Company Quick10K Filing
Quick10K
Starbucks
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$70.39 1,244 $87,540
10-Q 2018-12-30 Quarter: 2018-12-30
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-10-01 Annual: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-Q 2017-01-01 Quarter: 2017-01-01
10-K 2016-10-02 Annual: 2016-10-02
10-Q 2016-06-26 Quarter: 2016-06-26
10-Q 2016-03-27 Quarter: 2016-03-27
10-Q 2015-12-27 Quarter: 2015-12-27
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-24 Enter Agreement, Exhibits
8-K 2018-10-08 Officers, Regulation FD, Exhibits
8-K 2018-08-26 M&A, Regulation FD, Other Events, Exhibits
8-K 2018-08-10 Off-BS Arrangement, Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-28 Control, Exhibits
8-K 2018-06-19 Regulation FD, Exhibits
8-K 2018-06-01 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-05-06 Enter Agreement, Other Events, Exhibits
8-K 2018-04-27 Officers
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-21 Shareholder Vote
8-K 2018-02-28 Off-BS Arrangement, Other Events, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2017-12-31 M&A, Regulation FD
MCD McDonalds
DENN Dennys
BOJA Bojangles'
RRGB Red Robin
CHUY Chuy's Holdings
NDLS Noodles
NATH Nathans Famous
PBPB Potbelly
IPIC iPic
BURG Chanticleer Holdings
SBUX 2018-12-30
Part I - Financial Information
Item 1. Financial Statements
Note 1: Summary of Significant Accounting Policies
Note 2: Revenue Recognition
Note 3: Acquisitions, Divestitures and Strategic Alliance
Note 4: Derivative Financial Instruments
Note 5: Fair Value Measurements
Note 6: Inventories (In Millions)
Note 7: Supplemental Balance Sheet Information (In Millions)
Note 8: Other Intangible Assets and Goodwill
Note 9: Debt
Note 10: Equity
Note 11: Employee Stock Plans
Note 12: Income Taxes
Note 13: Earnings per Share
Note 14: Commitments and Contingencies
Note 15: Segment Reporting
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 sbux-12302018xexhibit311.htm
EX-31.2 sbux-12302018xexhibit312.htm
EX-32 sbux-12302018xexhibit32.htm

Starbucks Earnings 2018-12-30

SBUX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sbux-12302018x10xq.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 30, 2018
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission File Number: 0-20322
Starbucks Corporation
(Exact Name of Registrant as Specified in its Charter)
sbuxlogo12302018a12.jpg
Washington
91-1325671
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
2401 Utah Avenue South, Seattle, Washington 98134
(Address of principal executive offices)
(206) 447-1575
(Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
 
 
Emerging growth company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    
Yes   ¨  No  x 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title
Shares Outstanding as of January 23, 2019
Common Stock, par value $0.001 per share
1,243.6 million



STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended December 30, 2018
Table of Contents
 

 



PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
(unaudited)
 
 
Quarter Ended
 
Dec 30,
2018
 
Dec 31,
2017
Net revenues:
 
 
 
Company-operated stores
$
5,370.3

 
$
4,741.8

Licensed stores
737.1

 
682.4

Other
525.3

 
649.5

Total net revenues
6,632.7

 
6,073.7

Cost of sales including occupancy costs
2,758.7

 
2,501.7

Store operating expenses
1,993.0

 
1,737.0

Other operating expenses
93.2

 
129.5

Depreciation and amortization expenses
333.4

 
258.8

General and administrative expenses
463.3

 
392.4

Restructuring and impairments
43.2

 
27.6

Total operating expenses
5,684.8

 
5,047.0

Income from equity investees
67.8

 
89.4

Operating income
1,015.7

 
1,116.1

Gain resulting from acquisition of joint venture

 
1,326.3

Net gain resulting from divestiture of certain operations

 
501.2

Interest income and other, net
24.8

 
88.2

Interest expense
(75.0
)
 
(25.9
)
Earnings before income taxes
965.5

 
3,005.9

Income tax expense
205.1

 
755.8

Net earnings including noncontrolling interests
760.4

 
2,250.1

Net loss attributable to noncontrolling interests
(0.2
)
 
(0.1
)
Net earnings attributable to Starbucks
$
760.6

 
$
2,250.2

Earnings per share - basic
$
0.61

 
$
1.58

Earnings per share - diluted
$
0.61

 
$
1.57

Weighted average shares outstanding:
 
 
 
Basic
1,242.0

 
1,421.0

Diluted
1,253.4

 
1,434.6

Cash dividends declared per share
$
0.36

 
$
0.30

See Notes to Condensed Consolidated Financial Statements.

3


STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, unaudited)

 
Quarter Ended
 
Dec 30,
2018
 
Dec 31,
2017
Net earnings including noncontrolling interests
$
760.4

 
$
2,250.1

Other comprehensive income/(loss), net of tax:
 
 
 
Unrealized holding gains/(losses) on available-for-sale securities
2.2

 
(2.7
)
Tax (expense)/benefit
(0.5
)
 
1.0

Unrealized gains/(losses) on cash flow hedging instruments
(9.1
)
 
(2.3
)
Tax (expense)/benefit
1.8

 
0.4

Unrealized gains/(losses) on net investment hedging instruments
(21.9
)
 
(0.3
)
Tax (expense)/benefit
5.6

 

Translation adjustment and other
1.6

 
32.4

Tax (expense)/benefit

 
2.9

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment
8.1

 
0.2

Tax expense/(benefit)
(0.7
)
 
(1.3
)
Other comprehensive income/(loss)
(12.9
)
 
30.3

Comprehensive income including noncontrolling interests
747.5

 
2,280.4

Comprehensive loss attributable to noncontrolling interests
(0.2
)
 
(0.1
)
Comprehensive income attributable to Starbucks
$
747.7

 
$
2,280.5



See Notes to Condensed Consolidated Financial Statements.


