debt securities, structured deposits and marketable equity securities were not material as of January 1, 2023 and October 2, 2022.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, ROU assets, goodwill and other intangible assets and other assets. These assets are measured at fair value if determined to be impaired.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 8, Debt. There were no material fair value adjustments during the quarters ended January 1, 2023 and January 2, 2022.
Note 5: Inventories (in millions):
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| Coffee: | |||||||||||
| Unroasted | $ | 1,015.1 | $ | 1,018.6 | |||||||
| Roasted | 293.2 | 310.3 | |||||||||
| Other merchandise held for sale | 383.5 | 430.9 | |||||||||
| Packaging and other supplies | 396.3 | 416.8 | |||||||||
| Total | $ | 2,088.1 | $ | 2,176.6 |
Other merchandise held for sale includes, among other items, serveware, food and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations.
As of January 1, 2023, we had committed to purchasing green coffee totaling $333.3 million under fixed-price contracts and an estimated $773.2 million under price-to-be-fixed contracts. A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures. See Note 3, Derivative Financial Instruments, for further discussion. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For most contracts, either Starbucks or the seller has the option to “fix” the base “C” coffee commodity price prior to the delivery date. For other contracts, Starbucks and the seller may agree upon pricing parameters determined by the base “C” coffee commodity price. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on established relationships with our suppliers and continuous monitoring, the risk of non-delivery on these purchase commitments is remote.
Note 6: Supplemental Balance Sheet and Statement of Earnings Information (in millions):
Prepaid Expenses and Other Current Assets
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| Income tax receivable | $ | 10.0 | $ | 27.7 | |||||||
| Government subsidies receivable | 28.4 | 69.4 | |||||||||
| Other prepaid expenses and current assets | 335.1 | 386.6 | |||||||||
| Total prepaid expenses and current assets | $ | 373.5 | $ | 483.7 |
Property, Plant and Equipment, net
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| Land | $ | 46.1 | $ | 46.1 | |||||||
| Buildings | 566.6 | 555.4 | |||||||||
| Leasehold improvements | 9,368.6 | 9,066.8 | |||||||||
| Store equipment | 3,086.6 | 3,018.2 | |||||||||
| Roasting equipment | 809.3 | 838.5 | |||||||||
| Furniture, fixtures and other | 1,578.4 | 1,526.1 | |||||||||
| Work in progress | 603.0 | 558.7 | |||||||||
| Property, plant and equipment, gross | 16,058.6 | 15,609.8 | |||||||||
| Accumulated depreciation | (9,359.1) | (9,049.3) | |||||||||
| Property, plant and equipment, net | $ | 6,699.5 | $ | 6,560.5 |
Accrued Liabilities
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||
| Accrued occupancy costs | $ | 77.9 | $ | 84.6 | |||||||
| Accrued dividends payable | 608.6 | 608.3 | |||||||||
| Accrued capital and other operating expenditures | 683.8 | 878.1 | |||||||||
| Self-insurance reserves | 243.6 | 232.3 | |||||||||
| Income taxes payable | 280.1 | 139.2 | |||||||||
| Accrued business taxes | 195.6 | 194.6 | |||||||||
| Total accrued liabilities | $ | 2,089.6 | $ | 2,137.1 |
Store Operating Expenses
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Wages and benefits | $ | 2,215.7 | $ | 2,010.7 | |||||||||||||||||||
| Occupancy costs | 671.5 | 665.3 | |||||||||||||||||||||
| Other expenses | 778.1 | 724.0 | |||||||||||||||||||||
| Total store operating expenses | $ | 3,665.3 | $ | 3,400.0 |
Note 7: Other Intangible Assets and Goodwill
Indefinite-Lived Intangible Assets
| (in millions) | Jan 1, 2023 | Oct 2, 2022 | |||||||||
| Trade names, trademarks and patents | $ | 97.8 | $ | 97.5 |
Finite-Lived Intangible Assets
| Jan 1, 2023 | Oct 2, 2022 | ||||||||||||||||||||||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||
| Acquired and reacquired rights | $ | 1,030.4 | $ | (1,030.4) | $ | — | $ | 990.0 | $ | (990.0) | $ | — | |||||||||||||||||||||||
| Acquired trade secrets and processes | 27.6 | (27.6) | — | 27.6 | (27.3) | 0.3 | |||||||||||||||||||||||||||||
| Trade names, trademarks and patents | 125.0 | (74.5) | 50.5 | 124.6 | (69.6) | 55.0 | |||||||||||||||||||||||||||||
| Licensing agreements | 18.4 | (15.3) | 3.1 | 19.3 | (16.2) | 3.1 | |||||||||||||||||||||||||||||
| Other finite-lived intangible assets | 21.0 | (21.0) | — | 20.6 | (20.6) | — | |||||||||||||||||||||||||||||
| Total finite-lived intangible assets | $ | 1,222.4 | $ | (1,168.8) | $ | 53.6 | $ | 1,182.1 | $ | (1,123.7) | $ | 58.4 |
Amortization expense for finite-lived intangible assets was $5.6 million for the quarter ended January 1, 2023 and $50.2 million for the quarter ended January 2, 2022, respectively.
