An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.

Operating Leases Accounting Policy
Present Value of Future Operating Lease Payments
Analyst Adjustments for Operating Leases
Adjusted Ratios for Operating Leases (Summary)
Adjusted Total Asset Turnover
Adjusted Debt to Equity
Adjusted Return on Assets (ROA)
Adjusted Interest Coverage
Estimation of Depreciation Expense, Operating Leased Assets
Estimation of Interest Expense, Operating Lease Obligations
Present Value of Operating Lease Payments, at Beginning of Year

Starbucks leases retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. Starbucks recognizes amortization of lease incentives, premiums and minimum rent expenses on a straight-line basis beginning on the date of initial possession, which is generally when Starbucks enters the space and begin to make improvements in preparation for intended use.

For tenant improvement allowances and rent holidays, Starbucks records a deferred rent liability within accrued liabilities, or other long-term liabilities, on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense in cost of sales including occupancy costs on the consolidated statements of earnings.

For premiums paid upfront to enter a lease agreement, Starbucks records a prepaid rent asset in prepaid expenses and other current assets and other long-term assets on the consolidated balance sheets and amortizes the premium over the terms of the leases as additional rent expense in cost of sales including occupancy costs on the consolidated statements of earnings.

For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial possession, Starbucks records minimum rent expense on a straight-line basis over the terms of the leases in cost of sales including occupancy costs on the consolidated statements of earnings, with the adjustments to cash rent accrued as deferred rent in the consolidated balance sheets.

Certain leases provide for contingent rent, which is determined as a percentage of gross sales in excess of specified levels. Starbucks records a contingent rent liability in accrued occupancy costs within accrued liabilities on the consolidated balance sheets and the corresponding rent expense when Starbucks determines that achieving the specified levels during the fiscal year is probable.

When ceasing operations of company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, Starbucks records such expense at the time written notice is given to the landlord. In cases where terms, including termination fees, are yet to be negotiated with the landlord, Starbucks will record the expense upon signing of an agreement with the landlord. In cases where the landlord does not allow Starbucks to prematurely exit the lease, Starbucks recognizes a lease abandonment accrual equal to the present value of the remaining lease payments to the landlord and other rent related payments such as common area maintenance, taxes and insurance, less any projected sublease income at the cease-use date.

Source: 10-K (filing date: 2018-11-16).

Starbucks Corp., future operating lease payments

USD $ in thousands

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Total undiscounted future operating lease payments
	Discount rate¹

	Total present value of future operating lease payments

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ Weighted-average interest rate for Starbucks Corp.’s debt

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2019		2019
2020		2020
2021		2021
2022		2022
2023		2023
2024 and thereafter		2024
		2025
		2026
		2027
Total:

Based on: 10-K (filing date: 2018-11-16).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2018		2018
2019		2019
2020		2020
2021		2021
2022		2022
2023 and thereafter		2023
		2024
		2025
		2026
Total:

Based on: 10-K (filing date: 2017-11-17).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2017		2017
2018		2018
2019		2019
2020		2020
2021		2021
2022 and thereafter		2022
		2023
		2024
		2025
Total:

Based on: 10-K (filing date: 2016-11-18).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2016		2016
2017		2017
2018		2018
2019		2019
2020		2020
2021 and thereafter		2021
		2022
		2023
		2024
Total:

Based on: 10-K (filing date: 2015-11-12).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2015		2015
2016		2016
2017		2017
2018		2018
2019		2019
2020 and thereafter		2020
		2021
		2022
		2023
Total:

Based on: 10-K (filing date: 2014-11-14).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2014		2014
2015		2015
2016		2016
2017		2017
2018		2018
2019 and thereafter		2019
		2020
		2021
Total:

Based on: 10-K (filing date: 2013-11-18).

Starbucks Corp., adjustments to financial data

USD $ in thousands

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Adjustment to Total Assets
	Total assets (as reported)
	Add: Operating leased assets¹
	Total assets (adjusted)
	Adjustment to Total Debt
	Total debt (as reported)
	Add: Operating lease obligations²
	Total debt (adjusted)
	Adjustment to Earnings before Interest and Tax (EBIT)
	EBIT³ (as reported)
	Add-back: Minimum rent expense under operating lease agreements
	Less: Depreciation expense, operating leased assets⁴
	EBIT (adjusted)
	Adjustment to Interest Expense
	Interest expense (as reported)
	Add: Interest expense, operating lease obligations⁵
	Interest expense (adjusted)

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

^{1, 2} Equal to total present value of future operating lease payments. See Details »

³ See Details »

⁴ See Details »

⁵ See Details »

Starbucks Corp., Financial Data: Reported vs. Adjusted

Starbucks Corp., adjusted ratios

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Total Asset Turnover¹
	Reported total asset turnover
	Adjusted total asset turnover
	Debt to Equity²
	Reported debt to equity
	Adjusted debt to equity
	Return on Assets³ (ROA)
	Reported ROA
	Adjusted ROA
	Interest Coverage⁴
	Reported interest coverage
	Adjusted interest coverage

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ See Details »

² See Details »

³ See Details »

⁴ See Details »

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Starbucks Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted debt-to-equity	A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.	Starbucks Corp.’s adjusted debt-to-equity deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Starbucks Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted interest coverage	A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments.	Starbucks Corp.’s adjusted interest coverage deteriorated from 2016 to 2017 and from 2017 to 2018.