4


STARBUCKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
 
Dec 30,
2018
 
Sep 30,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,761.6

 
$
8,756.3

Short-term investments
230.2

 
181.5

Accounts receivable, net
721.4

 
693.1

Inventories
1,354.6

 
1,400.5

Prepaid expenses and other current assets
608.5

 
1,462.8

Total current assets
7,676.3

 
12,494.2

Long-term investments
265.0

 
267.7

Equity and cost investments
336.1

 
334.7

Property, plant and equipment, net
6,039.3

 
5,929.1

Deferred income taxes, net
650.0

 
134.7

Other long-term assets
472.7

 
412.2

Other intangible assets
981.6

 
1,042.2

Goodwill
3,560.3

 
3,541.6

TOTAL ASSETS
$
19,981.3

 
$
24,156.4

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,100.5

 
$
1,179.3

Accrued liabilities
2,564.0

 
2,298.4

Insurance reserves
208.8

 
213.7

Current portion of deferred revenue
1,554.2

 
1,642.9

Current portion of long-term debt

 
349.9

Total current liabilities
5,427.5

 
5,684.2

Long-term debt
9,130.7

 
9,090.2

Deferred revenue
6,823.7

 
6,775.7

Other long-term liabilities
1,478.2

 
1,430.5

Total liabilities
22,860.1

 
22,980.6

Shareholders’ equity:
 
 
 
Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,243.3 and 1,309.1 shares, respectively
1.2

 
1.3

Additional paid-in capital
41.1

 
41.1

Retained earnings/(deficit)
(2,584.0
)
 
1,457.4

Accumulated other comprehensive loss
(343.2
)
 
(330.3
)
Total shareholders’ equity
(2,884.9
)
 
1,169.5

Noncontrolling interests
6.1

 
6.3

Total equity
(2,878.8
)
 
1,175.8

TOTAL LIABILITIES AND EQUITY
$
19,981.3

 
$
24,156.4

See Notes to Condensed Consolidated Financial Statements.

5


STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
Quarter Ended
 
Dec 30,
2018
 
Dec 31,
2017
OPERATING ACTIVITIES:
 
 
 
Net earnings including noncontrolling interests
$
760.4

 
$
2,250.1

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
350.8

 
272.4

Deferred income taxes, net
(354.6
)
 
744.8

Income earned from equity method investees
(55.0
)
 
(66.2
)
Distributions received from equity method investees
63.7

 
81.3

Gain resulting from acquisition of joint venture

 
(1,326.3
)
Net gain resulting from divestiture of certain retail operations

 
(501.2
)
Stock-based compensation
97.3

 
61.4

Other
6.1

 
3.3

Cash provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
(28.8
)
 
1.3

Inventories
44.8

 
71.2

Prepaid expenses and other current assets
847.3

 
(108.6
)
Accounts payable
(21.3
)
 
28.1

Deferred revenue
362.7

 
359.6

Other operating assets and liabilities
305.6

 
(37.2
)
Net cash provided by operating activities
2,379.0

 
1,834.0

INVESTING ACTIVITIES:
 
 
 
Purchases of investments
(108.7
)
 
(35.2
)
Sales of investments
32.1

 
316.1

Maturities and calls of investments
14.2

 
21.3

Acquisitions, net of cash acquired

 
129.5

Additions to property, plant and equipment
(431.4
)
 
(429.3
)
Net proceeds from the divestiture of certain operations

 
397.1

Other
(16.6
)
 
(4.5
)
Net cash provided by investing activities
(510.4
)
 
395.0

FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of long-term debt

 
998.3

Repayments of long-term debt
(350.0
)
 

Proceeds from issuance of common stock
108.4

 
54.3

Cash dividends paid
(446.7
)
 
(428.1
)
Repurchase of common stock
(5,114.7
)
 
(1,601.0
)
Minimum tax withholdings on share-based awards
(55.3
)
 
(56.0
)
Other
(0.3
)
 
(7.2
)
Net cash used by financing activities
(5,858.6
)
 
(1,039.7
)
Effect of exchange rate changes on cash and cash equivalents
(4.7
)
 
9.8

Net increase/(decrease) in cash and cash equivalents
(3,994.7
)
 
1,199.1

CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
8,756.3

 
2,462.3

End of period
$
4,761.6

 
$
3,661.4

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of capitalized interest
$
73.0

 
$
38.3

Income taxes/(refunds)
$
(707.3
)
 
$
140.1

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
 
 
 
Payable for East China acquisition (Note 3)
$

 
$
1,431.0


See Notes to Condensed Consolidated Financial Statements.

6


STARBUCKS CORPORATION
INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



7


STARBUCKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1:
Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited condensed consolidated financial statements as of December 30, 2018, and for the quarters ended December 30, 2018 and December 31, 2017, 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 December 30, 2018 and December 31, 2017 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.”
The financial information as of September 30, 2018 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 30, 2018 (“fiscal 2018”) included in Item 8 in the Fiscal 2018 Annual Report on Form 10-K (the “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 December 30, 2018 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 29, 2019 (“fiscal 2019”).
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In the first quarter of fiscal 2019, we adopted the Financial Accounting Standards Board (“FASB”) issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The primary impact of the adoption was an increase to deferred income taxes, net of $227.6 million and a corresponding cumulative adjustment to opening retained earnings at the beginning of our first quarter of fiscal 2019.
In the first quarter of fiscal 2019, we adopted the new guidance on revenue recognition utilizing the modified retrospective method, which primarily changed the accounting method and classification of revenue recognition related to unredeemed stored value cards, referred to as stored value card breakage. Under this new guidance, expected breakage amounts must be recognized proportionately in earnings as redemptions occur. Previously, stored value card breakage was recorded to interest income and other, net utilizing the remote method. Starting in the first quarter of 2019, stored value card breakage is recorded in the revenue lines where stored value cards may be redeemed—primarily company-operated and licensed store revenues. The cumulative impact to retained earnings as of October 1, 2018 was $268.0 million.
Impact of adoption on our consolidated balance sheet at September 30, 2018:
(in millions)
As reported
Sep 30, 2018
 
Revenue Recognition Adoption Impact
 
Adjusted
Oct 1, 2018
Deferred income taxes, net
$
134.7

 
$
(11.0
)
 
$
123.7

Current liabilities:
 
 
 
 
 
Stored value card liability and current portion of deferred revenue
1,642.9

 
(422.0
)
 
1,220.9

Deferred revenue
6,775.7

 
64.0

 
6,839.7

Other long-term liabilities
1,430.5

 
79.0

 
1,509.5

Shareholders' equity:
 
 
 
 
 
Retained earnings
1,457.4

 
268.0

 
1,725.4

Due to the adoption, we began classifying stored value card liabilities as current and long-term deferred revenue.
See Note 2, Revenue Recognition, for further discussion of classification of impacts of the adoption.