Estimated future amortization expense as of January 1, 2023 (in millions):
| Fiscal Year | Total | ||||
| 2023 (excluding the quarter ended January 1, 2023) | $ | 15.2 | |||
| 2024 | 20.0 | ||||
| 2025 | 14.0 | ||||
| 2026 | 1.3 | ||||
| 2027 | 1.0 | ||||
| Thereafter | 2.1 | ||||
| Total estimated future amortization expense | $ | 53.6 |
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
| North America | International | Channel Development | Corporate and Other | Total | |||||||||||||||||||||||||
| Goodwill balance at October 2, 2022 | $ | 491.1 | $ | 2,756.7 | $ | 34.7 | $ | 1.0 | $ | 3,283.5 | |||||||||||||||||||
| Other(1) | 0.3 | 99.2 | — | — | 99.5 | ||||||||||||||||||||||||
| Goodwill balance at January 1, 2023 | $ | 491.4 | $ | 2,855.9 | $ | 34.7 | $ | 1.0 | $ | 3,383.0 |
(1)“Other” consists of changes in the goodwill balance resulting from foreign currency translation.
Note 8: Debt
Revolving Credit Facility
Our $3.0 billion unsecured five-year revolving credit facility (the “2021 credit facility”), of which $150 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026. The 2021 credit facility is available for working capital, capital expenditures and other 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 2021 credit facility will bear interest at a variable rate based on LIBOR, and, for U.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2021 credit facility), in each case plus an applicable margin. The applicable margin is based on the Company’s long-term credit ratings assigned by the Moody’s and Standard & Poor’s rating agencies. The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The “Base Rate” is the highest of (i) the Federal Funds Rate (as defined in the 2021 credit facility) plus 0.500%, (ii) Bank of America’s prime rate, and (iii) the Eurocurrency Rate (as defined in the 2021 credit facility) plus 1.000%.
The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of January 1, 2023, we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as of January 1, 2023 or October 2, 2022.
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 2021 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 January 1, 2023, we had no borrowings outstanding under the program. As of October 2, 2022, we had $175.0 million in borrowings outstanding under this program.
Additionally, we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within our Japanese market:
-
A ¥5 billion, or $37.6 million, credit facility is currently set to mature on January 4, 2024. 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 billion, or $75.2 million, credit facility is currently set to mature on March 27, 2023. 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 0.350%.
As of January 1, 2023 and October 2, 2022, we had no borrowings outstanding under these Japanese yen-denominated credit facilities.
