10-Q 1 sbux-422017x10xq.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 April 2, 2017
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)
sbuxlogo422017a04.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 26, 2017
Common Stock, par value $0.001 per share
1,448.1 million




STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended April 2, 2017
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 2,
2017
 
Mar 27,
2016
 
Apr 2,
2017
 
Mar 27,
2016
Net revenues:
 
 
 
 
 
 
 
Company-operated stores
$
4,195.4

 
$
3,944.2

 
$
8,664.7

 
$
8,154.8

Licensed stores
546.7

 
493.1

 
1,149.1

 
1,033.8

CPG, foodservice and other
551.9

 
555.9

 
1,213.2

 
1,178.2

Total net revenues
5,294.0

 
4,993.2

 
11,027.0

 
10,366.8

Cost of sales including occupancy costs
2,141.2

 
2,010.3

 
4,436.2

 
4,196.5

Store operating expenses
1,586.4

 
1,466.4

 
3,224.6

 
2,972.6

Other operating expenses
134.7

 
139.6

 
280.1

 
285.8

Depreciation and amortization expenses
253.6

 
247.8

 
503.3

 
483.3

General and administrative expenses
326.8

 
330.5

 
683.1

 
636.0

Total operating expenses
4,442.7

 
4,194.6

 
9,127.3

 
8,574.2

Income from equity investees
84.1

 
65.6

 
168.6

 
129.7

Operating income
935.4

 
864.2

 
2,068.3

 
1,922.3

Interest income and other, net
67.9

 
14.5

 
92.0

 
22.5

Interest expense
(22.9
)
 
(18.3
)
 
(46.7
)
 
(34.8
)
Earnings before income taxes
980.4

 
860.4

 
2,113.6

 
1,910.0

Income tax expense
327.6

 
285.4

 
709.0

 
647.4

Net earnings including noncontrolling interests
652.8

 
575.0

 
1,404.6

 
1,262.6

Net loss attributable to noncontrolling interests

 
(0.1
)
 
(0.3
)
 

Net earnings attributable to Starbucks
$
652.8

 
$
575.1

 
$
1,404.9

 
$
1,262.6

Earnings per share - basic
$
0.45

 
$
0.39

 
$
0.97

 
$
0.85

Earnings per share - diluted
$
0.45

 
$
0.39

 
$
0.96

 
$
0.84

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
1,453.2

 
1,472.1

 
1,455.3

 
1,479.0

Diluted
1,464.8

 
1,486.6

 
1,467.7

 
1,495.0

Cash dividends declared per share
$
0.25

 
$
0.20

 
$
0.50

 
$
0.40

See Notes to Condensed Consolidated Financial Statements.

3


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

 
Quarter Ended
 
Two Quarters Ended
 
Apr 2,
2017
 
Mar 27,
2016
 
Apr 2,
2017
 
Mar 27,
2016
Net earnings including noncontrolling interests
$
652.8

 
$
575.0

 
$
1,404.6

 
$
1,262.6

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

 
3.8

 
(11.5
)
 
4.8

Tax (expense)/benefit
(0.5
)
 
(1.4
)
 
3.6

 
(1.8
)
Unrealized gains/(losses) on cash flow hedging instruments
(33.5
)
 
(68.1
)
 
80.0

 
(62.3
)
Tax (expense)/benefit
7.7

 
17.4

 
(18.8
)
 
14.7

Unrealized gains/(losses) on net investment hedging instruments
(25.2
)
 

 
15.9

 

Tax (expense)/benefit
9.3

 

 
(5.9
)
 

Translation adjustment and other
58.6

 
56.1

 
(113.2
)
 
30.0

Tax (expense)/benefit
0.9

 
4.9

 
0.9

 
6.6

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment
20.2

 
27.3

 
(61.5
)
 
19.5

Tax expense/(benefit)
(3.5
)
 
(4.1
)
 
12.5

 
(1.3
)
Other comprehensive income/(loss)
35.9

 
35.9

 
(98.0
)
 
10.2

Comprehensive income including noncontrolling interests
688.7

 
610.9

 
1,306.6

 
1,272.8

Comprehensive loss attributable to noncontrolling interests

 
(0.1
)
 
(0.3
)
 

Comprehensive income attributable to Starbucks
$
688.7

 
$
611.0

 
$
1,306.9

 
$
1,272.8



See Notes to Condensed Consolidated Financial Statements.


