Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jun. 27, 2021

Accounting Policies [Abstract]

Recent Accounting Pronouncements (Policies)

Summary of Significant Accounting Policies

Financial Statement Preparation

The unaudited consolidated financial statements as of June 27, 2021, and for the quarter and three quarters ended June 27, 2021 and June 28, 2020, 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 quarter and three quarters ended June 27, 2021 and June 28, 2020 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 27, 2020 is derived from our audited consolidated financial statements and notes for the fiscal year ended September 27, 2020 (“fiscal 2020”) included in Item 8 in the Fiscal 2020 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 and three quarters ended June 27, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 3, 2021 (“fiscal 2021”). Additionally, our 2021 fiscal year will include 53 weeks, with the 53rd week falling in the fourth fiscal quarter.

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 our businesses demonstrated powerful momentum beyond recovery from the COVID-19 pandemic, despite certain markets in our International segment continuing to experience pandemic-related restrictions during the quarter. As of the end of the third quarter of fiscal 2021, nearly all our company-operated and licensed stores had re-opened.

Segment Update

Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Effective June 28, 2021, certain changes were made to our management team, and our operating segment reporting structure was re-aligned in the fourth quarter of fiscal 2021 as a result. Specifically, we realigned our fully licensed Latin America and Caribbean markets from our Americas operating segment to our International operating segment. Additionally, we renamed the Americas operating segment to the North America operating segment, since it is comprised of our company-operated and licensed stores in the U.S. and Canada. The financial information presented herein does not reflect this realignment as these changes were not effective until the fourth quarter of fiscal 2021 and our ceo, who is our Chief Operating Decision Maker, continued to manage the business under the existing segment structure through the end of the third quarter of fiscal 2021.

Government Subsidies

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments in the future. Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy to help employers offset a portion of their employee wages for a limited period. We elected to treat qualified government subsidies from the U.S., Canada and other governments as offsets to the related operating expenses. During the quarter and three quarters ended June 27, 2021, qualified payroll and other credits reduced our store operating expenses by $56.4 million and $173.7 million, respectively, on our consolidated statements of earnings. During the quarter and three quarters ended June 28, 2020, the qualified payroll credits reduced our store operating expenses by $266.0 million and $301.0 million on our consolidated statements of earnings, respectively. After netting the qualified credits against our payable, a receivable of $161.7 million and $155.1 million was included in prepaid expenses and other current assets as of June 27, 2021 and September 27, 2020, respectively. During the three quarters ended June 27, 2021, we deferred $81.7 million of qualified payroll tax payments. During the quarter ended June 27, 2021, there were no similar deferrals. As of June 27, 2021, deferred payroll tax payments of $116.4 million were included in both accrued liabilities and other long-term liabilities, respectively, on our consolidated balance sheets. As of September 27, 2020, deferred payroll tax payments of $151.0 million were included in other long-term liabilities on our consolidated balance sheets.

Restructuring

In fiscal 2020, we announced a plan to optimize our North America store portfolio, primarily in dense metropolitan markets by developing new store formats to better cater to changing customer tastes and preferences. As of June 27, 2021, we expect the total number of closures to be approximately 820 stores in the U.S. and Canada and have closed or identified for closure approximately 790 stores under our restructuring plan. As a result, we recorded approximately $19.8 million and $115.0 million to restructuring and impairments on our consolidated statements of earnings during the quarter and three quarters ended June 27, 2021, respectively. Of these totals, $7.8 million and $59.0 million related to the impairment of store assets for which either a triggering event occurred and the assets were determined not to be recoverable or the store was permanently closed, respectively. During the quarter and three quarters ended June 27, 2021, an additional $12.2 million and $56.2 million, respectively, were associated with accelerated amortization of right-of-use (“ROU”) lease assets and other lease costs due to planned store closures prior to the end of contractual lease terms. For impaired store asset groups, we estimated the fair values using an income approach incorporating internal projections of revenue growth and operating expenses that are considered Level 3 fair value measurements, as well as applicable discount rates and market lease rates. The application of these projections and fair value measurements did not have a significant impact on our final impairment charges given that we plan to fully exit the majority of these identified stores over the next 6 to 12 months.

As of June 27, 2021, we expect total future restructuring costs, which are attributable to our Americas segment, to be approximately $20 million to $30 million. These restructuring costs primarily include accelerated amortization of ROU assets due to planned store closures prior to the end of contractual lease terms. The remaining balance includes store impairment and disposal costs not previously recorded as part of our ongoing store impairment process as well as employee termination costs. As we have previously recorded impairment charges for stores that may be identified for closure under our plans, and because store closure decisions are still subject to change, the final costs associated with these store closures may vary from these estimates. These costs will depend on the asset carrying value and remaining lease term of the specific stores identified. Future restructuring costs are expected to be incurred primarily during 2021 as stores are identified for closure or, in the case of lease exit costs, either when a store ceases operations or when a reduced lease term is reasonably certain due to expected, early lease termination.

Restructuring-related accrued employee termination costs included in accrued payroll and benefits on the consolidated balance sheets were $1.8 million and $15.2 million as of June 27, 2021 and September 27, 2020, respectively. Additionally, other accrued restructuring costs included in accrued liabilities on the consolidated balance sheets were $8.7 million as of June 27, 2021. There were no other accrued restructuring costs outstanding as of September 27, 2020. Cash payments relating to these liabilities were immaterial for the quarter and three quarters ended June 27, 2021.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance replacing the incurred loss impairment methodology with a new methodology that reflects current expected credit losses on financial assets, including receivables and available-for-sale securities. The new methodology requires entities to estimate and recognize expected credit losses each reporting period. The guidance was adopted during the first quarter of fiscal 2021 under the modified retrospective approach and resulted in a $2.2 million transition adjustment to opening shareholders' retained deficit on our consolidated statements of equity.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the 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, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates but do not expect a significant impact to our consolidated financial statements.