Long-term Debt
Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity (in millions, except interest rates):
| Jan 1, 2023 | Oct 2, 2022 | Stated Interest Rate | Effective Interest Rate**(1)** | |||||||||||||||||||||||
| Issuance | Amount | Estimated Fair Value | Amount | Estimated Fair Value | ||||||||||||||||||||||
| March 2023 notes | $ | 1,000.0 | $ | 996.6 | $ | 1,000.0 | $ | 996.5 | 3.100 | % | 3.107 | % | ||||||||||||||
| October 2023 notes(2) | 750.0 | 745.0 | 750.0 | 744.8 | 3.850 | % | 2.859 | % | ||||||||||||||||||
| February 2024 notes(3) | 500.0 | 496.8 | 500.0 | 497.3 | 4.590 | % | 4.821 | % | ||||||||||||||||||
| March 2024 notes(4) | 639.0 | 653.5 | 588.4 | 584.7 | 0.372 | % | 0.462 | % | ||||||||||||||||||
| August 2025 notes | 1,250.0 | 1,225.3 | 1,250.0 | 1,209.6 | 3.800 | % | 3.721 | % | ||||||||||||||||||
| June 2026 notes | 500.0 | 465.6 | 500.0 | 458.3 | 2.450 | % | 2.511 | % | ||||||||||||||||||
| March 2027 notes | 500.0 | 447.5 | 500.0 | 437.9 | 2.000 | % | 2.058 | % | ||||||||||||||||||
| March 2028 notes | 600.0 | 565.2 | 600.0 | 554.8 | 3.500 | % | 3.529 | % | ||||||||||||||||||
| November 2028 notes | 750.0 | 713.8 | 750.0 | 704.7 | 4.000 | % | 3.958 | % | ||||||||||||||||||
| August 2029 notes(2) | 1,000.0 | 924.7 | 1,000.0 | 900.3 | 3.550 | % | 3.840 | % | ||||||||||||||||||
| March 2030 notes | 750.0 | 625.2 | 750.0 | 607.7 | 2.250 | % | 3.084 | % | ||||||||||||||||||
| November 2030 notes | 1,250.0 | 1,052.7 | 1,250.0 | 1,017.9 | 2.550 | % | 2.582 | % | ||||||||||||||||||
| February 2032 notes | 1,000.0 | 857.8 | 1,000.0 | 827.1 | 3.000 | % | 3.155 | % | ||||||||||||||||||
| June 2045 notes | 350.0 | 296.4 | 350.0 | 281.5 | 4.300 | % | 4.348 | % | ||||||||||||||||||
| December 2047 notes | 500.0 | 381.5 | 500.0 | 369.6 | 3.750 | % | 3.765 | % | ||||||||||||||||||
| November 2048 notes | 1,000.0 | 866.6 | 1,000.0 | 824.6 | 4.500 | % | 4.504 | % | ||||||||||||||||||
| August 2049 notes | 1,000.0 | 857.0 | 1,000.0 | 817.8 | 4.450 | % | 4.447 | % | ||||||||||||||||||
| March 2050 notes | 500.0 | 356.1 | 500.0 | 342.0 | 3.350 | % | 3.362 | % | ||||||||||||||||||
| November 2050 notes | 1,250.0 | 906.3 | 1,250.0 | 874.9 | 3.500 | % | 3.528 | % | ||||||||||||||||||
| Total | 15,089.0 | 13,433.6 | 15,038.4 | 13,052.0 | ||||||||||||||||||||||
| Aggregate debt issuance costs and unamortized premium/(discount), net | (114.0) | (117.2) | ||||||||||||||||||||||||
| Hedge accounting fair value adjustment(2) | (49.0) | (52.3) | ||||||||||||||||||||||||
| Total | $ | 14,926.0 | $ | 14,868.9 |
(1)Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-starting interest rate swaps utilized to hedge interest rate risk prior to the debt issuance.
(2)Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and $350 million of our August 2029 notes. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swaps designated as fair value hedges.
(3)Floating rate notes which bear interest at a rate equal to Compounded SOFR (as defined in the February 2024 notes) plus 0.420%, resulting in a stated interest rate of 4.590% at January 1, 2023.
(4)Japanese yen-denominated long-term debt.
The following table summarizes our long-term debt maturities as of January 1, 2023 by fiscal year (in millions):
| Fiscal Year | Total | ||||
| 2023 | $ | 1,750.0 | |||
| 2024 | 1,139.0 | ||||
| 2025 | 1,250.0 | ||||
| 2026 | 500.0 | ||||
| 2027 | 500.0 | ||||
| Thereafter | 9,950.0 | ||||
| Total | $ | 15,089.0 |
Note 9: Leases
The components of lease costs (in millions):
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Operating lease costs(1) | $ | 384.8 | $ | 386.1 | |||||||||||||||||||
| Variable lease costs | 235.3 | 229.8 | |||||||||||||||||||||
| Short-term lease costs | 7.0 | 7.1 | |||||||||||||||||||||
| Total lease costs | $ | 627.1 | $ | 623.0 |
(1)Includes immaterial amounts of sublease income and rent concessions.