8


Recent Accounting Pronouncements Not Yet Adopted
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income (“AOCI”). The guidance permits entities to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from AOCI to retained earnings. The guidance will be effective at the beginning of our first quarter of fiscal 2020 but permits adoption in an earlier period. The guidance may be applied in the period of adoption or retrospectively to each period in which the effect of the change related to the Tax Act was recognized. We do not expect a material impact upon adoption of this guidance.
In August 2017, the FASB amended its guidance on the accounting for hedging relationships. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, expands permissible cash flow hedges on contractually specified components, and simplifies hedge documentation and effectiveness assessment. The guidance will be effective at the beginning of our first quarter of fiscal 2020 and will require a modified retrospective approach on existing cash flow and net investment hedges. The presentation and disclosure requirements will be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued an alternative method that permits application of the new guidance at the beginning of the year of adoption. This is in addition to the method of applying the new guidance retrospectively to each prior reporting period presented. The guidance will be effective at the beginning of our first quarter of fiscal 2020, with optional practical expedients. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the method of adoption. We expect this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets but will likely have an insignificant impact on our consolidated statements of earnings. In preparation for the adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information.
Revision of Previously Issued Financial Statements
We have revised our condensed consolidated statement of comprehensive income and the related footnotes for the quarter ended December 31, 2017 to reflect the correction of an immaterial error primarily related to translation adjustment reclassifications. Total other comprehensive income was not changed.
Note 2:
Revenue Recognition

The following significant revenue recognition accounting policies from our most recent Annual Report on Form 10-K have been restated to reflect the adoption of the new guidance.
Consolidated revenues are presented net of intercompany eliminations for wholly-owned subsidiaries and investees controlled by us and for product sales to and royalty and other fees from licensees accounted for under the equity method. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates.
Company-operated Store Revenues
Company-operated store revenues are recognized when payment is tendered at the point of sale as the performance obligation has been satisfied. Company-operated store revenues are reported excluding sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.
Licensed Store Revenues
Licensed store revenues consist of product and equipment sales, royalties and other fees paid by licensees to use the Starbucks brand and for services such as training and design. Sales of coffee, tea, food and related products are generally recognized upon shipment to licensees, depending on contract terms. Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancy costs on our condensed consolidated statements of earnings.
Initial nonrefundable pre-opening service fees, including site selection and evaluation, store development and design and operational training, are recognized upon completion of services. Royalty revenues are recognized based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized as the performance obligations are met.

9


Stored Value Cards
Stored value cards can be activated through various channels, including at our company-operated and most licensed store locations, online at Starbucks.com or via mobile devices held by our customers, and at certain other third-party websites and locations, such as grocery stores, although they cannot be reloaded at these third-party websites or locations. Amounts loaded onto stored value cards are initially recorded as deferred revenue and recognized as revenue upon redemption. Historically, the majority of stored value cards are redeemed within one year.
In many of our company-owned markets, including the U.S., our stored value cards do not have an expiration date nor do they charge service fees that cause a decrement to customer balances. Based on historical redemption rates, a portion of stored value cards is not expected to be redeemed and will be recognized as breakage over time in proportion to stored value card redemptions. The redemption rates are based on historical redemption patterns for each market, including the timing and business channel in which the card was activated, and unclaimed property laws, if applicable.
Breakage is recognized as company-operated stores and licensed stores revenue within the condensed consolidated statement of earnings. During the quarter ended December 30, 2018 we recognized breakage revenue of $34.9 million in company-operated store revenues and $4.6 million in licensed store revenues. Prior to fiscal 2019, breakage was recorded using the remote method and recorded in interest income and other, net. Including the change in income statement presentation, there were no material impacts to the financial results of our first quarter of fiscal 2019.
Loyalty Program
Customers in the U.S., Canada, and certain other countries who register their Starbucks Card are automatically enrolled in the Starbucks RewardsTM program, primarily a spend-based loyalty program. They earn loyalty points (“Stars”) with each purchase at participating Starbucks® stores and when making purchases with the Starbucks-branded credit and debit cards. After accumulating a certain number of Stars, the customer earns a reward that can be redeemed for free product that, regardless of where the related Stars were earned within that country, will be honored at company-operated stores and certain participating licensed store locations in that same country.
We defer revenue associated with the estimated selling price of Stars earned by Starbucks Rewards members towards free product as each Star is earned and a corresponding liability is established in deferred revenue. This deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed Stars. Stars generally expire after six months.
When a customer redeems an earned reward, we recognize revenue for the redeemed product and reduce the related deferred revenue. The new guidance does not impact the timing or total revenue recognized related to the loyalty program.
Other Revenues
Other revenues primarily include royalty revenues, sales of packaged coffee, tea and a variety of ready-to-drink beverages and single-serve coffee and tea products to customers outside of our company-operated and licensed stores. Sales of these products are generally recognized upon shipment to customers, depending on contract terms.
Beginning in late fiscal 2018, other revenues also include product sales to and licensing revenue from Nestlé related to our Global Coffee Alliance. Product sales to Nestlé are generally recognized when the product is shipped whereas royalty revenues are recognized based on a percentage of reported sales.
The timing and amount of revenue recognized related to other revenues were not impacted by the adoption of new guidance.
Deferred Revenues
In the fourth quarter of fiscal 2018, we licensed the rights to sell and market our products in authorized channels to Nestlé, or the "Global Coffee Alliance," and also received an upfront prepaid royalty. The upfront payment of approximately $7 billion was recorded as deferred revenue as we have continuing performance obligations to support the Global Coffee Alliance, including providing Nestlé access to certain intellectual properties and products for future resale. The upfront payment will be recognized as other revenue on a straight-line basis over the estimated economic life of the arrangement of 40 years. At December 30, 2018, the current and long-term deferred revenue related to the Nestlé upfront payment was $174.0 million and $6.7 billion, respectively.
Additionally, deferred revenues include our unredeemed stored value card liability and unredeemed Stars associated with our loyalty program. The opening balance of current and long-term deferred revenue related to our stored value card and loyalty program was $906.6 million and $64.0 million, respectively for the quarter ended December 30, 2018. The balance of current and long-term deferred revenue related to our stored value card and loyalty program was $1.3 billion and $91.7 million, respectively, as of the quarter ended December 30, 2018.

10


Disaggregation of Revenues
Revenues disaggregated by segment, product type and geographic area are disclosed in Note 15, Segment Reporting.
Note 3:
Acquisitions, Divestitures and Strategic Alliance
Fiscal 2018
We entered into an agreement on May 6, 2018 to establish the Global Coffee Alliance with Nestlé. On August 26, 2018, Nestlé licensed the rights to market, sell and distribute Starbucks consumer packaged goods and foodservice products in authorized channels. We received an upfront payment of approximately $7 billion primarily of prepaid royalties which was recorded as a liability to current and long-term deferred revenue. See Note 2, Revenue Recognition, for the accounting treatment.
On March 23, 2018, we sold our company-operated retail store assets and operations in Brazil to SouthRock converting these operations to a fully licensed market, for a total of $48.2 million. This transaction resulted in an insignificant pre-tax loss. This pre-tax loss was included in net gain resulting from divestiture of certain operations on our condensed consolidated statements of earnings.
On December 31, 2017, we acquired the remaining 50% interest of our East China joint venture (“East China”) from President Chain Store (Hong Kong) Holding Ltd. and Kai Yu (BVI) collectively, “Uni-President Group” or “UPG”, for approximately $1.4 billion and resulted in a total gain of $1.4 billion that is not subject to income tax, and was presented as gain resulting from acquisition of joint venture on our condensed consolidated statements of earnings in fiscal 2018.
Concurrently, with the purchase of our East China joint venture, we sold our 50% interest in President Starbucks Coffee Taiwan Limited, our joint venture operations in Taiwan, to UPG for approximately $181.2 million. The transaction resulted in a pre-tax gain of $156.6 million which was included in net gain resulting from divestiture of certain operations on our condensed consolidated statements of earnings.
The following table summarizes the final allocation of the total consideration to the fair values of the assets acquired and liabilities assumed as of December 31, 2017, which are reported within our China/Asia Pacific segment (in millions):
Consideration:
 
 
Cash paid for UPG 50% equity interest
 
$
1,440.8

Fair value of our pre-existing 50% equity interest
 
1,440.8

Settlement of pre-existing liabilities
 
90.5

Total consideration
 
$
2,972.1

 
 
 
Fair value of assets acquired and liabilities assumed:
 
 
Cash and cash equivalents
 
$
129.5

Accounts receivable
 
14.3

Inventories
 
16.1

Prepaid expenses and other current assets
 
20.6

Property, plant and equipment
 
254.1

Other long-term assets
 
44.6

Other intangible assets
 
818.0

Goodwill
 
2,164.1

Total assets acquired
 
3,461.3

Accounts payable
 
34.7

Accrued liabilities
 
187.7

Stored value card liability
 
21.7

Other long-term liabilities
 
245.1

Total liabilities assumed
 
489.2

Total consideration
 
$
2,972.1


Due to foreign currency translation, the balance of goodwill related to the acquisition decreased $117.7 million since the date of acquisition to $2.0 billion as of December 30, 2018. Accumulated amortization related to the acquired intangible assets was $163.6 million as of December 30, 2018.

11


We began consolidating East China's results of operations and cash flows into our condensed consolidated financial statements after December 31, 2017. For the quarter ended December 30, 2018, East China's revenue and net earnings included in our condensed consolidated statements of earnings was $299.3 million and $25.2 million, respectively.
The following table provides the supplemental pro forma revenue and net earnings of the combined entity had the acquisition date of East China been October 3, 2016, the first day of our first quarter of fiscal 2017, rather than the end of our first quarter of fiscal 2018 (in millions):
 
Pro Forma (unaudited)
 
Quarter Ended
 
Dec 31, 2017
Revenue
$
6,344.7

Net earnings attributable to Starbucks
1,122.8

The amounts in the supplemental pro forma earnings for the period presented above fully eliminate intercompany transactions, apply our accounting policies and reflect adjustments for additional occupancy costs as well as depreciation and amortization that would have been charged assuming the same fair value adjustments to leases, property, plant and equipment and acquired intangibles had been applied on October 3, 2016. These pro forma results are unaudited and are not necessarily indicative of results of operations that would have occurred had the acquisition actually closed in the prior year period or indicative of the results of operations for any future period.
On December 11, 2017, we sold the assets associated with our Tazo brand including Tazo® signature recipes, intellectual property and inventory to Unilever for a total of $383.8 million. The transaction resulted in a pre-tax gain of $347.9 million, which was included in the net gain from divestiture of certain operations on our consolidated statements of earnings. Results from Tazo operations prior to the sale are reported primarily in Channel Development.
Note 4:
Derivative Financial Instruments
Interest Rates
We are subject to interest rate volatility relating to our debt issuances. From time to time, we enter into swap agreements to manage our exposure to interest rate fluctuations.
To hedge the variability in cash flows due to changes in benchmark interest rates, we enter into interest rate swap agreements related to anticipated debt issuances. These agreements are cash settled at the time of the pricing of the related debt. The effective portion of the derivative'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 are recorded in interest expense and have an insignificant impact on our condensed consolidated statements of earnings. Refer to Note 9, 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 effective portion of the derivative's gain or loss is recorded in AOCI and is subsequently reclassified to revenue, cost of sales including occupancy costs, or interest income and other, net, respectively, when the hedged exposure affects net earnings.  
From time to time, we enter into forward contracts or use foreign currency-denominated debt to hedge the currency exposure of our net investment in certain international operations. The effective portion of these instruments' gain or loss is recorded in AOCI and is 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; these gains and losses are recorded in interest income and other, net.

12


Commodities
Depending on market conditions, we may enter into coffee futures contracts and collars (the combination of a purchased call option and a sold put option) to hedge a portion of anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 6, Inventories. The effective portion of each derivative's gain or loss is recorded in AOCI and is subsequently reclassified to cost of sales including occupancy costs when the hedged exposure affects net earnings.
To mitigate the price uncertainty of a portion of our future purchases, primarily of dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. Gains and losses from these derivatives 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 cost of sales including occupancy 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)
 
Dec 30,
2018
 
Sep 30,
2018
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rates
$
11.9

 
$
24.7

 
$
4.3

 
122
Cross-currency swaps
(9.6
)
 
(12.6
)
 

 
71
Foreign currency - other
15.3

 
5.8

 
9.6

 
36
Coffee
(0.1
)
 
(0.2
)
 
(0.1
)
 
1
Net Investment Hedges:
 
 
 
 
 
 
 
Foreign currency
16.0

 
16.0

 

 
0
Foreign currency debt
(12.7
)
 
3.6

 

 
63
Pretax gains and losses on derivative contracts and foreign-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
 
Dec 30,
2018
 
Dec 31,
2017
 
Dec 30,
2018
 
Dec 31,
2017
Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rates
$
(15.7
)
 
$

 
$
1.4

 
$
1.2

Cross-currency swaps
(8.0
)
 
(2.4
)
 
(11.7
)
 
(0.5
)
Foreign currency - other
14.6

 
0.1

 
1.9

 
(1.4
)
Coffee

 

 
(0.2
)
 
(4.7
)
Net Investment Hedges:
 
 
 
 
 
 
 
Foreign currency

 
(0.1
)
 

 

Foreign currency debt
(21.9
)
 
(0.2
)
 

 


13


Pretax gains and losses on non-designated derivatives and designated fair value hedging instruments recognized in earnings (in millions):
 
Gains/(Losses) Recognized in Earnings
 
Quarter Ended
 
Dec 30, 2018
 
Dec 31, 2017
Non-Designated Derivatives:
 
 
 
Foreign currency - other
$
(7.9
)
 
$
3.7

Dairy
(2.1
)
 
(2.1
)
Diesel fuel and other commodities
(6.6
)
 
1.4

Designated Fair Value Hedging Instruments:
 
 
 
Interest rate swap
16.9

 
(7.5
)
Notional amounts of outstanding derivative contracts (in millions):
 
Dec 30, 2018
 
Sep 30, 2018
Interest rate swap
$
1,250

 
$
750

Cross-currency swaps
427

 
434

Foreign currency - other
1,067

 
914

Dairy
11

 
16

Diesel fuel and other commodities
45

 
21

Fair value of outstanding derivative contracts (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
Dec 30, 2018
 
Sep 30, 2018
 
Dec 30, 2018
 
Sep 30, 2018
Designated Derivative Instruments:
 
 
 
 
 
 
 
Interest rates
$

 
$

 
$
15.7

 
$

Cross-currency swaps

 
5.8

 
11.5

 
9.3

Foreign currency - other
23.4

 
13.6

 
2.3

 
5.3

Interest rate swap

 

 
22.9

 
32.5

Non-designated Derivative Instruments:
 
 
 
 
 
 
 
Foreign currency
11.2

 
13.7

 
12.2

 
2.5

Dairy

 
0.2

 
1.0

 
0.1

Diesel fuel and other commodities

 
1.6

 
5.6

 
0.3

Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 10, Equity.

14


Note 5:
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
December 30, 2018
 
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
$
4,761.6

 
$
4,761.6

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Commercial paper
10.5

 

 
10.5

 

Corporate debt securities
119.0

 

 
119.0

 

Foreign government obligations
3.6

 

 
3.6

 

U.S. government treasury securities
25.0

 
25.0

 

 

Mortgage and other asset-backed securities
12.6

 

 
12.6

 

Certificates of deposit
3.0

 

 
3.0

 

Total available-for-sale securities
173.7

 
25.0

 
148.7

 

Trading securities
56.5

 
56.5

 

 

Total short-term investments
230.2

 
81.5

 
148.7

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
25.1

 

 
25.1

 

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
6.0

 

 
6.0

 

Corporate debt securities
121.7

 

 
121.7

 

Auction rate securities
5.7

 

 

 
5.7

U.S. government treasury securities
114.6

 
114.6

 

 

State and local government obligations
4.8

 

 
4.8

 

Mortgage and other asset-backed securities
12.2

 

 
12.2

 

Total long-term investments
265.0

 
114.6

 
144.7

 
5.7

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
9.5

 

 
9.5

 

Total assets
$
5,291.4

 
$
4,957.7

 
$
328.0

 
$
5.7

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
19.4

 
$
2.1

 
$
17.3

 
$

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
51.8

 

 
51.8

 

Total liabilities
$
71.2

 
$
2.1

 
$
69.1

 
$



15


 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance at September 30, 2018
 
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
$
8,756.3

 
$
8,756.3

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Commercial paper
8.4

 

 
8.4

 

Corporate debt securities
91.8

 

 
91.8

 

Mortgage and other asset-backed securities
6.0

 

 
6.0

 

Total available-for-sale securities
106.2

 

 
106.2

 

Trading securities
75.3

 
75.3

 

 

Total short-term investments
181.5

 
75.3

 
106.2

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
24.5

 
1.2

 
23.3

 

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
5.9

 

 
5.9

 

Corporate debt securities
114.5

 

 
114.5

 

Auction rate securities
5.9

 

 

 
5.9

Foreign government obligations
3.6

 

 
3.6

 

U.S. government treasury securities
108.1

 
108.1

 

 

State and local government obligations
4.8

 

 
4.8

 

Mortgage and other asset-backed securities
24.9

 

 
24.9

 

Total long-term investments
267.7

 
108.1

 
153.7

 
5.9

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
10.4

 

 
10.4

 

Total assets
$
9,240.4

 
$
8,940.9

 
$
293.6

 
$
5.9

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
6.5

 
$
0.4

 
$
6.1

 
$

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
43.5

 

 
43.5

 

Total liabilities
$
50.0

 
$
0.4

 
$
49.6

 
$

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 investments were not material as of December 30, 2018 and September 30, 2018.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, goodwill and other intangible assets, equity and cost method investments 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 9, Debt. There were no material fair value adjustments during the quarters ended December 30, 2018 and December 31, 2017.

16


Note 6:
Inventories (in millions)
 
Dec 30, 2018
 
Sep 30, 2018
 
Dec 31, 2017
Coffee:
 
 
 
 
 
Unroasted
$
591.3

 
$
588.6

 
$
559.9

Roasted
259.8

 
281.2

 
283.9

Other merchandise held for sale
267.5

 
273.1

 
260.6

Packaging and other supplies
236.0

 
257.6

 
208.8

Total
$
1,354.6

 
$
1,400.5

 
$
1,313.2

Other merchandise held for sale includes, among other items, serveware and tea. Inventory levels vary due to seasonality, commodity market supply and price fluctuations.
As of December 30, 2018, we had committed to purchasing green coffee totaling $898 million under fixed-price contracts and an estimated $210 million under price-to-be-fixed contracts. As of December 30, 2018, none of our price-to-be-fixed contracts were effectively fixed through the use of futures contracts. 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 relationships established with our suppliers in the past, the risk of non-delivery on these purchase commitments is remote.
Note 7:
Supplemental Balance Sheet Information (in millions)

Prepaid Expenses and Other Current Assets
 
Dec 30, 2018
 
Sep 30, 2018
Income tax receivable
$
121.8

 
$
955.4

Other prepaid expenses and current assets
486.7

 
507.4

Total prepaid expenses and current assets
$
608.5

 
$
1,462.8


Property, Plant and Equipment, net
 
Dec 30, 2018
 
Sep 30, 2018
Land
$
46.8

 
$
46.8

Buildings
568.0

 
557.3

Leasehold improvements
7,565.7

 
7,372.8

Store equipment
2,457.6

 
2,400.2

Roasting equipment
681.1

 
658.8

Furniture, fixtures and other
1,684.2

 
1,659.3

Work in progress
465.5

 
501.9

Property, plant and equipment, gross
13,468.9

 
13,197.1

Accumulated depreciation
(7,429.6
)
 
(7,268.0
)
Property, plant and equipment, net
$
6,039.3

 
$
5,929.1



17


Accrued Liabilities
 
Dec 30, 2018
 
Sep 30, 2018
Accrued compensation and related costs
$
558.7

 
$
656.8

Accrued occupancy costs
181.9

 
164.2

Accrued taxes
773.7

 
286.6

Accrued dividends payable
447.6

 
445.4

Accrued capital and other operating expenditures
602.1

 
745.4

Total accrued liabilities
$
2,564.0

 
$
2,298.4


Note 8: Other Intangible Assets and Goodwill

Indefinite-lived intangible assets
(in millions)
Dec 30, 2018
 
Sep 30, 2018
Trade names, trademarks and patents
$
207.3

 
$
215.9

Other indefinite-lived intangible assets
15.1

 
15.1

Total indefinite-lived intangible assets
$
222.4

 
$
231.0


Finite-lived intangible assets
 
Dec 30, 2018
 
Sep 30, 2018
(in millions)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Acquired and reacquired rights
$
1,089.0

 
$
(377.0
)
 
$
712.0

 
$
1,081.7

 
$
(320.1
)
 
$
761.6

Acquired trade secrets and processes
27.6

 
(17.2
)
 
10.4

 
27.6

 
(16.5
)
 
11.1

Trade names, trademarks and patents
33.2

 
(20.1
)
 
13.1

 
33.0

 
(19.5
)
 
13.5

Licensing agreements
14.7

 
(5.6
)
 
9.1

 
14.3

 
(5.1
)
 
9.2

Other finite-lived intangible assets
25.7

 
(11.1
)
 
14.6

 
25.6

 
(9.8
)
 
15.8

Total finite-lived intangible assets
$
1,190.2

 
$
(431.0
)
 
$
759.2

 
$
1,182.2

 
$
(371.0
)
 
$
811.2

Amortization expense for finite-lived intangible assets was $54.5 million for the quarter ended December 30, 2018 and $14.0 million for the quarter ended December 31, 2017.
Estimated future amortization expense as of December 30, 2018 (in millions):
Fiscal Year Ending
 
2019 (excluding the three months ended December 30, 2018)
$
164.4

2020
219.1

2021
195.8

2022
168.4

2023
5.2

Thereafter
6.3

Total estimated future amortization expense
$
759.2

Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 3, Acquisitions, Divestitures and Strategic Alliance.

18


Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
 
Americas
 
China/Asia Pacific
 
EMEA
 
Channel
Development
 
Corporate and Other
 
Total
Goodwill balance at September 30, 2018
$
497.4

 
$
2,986.6

 
$
11.3

 
$
34.7

 
$
11.6

 
$
3,541.6

Other
(1.4
)
 
20.2

 

 

 
(0.1
)
 
18.7

Goodwill balance at December 30, 2018
$
496.0

 
$
3,006.8

 
$
11.3

 
$
34.7

 
$
11.5

 
$
3,560.3

“Other” primarily consists of changes in the goodwill balance resulting from foreign currency translation.
Note 9:
Debt
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 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 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 December 30, 2018, we had no borrowings outstanding under the program.

