Document
Table of Contents

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 April 1, 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)
sbuxlogo04012018a08.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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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
¨ (Do not check if a smaller reporting company)
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 April 25, 2018
Common Stock, par value $0.001 per share
1,380.0 million

Table of Contents

STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended April 1, 2018
Table of Contents
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
Item 1
 
 
 
 
 
 
Item 2
Item 3
Item 4
 
PART II. OTHER INFORMATION
 
 
 
Item 1
Item 1A
Item 2
Item 6

 

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
 
Two Quarters Ended
 
Apr 1,
2018
 
Apr 2,
2017
 
Apr 1,
2018
 
Apr 2,
2017
Net revenues:
 
 
 
 
 
 
 
Company-operated stores
$
4,828.0

 
$
4,195.4

 
$
9,569.8

 
$
8,664.7

Licensed stores
625.6

 
546.7

 
1,308.0

 
1,149.1

CPG, foodservice and other
578.2

 
551.9

 
1,227.7

 
1,213.2

Total net revenues
6,031.8

 
5,294.0

 
12,105.5

 
11,027.0

Cost of sales including occupancy costs
2,516.0

 
2,141.2

 
5,018.9

 
4,436.2

Store operating expenses
1,789.6

 
1,586.4

 
3,526.5

 
3,224.6

Other operating expenses
134.3

 
134.7

 
276.0

 
280.1

Depreciation and amortization expenses
331.6

 
253.6

 
590.4

 
503.3

General and administrative expenses
405.8

 
326.8

 
784.9

 
683.1

Restructuring and impairments
134.7

 
—

 
162.3

 
—

Total operating expenses
5,312.0

 
4,442.7

 
10,359.0

 
9,127.3

Income from equity investees
52.7

 
84.1

 
142.1

 
168.6

Operating income
772.5

 
935.4

 
1,888.6

 
2,068.3

Gain resulting from acquisition of joint venture
47.6

 
—

 
1,373.9

 
—

Gains/(loss) resulting from divestiture of certain operations
(4.9
)
 
9.6

 
496.3

 
9.6

Interest income and other, net
35.5

 
58.3

 
123.7

 
82.4

Interest expense
(35.1
)
 
(22.9
)
 
(61.0
)
 
(46.7
)
Earnings before income taxes
815.6

 
980.4

 
3,821.5

 
2,113.6

Income tax expense
155.8

 
327.6

 
911.6

 
709.0

Net earnings including noncontrolling interests
659.8

 
652.8

 
2,909.9

 
1,404.6

Net loss attributable to noncontrolling interests
(0.3
)
 
—

 
(0.4
)
 
(0.3
)
Net earnings attributable to Starbucks
$
660.1

 
$
652.8

 
$
2,910.3

 
$
1,404.9

Earnings per share - basic
$
0.47

 
$
0.45

 
$
2.07

 
$
0.97

Earnings per share - diluted
$
0.47

 
$
0.45

 
$
2.05

 
$
0.96

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
1,394.9

 
1,453.2

 
1,407.9

 
1,455.3

Diluted
1,406.6

 
1,464.8

 
1,420.5

 
1,467.7

Cash dividends declared per share
$
0.30

 
$
0.25

 
$
0.60

 
$
0.50

See Notes to Condensed Consolidated Financial Statements.

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

 
Quarter Ended
 
Two Quarters Ended
 
Apr 1,
2018
 
Apr 2,
2017
 
Apr 1,
2018
 
Apr 2,
2017
Net earnings including noncontrolling interests
$
659.8

 
$
652.8

 
$
2,909.9

 
$
1,404.6

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Unrealized holding gains/(losses) on available-for-sale securities
(3.3
)
 
1.9

 
(6.1
)
 
(11.5
)
Tax (expense)/benefit
0.7

 
(0.5
)
 
1.7

 
3.6

Unrealized gains/(losses) on cash flow hedging instruments
(41.4
)
 
(33.5
)
 
(45.1
)
 
80.0

Tax (expense)/benefit
8.4

 
7.7

 
9.2

 
(18.8
)
Unrealized gains/(losses) on net investment hedging instruments
(43.9
)
 
(25.2
)
 
(44.2
)
 
15.9

Tax (expense)/benefit
11.1

 
9.3

 
11.1

 
(5.9
)
Translation adjustment and other
179.2

 
58.6

 
211.6

 
(113.2
)
Tax (expense)/benefit
(0.7
)
 
0.9

 
2.2

 
0.9

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment
53.6

 
20.2

 
55.3

 
(61.5
)
Tax expense/(benefit)
(5.5
)
 
(3.5
)
 
(7.2
)
 
12.5

Other comprehensive income/(loss)
158.2

 
35.9

 
188.5

 
(98.0
)
Comprehensive income including noncontrolling interests
818.0

 
688.7

 
3,098.4

 
1,306.6

Comprehensive loss attributable to noncontrolling interests
(0.3
)
 
—

 
(0.4
)
 
(0.3
)
Comprehensive income attributable to Starbucks
$
818.3

 
$
688.7

 
$
3,098.8

 
$
1,306.9



See Notes to Condensed Consolidated Financial Statements.