The following table includes supplemental information (in millions):
| Quarter Ended | |||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||
| Cash paid related to operating lease liabilities | $ | 404.1 | $ | 410.0 | |||||||
| Operating lease liabilities arising from obtaining ROU assets | 367.3 | 346.8 | |||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||
| Weighted-average remaining operating lease term | 8.5 years | 8.6 years | |||||||||
| Weighted-average operating lease discount rate | 2.7 | % | 2.5 | % |
Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. There were no material finance leases as of January 1, 2023 and October 2, 2022.
Minimum future maturities of operating lease liabilities (in millions):
| Fiscal Year | Total | ||||
| 2023 (excluding the quarter ended January 1, 2023) | $ | 1,511.5 | |||
| 2024 | 1,472.9 | ||||
| 2025 | 1,332.8 | ||||
| 2026 | 1,177.8 | ||||
| 2027 | 975.4 | ||||
| Thereafter | 3,600.2 | ||||
| Total lease payments | 10,070.6 | ||||
| Less imputed interest | (1,177.7) | ||||
| Total | $ | 8,892.9 |
As of January 1, 2023, we have entered into operating leases that have not yet commenced of $1.2 billion, primarily related to real estate leases. These leases will commence between fiscal year 2023 and fiscal year 2028 with lease terms ranging from three to twenty years.
Note 10: Deferred Revenue
Our deferred revenue primarily consists of the prepaid royalty from Nestlé, for which we have continuing performance obligations to support the Global Coffee Alliance, our unredeemed stored value card liability and unredeemed loyalty points (“Stars”) associated with our loyalty program.
As of January 1, 2023, the current and long-term deferred revenue related to Nestlé was $177.0 million and $6.1 billion, respectively. As of October 2, 2022, the current and long-term deferred revenue related to the Nestlé up-front payment was $177.0 million and $6.2 billion, respectively. During the quarter ended January 1, 2023, we recognized $44.1 million of prepaid royalty revenue related to Nestlé. During the quarter ended January 2, 2022, we recognized $44.2 million of prepaid royalty revenue related to Nestlé.
Changes in our deferred revenue balance related to our stored value cards and loyalty program (in millions):
| Quarter Ended January 1, 2023 | Total | ||||
| Stored value cards and loyalty program at October 2, 2022 | $ | 1,503.0 | |||
| Revenue deferred - card activations, card reloads and Stars earned | 4,223.4 | ||||
| Revenue recognized - card and Stars redemptions and breakage | (3,714.1) | ||||
| Other(1) | 13.3 | ||||
| Stored value cards and loyalty program at January 1, 2023(2) | $ | 2,025.6 | |||
| Quarter Ended January 2, 2022 | Total | ||||
| Stored value cards and loyalty program at October 3, 2021 | $ | 1,448.5 | |||
| Revenue deferred - card activations, card reloads and Stars earned | 3,917.5 | ||||
| Revenue recognized - card and Stars redemptions and breakage | (3,410.8) | ||||
| Other(1) | (2.7) | ||||
| Stored value cards and loyalty program at January 2, 2022(2) | $ | 1,952.5 | |||
(1)“Other” primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.
(2)As of January 1, 2023 and January 2, 2022, approximately $1.9 billion and $1.8 billion of these amounts were current, respectively.