19


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):
 
Dec 30, 2018
 
Sep 30, 2018
 
Stated Interest Rate
Effective Interest Rate (1)
Issuance
Amount
Estimated Fair Value
 
Amount
Estimated Fair Value
 
2018 notes
$

$

 
$
350.0

$
350

 
2.000
%
2.012
%
2020 notes
500.0

492

 
500.0

490

 
2.200
%
2.228
%
2021 notes
500.0

487

 
500.0

489

 
2.100
%
2.293
%
2021 notes
250.0

244

 
250.0

244

 
2.100
%
1.600
%
2022 notes
500.0

488

 
500.0

486

 
2.700
%
2.819
%
2023 notes (2)
750.0

758

 
750.0

759

 
3.850
%
2.859
%
2023 notes
1,000.0

982

 
1,000.0

986

 
3.100
%
3.107
%
2024 notes (3)
770.3

769

 
748.4

743

 
0.372
%
0.462
%
2025 notes
1,250.0

1,241

 
1,250.0

1,249

 
3.800
%
3.721
%
2026 notes
500.0

449

 
500.0

451

 
2.450
%
2.511
%
2028 notes
600.0

571

 
600.0

576

 
3.500
%
3.529
%
2028 notes
750.0

740

 
750.0

754

 
4.000
%
3.958
%
2045 notes
350.0

317

 
350.0

330

 
4.300
%
4.348
%
2047 notes
500.0

417

 
500.0

438

 
3.750
%
3.765
%
2048 notes
1,000.0

937

 
1,000.0

977

 
4.500
%
4.504
%
Total
9,220.3

8,892

 
9,548.4

9,322

 
 
 
Aggregate debt issuance costs and unamortized premium/(discount), net
(67.5
)
 
 
(69.3
)
 
 
 
 
Hedge accounting fair value adjustment (2)
(22.1
)
 
 
(39.0
)
 
 
 
 
Total
$
9,130.7

 
 
$
9,440.1

 
 
 
 
(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 the interest rate risk prior to the debt issuance.
(2) 
Amount represents the change in fair value due to changes in benchmark interest rates related to our 2023 notes. Refer to Note 4, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
(3) 
Japanese yen-denominated long-term debt.
The indentures under which the above notes were issued require us to maintain compliance with certain covenants, including limits on future liens and sale and leaseback transactions on certain material properties. As of December 30, 2018, we were in compliance with all applicable covenants.
The following table summarizes our long-term debt maturities as of December 30, 2018 by fiscal year (in millions):
Fiscal Year
Total
2020
$

2021
1,250.0

2022
500.0

2023
1,000.0

2024
1,520.3

Thereafter
4,950.0

Total
$
9,220.3


20


Note 10:
Equity
Changes in total equity (in millions):
 
Quarter Ended
 
Dec 30, 2018
 
Dec 31, 2017
 
Attributable to Starbucks
 
Noncontrolling interests
 
Total Equity
 
Attributable to Starbucks
 
Noncontrolling interest
 
Total Equity
Beginning balance of total equity
$
1,169.5

 
$
6.3

 
$
1,175.8

 
$
5,450.1

 
$
6.9

 
$
5,457.0

Cumulative effect of adoption of new accounting guidance
495.6

 

 
495.6

 

 

 

Net earnings including noncontrolling interests
760.6

 
(0.2
)
 
760.4

 
2,250.2

 
(0.1
)
 
2,250.1

Translation adjustment and other, net of reclassifications and tax
1.6

 

 
1.6

 
28.1

 

 
28.1

Unrealized gains/(losses), net of reclassifications and tax
(14.5
)
 

 
(14.5
)
 
2.2

 

 
2.2

Other comprehensive income/(loss)
(12.9
)
 

 
(12.9
)
 
30.3

 

 
30.3

Stock-based compensation expense
98.0

 

 
98.0

 
62.2

 

 
62.2

Exercise of stock options/vesting of RSUs
45.0

 

 
45.0

 
(9.1
)
 

 
(9.1
)
Sale of common stock
8.1

 

 
8.1

 
7.4

 

 
7.4

Repurchase of common stock
(5,000.0
)
 

 
(5,000.0
)
 
(1,618.2
)
 

 
(1,618.2
)
Cash dividends declared
(448.8
)
 

 
(448.8
)
 
(420.8
)
 

 
(420.8
)
Ending balance of total equity
$
(2,884.9
)
 
$
6.1

 
$
(2,878.8
)
 
$
5,752.1

 
$
6.8

 
$
5,758.9

Changes in AOCI by component, net of tax (in millions):
Quarter Ended
 
 Available-for-Sale Securities
 
 Cash Flow Hedges
 
 Net Investment Hedges
 
Translation Adjustment and Other
 
Total
December 30, 2018
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
(4.9
)
 
$
17.7

 
$
19.6

 
$
(362.7
)
 
$
(330.3
)
Net gains/(losses) recognized in OCI before reclassifications
1.7

 
(7.3
)
 
(16.3
)
 
1.6

 
(20.3
)
Net (gains)/losses reclassified from AOCI to earnings
0.3

 
7.1

 

 

 
7.4

Other comprehensive income/(loss) attributable to Starbucks
2.0

 
(0.2
)
 
(16.3
)
 
1.6

 
(12.9
)
Net gains/(losses) in AOCI, end of period
$
(2.9
)
 
$
17.5

 
$
3.3

 
$
(361.1
)
 
$
(343.2
)
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
(2.5
)
 
$
(4.1
)
 
$
14.0

 
$
(163.0
)
 
$
(155.6
)
Net gains/(losses) recognized in OCI before reclassifications
(1.7
)
 
(1.9
)
 
(0.3
)
 
35.3

 
31.4

Net (gains)/losses reclassified from AOCI to earnings
1.2

 
4.9

 

 
(7.2
)
 
(1.1
)
Other comprehensive income/(loss) attributable to Starbucks
(0.5
)
 
3.0

 
(0.3
)
 
28.1

 
30.3

Net gains/(losses) in AOCI, end of period
$
(3.0
)
 
$
(1.1
)
 
$
13.7

 
$
(134.9
)
 
$
(125.3
)


21


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
 
Dec 30, 2018
 
Dec 31, 2017
 
Gains/(losses) on available-for-sale securities
 
$
0.5

 
$
(1.6
)
 
Interest income and other, net
Gains/(losses) on cash flow hedges
 
 
 
 
 
 
Interest rate hedges
 
1.4

 
1.2

 
Interest expense
Cross-currency swaps
 
(11.7
)
 