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STARBUCKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
 
Apr 1,
2018
 
Oct 1,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,142.0

 
$
2,462.3

Short-term investments
100.5

 
228.6

Accounts receivable, net
869.6

 
870.4

Inventories
1,375.9

 
1,364.0

Prepaid expenses and other current assets
1,169.0

 
358.1

Total current assets
5,657.0

 
5,283.4

Long-term investments
293.1

 
542.3

Equity and cost investments
297.6

 
481.6

Property, plant and equipment, net
5,576.8

 
4,919.5

Deferred income taxes, net
165.3

 
795.4

Other long-term assets
541.8

 
362.8

Other intangible assets
1,228.4

 
441.4

Goodwill
3,793.5

 
1,539.2

TOTAL ASSETS
$
17,553.5

 
$
14,365.6

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
869.7

 
$
782.5

Accrued liabilities
2,261.6

 
1,934.5

Insurance reserves
222.0

 
215.2

Stored value card liability
1,484.0

 
1,288.5

Current portion of long-term debt
349.7

 
—

Total current liabilities
5,187.0

 
4,220.7

Long-term debt
6,185.1

 
3,932.6

Other long-term liabilities
1,463.7

 
755.3

Total liabilities
12,835.8

 
8,908.6

Shareholders’ equity:
 
 
 
Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,382.4 and 1,431.6 shares, respectively
1.4

 
1.4

Additional paid-in capital
41.1

 
41.1

Retained earnings
4,635.8

 
5,563.2

Accumulated other comprehensive income/(loss)
32.9

 
(155.6
)
Total shareholders’ equity
4,711.2

 
5,450.1

Noncontrolling interests
6.5

 
6.9

Total equity
4,717.7

 
5,457.0

TOTAL LIABILITIES AND EQUITY
$
17,553.5

 
$
14,365.6

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
Two Quarters Ended
 
Apr 1,
2018
 
Apr 2,
2017
OPERATING ACTIVITIES:
 
 
 
Net earnings including noncontrolling interests
$
2,909.9

 
$
1,404.6

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
617.6

 
529.8

Deferred income taxes, net
732.6

 
62.8

Income earned from equity method investees
(107.4
)
 
(129.4
)
Distributions received from equity method investees
144.3

 
94.1

Gain resulting from acquisition of joint venture
(1,373.9
)
 
—

Gains resulting from divestiture of certain retail operations
(496.3
)
 
(9.6
)
Stock-based compensation
116.5

 
104.9

Goodwill Impairments
28.5

 
—

Other
1.3

 
(11.4
)
Cash provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
5.2

 
(45.6
)
Inventories
10.3

 
45.4

Accounts payable
25.5

 
(21.5
)
Stored value card liability
163.7

 
179.2

Other operating assets and liabilities
(489.3
)
 
(211.6
)
Net cash provided by operating activities
2,288.5

 
1,991.7

INVESTING ACTIVITIES:
 
 
 
Purchases of investments
(52.0
)
 
(485.7
)
Sales of investments
388.7

 
470.6

Maturities and calls of investments
26.5

 
33.6

Additions to property, plant and equipment
(896.7
)
 
(637.9
)
Acquisition of equity in joint venture. net of cash acquired
(1,311.3
)
 
—

Net proceeds from the divestiture of certain operations
608.2

 
—

Other
(2.3
)
 
54.1

Net cash used by investing activities
(1,238.9
)
 
(565.3
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of commercial paper
—

 
25.0

Proceeds from issuance of long-term debt
2,596.5

 
750.2

Repayments of long-term debt
—

 
(400.0
)
Proceeds from issuance of common stock
106.3

 
97.5

Cash dividends paid
(847.9
)
 
(727.8
)
Repurchase of common stock
(3,192.1
)
 
(1,046.1
)
Minimum tax withholdings on share-based awards
(57.6
)
 
(70.1
)
Other
(17.7
)
 
0.7

Net cash used by financing activities
(1,412.5
)
 
(1,370.6
)
Effect of exchange rate changes on cash and cash equivalents
42.6

 
(20.7
)
Net increase/(decrease) in cash and cash equivalents
(320.3
)
 
35.1

CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
2,462.3

 
2,128.8

End of period
$
2,142.0

 
$
2,163.9

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of capitalized interest
$
47.7

 
$
48.9

Income taxes, net of refunds
$
723.4

 
$
822.6


See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION
INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14