Note 11: Equity
Changes in AOCI by component, net of tax (in millions):
| Quarter Ended | Available-for-Sale Debt Securities | Cash Flow Hedges | Net Investment Hedges | Translation Adjustment and Other | Total | ||||||||||||||||||||||||
| January 1, 2023 | |||||||||||||||||||||||||||||
| Net gains/(losses) in AOCI, beginning of period | $ | (15.5) | $ | 199.0 | $ | 209.1 | $ | (855.8) | $ | (463.2) | |||||||||||||||||||
| Net gains/(losses) recognized in OCI before reclassifications | 1.5 | (151.2) | (48.3) | 208.9 | 10.9 | ||||||||||||||||||||||||
| Net (gains)/losses reclassified from AOCI to earnings | 0.1 | (82.7) | (4.0) | — | (86.6) | ||||||||||||||||||||||||
| Other comprehensive income/(loss) attributable to Starbucks | 1.6 | (233.9) | (52.3) | 208.9 | (75.7) | ||||||||||||||||||||||||
| Net gains/(losses) in AOCI, end of period | $ | (13.9) | $ | (34.9) | $ | 156.8 | $ | (646.9) | $ | (538.9) | |||||||||||||||||||
| January 2, 2022 | |||||||||||||||||||||||||||||
| Net gains/(losses) in AOCI, beginning of period | $ | 1.5 | $ | 158.3 | $ | 48.6 | $ | (61.2) | $ | 147.2 | |||||||||||||||||||
| Net gains/(losses) recognized in OCI before reclassifications | (2.6) | 76.9 | 31.0 | 14.2 | 119.5 | ||||||||||||||||||||||||
| Net (gains)/losses reclassified from AOCI to earnings | (0.1) | (10.6) | (2.5) | — | (13.2) | ||||||||||||||||||||||||
| Other comprehensive income/(loss) attributable to Starbucks | (2.7) | 66.3 | 28.5 | 14.2 | 106.3 | ||||||||||||||||||||||||
| Net gains/(losses) in AOCI, end of period | $ | (1.2) | $ | 224.6 | $ | 77.1 | $ | (47.0) | $ | 253.5 | |||||||||||||||||||
Impact of reclassifications from AOCI on the consolidated statements of earnings (in millions):
| Quarter Ended | ||||||||||||||||||||
| AOCI Components | Amounts Reclassified from AOCI | Affected Line Item in the Statements of Earnings | ||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | |||||||||||||||||||
| Gains/(losses) on available-for-sale debt securities | $ | (0.2) | $ | 0.2 | Interest income and other, net | |||||||||||||||
| Gains/(losses) on cash flow hedges | 93.3 | 12.5 | Please refer to Note 3, Derivative Financial Instruments for additional information. | |||||||||||||||||
| Gains/(losses) on net investment hedges | 5.3 | 3.4 | Interest expense | |||||||||||||||||
| 98.4 | 16.1 | Total before tax | ||||||||||||||||||
| (11.8) | (2.9) | Tax expense | ||||||||||||||||||
| $ | 86.6 | $ | 13.2 | Net of tax | ||||||||||||||||
In addition to 2.4 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of January 1, 2023.
During the quarters ended January 1, 2023 and January 2, 2022, we repurchased 1.9 million and 31.1 million shares of common stock for $191.4 million and $3.5 billion, respectively. As of January 1, 2023, 50.6 million shares remained available for repurchase under current authorizations.
During the first quarter of fiscal 2023, our Board of Directors approved a quarterly cash dividend to shareholders of $0.53 per share to be paid on February 24, 2023 to shareholders of record as of the close of business on February 10, 2023.
Note 12: Employee Stock Plans
As of January 1, 2023, there were 91.8 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 10.7 million shares available for issuance under our employee stock purchase plan.
Stock-based compensation expense recognized in the consolidated statements of earnings (in millions):
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Restricted Stock Units (“RSUs”) | $ | 85.0 | $ | 95.7 | |||||||||||||||||||
| Options | 0.1 | 0.1 | |||||||||||||||||||||
| Total stock-based compensation expense | $ | 85.1 | $ | 95.8 |
Stock option and RSU transactions from October 2, 2022 through January 1, 2023 (in millions):
| Stock Options | RSUs | ||||||||||
| Options outstanding/Nonvested RSUs, October 2, 2022 | 4.1 | 7.0 | |||||||||
| Granted | — | 4.0 | |||||||||
| Options exercised/RSUs vested | (0.7) | (2.7) | |||||||||
| Forfeited/expired | — | (0.2) | |||||||||
| Options outstanding/Nonvested RSUs, January 1, 2023 | 3.4 | 8.1 | |||||||||
| Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of January 1, 2023 | $ | — | $ | 345.3 |
Note 13: Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
| Quarter Ended | |||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||
| Net earnings attributable to Starbucks | $ | 855.2 | $ | 815.9 | |||||||||||||||||||
| Weighted average common shares outstanding (for basic calculation) | 1,148.5 | 1,169.6 | |||||||||||||||||||||
| Dilutive effect of outstanding common stock options and RSUs | 4.4 | 7.0 | |||||||||||||||||||||
| Weighted average common and common equivalent shares outstanding (for diluted calculation) | 1,152.9 | 1,176.6 | |||||||||||||||||||||
| EPS — basic | $ | 0.74 | $ | 0.70 | |||||||||||||||||||
| EPS — diluted | $ | 0.74 | $ | 0.69 |
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes anti-dilutive stock options or RSU's, which were immaterial in the periods presented.