4


STARBUCKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
 
Apr 2,
2017
 
Oct 2,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,163.9

 
$
2,128.8

Short-term investments
231.0

 
134.4

Accounts receivable, net
791.0

 
768.8

Inventories
1,323.6

 
1,378.5

Prepaid expenses and other current assets
409.9

 
347.4

Total current assets
4,919.4

 
4,757.9

Long-term investments
1,070.1

 
1,141.7

Equity and cost investments
391.2

 
354.5

Property, plant and equipment, net
4,564.5

 
4,533.8

Deferred income taxes, net
811.2

 
885.4

Other long-term assets
368.0

 
403.3

Other intangible assets
467.7

 
516.3

Goodwill
1,635.8

 
1,719.6

TOTAL ASSETS
$
14,227.9

 
$
14,312.5

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
686.9

 
$
730.6

Accrued liabilities
1,730.6

 
1,999.1

Insurance reserves
217.9

 
246.0

Stored value card liability
1,339.7

 
1,171.2

Short-term debt
25.0

 

Current portion of long-term debt

 
399.9

Total current liabilities
4,000.1

 
4,546.8

Long-term debt
3,942.5

 
3,185.3

Other long-term liabilities
673.9

 
689.7

Total liabilities
8,616.5

 
8,421.8

Shareholders’ equity:
 
 
 
Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,447.7 and 1,460.5 shares, respectively
1.4

 
1.5

Additional paid-in capital
41.1

 
41.1

Retained earnings
5,768.9

 
5,949.8

Accumulated other comprehensive loss
(206.4
)
 
(108.4
)
Total shareholders’ equity
5,605.0

 
5,884.0

Noncontrolling interests
6.4

 
6.7

Total equity
5,611.4

 
5,890.7

TOTAL LIABILITIES AND EQUITY
$
14,227.9

 
$
14,312.5

See Notes to Condensed Consolidated Financial Statements.

5


STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
Two Quarters Ended
 
Apr 2,
2017
 
Mar 27,
2016
OPERATING ACTIVITIES:
 
 
 
Net earnings including noncontrolling interests
$
1,404.6

 
$
1,262.6

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
529.8

 
509.3

Deferred income taxes, net
62.8

 
260.2

Income earned from equity method investees
(129.4
)
 
(96.5
)
Distributions received from equity method investees
94.1

 
102.8

Gain resulting from sale of equity in joint venture and certain retail operations
(9.6
)
 
(0.6
)
Stock-based compensation
104.9

 
108.6

Excess tax benefit on share-based awards
(52.7
)
 
(89.3
)
Other
(11.4
)
 
24.5

Cash provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
(45.6
)
 
(39.8
)
Inventories
45.4

 
15.3

Accounts payable
(21.5
)
 
(17.2
)
Stored value card liability
179.2

 
216.2

Other operating assets and liabilities
(211.6
)
 
(70.6
)
Net cash provided by operating activities
1,939.0

 
2,185.5

INVESTING ACTIVITIES:
 
 
 
Purchases of investments
(485.7
)
 
(579.0
)
Sales of investments
470.6

 
247.7

Maturities and calls of investments
33.6

 
4.4

Additions to property, plant and equipment
(637.9
)
 
(668.2
)
Proceeds from sale of equity in joint venture

 
30.2

Other
54.1

 
12.1

Net cash used by investing activities
(565.3
)
 
(952.8
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of commercial paper
25.0

 
149.1

Proceeds from issuance of long-term debt
750.2

 
499.7

Principal payments on long-term debt
(400.0
)
 

Proceeds from issuance of common stock
97.5

 
79.6

Excess tax benefit on share-based awards
52.7

 
89.3

Cash dividends paid
(727.8
)
 
(591.8
)
Repurchase of common stock
(1,046.1
)
 
(1,584.5
)
Minimum tax withholdings on share-based awards
(70.1
)
 
(103.6
)
Other
0.7

 
(0.8
)
Net cash used by financing activities
(1,317.9
)
 
(1,463.0
)
Effect of exchange rate changes on cash and cash equivalents
(20.7
)
 