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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 April 1, 2018, and for the quarter and two quarters ended April 1, 2018 and April 2, 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 quarter and two quarters ended April 1, 2018 and April 2, 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 October 1, 2017 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 1, 2017 (“fiscal 2017”) included in Item 8 in the Fiscal 2017 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 and two quarters ended April 1, 2018 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 30, 2018 (“fiscal 2018”).
Recent Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“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 year 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 are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In August 2017, the FASB amended its guidance on the financial reporting of 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 year 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 October 2016, the 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 guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings at the beginning of our first quarter of fiscal 2019 but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In March 2016, the FASB issued guidance related to stock-based compensation, which changes the accounting and classification of excess tax benefits and minimum tax withholdings on share-based awards. This guidance requires that excess tax benefits and tax deficiencies related to stock-based compensation be prospectively reflected as income tax expense in our consolidated statement of earnings instead of additional paid-in capital on our consolidated balance sheet. Additionally, within our consolidated statement of cash flows, this guidance requires excess tax benefits to be presented as an operating activity, rather than a financing activity, in the same manner as other cash flows related to income taxes. We adopted this guidance in the first quarter of fiscal 2018. The primary impact of the adoption was the recognition of excess tax benefits that reduced income tax expenses by $16.2 million and $44.4 million for the quarter and two quarters ended April 1, 2018, respectively, instead of additional paid-in capital. As a result, net income increased $16.2 million and $44.4 million for the quarter and two quarters ended April 1, 2018, respectively and basic and diluted earnings per share increased $0.01 and $0.03 for the quarter and two quarters ended April 1, 2018, respectively. Excess tax benefits of $52.7 million, for the two quarters ended April 2, 2017, previously reported in financing activities have been reclassified to operating activities in the consolidated statements of cash flows.
In March 2016, the FASB issued guidance for financial liabilities resulting from selling prepaid stored value products that are redeemable at third-party merchants. Under the new guidance, expected breakage amounts associated with these products must

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be recognized proportionately in earnings as redemption occurs. Our current accounting policy of applying the remote method to all of our stored value cards, including cards redeemable at the third-party licensed locations, will no longer be allowed. We will adopt and implement the provisions of this guidance and the new revenue recognition standard issued by the FASB, as discussed below, in the first quarter of fiscal 2019.
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. The guidance will require modified retrospective application at the beginning of our first quarter of fiscal 2020, with optional practical expedients, but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements. 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.
In May 2014, the FASB issued guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the overall impact this guidance will have on our consolidated financial statements, as well as the expected method of adoption. Based on our continued assessment, which may identify other accounting impacts, we have determined the adoption will change the timing of recognition and classification of our stored value card breakage income, which is currently recognized using the remote method and recorded in interest income and other, net. The new guidance will require application of the proportional method and classification within total net revenues on our consolidated statements of earnings. Additionally, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We will adopt this guidance in the first quarter of fiscal 2019.
Note 2:
Acquisitions and Divestitures
Fiscal 2018
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 a pre-tax loss of $8.5 million, which was included in loss from divestiture of certain operations on our 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. Approximately $86.3 million of pre-existing liabilities owed by East China to Starbucks were effectively settled upon the acquisition. Acquiring the remaining interest of East China, which operates over 1,400 stores in the Shanghai, Jiangsu and Zhejiang Provinces, builds on the Company's ongoing investment in China. The estimated fair values of the assets acquired and liabilities assumed are based on third party valuation and analysis performed by management. The valuation of certain assets and liabilities is preliminary and are subject to change as additional information becomes available.
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 gains from divestiture of certain operations on our consolidated statements of earnings.

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The following table summarizes the preliminary 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
 
86.3

Total consideration
 
$
2,967.9

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

Accounts receivable
 
14.3

Inventories
 
15.9

Prepaid expenses and other current assets
 
20.6

Property, plant and equipment
 
253.9

Other long-term assets
 
44.6

Other intangible assets
 
818.0

Goodwill
 
2,158.1

Total assets acquired
 
3,454.9

Accounts payable
 
43.1

Accrued liabilities
 
177.3

Stored value card liability
 
21.7

Other long-term liabilities
 
244.9

Total liabilities assumed
 
487.0

Total consideration
 
$
2,967.9


As a result of this acquisition, we remeasured the carrying value of our preexisting 50% equity method investment to fair value, which 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 consolidated statements of earnings. The fair value of $1.4 billion was calculated using an income approach, which was based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, as well as the selection of an appropriate discount rate. Estimates of revenue growth and operating expenses were based on internal projections and considered the historical performance of stores, local market economics and the business environments impacting store performance. The discount rate applied was based on East China's weighted-average cost of capital and included company-specific and size risk premiums.

In the second quarter of fiscal 2018, we finalized our purchase price based on East China's calendar year 2017 results which resulted in an acquisition gain adjustment of $47.6 million. The acquisition date fair value of goodwill was increased by $21 million, due to the purchase price update and various immaterial revisions to assets acquired and liabilities assumed.

The assets acquired and liabilities assumed are reported within our China/Asia Pacific segment. Other current and long-term assets acquired primarily include lease deposits and prepaid rent. Accrued liabilities and other long-term liabilities assumed primarily include deferred income tax, dividend payable, accrued payroll, income tax payable and accrued occupancy costs.

The definite-lived intangibles primarily relate to reacquired rights to operate stores exclusively in East China. The reacquired rights of $798.0 million represent the fair value calculated over the remaining original contractual period and will be amortized on a straight-line basis through September 2022. Amortization expense for these definite-lived intangible assets for the quarter ended April 1, 2018 was $44.4 million and the estimated future amortization expense is approximately $90.0 million in fiscal 2018, $180.1 million each year for the next three years and approximately $172.9 million in the final year of fiscal 2022.

Goodwill represents the intangible assets that do not qualify for separate recognition and primarily includes the acquired customer base, the acquired workforce including store partners in the region that have strong relationships with these customers, and the existing geographic retail and online presence. The entire balance was allocated to the China/Asia Pacific segment and is not deductible for income tax purposes. Due to foreign currency translation, the balance of goodwill related to the acquisition increased $78.8 million to $2.2 billion as of April 1, 2018.

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The table below summarizes our estimated minimum future rental payments under the acquired non-cancelable operating leases as of April 1, 2018 (in millions):
 
Operating Leases
Year 1
$
72.2

Year 2
62.6

Year 3
53.7

Year 4
46.6

Year 5
37.0

Thereafter
80.5

Total minimum lease payments
$
352.6


We began consolidating East China's results of operations and cash flows into our consolidated financial statements after December 31, 2017. For the quarter ended April 1, 2018, East China's revenue included in our consolidated statements of earnings was $301.6 million. For the quarter ended April 1, 2018, East China's net earnings included in our consolidated statements of earnings was $26.2 million.
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
 
Two Quarters Ended
 
 
Apr 1, 2018
 
Apr 2, 2017 (1)
 
Apr 1, 2018
 
Apr 2, 2017 (1)
Revenue
 
$
6,031.8

 
$
5,516.1

 
$
12,376.5

 
$
11,464.1

Net earnings attributable to Starbucks
 
568.8

 
759.3

 
1,691.6

 
2,558.5

(1) 
The pro forma net earnings attributable to Starbucks for fiscal 2017 includes the acquisition-related gain of $47.6 million and $1,373.9 million and transaction and integration costs of $8.7 million and $12.4 million for the quarter and two quarters ended April 2, 2017, respectively.
The amounts in the supplemental pro forma earnings for the periods 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.
During the quarter and two quarters ended April 1, 2018, we incurred approximately $0.4 million and $2.9 million, respectively, of acquisition-related costs, such as regulatory, legal, and advisory fees, which we have recorded in general and administrative expenses.
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 gains 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.
Fiscal 2017
In the fourth quarter of fiscal 2017, we sold our company-operated retail store assets and operations in Singapore to Maxim's Caterers Limited, converting these operations to a fully licensed market, for a total of $119.9 million. This transaction resulted in a pre-tax gain of $83.9 million, which was included in interest income and other, net on our consolidated statements of earnings. An insignificant settlement related to the divestiture was received in the first quarter of 2018 and included in gains from divestiture of certain operations on our consolidated statements of earnings.

11
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Note 3:
Derivative Financial Instruments
Interest Rates
We are subject to interest rate volatility with regard to existing and future issuances of debt. 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 statement of earnings. 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 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.
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 5, 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.

12
Table of Contents

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 Expected to be Reclassified from AOCI into Earnings within 12 Months
 
Outstanding Contract/Debt Remaining Maturity
(Months)
 
Apr 1,
2018
 
Oct 1,
2017
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rates
$
13.7

 
$
17.6

 
$
3.5

 
93
Cross-currency swaps
(13.6
)
 
(6.0
)
 
—

 
80
Foreign currency - other
(10.3
)
 
(9.1
)
 
(6.9
)
 
36
Coffee
(0.5
)
 
(6.6
)
 
(0.5
)
 
0
Net Investment Hedges:
 
 
 
 
 
 
 
Foreign currency
16.1

 
16.2

 
—

 
0
Foreign currency debt
(35.2
)
 
(2.2
)
 
—

 
73
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
 
Two Quarters Ended
 
Gains/(Losses)
Recognized in
OCI Before Reclassifications
 
Gains/(Losses) Reclassified from
AOCI to Earnings
 
Gains/(Losses)
Recognized in
OCI Before Reclassifications
 
Gains/(Losses) Reclassified from
AOCI to Earnings
 
Apr 1,
2018
 
Apr 2,
2017
 
Apr 1,
2018
 
Apr 2,
2017
 
Apr 1,
2018
 
Apr 2,
2017
 
Apr 1,
2018
 
Apr 2,
2017
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rates
$
(3.2
)
 
$
—

 
$
1.2

 
$
1.2

 
$
(3.2
)
 
$
—

 
$
2.4

 
$
2.4

Cross-currency swaps
(33.7
)
 
(22.7
)
 
(26.1
)
 
(23.4
)
 
(36.1
)
 
52.6

 
(26.6
)
 
54.2

Foreign currency - other
(4.5
)
 
(10.7
)
 
(1.7
)
 
3.6

 
(5.8
)
 
26.5

 
(4.5
)
 
8.0

Coffee
—

 
(0.1
)
 
(2.1
)
 
(0.3
)
 
—

 
0.9

 
(6.8
)
 
(1.0
)
Net Investment Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
—

 
(15.6
)
 
—

 
—

 
(0.1
)
 
25.5

 
0.1

 
—

Foreign currency debt
(43.9
)
 
(9.6
)
 
—

 
—

 
(44.1
)
 
(9.6
)
 
—

 
—

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
 
Two Quarters Ended
 
Apr 1, 2018
 
Apr 2, 2017
 
Apr 1, 2018
 
Apr 2, 2017
Non-Designated Derivatives:
 
 
 
 
 
 
 
Foreign currency - other
$
(4.7
)
 
$
(5.0
)
 
$
(1.1
)
 
$
3.4

Dairy
0.2

 
(2.4
)
 
(1.9
)
 
2.8

Diesel fuel and other commodities
(0.5
)
 
0.4

 
0.9

 
0.5

Designated Fair Value Hedging Instruments:
 
 
 
 
 
 
 
Interest rate swap
20.1

 
—

 
12.6

 
—


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Table of Contents

Notional amounts of outstanding derivative contracts (in millions):
 
Apr 1, 2018
 
Oct 1, 2017
Interest rate swap
$
1,250

 
$
750

Cross-currency swaps
476

 
514

Foreign currency - other
1,167

 
901

Dairy
42

 
14

Diesel fuel and other commodities
18

 
41

Fair value of outstanding derivative contracts (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
Apr 1, 2018
 
Oct 1, 2017
 
Apr 1, 2018
 
Oct 1, 2017
Designated Derivative Instruments:
 
 
 
 
 
 
 
Interest rates
$
—

 
$
—

 
$
3.2

 
$
—

Cross-currency swaps
—

 
12.4

 
33.6

 
9.8

Foreign currency - other
4.1

 
7.7

 
18.6

 
20.8

Net investment hedges
—

 
0.3

 
—

 
—

Interest rate swap
—

 
—

 
20.9

 
3.8

Non-designated Derivative Instruments:
 
 
 
 
 
 
 
Foreign currency
19.1

 
15.8

 
4.1

 
1.4

Dairy
0.2

 
—

 
1.4

 
2.4

Diesel fuel and other commodities
1.5

 
1.6

 
1.0

 
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 9, Equity.

14
Table of Contents

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
Apr 1, 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
$
2,142.0

 
$
2,142.0

 
$
—

 
$
—

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Corporate debt securities
19.0