(0.5
)
 
Interest income and other, net
Foreign currency hedges
 
1.4

 
(0.4
)
 
Revenues
Foreign currency/coffee hedges
 
0.3

 
(5.7
)
 
Cost of sales including occupancy costs
Translation adjustment
 
 
 
 
 
 
East China joint venture
 

 
7.2

 
Gain resulting from acquisition of joint venture
Taiwan joint venture
 

 
1.4

 
Gain/(loss) resulting from divestiture of certain operations
Other
 

 
(1.8
)
 
Interest income and other, net
 
 
(8.1
)
 
(0.2
)
 
Total before tax
 
 
0.7

 
1.3

 
Tax (expense)/benefit
 
 
$
(7.4
)
 
$
1.1

 
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 December 30, 2018.
In September 2018, we entered into accelerated share repurchase agreements (“ASR agreements”) with third-party financial institutions totaling $5.0 billion, effective October 1, 2018. We made a $5.0 billion upfront payment to the financial institutions and received an initial delivery of 72.0 million shares of our common stock. Upon completion, the total shares repurchased will be based on the volume-weighted average share price during the term of the ASR agreements less an applicable discount. The financial institutions may be required to deliver additional shares or, under certain circumstances, we may elect to deliver shares or make a cash payment to the financial institutions. Final settlement is expected to be completed as early as February 2019 and no later than March 2019. During the quarter ended December 31, 2017, we repurchased 28.5 million shares at a total cost of $1.6 billion. In the first quarter of fiscal 2019, we announced that our Board of Directors approved an increase of 120 million shares to our ongoing share repurchase program. As of December 30, 2018, 96.8 million shares remained available for repurchase under current authorizations.
During the first quarter of fiscal 2019, our Board of Directors declared a quarterly cash dividend to shareholders of $0.36 per share to be paid on February 22, 2019 to shareholders of record as of the close of business on February 7, 2019.
Note 11:
Employee Stock Plans
As of December 30, 2018, there were 49.7 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 12.7 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
 
Dec 30, 2018
 
Dec 31, 2017
Options
$
8.3

 
$
14.2

Restricted Stock Units (“RSUs”)
88.9

 
47.2

Total stock-based compensation expense
$
97.2

 
$
61.4


22


Stock option and RSU transactions from September 30, 2018 through December 30, 2018 (in millions):
 
 
Stock Options
 
RSUs
Options outstanding/Nonvested RSUs, September 30, 2018
27.3

 
11.2

Granted
0.5

 
4.3

Options exercised/RSUs vested
(4.2
)
 
(2.6
)
Forfeited/expired
(0.4
)
 
(0.8
)
Options outstanding/Nonvested RSUs, December 30, 2018
23.2

 
12.1

Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 30, 2018
$
15.7

 
$
359.5

Note 12:
Income Taxes
Our interim tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. We recognize the effects of tax legislation in the period in which the law is enacted. Our deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse.
On December 22, 2017, the President of the United States signed and enacted comprehensive tax legislation into law H.R. 1, commonly referred to as the Tax Act. Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. The tax rate for fiscal 2019 and future years was reduced to 21% from our blended 24.5% in fiscal 2018. In the first quarter of fiscal 2019 the measurement period related to the Tax Act concluded, which resulted in immaterial adjustments to our provisional estimates.
The Company has revised its indefinite reinvestment assertions for prior years' earnings from certain foreign subsidiaries. This change did not have a material impact to our financial results. In foreign subsidiaries in which we are partially indefinitely reinvested, the gross taxable temporary difference between its accounting basis and tax basis is approximately $1.3 billion as of the first quarter of fiscal 2019, for which there could be up to approximately $300 million of unrecognized tax liability.
While the Tax Act provides for a modified territorial tax system, global intangible low-taxed income (“GILTI”) provisions are applied providing an incremental tax on foreign income. We have made an accounting policy election to treat taxes due under the GILTI provision as a current period expense.
Note 13:
Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
 
Quarter Ended
 
Dec 30, 2018
 
Dec 31, 2017
Net earnings attributable to Starbucks
$
760.6

 
$
2,250.2

Weighted average common shares outstanding (for basic calculation)
1,242.0

 
1,421.0

Dilutive effect of outstanding common stock options and RSUs
11.4

 
13.6

Weighted average common and common equivalent shares outstanding (for diluted calculation)
1,253.4

 
1,434.6

EPS — basic
$
0.61

 
$
1.58

EPS — diluted
$
0.61

 
$
1.57

Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and nonvested) and unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. Out-of-the-money stock options totaled approximately 0.2 million and 5.0 million as of December 30, 2018 and December 31, 2017, respectively.
Note 14:
Commitments and Contingencies
Legal Proceedings
On April 13, 2010, an organization named Council for Education and Research on Toxics (“Plaintiff”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and certain other defendants who

23


manufacture, package, distribute or sell brewed coffee. The lawsuit is Council for Education and Research on Toxics v. Starbucks Corporation, et al.. On May 9, 2011, the Plaintiff filed an additional lawsuit in the Superior Court of the State of California, County of Los Angeles, against the Company and additional defendants who manufacture, package, distribute or sell packaged coffee. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al.. Both cases have since been consolidated and now include nearly eighty defendants, which constitute the great majority of the coffee industry in California. Plaintiff alleges 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 seeks 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 violation of Proposition 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
The Company, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee, but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. The Company has asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018 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. Defendants anticipate that the proposed regulation will be final during the first half of calendar 2019. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the defendants request for a stay of the Phase 3 trial.
At this stage of the proceedings, Starbucks believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is reasonably possible rather than probable. Accordingly, no loss contingency was recorded for this matter. The outcome and the financial impact of the case to Starbucks, if any, cannot be predicted.
Starbucks is party to 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 ceo, 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
Dec 30, 2018
 
Dec 31, 2017(1)
Beverage
$
3,926.0

 
59
%
 
$
3,418.0

 
56
%
Food
1,188.9

 
18
%
 
1,043.7

 
17
%
Other(2)
1,517.8

 
23