(5.4
)
Net increase/(decrease) in cash and cash equivalents
35.1

 
(235.7
)
CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
2,128.8

 
1,530.1

End of period
$
2,163.9

 
$
1,294.4

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of capitalized interest
$
48.9

 
$
34.4

Income taxes, net of refunds
$
822.6

 
$
458.1


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 April 2, 2017, and for the quarter and two quarters ended April 2, 2017 and March 27, 2016, 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 2, 2017 and March 27, 2016 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 2, 2016 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2, 2016 (“fiscal 2016”) included in Item 8 in the Fiscal 2016 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 2, 2017 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 1, 2017 ("fiscal 2017").
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that simplifies the measurement of goodwill impairment. Under this new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. Current guidance, however, requires an impairment charge to be calculated as the excess of the carrying value of goodwill over its implied fair value. During the second quarter of fiscal 2017, we elected to early-adopt this guidance on a prospective basis, and during the third quarter of fiscal 2017, we will conduct our annual goodwill impairment testing. Among our larger reporting units, the fair value of the Teavana reporting unit was closest to its carrying value per our most recently completed test in third quarter of fiscal 2016. As of April 2, 2017, goodwill attributed to this unit was $467.5 million. We will continue to assess its recoverability as management evaluates the performance and strategy of the reporting unit.
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 June 2016, the FASB issued guidance on the measurement and recognition of credit losses on most financial assets. For trade receivables, loans, and held-to-maturity debt securities, the current probable loss recognition methodology is being replaced by an expected credit loss model. For available-for-sale debt securities, the recognition model on credit losses is generally unchanged, except the losses will be presented as an adjustable allowance. The guidance will be applied retrospectively with the cumulative effect recognized as of the date of adoption. The guidance will become effective at the beginning of our first quarter of fiscal 2021 but can be adopted as early as the beginning of our first quarter of fiscal 2020. 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. The guidance becomes effective at the beginning of our first quarter of fiscal 2018 but permits adoption in an earlier period. With this adoption, excess tax benefits and tax deficiencies related to stock-based compensation will 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 will require 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 are currently evaluating the timing and impact of adopting this guidance; however, as a result of the presentation requirements associated with the standard, we expect this adoption to have a significant impact on income tax expense and earnings per share, as reported in our consolidated statement of earnings, and consolidated statement 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

8


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. The guidance will become effective at the beginning of our first quarter of fiscal 2019, with the option to adopt in an earlier period. As the guidance and timing of transition are consistent with the new revenue recognition standard issued by the FASB in May 2014 and discussed below, we expect to implement the provisions of both standards in the same period.
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 April 2015, the FASB issued guidance on the financial statement presentation of debt issuance costs. This guidance requires these costs to be presented in the balance sheet as a reduction of the related debt liability rather than as an asset. We retrospectively adopted this guidance in the first quarter of fiscal 2017, which resulted in the reclassification of $17.0 million of debt issuance costs previously presented in prepaid expenses and other current assets and other long-term assets to long-term debt in our consolidated balance sheet as of October 2, 2016. Components of our long-term debt and aggregate debt issuance costs and unamortized premium are disclosed in Note 7, Debt.
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 original effective date of the guidance would have required us to adopt at the beginning of our first quarter of fiscal 2018; however, the FASB approved an optional one-year deferral of the effective date. 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 timing and method of adoption. Based on our preliminary assessment, we 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 are continuing our assessment, which may identify other impacts.
Note 2:
Acquisitions and Divestitures
Fiscal 2016
During the third quarter of fiscal 2016, we sold our ownership interest in our Germany retail business to AmRest Holdings SE for a total of $47.3 million. This transaction converted these company-operated stores to a fully licensed market. The cumulative pre-tax gains recognized upon satisfying certain related contingent items were insignificant and were included in interest income and other, net on our condensed consolidated statement of earnings.
In the first quarter of fiscal 2016, we sold our 49% ownership interest in our Spanish joint venture, Starbucks Coffee España, S.L. ("Starbucks Spain"), to our joint venture partner, Sigla S.A. (Grupo Vips), for a total purchase price of $30.2 million. This transaction resulted in an insignificant pre-tax gain, which was included in interest income and other, net on our condensed consolidated statements of earnings.
Note 3: Derivative Financial Instruments
Interest Rates
Depending on market conditions, we enter into interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates 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.

9


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.
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 2,
2017
 
Oct 2,
2016
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rates
$
19.0

 
$
20.5

 
$
3.0

 
0
Cross-currency swaps
(9.0
)
 
(7.7
)
 

 
92
Foreign currency - other
11.5

 
(0.4
)
 
9.6

 
34
Coffee
0.1

 
(1.6
)
 
0.1

 
9
Net Investment Hedges:
 
 
 
 
 
 
 
Foreign currency
17.4

 
1.3

 

 
0
Foreign currency debt
(6.1
)
 

 

 
84

10


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 2,
2017
 
Mar 27,
2016
 
Apr 2,
2017
 
Mar 27,
2016
 
Apr 2,
2017
 
Mar 27,
2016
 
Apr 2,
2017
 
Mar 27,
2016
Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rates
$

 
$
(11.4
)
 
$
1.2

 
$
1.3

 
$

 
$
(8.3
)
 
$
2.4

 
$
2.8

Cross-currency swaps
(22.7
)
 
(39.6
)
 
(23.4
)
 
(36.4
)
 
52.6

 
(44.9
)
 
54.2

 
(38.2
)
Foreign currency - other
(10.7
)
 
(18.1
)
 
3.6

 
7.8

 
26.5

 
(8.8
)
 
8.0

 
16.3

Coffee
(0.1
)
 
0.9

 
(0.3
)
 
(0.5
)
 
0.9

 
(0.4
)
 
(1.0
)
 
(0.6
)
Net Investment Hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
(15.6
)
 

 

 

 
25.5

 

 

 

Foreign currency debt
(9.6
)
 

 

 

 
(9.6
)
 

 

 

Pretax gains and losses on derivative contracts not designated as hedging instruments recognized in earnings (in millions):
 
Gains/(Losses) Recognized in Earnings
 
Quarter Ended
 
Two Quarters Ended
 
Apr 2, 2017
 
Mar 27, 2016
 
Apr 2, 2017
 
Mar 27, 2016
Foreign currency
$
(5.0
)
 
$
(4.0
)
 
$
3.4

 
$
(1.9
)
Coffee

 
0.1

 

 

Dairy
(2.4
)
 
(1.4
)
 
2.8

 
(7.0
)
Diesel fuel and other commodities
0.4

 
0.5

 
0.5

 
(4.2
)
Notional amounts of outstanding derivative contracts (in millions):
 
Apr 2, 2017
 
Oct 2, 2016
Cross-currency swaps
$
558

 
$
660

Foreign currency - other
1,152

 
688

Coffee
99

 
7

Dairy
45

 
76

Diesel fuel and other commodities
50

 
46

Fair value of outstanding derivative contracts (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
Apr 2, 2017
 
Oct 2, 2016
 
Apr 2, 2017
 
Oct 2, 2016
Designated Derivative Hedging Instruments:
 
 
 
 
 
 
 
Cross-currency swaps
$
7.5

 
$

 
$
11.9

 
$
57.0

Foreign currency - other
21.4

 
20.8

 
6.3

 
24.0

Coffee
0.5

 
1.8

 
0.5

 

Non-designated Derivative Hedging Instruments:
 
 
 
 
 
 
 
Foreign currency
13.6

 
6.2

 
7.6

 
6.5

Dairy
0.2

 
1.5

 
1.4

 
1.6

Diesel fuel and other commodities
1.0

 
3.8

 
0.8

 
0.5


11


Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 8, Equity.
Note 4:
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions):

 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance at
Apr 2, 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
$
2,163.9

 
$
2,163.9

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
3.3

 

 
3.3

 

Commercial paper
19.4

 

 
19.4

 

Corporate debt securities
52.7

 

 
52.7

 

Foreign government obligations
5.8

 

 
5.8

 


U.S. government treasury securities
63.7

 
63.7

 

 

State and local government obligations
3.0

 

 
3.0

 

Certificates of deposit
12.3

 

 
12.3

 

Total available-for-sale securities
160.2

 
63.7

 
96.5

 

Trading securities
70.8

 
70.8

 

 

Total short-term investments
231.0

 
134.5

 
96.5

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
21.7

 
0.6

 
21.1

 

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
35.5

 

 
35.5

 

Corporate debt securities
419.6

 

 
419.6

 

Auction rate securities
5.9

 

 

 
5.9

Foreign government obligations
62.4

 

 
62.4

 

U.S. government treasury securities
281.8

 
281.8

 

 

State and local government obligations
10.2

 

 
10.2

 

Mortgage and other asset-backed securities
254.7

 

 
254.7

 

Total long-term investments
1,070.1

 
281.8

 
782.4

 
5.9

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
22.5

 

 
22.5

 

Total assets
$
3,509.2

 
$
2,580.8

 
$
922.5

 
$
5.9

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
13.6

 
$
1.4

 
$
12.2

 
$

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
14.9

 

 
14.9

 

Total liabilities
$
28.5

 
$
1.4

 
$
27.1

 
$



12


 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance at
Oct 2, 2016
 
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
$
2,128.8

 
$
2,128.8

 
$

 
$

Short-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
1.3

 

 
1.3

 

Commercial paper
2.6

 

 
2.6

 

Corporate debt securities
34.2

 

 
34.2

 

Foreign government obligations
5.5

 

 
5.5

 

U.S. government treasury securities
15.8

 
15.8

 

 

State and local government obligations
0.5

 

 
0.5

 

Certificates of deposit
5.8

 

 
5.8

 

Total available-for-sale securities
65.7

 
15.8

 
49.9

 

Trading securities
68.7

 
68.7

 

 

Total short-term investments
134.4

 
84.5

 
49.9

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Derivative assets
27.7

 
3.1

 
24.6

 

Long-term investments:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Agency obligations
44.4

 

 
44.4

 

Corporate debt securities
459.3

 

 
459.3

 

Auction rate securities
5.7

 

 

 
5.7

Foreign government obligations
46.7

 

 
46.7

 

U.S. government treasury securities
358.2

 
358.2

 

 

State and local government obligations
57.5

 

 
57.5

 

Mortgage and other asset-backed securities
169.9

 

 
169.9

 

Total long-term investments
1,141.7

 
358.2

 
777.8

 
5.7

Other long-term assets:
 
 
 
 
 
 
 
Derivative assets
6.4

 

 
6.4

 

Total assets
$
3,439.0

 
$
2,574.6

 
$
858.7

 
$
5.7

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
18.0

 
$
1.7

 
$
16.3

 
$

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative liabilities
71.6

 

 
71.6

 

Total
$
89.6

 
$
1.7

 
$
87.9

 
$

There were no 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 2, 2017 and October 2, 2016.
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

13


investments, and other assets. These assets are measured at fair value if determined to be impaired. During the quarter and two quarters ended April 2, 2017 and March 27, 2016, there were no material fair value adjustments.
The estimated fair value of our long-term debt based on the quoted market price (Level 2) is included at Note 7, Debt.
Note 5:
Inventories (in millions)
 
Apr 2, 2017
 
Oct 2, 2016
 
Mar 27, 2016
Coffee:
 
 
 
 
 
Unroasted
$
599.2

 
$
561.6

 
$
585.5

Roasted
272.8

 
300.4

 
261.8

Other merchandise held for sale
244.6

 
308.6

 
255.0

Packaging and other supplies
207.0

 
207.9

 
190.8

Total
$
1,323.6

 
$
1,378.5

 
$
1,293.1

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 2, 2017, we had committed to purchasing green coffee totaling $441 million under fixed-price contracts and an estimated $676 million under price-to-be-fixed contracts. As of April 2, 2017, approximately $99 million 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)

Property, Plant and Equipment, net
 
Apr 2, 2017
 
Oct 2, 2016
Land
$
46.8

 
$
46.6

Buildings
468.2

 
458.4

Leasehold improvements
6,042.5

 
5,892.9

Store equipment
1,983.7

 
1,931.7

Roasting equipment
603.3

 
605.4

Furniture, fixtures and other
1,431.3

 
1,366.9

Work in progress
311.5

 
271.4

Property, plant and equipment, gross
10,887.3

 
10,573.3

Accumulated depreciation
(6,322.8
)
 
(6,039.5
)
Property, plant and equipment, net
$
4,564.5

 
$
4,533.8


Accrued Liabilities
 
Apr 2, 2017
 
Oct 2, 2016
Accrued compensation and related costs
$
468.4

 
$
510.8

Accrued occupancy costs
135.5

 
137.5

Accrued taxes
201.8

 
368.4

Accrued dividends payable
361.9

 
365.1

Accrued capital and other operating expenditures
563.0

 
617.3

Total accrued liabilities
$
1,730.6

 
$
1,999.1


14


Note 7:
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 $1 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 2, 2017, we had $25 million of borrowings outstanding under the program. The estimated fair value of the commercial paper approximates its carrying value.
Long-term Debt
In March 2017, we issued Japanese yen-denominated long-term debt in an underwritten registered public offering. The 7-year 0.372% Senior Notes (the "2024 notes") due March 2024 were issued with a face value of ¥85 billion, of which ¥76.0 billion has been designated to hedge the foreign currency exposure of our net investment in Japan. Interest on the 2024 notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017.
In December 2016, we repaid the $400 million of 0.875% Senior Notes (the "2016 notes") at maturity.
Components of long-term debt including the associated interest rates and related estimated fair values by calendar maturity (in millions, except interest rates):
 
Apr 2, 2017
 
Oct 2, 2016
 
Stated Interest Rate
Effective Interest Rate (1)
Issuance
Face Value
Estimated Fair Value
 
Face Value
Estimated Fair Value
 
2016 notes
$

$

 
$
400.0

$
400

 
0.875
%
0.941
%
2018 notes
350.0

354

 
350.0

357

 
2.000
%
2.012
%
2021 notes
500.0

502

 
500.0

511

 
2.100
%
2.293
%
2021 notes
250.0

251

 
250.0

255

 
2.100
%
1.600
%
2022 notes
500.0

509

 
500.0

526

 
2.700
%
2.819
%
2023 notes
750.0

806

 
750.0

839

 
3.850
%
2.860
%
2024 notes (2)
761.1

762

 


 
0.372
%
0.462
%
2026 notes
500.0

480

 
500.0

509

 
2.450
%
2.511
%
2045 notes
350.0

370

 
350.0

417

 
4.300
%
4.348
%
Total
3,961.1

4,034

 
3,600.0

3,814

 
 
 
Aggregate debt issuance costs and unamortized premium, net
(18.6
)
 
 
(14.8
)
 
 
 
 
Total
$
3,942.5

 
 
$
3,585.2

 
 
 
 
(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) 
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 April 2, 2017, we were in compliance with all applicable covenants.

15


The following table summarizes our long-term debt maturities as of April 2, 2017 by fiscal year (in millions):
Fiscal Year
Total
2018
$

2019
350.0

2020

2021
750.0

2022
500.0

Thereafter
2,361.1

Total
$
3,961.1


Note 8:
Equity
Changes in total equity (in millions):
 
Two Quarters Ended
 
Apr 2, 2017
 
Mar 27, 2016
 
Attributable to Starbucks
 
Noncontrolling interests
 
Total Equity
 
Attributable to Starbucks
 
Noncontrolling interest
 
Total Equity
Beginning balance of total equity
$
5,884.0

 
$
6.7

 
$
5,890.7

 
$
5,818.0

 
$
1.8

 
$
5,819.8

Net earnings including noncontrolling interests
1,404.9

 
(0.3
)
 
1,404.6

 
1,262.6

 

 
1,262.6

Translation adjustment and other, net of reclassifications and tax
(112.3
)
 

 
(112.3
)
 
36.6

 

 
36.6

Unrealized gains/(losses), net of reclassifications and tax
14.3

 

 
14.3

 
(26.4
)
 

 
(26.4
)
Other comprehensive income/(loss)
(98.0
)
 

 
(98.0
)
 
10.2

 

 
10.2

Stock-based compensation expense
105.8

 

 
105.8

 
109.5

 

 
109.5

Exercise of stock options/vesting of RSUs
64.7

 

 
64.7

 
59.7

 

 
59.7

Sale of common stock
14.2

 

 
14.2

 
6.9

 

 
6.9

Repurchase of common stock
(1,046.1
)
 

 
(1,046.1
)
 
(1,584.5
)
 

 
(1,584.5
)
Cash dividends declared
(724.5
)
 

 
(724.5
)
 
(587.8
)
 

 
(587.8
)
Ending balance of total equity
$
5,605.0

 
$
6.4

 
$
5,611.4

 
$
5,094.6

 
$
1.8

 
$
5,096.4


16


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 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
)
 
 
 
 
 
 
 
 
 
 
March 27, 2016
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
0.8

 
$
23.4

 
$
1.3

 
$
(250.6
)
 
$
(225.1
)
Net gains/(losses) recognized in OCI before reclassifications
2.4

 
(50.7
)
 

 
61.0

 
12.7

Net (gains)/losses reclassified from AOCI to earnings
(0.3
)
 
23.5

 

 

 
23.2

Other comprehensive income/(loss) attributable to Starbucks
2.1

 
(27.2
)
 

 
61.0

 
35.9

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

 
$
(3.8
)
 
$
1.3

 
$
(189.6
)
 
$
(189.2
)
Two Quarters Ended
 
 
 
 
 
 
 
 
 
 
 
 Available-for-Sale Securities
 
 Cash Flow Hedges
 
 Net Investment Hedges
 
Translation Adjustment and Other
 
Total
April 2, 2017
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
1.1

 
$
10.9

 
$
1.3

 
$
(121.7
)
 
$
(108.4
)
Net gains/(losses) recognized in OCI before reclassifications
(7.9
)
 
61.2

 
10.0

 
(112.3
)
 
(49.0
)
Net (gains)/losses reclassified from AOCI to earnings
1.5

 
(50.5
)
 

 

 
(49.0
)
Other comprehensive income/(loss) attributable to Starbucks
(6.4
)
 
10.7

 
10.0

 
(112.3
)
 
(98.0
)
Net gains/(losses) in AOCI, end of period
$
(5.3
)
 
$
21.6

 
$
11.3

 
$
(234.0
)
 
$
(206.4
)
 
 
 
 
 
 
 
 
 
 
March 27, 2016
 
 
 
 
 
 
 
 
 
Net gains/(losses) in AOCI, beginning of period
$
(0.1
)
 
$
25.6

 
$
1.3

 
$
(226.2
)
 
$
(199.4
)
Net gains/(losses) recognized in OCI before reclassifications
3.0

 
(47.6
)
 

 
36.6

 
(8.0
)
Net (gains)/losses reclassified from AOCI to earnings

 
18.2

 

 

 
18.2

Other comprehensive income/(loss) attributable to Starbucks
3.0

 
(29.4
)
 

 
36.6

 
10.2

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

 
$
(3.8
)
 
$
1.3

 
$
(189.6
)
 
$
(189.2
)

17


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
 
Apr 2, 2017
 
Mar 27, 2016
 
Gains/(losses) on available-for-sale securities
 
$
(1.2
)
 
$
0.5

 
Interest income and other, net
Gains/(losses) on cash flow hedges
 
 
 
 
 
 
Interest rate hedges
 
1.2

 
1.3

 
Interest expense
Cross-currency swaps
 
(23.4
)
 
(36.4
)
 
Interest income and other, net
Foreign currency hedges
 
1.2

 
2.3

 
Revenues
Foreign currency/coffee hedges
 
2.1

 
5.0

 
Cost of sales including occupancy costs
 
 
(20.1
)
 
(27.3
)
 
Total before tax
 
 
3.4

 
4.1

 
Tax benefit
 
 
$
(16.7
)
 
$
(23.2
)
 
Net of tax
Two Quarters Ended
 
 
 
 
 
 
 
AOCI
Components
 
Amounts Reclassified from AOCI
 
Affected Line Item in
the Statements of Earnings
 
Apr 2, 2017
 
Mar 27, 2016
 
Gains/(losses) on available-for-sale securities
 
$
(2.0
)
 
$
0.2

 
Interest income and other, net
Gains/(losses) on cash flow hedges
 
 
 
 
 
 
Interest rate hedges
 
2.4

 
2.8

 
Interest expense
Cross-currency swaps
 
54.2

 
(38.2
)
 
Interest income and other, net
Foreign currency hedges
 
2.5

 
5.4

 
Revenues
Foreign currency/coffee hedges
 
4.5

 
10.3

 
Cost of sales including occupancy costs
 
 
61.6

 
(19.5
)
 
Total before tax
 
 
(12.6
)
 
1.3

 
Tax (expense)/benefit
 
 
$
49.0

 
$
(18.2
)
 
Net of tax
In addition to 2.4 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of April 2, 2017.
We repurchased 19.0 million shares of common stock at a total cost of $1.0 billion, and 27.5 million shares at a total cost of $1.6 billion for two quarters ended April 2, 2017 and March 27, 2016, respectively. As of April 2, 2017, 98.9 million shares remained available for repurchase under current authorizations.
During the second quarter of fiscal 2017, our Board of Directors declared a quarterly cash dividend to shareholders of $0.25 per share to be paid on May 26, 2017 to shareholders of record as of the close of business on May 11, 2017.

18


Note 9:
Employee Stock Plans
As of April 2, 2017, there were 72.5 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 13.6 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
 
Two Quarters Ended
 
Apr 2, 2017
 
Mar 27, 2016
 
Apr 2, 2017
 
Mar 27, 2016
Options
$
9.1

 
$
7.5

 
$
24.0

 
$
23.0

Restricted Stock Units (“RSUs”)
40.8

 
43.8

 
80.9

 
85.6

Total stock-based compensation expense
$
49.9

 
$
51.3

 
$
104.9

 
$
108.6

Stock option and RSU transactions from October 2, 2016 through April 2, 2017 (in millions):
 
 
Stock Options
 
RSUs
Options outstanding/Nonvested RSUs, October 2, 2016
31.3

 
8.3

Granted
6.8

 
4.8

Options exercised/RSUs vested
(3.5
)
 
(3.7
)
Forfeited/expired
(1.0
)
 
(0.8
)
Options outstanding/Nonvested RSUs, April 2, 2017
33.6

 
8.6

Total unrecognized stock-based compensation expense, net of estimated forfeitures, as of April 2, 2017
$
56.2

 
$
192.2

Note 10:
Earnings per Share
Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):
 
Quarter Ended
 
Two Quarters Ended
 
Apr 2, 2017
 
Mar 27, 2016
 
Apr 2, 2017
 
Mar 27, 2016
Net earnings attributable to Starbucks
$
652.8

 
$
575.1

 
$
1,404.9

 
$
1,262.6

Weighted average common shares outstanding (for basic calculation)
1,453.2

 
1,472.1

 
1,455.3

 
1,479.0

Dilutive effect of outstanding common stock options and RSUs
11.6

 
14.5

 
12.4

 
16.0

Weighted average common and common equivalent shares outstanding (for diluted calculation)
1,464.8

 
1,486.6

 
1,467.7

 
1,495.0

EPS — basic
$
0.45

 
$
0.39

 
$
0.97

 
$
0.85

EPS — diluted
$
0.45

 
$
0.39

 
$
0.96

 
$
0.84

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 5.2 million as of April 2, 2017 and March 27, 2016.

19


Note 11:
Segment Reporting
Our chief executive officer and chief operating officer comprised the Company's Chief Operating Decision Maker function ("CODM"). Segment information is prepared on the same basis that our CODM manages the segments, evaluates financial results and makes key operating decisions.
The table below presents financial information for our reportable operating segments and All Other Segments (in millions):
Quarter Ended
 
Americas
 
China/
Asia Pacific
 
EMEA
 
Channel
Development
 
All Other Segments
 
Segment
Total
April 2, 2017
 
 
 
 
 
 
 
 
 
 
 
Total net revenues
$
3,720.4

 
$
768.9

 
$
231.7

 
$
461.3

 
$
111.7

 
$
5,294.0

Depreciation and amortization expenses
155.4

 
49.3

 
7.6

 
0.6

 
3.5

 
216.4

Income from equity investees

 
44.1

 

 
40.0

 

 
84.1

Operating income/(loss)
826.1

 
175.9

 
27.7

 
193.6

 
(25.5
)
 
1,197.8

 
 
 
 
 
 
 
 
 
 
 
 
March 27, 2016
 
 
 
 
 
 
 
 
 
 
 
Total net revenues
$
3,455.6

 
$
677.9

 
$
268.3

 
$
461.2

 
$
130.2

 
$
4,993.2

Depreciation and amortization expenses
151.7

 
44.0

 
10.7

 
0.7

 
3.4

 
210.5

Income from equity investees

 
32.7