 
—

 
19.0

 
—

U.S. government treasury securities
10.5

 
10.5

 
—

 
—

Mortgage and other asset-backed securities
1.8

 
—

 
1.8

 
—

Total available-for-sale securities
31.3

 
10.5

 
20.8

 
—

Trading securities
69.2

 
69.2

 
—

 
—

Total short-term investments
100.5

 
79.7

 
20.8

 
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
23.4

 
0.3

 
23.1

 
—

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
8.4

 
—

 
8.4

 
—

Corporate debt securities
126.8

 
—

 
126.8

 
—

Auction rate securities
5.9

 
—

 
—

 
5.9

Foreign government obligations
12.1

 
—

 
12.1

 
—

U.S. government treasury securities
102.8

 
102.8

 
—

 
—

State and local government obligations
4.8

 
—

 
4.8

 
—

Mortgage and other asset-backed securities
32.3

 
—

 
32.3

 
—

Total long-term investments
293.1

 
102.8

 
184.4

 
5.9

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
1.6

 
—

 
1.6

 
—

Total assets
$
2,560.6

 
$
2,324.8

 
$
229.9

 
$
5.9

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
18.7

 
$
2.5

 
$
16.2

 
$
—

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
64.1

 
—

 
64.1

 
—

Total liabilities
$
82.8

 
$
2.5

 
$
80.3

 
$
—



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Table of Contents

 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance at
Oct 1, 2017
 
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
$
2,462.3

 
$
2,462.3

 
$
—

 
$
—

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
7.5

 
—

 
7.5

 
—

Commercial paper
2.0

 
—

 
2.0

 
—

Corporate debt securities
49.4

 
—

 
49.4

 
—

Foreign government obligations
7.1

 
—

 
7.1

 
—

U.S. government treasury securities
81.4

 
81.4

 
—

 
—

State and local government obligations
2.0

 
—

 
2.0

 
—

Certificates of deposit
2.3

 
—

 
2.3

 
—

Total available-for-sale securities
151.7

 
81.4

 
70.3

 
—

Trading securities
76.9

 
76.9

 
—

 
—

Total short-term investments
228.6

 
158.3

 
70.3

 
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
13.4

 
0.1

 
13.3

 
—

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
21.8

 
—

 
21.8

 
—

Corporate debt securities
207.4

 
—

 
207.4

 
—

Auction rate securities
5.9

 
—

 
—

 
5.9

Foreign government obligations
17.1

 
—

 
17.1

 
—

U.S. government treasury securities
127.4

 
127.4

 
—

 
—

State and local government obligations
7.0

 
—

 
7.0

 
—

Mortgage and other asset-backed securities
155.7

 
—

 
155.7

 
—

Total long-term investments
542.3

 
127.4

 
409.0

 
5.9

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
24.4

 
—

 
24.4

 
—

Total assets
$
3,271.0

 
$
2,748.1

 
$
517.0

 
$
5.9

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
16.4

 
$
2.5

 
$
13.9

 
$
—

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
22.1

 
—

 
22.1

 
—

Total liabilities
$
38.5

 
$
2.5

 
$
36.0

 
$
—

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 investments were not material as of April 1, 2018 and October 1, 2017.
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.

16
Table of Contents

The strength of the Swiss franc, continued shift of consumer behaviors to neighboring countries and the relocations of certain businesses in recent years have sustained beyond our prior projections. Moreover, the investments and improvements we have made have not sufficiently slowed the performance decline as quickly as we anticipated. Therefore, we do not expect to fully recover the Switzerland retail reporting unit's carrying value and recorded a goodwill impairment charge of $28.5 million during the second quarter of fiscal 2018.
Other than the aforementioned fair value adjustment, there were no other material fair value adjustments during the quarter and two quarters ended April 1, 2018 and April 2, 2017. The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 8, Debt.
Note 5:
Inventories (in millions)
 
Apr 1, 2018
 
Oct 1, 2017
 
Apr 2, 2017
Coffee:
 
 
 
 
 
Unroasted
$
615.4

 
$
541.0

 
$
599.2

Roasted
246.3

 
301.1

 
272.8

Other merchandise held for sale
264.1

 
301.1

 
244.6

Packaging and other supplies
250.1

 
220.8

 
207.0

Total
$
1,375.9

 
$
1,364.0

 
$
1,323.6

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 April 1, 2018, we had committed to purchasing green coffee totaling $631 million under fixed-price contracts and an estimated $547 million under price-to-be-fixed contracts. As of April 1, 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 6:
Supplemental Balance Sheet Information (in millions)

Prepaid Expenses and Other Current Assets
 
Apr 1, 2018
 
Oct 1, 2017
Income tax receivable
$
819.7

 
$
68.0

Other prepaid expenses and current assets
349.3

 
290.1

Total prepaid expenses and current assets
$
1,169.0

 
$
358.1


Property, Plant and Equipment, net
 
Apr 1, 2018
 
Oct 1, 2017
Land
$
46.8

 
$
46.9

Buildings
502.3

 
481.7

Leasehold improvements
6,989.4

 
6,401.0

Store equipment
2,276.5

 
2,110.7

Roasting equipment
631.7

 
619.8

Furniture, fixtures and other
1,604.5

 
1,514.1

Work in progress
490.4

 
409.8

Property, plant and equipment, gross
12,541.6

 
11,584.0

Accumulated depreciation
(6,964.8
)
 
(6,664.5
)
Property, plant and equipment, net
$
5,576.8

 
$
4,919.5



17
Table of Contents

Accrued Liabilities
 
Apr 1, 2018
 
Oct 1, 2017
Accrued compensation and related costs
$
559.7

 
$
524.5

Accrued occupancy costs
177.8

 
151.3

Accrued taxes
330.1

 
226.6

Accrued dividends payable
414.7

 
429.5

Accrued capital and other operating expenditures
779.3

 
602.6

Total accrued liabilities
$
2,261.6

 
$
1,934.5


Other Long-Term Liabilities
 
Apr 1, 2018
 
Oct 1, 2017
Deferred income taxes, net
$
343.3

 
$
6.3

Other long-term liabilities
1,120.4

 
749.0

Total other long-term liabilities
$
1,463.7

 
$
755.3


Note 7: Other Intangible Assets and Goodwill

Indefinite-lived intangible assets
(in millions)
Apr 1, 2018
 
Oct 1, 2017
Trade names, trademarks and patents
$
213.8

 
$
212.1

Other indefinite-lived intangible assets
15.1

 
15.1

Total indefinite-lived intangible assets
$
228.9

 
$
227.2


Finite-lived intangible assets
 
Apr 1, 2018
 
Oct 1, 2017
(in millions)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Acquired and reacquired rights
$
1,174.5