Note 14: Commitments and Contingencies
Legal Proceedings
In 2010 and 2011, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed lawsuits in the Superior Court of the State of California, County of Los Angeles, against the Company and other companies who manufacture, package, distribute or sell brewed coffee. The suits were later consolidated into a single action. Plaintiff alleged that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. Plaintiff sought equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of two thousand five hundred dollars per day per alleged violation of Proposition 65, which the Plaintiff claimed was every day coffee is sold without a compliant warning. The Company denied the claims.
During the pendency of the litigation, the California Office of Environmental Health Hazard Assessment (“OEHHA”) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The regulation was approved by the Office of Administrative Law and became effective on October 1, 2019. In 2020, the trial court granted the defendants’ motion for summary judgment, ruling that the coffee exemption regulation is a complete defense to the Plaintiff’s complaint. On October 26, 2022, the California Court of Appeal affirmed the trial court's dismissal of the case. The Plaintiff’s subsequent request for a rehearing before the California Court of Appeals was denied. On December 2, 2022 Plaintiff filed a petition for review in the California Supreme Court and Starbucks filed a response brief on December 22, 2022. Starbucks believes that the likelihood that the Company will ultimately incur a material loss in connection with this litigation is less than reasonably possible. Accordingly, as of January 1, 2023, no loss contingency has been recorded for this matter.
Starbucks is involved in various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 15: Segment Reporting
Segment information is prepared on the same basis that our interim chief executive officer, who is our chief operating decision maker, manages the segments, evaluates financial results and makes key operating decisions.
Consolidated revenue mix by product type (in millions):
| Quarter Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| Jan 1, 2023 | Jan 2, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Beverage(1) | $ | 5,173.0 | 59 | % | $ | 4,898.4 | 61 | % | |||||||||||||||||||||||||||||||||||||||
| Food(2) | 1,565.9 | 18 | % | 1,434.6 | 18 | % | |||||||||||||||||||||||||||||||||||||||||
| Other(3) | 1,975.0 | 23 | % | 1,717.4 | 21 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 8,713.9 | 100 | % | $ | 8,050.4 | 100 | % |
(1)Beverage represents sales within our company-operated stores.
(2)Food includes sales within our company-operated stores.
(3)Other primarily consists of packaged and single-serve coffees and teas, royalty and licensing revenues, serveware, beverage-related ingredients and ready-to-drink beverages, among other items.
The tables below present financial information for our reportable operating segments and Corporate and Other segment (in millions):
Quarter Ended
| North America | International | Channel Development | Corporate and Other | Total | |||||||||||||||||||||||||
| January 1, 2023 | |||||||||||||||||||||||||||||
| Total net revenues | $ | 6,551.3 | $ | 1,680.1 | $ | 478.2 | $ | 4.3 | $ | 8,713.9 | |||||||||||||||||||
| Depreciation and amortization expenses | 216.9 | 81.5 | — | 28.7 | 327.1 | ||||||||||||||||||||||||
| Income from equity investees | — | 0.5 | 57.3 | — | 57.8 | ||||||||||||||||||||||||
| Operating income/(loss) | 1,212.4 | 240.4 | 226.3 | (426.0) | 1,253.1 | ||||||||||||||||||||||||
| January 2, 2022 | |||||||||||||||||||||||||||||
| Total net revenues | $ | 5,732.3 | $ | 1,875.9 | $ | 417.1 | $ | 25.1 | $ | 8,050.4 | |||||||||||||||||||
| Depreciation and amortization expenses | 200.0 | 133.1 | — | 32.9 | 366.0 | ||||||||||||||||||||||||
| Income from equity investees | — | 0.7 | 39.6 | — | 40.3 | ||||||||||||||||||||||||
| Operating income/(loss) | 1,083.1 | 299.6 | 183.2 | (388.1) | 1,177.8 | ||||||||||||||||||||||||
Note 16: Subsequent Event
On January 13, 2023, Starbucks finalized the sale of the Seattle's Best Coffee brand to Nestlé and will recognize a pre-tax gain of approximately $90 million in the second quarter of fiscal 2023. With the exception of recognizing the sale to Nestlé, we do not expect the transaction will have a material impact on our ongoing operations and future financial results.
Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations