General
Our fiscal year ends on the Sunday closest toSeptember 30 . All references to store counts, including data for new store openings, are reported net of related store closures, unless otherwise noted. Fiscal year 2021 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter. Fiscal years 2020 and 2019 included 52 weeks. For fiscal 2021, comparable store sales percentages were calculated excluding the extra week in the fourth quarter of fiscal 2021. The discussion of our financial condition and results of operations for the year endedSeptember 29, 2019 , included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") can be found in the Annual Report on Form 10-K for the year endedSeptember 27, 2020 . The fiscal 2021 Latin America andCaribbean licensed store market resegmentation did not have a material impact to prior yearNorth America and International operating segment business trends and operating margins.
Overview
In the fourth quarter of fiscal 2021, certain changes were made to our management team, and our operating segment reporting structure was realigned as a result. We realigned our fully licensedLatin America andCaribbean markets from ourAmericas operating segment to our International operating segment. Additionally, we renamed theAmericas operating segment to theNorth America operating segment, since it is comprised of our company-operated and licensed stores in theU.S. andCanada . We also made certain other immaterial changes between our International operating segment and Corporate and Other. Concurrent with the change in reportable segments, we revised our prior period financial information to be consistent with the current period presentation. There was no impact on consolidated net revenues, total operating expenses, operating income or net earnings per share as a result of these changes. We have three reportable operating segments: 1)North America , which is inclusive of theU.S. andCanada ; 2) International, which is inclusive ofChina ,Japan ,Asia Pacific ,Europe ,Middle East ,Africa ,Latin America and theCaribbean ; and 3) Channel Development. Non-reportable operating segments such as Evolution Fresh and unallocated corporate expenses are reported within Corporate and Other. Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics: •New store openings and store count •Comparable store sales •Operating marginStarbucks results for fiscal 2021 demonstrate the overall strength and resilience of our brand. Consolidated revenues increased 24% to$29.1 billion in fiscal 2021 compared to$23.5 billion in fiscal 2020, primarily due to business recovery from the COVID-19 pandemic. Also contributing to the increase was$576 million of incremental revenue attributable to the extra week in fiscal 2021. For theNorth America segment, comparable store sales increased 22% for fiscal 2021 compared to a decline of 12% in fiscal 2020. Comparable store sales for our U.S. market increased 21% for fiscal 2021 compared to a decline of 12% in fiscal 2020. The U.S. market also had a 7% increase in two-year comparable store sales(1). We lapped higher costs attributable to COVID-19 in the prior year, including catastrophe pay programs for company-operated store partners (employees), net of qualified tax credits provided by the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and theCanada Emergency Wage Subsidy ("CEWS"). In fiscal 2020, we announced a restructuring plan to optimize ourNorth America store portfolio, primarily in dense, metropolitan markets, by blending store formats to better cater to changing customer tastes and preferences. As of the fiscal year endedOctober 3, 2021 , we had substantially completed our restructuring plan, which resulted in the closure of 807 stores in theU.S. andCanada . Costs incurred related to the restructuring efforts were recorded as restructuring and impairments on our consolidated statements of earnings. InOctober 2021 , we announced plans to deliver retail wage increases across theU.S. in fiscal 2022. This investment, combined with industry-leading benefits, supportsStarbucks aspiration to remain an employer of choice that can attract and retain the high-quality talent necessary to support our continued growth. For the International segment, comparable store sales increased by 16% for fiscal 2021 compared to a decline of 19% in fiscal 2020. Comparable store sales for ourChina market increased 17%, inclusive of a 3% adverse impact from lapping the prior-year value-added tax ("VAT") benefit. Key markets in the International segment continued to experience pandemic-related restrictions that significantly impacted customer mobility during the year. Although nearly all company-operated stores in these markets remained open, the modified operating protocols had an adverse impact to comparable store sales and operating results. 26 -------------------------------------------------------------------------------- Table of Contents Revenue for our Channel Development segment decreased$331 million , or 17%, when compared with fiscal 2020. This was largely due to the transition of certain single-serve product activities to Nestlé beginning in the fourth quarter of fiscal 2020. This was partially offset by growth in our ready-to-drink business. We expect Channel Development to return to more normalized reported revenue growth levels in fiscal 2022, as the fourth quarter of fiscal 2021 is the last quarter lapping these transition related activities. During fiscal 2021, we began to experience certain supply shortages and transportation delays largely attributable to impacts of the COVID-19 pandemic as well as changes in customer demand and behaviors. While we expect these shortages and delays may continue into fiscal 2022, we view them to be temporary and do not believe they will have a material impact to our long-term growth and profitability. Absent significant and prolonged COVID-19 relapses or global economic disruptions, and based on the current trend of our business operations and our focused efforts to elevate customer experiences, enhance digital capabilities and drive beverage innovation, we are confident in the strength of our brand and the durability of long-term "Growth at Scale" strategy to deliver consistent revenue and income growth. We anticipate the planned wage investment in theU.S. , along with increased supply chain costs primarily related to inflationary pressures that began in the latter half of the fiscal year, will have an impact to operating margin in fiscal 2022. However, these should be meaningfully offset by benefits from pricing decisions and leverage from revenue growth and productivity efficiency. (1)Two-year comparable store sales metric is calculated as ((1 + % change in comparable store sales in FY20) * (1 + % change in comparable store sales in FY21)) - 1. Two-year comparable store sales for theU.S. of 7% = ((1 + (-12%)) * (1 + 21%)) - 1. Financial Highlights •Total net revenues increased 24% to$29.1 billion in fiscal 2021 compared to$23.5 billion in fiscal 2020, including$576 million attributable to the extra week in fiscal 2021. •Consolidated operating income increased to$4.9 billion in fiscal 2021 compared to$1.6 billion in fiscal 2020. Fiscal 2021 operating margin was 16.8% compared to 6.6% in fiscal 2020. Operating margin expansion was primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies from theU.S. and certain foreign governments, as well as pricing inNorth America in the current year. These increases were partially offset by enhancements in retail store partner wages and benefits and, to a lesser extent, increased supply chain costs due to accelerated inflationary pressures in the latter half of fiscal 2021. •Diluted earnings per share ("EPS") for fiscal 2021 increased to$3.54 , compared to EPS of$0.79 in fiscal 2020. The increase was primarily driven by lapping the adverse impacts of COVID-19 in prior year. Also contributing to the increase was a$0.56 gain net of estimated taxes on the divestiture of ourSouth Korea joint venture and$0.10 related to the extra week in fiscal 2021. •Capital expenditures were$1.5 billion for both fiscal 2021 and fiscal 2020. •We returned$2.1 billion to our shareholders in fiscal 2021 through dividends. We returned$3.6 billion in fiscal 2020 through share repurchases and dividends. We temporarily suspended our share repurchase program inMarch 2020 . Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022. Acquisitions and Divestitures See Note 2 , Acquisitions, Divestitures and Strategic Alliance, to the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding acquisitions and divestitures. 27 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS - FISCAL 2021 COMPARED TO FISCAL 2020 Consolidated results of operations (in millions): Revenues Oct 3, Sep 27, % Fiscal Year Ended 2021 2020 Change Net revenues: Company-operated stores$ 24,607.0 $ 19,164.6 28.4 % Licensed stores 2,683.6 2,327.1 15.3 Other 1,770.0 2,026.3 (12.6) Total net revenues$ 29,060.6 $ 23,518.0 23.6 % Total net revenues increased$5.5 billion , or 24%, over fiscal 2020, primarily due to higher revenues from company-operated stores ($5.4 billion ). The growth in company-operated store revenue was driven by a 20% increase in comparable store sales ($3.8 billion ), attributable to a 9% increase in comparable transactions and a 10% increase in average ticket, the incremental revenues from 524 net new Starbucks® company-operated store openings, or a 3% increase, over the past 12 months ($782 million ), the impact of the extra week in fiscal 2021 ($496 million ) and the impact of favorable foreign currency translation ($359 million ). Licensed stores revenue of$357 million also contributed to the increase in total net revenues, driven by higher product and equipment sales to and royalty revenues from our licensees ($270 million ), the impact of the extra week in fiscal 2021 ($57 million ) and the impact of favorable foreign currency translation ($28 million ). Other revenues decreased$256 million , primarily driven by the transition of certain single-serve product activities to Nestlé. Partially offsetting this decrease was growth in our ready-to-drink business ($43 million ) and the impact of the extra fiscal week in fiscal 2021 ($23 million ). Operating Expenses Oct 3, Sep 27, Oct 3, Sep 27, Fiscal Year Ended 2021 2020 2021 2020 As a % of Total Net Revenues
Product and distribution costs
30.1 % 32.7 % Store operating expenses 11,930.9 10,764.0 41.1 45.8 Other operating expenses 359.5 430.3 1.2 1.8 Depreciation and amortization expenses 1,441.7 1,431.3 5.0 6.1 General and administrative expenses 1,932.6 1,679.6 6.7 7.1 Restructuring and impairments 170.4 278.7 0.6 1.2 Total operating expenses 24,573.8 22,278.8 84.6 94.7 Income from equity investees 385.3 322.5 1.3 1.4 Operating income$ 4,872.1 $ 1,561.7 16.8 % 6.6 % Store operating expenses as a % of related revenues 48.5 % 56.2 % Product and distribution costs as a percentage of total net revenues decreased 260 basis points, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year and pricing inNorth America in the current year. These decreases were partially offset by increased supply chain costs due to accelerated inflationary pressures in the latter half of fiscal 2021. Store operating expenses as a percentage of total net revenues decreased 470 basis points. Store operating expenses as a percentage of company-operated store revenues decreased 770 basis points, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies from theU.S. and certain foreign governments (approximately 190 basis points) and labor efficiencies (approximately 110 basis points). These decreases were partially offset by enhancements in retail store partner wages and benefits (approximately 140 basis points). 28 -------------------------------------------------------------------------------- Table of Contents Other operating expenses decreased$71 million , primarily due to lowerGlobal Coffee Alliance transaction costs, inclusive of lapping integration costs for theGlobal Coffee Alliance and a change of a related accrual estimate in fiscal 2021. Depreciation and amortization expenses as a percentage of total net revenues decreased 110 basis points, primarily due to sales leverage. General and administrative expenses increased$253 million , primarily due to higher performance-based compensation, recognizing the strength of the Company's overall recovery from pandemic-related business impacts ($111 million ), incremental strategic investments in technology ($89 million ), increased partner wages and benefits ($26 million ) and the impact of the extra week in fiscal 2021 ($22 million ). Restructuring and impairment expenses decreased$108 million , primarily due to lower asset impairment related to ourNorth America store portfolio optimization ($65 million ), lapping the intangible asset impairment from the prior year ($22 million ) and lower severance costs. Income from equity investees increased$63 million , primarily due to higher income from ourNorth American Coffee Partnership joint venture ($30 million ) and growth in ourSouth Korea joint venture prior to divestiture ($22 million ). We expect lower income from equity method investments in the future as a result of the sale of our South Korea joint venture (see Note 2 ); however, we do not expect this transaction to have a material impact on future revenue and operating margin trends. The combination of these changes resulted in an overall increase in operating margin of 1,020 basis points in fiscal 2021 when compared to fiscal 2020. Other Income and Expenses Oct 3, Sep 27, Oct 3, Sep 27, Fiscal Year Ended 2021 2020 2021 2020 As a % of Total Net Revenues Operating income$ 4,872.1 $ 1,561.7 16.8 % 6.6 % Net gain resulting from divestiture of certain operations 864.5 - 3.0 - Interest income and other, net 90.1 39.7 0.3 0.2 Interest expense (469.8) (437.0) (1.6) (1.9) Earnings before income taxes 5,356.9 1,164.4 18.4 5.0 Income tax expense 1,156.6 239.7 4.0 1.0 Net earnings including noncontrolling interests 4,200.3 924.7 14.5 3.9 Net earnings/(loss) attributable to noncontrolling interests 1.0 (3.6) - - Net earnings attributable to Starbucks$ 4,199.3 $ 928.3 14.5 % 3.9 % Effective tax rate including noncontrolling interests 21.6 % 20.6 % Net gain resulting from divestiture of certain operations increased$865 million due to the sale of our ownership interest in ourSouth Korea joint venture. Interest income and other, net increased$50 million , primarily due to additional income from certain investments and net favorable fair value adjustments from derivatives used to manage our commodity price fluctuation risk. Interest expense increased$33 million primarily due to additional interest incurred on long-term debt issued inMarch 2020 andMay 2020 . The effective tax rate for fiscal 2021 was 21.6% compared to 20.6% for fiscal 2020. The increase was due to the foreign rate differential on our jurisdictional mix of earnings (approximately 380 basis points) as well as higher pre-tax income in fiscal 2021, which resulted in lower rate benefits from several discrete items, including stock-based compensation excess tax benefits (approximately 380 basis points), the release of income tax reserves upon expiration of statute of limitations (approximately 150 basis points) and the remeasurement of deferred tax assets due to an enacted foreign corporate rate change (approximately 80 basis points). These unfavorable drivers were partially offset by lapping valuation allowances recorded against deferred tax assets of certain international jurisdictions in the prior year (approximately 990 basis points). See Note 14 , Income Taxes, for further discussion. 29 -------------------------------------------------------------------------------- Table of Contents Segment Information Results of operations by segment (in millions):North America (1) Oct 3, Sep 27, Oct 3, Sep 27, Fiscal Year Ended 2021 2020 2021 2020 As a % of North America Total Net Revenues Net revenues: Company-operated stores$ 18,737.3 $ 14,778.8 91.6 % 90.7 % Licensed stores 1,702.2 1,509.9 8.3 9.3 Other 8.4 7.5 - - Total net revenues 20,447.9 16,296.2 100.0 100.0 Product and distribution costs 5,453.8 4,564.4 26.7 28.0 Store operating expenses 9,359.5 8,488.0 45.8 52.1 Other operating expenses 166.0 154.6 0.8 0.9 Depreciation and amortization expenses 753.9 762.0 3.7 4.7 General and administrative expenses 300.0 268.0 1.5 1.6 Restructuring and impairments 155.4 257.5 0.8 1.6 Total operating expenses 16,188.6 14,494.5 79.2 88.9 Operating income$ 4,259.3 $ 1,801.7 20.8 % 11.1 % (1)North America licensed store revenues, total net revenues, product and distribution costs, other operating expenses, total operating expenses and operating income for the fiscal year endedSeptember 27, 2020 , have been restated to conform with current period presentation. RevenuesNorth America total net revenues for fiscal 2021 increased$4.2 billion , or 25%, primarily due to a 22% increase in comparable store sales ($3.1 billion ) driven by a 13% increase in average ticket and a 7% increase in transactions and the impact of the extra week in fiscal 2021 ($427 million ). Also contributing to these increases were the performance of new stores compared to the closure of underperforming stores, including stores related to our restructuring plan ($394 million ), higher product and equipment sales to and royalty revenues from our licensees ($151 million ) primarily due to lapping the severe impact of the COVID-19 pandemic in the prior year and favorable foreign currency translation ($76 million ). Operating MarginNorth America operating income for fiscal 2021 increased 136% to$4.3 billion , compared to$1.8 billion in fiscal 2020. Operating margin increased 970 basis points to 20.8%, primarily due to sales leverage from business recovery and lapping higher COVID-19 related costs in the prior year, mainly catastrophe and service pay for store partners, net of temporary subsidies provided by the CARES Act and CEWS (approximately 180 basis points). Also contributing to the margin improvements were pricing (approximately 130 basis points), lower restructuring expenses (approximately 80 basis points) and benefits from the closure of lower-performing stores (approximately 60 basis points). These increases were partially offset by enhancements in retail store partner wages and benefits (approximately 150 basis points) and, to a lesser extent, increased supply chain costs due to accelerated inflationary pressures in the latter half of fiscal 2021. 30 --------------------------------------------------------------------------------
Table of Contents International (1) Oct 3, Sep 27, Oct 3, Sep 27, Fiscal Year Ended 2021 2020 2021 2020 As a % of International Total Net Revenues Net revenues: Company-operated stores$ 5,869.7 $ 4,385.8 84.8 % 83.8 % Licensed stores 981.4 817.2 14.2 15.6 Other 70.5 27.6 1.0 0.5 Total net revenues 6,921.6 5,230.6 100.0 100.0 Product and distribution costs 2,187.3 1,729.1 31.6 33.1 Store operating expenses 2,571.4 2,276.0 37.2 43.5 Other operating expenses 147.3 153.6 2.1 2.9 Depreciation and amortization expenses 544.7 518.4 7.9 9.9 General and administrative expenses 360.5 286.4 5.2 5.5 Restructuring and impairments - (1.2) - - Total operating expenses 5,811.2 4,962.3 84.0 94.9 Income from equity investees 135.3 102.3 2.0 2.0 Operating income$ 1,245.7 $ 370.6 18.0 % 7.1 % (1)International licensed store revenues, total net revenues, product and distribution costs, other operating expenses, general and administrative expenses, total operating expenses and operating income for the fiscal year endedSeptember 27, 2020 , have been restated to conform with current period presentation. Revenues International total net revenues for fiscal 2021 increased$1.7 billion , or 32%, primarily due to a 16% increase in comparable store sales ($697 million ), driven by a 14% increase in transactions and a 1% increase in average ticket. Also contributing to this increase were 746 net new Starbucks® company-operated stores, or an 11% increase, over the past 12 months ($388 million ). Additionally, there was favorable foreign currency translation ($310 million ), the impact of the extra week in fiscal 2021 ($127 million ) and higher product sales to and royalty revenues from our licensees ($121 million ) primarily due to lapping the impact of the COVID-19 pandemic in the prior year. Operating Margin International operating income for fiscal 2021 increased 236% to$1.2 billion , compared to$371 million in fiscal 2020. Operating margin increased 1,090 basis points to 18.0%, primarily due to sales leverage driven by lapping the severe impact of the COVID-19 pandemic in the prior year as well as higher temporary government subsidies (approximately 170 basis points) and labor efficiencies (approximately 110 basis points). Also contributing to this increase was lapping temporary royalty relief provided to licensees in the prior year (approximately 60 basis points). 31
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Table of Contents Channel Development Oct 3, Sep 27, Oct 3, Sep 27, Fiscal Year Ended 2021 2020 2021 2020 As a % of Channel Development Total Net Revenues Net revenues$ 1,593.6 $ 1,925.0 Product and distribution costs 1,011.2 1,338.1 63.5 69.5 Other operating expenses 31.3 108.2 2.0 5.6 Depreciation and amortization expenses 1.2 1.2 0.1 0.1 General and administrative expenses 10.8 10.5 0.7 0.5 Total operating expenses 1,054.5 1,458.0 66.2 75.7 Income from equity investees 250.0 220.2 15.7 11.4 Operating income$ 789.1 $ 687.2 49.5 % 35.7 % Revenues Channel Development total net revenues for fiscal 2021 decreased$331 million , or 17%, compared to fiscal 2020, primarily due to the transition of certain single-serve product activities to Nestlé ($348 million ) and the lapping of higher transition activities related to theGlobal Coffee Alliance in the prior year ($85 million ). These were partially offset by growth in our ready-to-drink business ($52 million ) and the impact of the extra week in fiscal 2021 ($21 million ). Operating Margin Channel Development operating income for fiscal 2021 increased 15% to$789 million , compared to$687 million in fiscal 2020. Operating margin increased 1,380 basis points to 49.5%, primarily due to the transfer of certain single-serve product activities to Nestlé as part of theGlobal Coffee Alliance (approximately 730 basis points) and lapping higher transition costs for theGlobal Coffee Alliance and a change in estimate relating to a transaction cost accrual in fiscal 2021 (approximately 380 basis points). Strong performance from ourNorth American Coffee Partnership joint venture (approximately 120 basis points) also contributed. 32 --------------------------------------------------------------------------------
Table of Contents Corporate and Other (1) Oct 3, Sep 27, % Fiscal Year Ended 2021 2020 Change Net revenues: Other$ 97.5 $ 66.2 47.3 % Total net revenues 97.5 66.2 47.3 Product and distribution costs 86.4 63.3
36.5
Other operating expenses 14.9 13.9
7.2
Depreciation and amortization expenses 141.9 149.7
(5.2)
General and administrative expenses 1,261.3 1,114.7 13.2 Restructuring and impairments
15.0 22.4 (33.0) Total operating expenses 1,519.5 1,364.0 11.4 Operating loss$ (1,422.0) $ (1,297.8) 9.6 % (1)Corporate and other general and administrative expenses and operating loss for the fiscal year endedSeptember 27, 2020 , have been restated to conform with current period presentation. Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. Corporate and Other operating loss increased to$1.4 billion for fiscal 2021, or 10%, compared to$1.3 billion in fiscal 2020. This increase was primarily driven by incremental investments in technology ($81 million ) and higher performance-based compensation, due to better than expected business recovery ($57 million ). FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Cash and Investment Overview Our cash and investments were$6.9 billion and$4.8 billion as ofOctober 3, 2021 andSeptember 27, 2020 , respectively. We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, make acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (domestic and foreign) and commercial paper. As ofOctober 3, 2021 , approximately$2.9 billion of cash was held in foreign subsidiaries. Borrowing capacity Credit Facilities and Commercial Paper Our total contractual borrowing capacity for general corporate purposes was$3.0 billion as of the end of fiscal 2021. Revolving Lines of Credit During the fourth quarter of fiscal 2021, we replaced our$2.0 billion unsecured 5-year revolving credit facility (the "2018 credit facility") and our$1.0 billion unsecured 364-Day credit facility (the "364-day credit facility") with a new$3.0 billion unsecured 5-year revolving credit facility (the "2021 credit facility"). Our 2021 credit facility, of which$150 million may be used for issuances of letters of credit, is currently set to mature onSeptember 16, 2026 . We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional$1.0 billion . Borrowings under the credit facility will bear interest at a variable rate based on LIBOR, and, forU.S. dollar-denominated loans under certain circumstances, a Base Rate (as defined in the credit facility), in each case plus an applicable margin. The applicable margin is based on the Company's long-term credit ratings assigned by Moody's andStandard & Poor's rating agencies. The 2021 credit facility contains alternative interest rate provisions specifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform. The "Base Rate" of interest is the highest of (i) the Federal Funds Rate plus 0.025%, (ii)Bank of America's prime rate, and (iii) the Eurocurrency Rate (as defined in the credit facility) plus 1.025%. The 2021 credit facility is available for general corporate purposes. As ofOctober 3, 2021 , we had no borrowings under the 2021 credit facility. Commercial Paper 33 -------------------------------------------------------------------------------- Table of Contents Under our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0 billion , with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under the 2021 credit facility discussed above. 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 ofOctober 3, 2021 , we had no amounts outstanding under our commercial paper program. Credit Facilities inJapan Additionally, we hold Japanese yen-denominated credit facilities which are available for working capital needs and capital expenditures within our Japanese market. •A ¥5 billion, or$44.9 million , facility is currently set to mature onDecember 30, 2021 . Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%. •A ¥10 billion, or$89.9 million , facility is currently set to mature onMarch 26, 2022 . Borrowings under the credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus 0.350%. As ofOctober 3, 2021 , we had no borrowings outstanding under these credit facilities. See Note 9 , Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for details of the components of our long-term debt. Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indentures under which the long-term notes were issued. As ofOctober 3, 2021 , we were in compliance with all applicable covenants. Use of Cash We expect to use our available cash and investments, including, but not limited to, additional potential future borrowings under the credit facilities, commercial paper program and the issuance of debt to support and invest in our core businesses, including investing in new ways to serve our customers and supporting our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses. Further, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business in support of our "Growth at Scale" agenda. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation and fit with our ownership strategy. We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with our ability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for the foreseeable future. However, significant new joint ventures, acquisitions and/or other new business opportunities may require additional outside funding. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future. In this regard, we may incur additional debt, within targeted levels, as part of our plans to fund our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases. If necessary, we may pursue additional sources of financing, including both short-term and long-term borrowings and debt issuances. We regularly review our cash positions and our determination of partial indefinite reinvestment of foreign earnings. In the event we determine that all or another portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes andU.S. state income taxes, which could be material. We currently do not anticipate the need for repatriated funds to theU.S. to satisfy domestic liquidity needs. See Note 14 , Income Taxes, for further discussion. During the fourth quarter of fiscal 2021, we replaced our$2.0 billion 2018 credit facility and our$1.0 billion 364-day credit facility with a new$3.0 billion 2021 credit facility. The 2021 credit facility was not drawn on in fiscal 2021 and is currently set to mature onSeptember 16, 2026 . During each of the first three quarters of fiscal 2020, we declared a cash dividend to shareholders of$0.41 per share. OnSeptember 30, 2020 , and for each of the first three quarters of fiscal 2021, we declared a cash dividend of$0.45 per share. Dividends are generally paid in the quarter following the declaration date. Cash returned to shareholders through dividends in 34 -------------------------------------------------------------------------------- Table of Contents fiscal 2021 and 2020 totaled$2.1 billion and$1.9 billion , respectively. During the fourth quarter of fiscal 2021, we declared a cash dividend of$0.49 per share to be paid onNovember 26, 2021 , with an expected payout of approximately$578.1 million . InMarch 2019 , we entered into accelerated share repurchase agreements ("ASR agreements") with third-party financial institutions totaling$2.0 billion , effectiveMarch 22, 2019 . We made a$2.0 billion up-front payment to the financial institutions and received an initial delivery of 22.2 million shares of our common stock. InJune 2019 , we received an additional 3.9 million shares upon the completion of the program based on a volume-weighted average share price (less discount) of$76.50 . Outside of the ASR agreements noted above, we repurchased 36.6 million shares of common stock for$3.1 billion on the open market during the fiscal year endedSeptember 29, 2019 . In total, we repurchased 139.6 million shares at a total cost of$10.1 billion for the fiscal year endedSeptember 29, 2019 . Our Board of Directors approved an increase of 120 million and 40 million shares to our ongoing share repurchase program during the fiscal first quarter of 2019 and fiscal second quarter of 2020, respectively. We temporarily suspended our share repurchase program inMarch 2020 . Prior to the suspension, we repurchased 20.3 million shares of common stock for$1.7 billion on the open market during the year endedSeptember 27, 2020 . As ofOctober 3, 2021 , 48.9 million shares remained available for repurchase under current authorizations. Due to our business recovery and restoration of certain leverage metrics, we have resumed our share repurchase program in the first quarter of fiscal 2022. Other than operating expenses, cash requirements for fiscal 2022 are expected to consist primarily of capital expenditures for investments in our new and existing stores, our supply chain and corporate facilities. Total capital expenditures for fiscal 2022 are expected to be approximately$2 billion . The following table summarizes current and long-term material cash requirements as ofOctober 3, 2021 , which we expect to fund primarily with operating cash flows (in millions): Material Cash Requirements Less than 1 1 - 3 3 - 5 More than Total Year Years Years 5 Years
Operating lease obligations(1)
$ 2,751.5 $ 2,169.1 $ 3,704.7 Debt obligations Principal payments 14,713.8 1,000.0 2,513.8 1,750.0 9,450.0 Interest payments 6,639.0 457.1 840.7 730.1 4,611.1 Purchase obligations(2) 1,800.2 1,202.6 533.9 63.7 - Other obligations(3) 368.4 54.6 92.6 136.5 84.7 Total$ 33,651.3 $ 4,218.9 $ 6,732.5 $ 4,849.4 $ 17,850.5 (1)Amounts include direct lease obligations, excluding any taxes, insurance and other related expenses. (2)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding onStarbucks and that specify all significant terms. Green coffee purchase commitments comprise 96% of total purchase obligations. (3)Other obligations include other long-term liabilities primarily consisting of long-term income taxes payable, asset retirement obligations and equity investment capital commitments. Cash Flows Cash provided by operating activities was$6.0 billion for fiscal 2021, compared to$1.6 billion for fiscal 2020. The change was primarily due to higher net earnings and lapping theU.S. federal tax payment related to the Nestlé transaction in fiscal 2020. Cash used in investing activities totaled$0.3 billion for fiscal 2021, compared to$1.7 billion for fiscal 2020. The change was primarily driven by net proceeds from the divestiture of our ownership interest in ourSouth Korea joint venture and higher maturities and calls of investments. This was partially offset by a decrease in sales of investments and higher capital contributions to equity method investments. Cash used in financing activities for fiscal 2021 totaled$3.7 billion , compared to cash provided by financing activities of$1.7 billion for fiscal 2020. The change was primarily due to lower net proceeds from borrowing activities and higher debt repayments, partially offset by the temporary suspension of our share repurchase program. 35 -------------------------------------------------------------------------------- Table of Contents COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS Commodity price risk representsStarbucks primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impacts our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details see Product Supply in Item 1 , as well as Risk Factors in Item 1A of this 10-K. FINANCIAL RISK MANAGEMENT Market risk is defined as the risk of losses due to changes in commodity prices, foreign currency exchange rates, equity security prices and interest rates. We manage our exposure to various market-based risks according to a market price risk management policy. Under this policy, market-based risks are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions. The market price risk management policy governs how hedging instruments may be used to mitigate risk. Risk limits are set annually and prohibit speculative trading activity. We also monitor and limit the amount of associated counterparty credit risk, which we consider to be low. We use interest rate swap agreements and treasury locks to primarily hedge against changes in benchmark interest rates related to anticipated debt issuances. We also use cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our fixed-rate debt and foreign exchange exposure of net investments inJapan . Excluding interest rate hedging instruments, cross currency swaps and foreign currency debt, hedging instruments generally do not have maturities in excess of three years. Refer to Note 1 , Summary of Significant Accounting Policies, and Note 3 , Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our hedging instruments. The sensitivity analyses disclosed below provide only a limited, point-in-time view of the market risk of the financial instruments discussed. The actual impact of the respective underlying rates and price changes on the financial instruments may differ significantly from those shown in the sensitivity analyses. Commodity Price Risk We purchase commodity inputs, primarily coffee, dairy products, diesel, cocoa, sugar and other commodities, that are used in our operations and are subject to price fluctuations that impact our financial results. We use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts for coffee purchases, and financial derivatives to manage our commodity price risk exposure. The following table summarizes the potential impact as ofOctober 3, 2021 toStarbucks future net earnings and other comprehensive income ("OCI") from changes in commodity prices. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions): Increase/(Decrease) to Net Earnings
Increase/(Decrease) to OCI
10% Increase in 10% Decrease in 10% Increase in 10% Decrease in Underlying Rate Underlying Rate Underlying Rate Underlying Rate Commodity hedges $ - $ - $ 53 $ (53) Foreign Currency Exchange Risk The majority of our revenue, expense and capital purchasing activities are transacted inU.S. dollars. However, because a portion of our operations consists of activities outside of theU.S. , we have transactions in other currencies, primarily the Chinese renminbi, Japanese yen, Canadian dollar, British pound, South Korean won and euro. To reduce cash flow volatility from foreign currency fluctuations, we enter into derivative instruments to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, intercompany borrowing and lending activities and certain other transactions in currencies other than the functional currency of the entity that enters into the arrangements, as well as the translation risk of certain balance sheet items. The volatility in the foreign exchange market may lead to significant fluctuation in foreign currency exchange rates and adversely impact our financial results in the case of weakening foreign currencies relative to theU.S. dollar. 36 -------------------------------------------------------------------------------- Table of Contents The following table summarizes the potential impact as ofOctober 3, 2021 toStarbucks future net earnings and other comprehensive income from changes in the fair value of these derivative financial instruments due to a change in the value of theU.S. dollar as compared to foreign exchange rates. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions): Increase/(Decrease) to Net Earnings
Increase/(Decrease) to OCI
10% Increase in 10% Decrease in 10% Increase in
10% Decrease in
Underlying Rate Underlying Rate Underlying Rate Underlying Rate Foreign currency hedges $ 43 $ (43) $ 139 $ (139) Equity Security Price Risk We have minimal exposure to price fluctuations on equity mutual funds and equity exchange-traded funds within our marketable equity securities portfolio. Marketable equity securities are recorded at fair value and approximates a portion of our liability under our Management Deferred Compensation Plan ("MDCP"). Gains and losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings. We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as ofOctober 3, 2021 and determined that such a change would not have a significant impact on the fair value of these instruments. Interest Rate Risk Long-term Debt We utilize short-term and long-term financing and may use interest rate hedges to manage our overall interest expense related to our existing fixed-rate debt, as well as to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances. See Note 3 , Derivative Financial Instruments and Note 9 , Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our interest rate hedge agreements and details of the components of our long-term debt, respectively, as ofOctober 3, 2021 . The following table summarizes the impact of a change in interest rates as ofOctober 3, 2021 on the fair value ofStarbucks debt (in millions): Change in Fair Value 100 Basis Point Increase in 100 Basis Point Decrease in Fair Value Underlying Rate Underlying Rate Long-term debt(1) $ 16,014 $ 1,216 $ (1,216) (1)Amount disclosed is net of$13 million change in the fair value of our designated interest rate swap. Refer to Note 3 , Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.Available-for-Sale Debt Securities Our available-for-sale securities comprise a diversified portfolio consisting mainly of investment-grade debt securities. The primary objective of these investments is to preserve capital and liquidity. Available-for-sale securities are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income. We do not hedge the interest rate exposure on our investments. We performed a sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as ofOctober 3, 2021 and determined that such a change would not have a significant impact on the fair value of these instruments. CRITICAL ACCOUNTING ESTIMATES Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, especially in light of the current economic environment due to the COVID-19 pandemic. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. Our significant accounting estimates are discussed in additional detail in Note 1 , Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K. We consider financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the past five fiscal years, we have not made any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below: 37
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Property, Plant and Equipment and Other Finite-Lived Assets We evaluate property, plant and equipment, operating lease right-of-use ("ROU") assets and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset's estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset's carrying value exceeds its estimated fair value. The adjusted carrying amount of the asset becomes its new cost basis and is depreciated over the asset's remaining useful life. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level, which is inclusive of property, plant and equipment and lease ROU assets. The fair value of a store's assets is estimated using a discounted cash flow model. For other long-lived assets, fair value is determined using an approach that is appropriate based on the relevant facts and circumstances, which may include discounted cash flows, comparable transactions or comparable company analyses. Our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount rate. For company-operated stores, estimates of revenue growth and operating expenses are based on internal projections and consider the store's historical performance, the local market economics and the business environment impacting the store's performance. The discount rate is selected based on what we believe a buyer would assume when determining a purchase price for the store. The fair value of a store's ROU asset is estimated considering what a market participant would pay to lease the asset for its highest and best use. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. In fiscal 2020, we announced a restructuring plan to optimize ourNorth America store portfolio, primarily in dense metropolitan markets, by developing new store formats to better cater to changing customer tastes and preferences. As ofOctober 3, 2021 , 807 stores in theU.S. andCanada were identified for closure, and substantially all were closed under the plan. During fiscal years 2021 and 2020, we recorded approximately$155.4 million and$254.7 million , respectively, to restructuring and impairments on our consolidated statements of earnings. These totals included$53.1 million and$151.0 million , respectively, related to impairment and disposition of company-operated store assets and$89.5 million and$87.7 million , respectively, primarily associated with accelerated amortization of ROU lease assets and other lease costs due to store closures prior to the end of contractual lease terms. We expect total future restructuring costs under this plan, which are attributable to ourNorth America segment, to be immaterial. Asset impairment charges are discussed in Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K. Goodwill and Indefinite-Lived Intangible Assets We evaluate goodwill and indefinite-lived intangible assets for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate impairment may exist. When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches. When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit's goodwill, the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of an individual reporting unit's goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new store concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit's past performance and forecasted growth, including assumptions regarding business recovery post COVID-19, strategic initiatives, local market economics and the local business environment impacting the reporting unit's performance. The discount rate is selected based 38 -------------------------------------------------------------------------------- Table of Contents on the estimated cost of capital for a market participant to operate the reporting unit in the region. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion. Our goodwill impairment assessments were not significantly altered as a result of the COVID-19 pandemic. We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as theU.S. andChina , we do not anticipate incurring significant goodwill impairment in the next 12 months. Our fiscal 2021 annual goodwill impairment testing, which was completed in the third fiscal quarter, resulted in an estimated fair value of our reporting units where a quantitative assessment was performed, was in excess of carrying value of approximately$74 billion . When assessing indefinite-lived intangible assets for impairment, where we perform a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the intangible asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group's forecasted growth, including assumptions regarding business recovery post COVID-19, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion. We do not anticipate recording significant impairment charges in the next 12 months. Definite-lived intangible asset impairment charges are discussed in Note 8 , Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K. Income Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of operations. In projecting future taxable income, we consider historical results and incorporate assumptions about the amount of future state, federal and foreign pre-tax operating income adjusted for items that do not have tax consequences. Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss). In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, such as the timing and amount of deductions taken and the allocation of income between tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available. As discussed in Note 14 , Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, we do not expect a significant amount of the Company's gross unrecognized tax benefits to be recognized by the end of fiscal 2022 for reasons such as a lapse of the statute of limitations or resolution of examinations with tax authorities. We have generated income in certain foreign jurisdictions that may be subject to additional foreign withholding taxes andU.S. state income taxes. We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings. The possibility exists that foreign earnings declared as indefinitely reinvested may be repatriated as our plans are based on our estimated working and other capital needs in jurisdictions where our earnings are generated. While we do not expect to repatriate cash to theU.S. to satisfy domestic liquidity needs, if these amounts were distributed to theU.S. , in the form of dividends or otherwise, we may be subject to additional foreign withholding taxes andU.S. state income taxes, which could be material. 39 -------------------------------------------------------------------------------- Table of Contents Our income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. Deferred tax asset valuation allowances and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Although we believe that the judgments and estimates discussed herein are reasonable, actual results, including forecasted business performance could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 , Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K for a detailed description of recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Commodity Prices, Availability andGeneral Risk Conditions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Risk Management" in Item 7 of this Report. 40
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