 
$
(232.1
)
 
$
942.4

 
$
328.8

 
$
(154.2
)
 
$
174.6

Acquired trade secrets and processes
32.0

 
(18.3
)
 
13.7

 
27.6

 
(13.7
)
 
13.9

Trade names, trademarks and patents
27.6

 
(15.1
)
 
12.5

 
31.5

 
(17.6
)
 
13.9

Licensing agreements
15.3

 
(4.8
)
 
10.5

 
14.4

 
(3.8
)
 
10.6

Other finite-lived intangible assets
27.6

 
(7.2
)
 
20.4

 
6.7

 
(5.5
)
 
1.2

Total finite-lived intangible assets
$
1,277.0

 
$
(277.5
)
 
$
999.5

 
$
409.0

 
$
(194.8
)
 
$
214.2


Amortization expense for finite-lived intangible assets was $58.8 million and $72.8 million for the quarter and two quarters ended April 1, 2018, respectively, and $14.0 million and $28.5 million for the quarter and two quarters ended April 2, 2017, respectively.

18
Table of Contents

Estimated future amortization expense as of April 1, 2018 (in millions):
Fiscal Year Ending
 
2018 (excluding the six months ended April 1, 2018)
$
118.8

2019
236.8

2020
236.6

2021
212.3

2022
181.0

Thereafter
14.0

Total estimated future amortization expense
$
999.5

Additional disclosure regarding changes in our intangible assets due to acquisitions is included at Note 2, Acquisitions and Divestitures.
Goodwill
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
 
Americas
 
China/Asia Pacific
 
EMEA
 
Channel
Development
 
All Other Segments
 
Total
Goodwill balance at October 1, 2017
$
213.1

 
$
850.2

 
$
37.2

 
$
23.8

 
$
414.9

 
$
1,539.2

Acquisition/(divestiture)
—

 
2,158.1

 
—

 
(1.5
)
 
—

 
2,156.6

Impairment
—

 
—

 
(28.5
)
 
—

 
—

 
(28.5
)
Other
(0.9
)
 
125.9

 
0.9

 
—

 
0.3

 
126.2

Goodwill balance at April 1, 2018
$
212.2

 
$
3,134.2

 
$
9.6

 
$
22.3

 
$
415.2

 
$
3,793.5

“Other” primarily consists of changes in the goodwill balance as a result of foreign currency translation and transfers between segments due to reorganizations, as applicable.
Note 8:
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 April 1, 2018, we had no borrowings outstanding under the program.

19
Table of Contents

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):
 
Apr 1, 2018
 
Oct 1, 2017
 
Stated Interest Rate
Effective Interest Rate (1)
Issuance
Amount
Estimated Fair Value
 
Amount
Estimated Fair Value
 
2018 notes
$
350.0

$
349

 
$
350.0

$
352

 
2.000
%
2.012
%
2020 notes(2)
500.0

493

 
—

—

 
2.200
%
2.228
%
2021 notes
500.0

490

 
500.0

501

 
2.100
%
2.293
%
2021 notes
250.0

245

 
250.0

250

 
2.100
%
1.600
%
2022 notes
500.0

494

 
500.0

508

 
2.700
%
2.819
%
2023 notes
750.0

776

 
750.0

806

 
3.850
%
2.859
%
2023 notes(3)
1,000.0

1,000

 
—

—

 
3.100
%
3.107
%
2024 notes(4)
800.3

763

 
755.3

760

 
0.372
%
0.462
%
2026 notes
500.0

467

 
500.0

481

 
2.450
%
2.511
%
2028 notes(3)
600.0

598

 
—

—

 
3.500
%
3.529
%
2045 notes
350.0

368

 
350.0

381

 
4.300
%
4.348
%
2047 notes(2)
500.0

483

 
—

—

 
3.750
%
3.765
%
Total
6,600.3

6,526

 
3,955.3

4,039

 
 
 
Aggregate debt issuance costs and unamortized premium, net
(36.8
)
 
 
(17.5
)
 
 
 
 
Hedge accounting fair value adjustment(5)
(28.7
)
 
 
(5.2
)
 
 
 
 
Total
$
6,534.8

 
 
$
3,932.6

 
 
 
 
(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) 
Issued in November 2017.
(3) 
Issued in February 2018.
(4) 
Japanese yen-denominated long-term debt.
(5) 
Amount represents the change in fair value due to changes in benchmark interest rates related to our 2023 notes. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.
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 April 1, 2018, we were in compliance with all applicable covenants.
The following table summarizes our long-term debt maturities as of April 1, 2018 by fiscal year (in millions):
Fiscal Year
Total
2019
$
350.0

2020
—

2021
1,250.0

2022
500.0

2023
1,000.0

Thereafter
3,500.3

Total
$
6,600.3


20
Table of Contents

Note 9:
Equity
Changes in total equity (in millions):
 
Two Quarters Ended
 
Apr 1, 2018
 
Apr 2, 2017
 
Attributable to Starbucks
 
Noncontrolling interests
 
Total Equity
 
Attributable to Starbucks
 
Noncontrolling interest
 
Total Equity
Beginning balance of total equity
$
5,450.1

 
$
6.9

 
$
5,457.0

 
$
5,884.0

 
$
6.7

 
$
5,890.7

Net earnings including noncontrolling interests
2,910.3

 
(0.4
)
 
2,909.9

 
1,404.9

 
(0.3
)
 
1,404.6

Translation adjustment and other, net of reclassifications and tax
230.7

 
—

 
230.7

 
(112.3
)
 
—

 
(112.3
)
Unrealized gains/(losses), net of reclassifications and tax
(42.2
)
 
—

 
(42.2
)
 
14.3

 
—

 
14.3

Other comprehensive income/(loss)
188.5

 
—

 
188.5

 
(98.0
)
 
—

 
(98.0
)
Stock-based compensation expense
118.0

 
—

 
118.0

 
105.8

 
—

 
105.8

Exercise of stock options/vesting of RSUs
33.4

 
—

 
33.4

 
64.7

 
—

 
64.7

Sale of common stock
15.3

 
—

 
15.3

 
14.2

 
—

 
14.2

Repurchase of common stock
(3,171.4
)
 
—

 
(3,171.4
)
 
(1,046.1
)
 
—

 
(1,046.1
)
Cash dividends declared
(833.0
)
 
—

 
(833.0
)
 
(724.5
)
 
—

 
(724.5
)
Ending balance of total equity
$
4,711.2

 
$
6.5

 
$
4,717.7

 
$
5,605.0

 
$
6.4

 
$
5,611.4

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
April 1, 2018
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
(3.0
)
 
$
(1.1
)
 
$
13.7

 
$
(134.9
)
 
$
(125.3
)
Net gains/(losses) recognized in OCI before reclassifications
(2.6
)
 
(33.0
)
 
(32.8
)
 
178.5

 
110.1

Net (gains)/losses reclassified from AOCI to earnings
0.6

 
23.4

 
—

 
24.1

 
48.1

Other comprehensive income/(loss) attributable to Starbucks
(2.0
)
 
(9.6
)
 
(32.8
)
 
202.6

 
158.2

Net gains/(losses) in AOCI, end of period
$
(5.0
)
 
$
(10.7
)
 
$
(19.1
)
 
$
67.7

 
$
32.9

 
 
 
 
 
 
 
 
 
 
April 2, 2017
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
(7.6
)
 
$
31.6

 
$
27.2

 
$
(293.5
)
 
$
(242.3
)
Net gains/(losses) recognized in OCI before reclassifications
1.4

 
(25.8
)
 
(15.9
)
 
59.5

 
19.2

Net (gains)/losses reclassified from AOCI to earnings
0.9

 
15.8

 
—

 
—

 
16.7

Other comprehensive income/(loss) attributable to Starbucks
2.3

 
(10.0
)
 
(15.9
)
 
59.5

 
35.9

Net gains/(losses) in AOCI, end of period
$
(5.3
)
 
$
21.6

 
$
11.3

 
$
(234.0
)
 
$
(206.4
)


21
Table of Contents

Two Quarters Ended
 
 Available-for-Sale Securities
 
 Cash Flow Hedges
 
 Net Investment Hedges
 
Translation Adjustment and Other
 
Total
April 1, 2018
 
 
 
 
 
 
 
 
 
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
(4.4
)
 
(35.9
)
 
(33.1
)
 
213.8

 
140.4

Net (gains)/losses reclassified from AOCI to earnings
1.9

 
29.3

 
—

 
16.9

 
48.1

Other comprehensive income/(loss) attributable to Starbucks
(2.5
)
 
(6.6
)
 
(33.1
)
 
230.7

 
188.5

Net gains/(losses) in AOCI, end of period
$
(5.0
)
 
$
(10.7
)
 
$
(19.1
)
 
$
67.7

 
$
32.9