Starbucks Corp., Ratios: Reported vs. Adjusted

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	As Reported
	Selected Financial Data (USD $ in thousands)
	Net revenues
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in thousands)
	Net revenues
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

2018 Calculations

¹ Total asset turnover = Net revenues ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Starbucks Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018.

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	As Reported
	Selected Financial Data (USD $ in thousands)
	Total debt
	Shareholders’ equity
	Ratio
	Debt to equity¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in thousands)
	Adjusted total debt
	Shareholders’ equity
	Ratio
	Adjusted debt to equity²

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

2018 Calculations

¹ Debt to equity = Total debt ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

² Adjusted debt to equity = Adjusted total debt ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted debt-to-equity	A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.	Starbucks Corp.’s adjusted debt-to-equity deteriorated from 2016 to 2017 and from 2017 to 2018.

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	As Reported
	Selected Financial Data (USD $ in thousands)
	Net earnings attributable to Starbucks
	Total assets
	Ratio
	ROA¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in thousands)
	Net earnings attributable to Starbucks
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

2018 Calculations

¹ ROA = 100 × Net earnings attributable to Starbucks ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net earnings attributable to Starbucks ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Starbucks Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	As Reported
	Selected Financial Data (USD $ in thousands)
	Earnings before interest and tax¹ (EBIT)
	Interest expense
	Ratio
	Interest coverage²
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in thousands)
	Adjusted EBIT
	Adjusted interest expense
	Ratio
	Adjusted interest coverage³

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ See Details »

2018 Calculations

² Interest coverage = EBIT ÷ Interest expense
= hidden ÷ hidden = hidden

³ Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted interest coverage ratio	A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments.	Starbucks Corp.’s adjusted interest coverage ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

USD $ in thousands

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Minimum rent expense under operating lease agreements
	Less: Estimated interest expense, operating lease obligations¹
	Estimated depreciation expense, operating leased assets

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ See Details »

USD $ in thousands

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Operating leased assets, at beginning of year¹
	Discount rate²

	Estimated interest expense, operating lease obligations³

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ See Details »

² Weighted-average interest rate for Starbucks Corp.’s debt

2018 Calculations

³ Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= hidden × hidden = hidden

USD $ in thousands

		Sep 30, 2018	Oct 1, 2017	Oct 2, 2016	Sep 27, 2015	Sep 28, 2014	Sep 29, 2013
	Total present value of future operating lease payments¹
	Minimum rent expense under operating lease agreements
	Discount rate²

	Total present value of operating lease payments, at beginning of year³

Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).

¹ Equal to total present value of future operating lease payments. See Details »

² Weighted-average interest rate for Starbucks Corp.’s debt

2018 Calculations

³ Total present value of operating lease payments, at beginning of year = (Total present value of future operating lease payments + Minimum rent expense under operating lease agreements) ÷ (1 + Discount rate)
= ( hidden + hidden ) ÷ (1 + hidden ) = hidden

	Starbucks Corp.	Other companies (not purchased previously)
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Relative Valuation
Discounted Cash Flow (DCF) Valuation
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Long-term Trends
Analysis
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Financial Statements
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Starbucks Corp. (SBUX)

Analysis of Operating Leases

Operating Leases Accounting Policy

Present Value of Future Operating Lease Payments

Analyst Adjustments for Operating Leases

Starbucks Corp., Financial Data: Reported vs. Adjusted

Adjusted Ratios for Operating Leases (Summary)

Starbucks Corp., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

Adjusted Debt to Equity

Adjusted Return on Assets (ROA)

Adjusted Interest Coverage

Estimation of Depreciation Expense, Operating Leased Assets

Estimation of Interest Expense, Operating Lease Obligations

Present Value of Operating Lease Payments, at Beginning of Year

Starbucks Corp. (SBUX)

Analysis of Operating Leases

Operating Leases Accounting Policy

Present Value of Future Operating Lease Payments

2018 Calculations

2017 Calculations

2016 Calculations

2015 Calculations

2014 Calculations

2013 Calculations

Analyst Adjustments for Operating Leases

Starbucks Corp., Financial Data: Reported vs. Adjusted

Adjusted Ratios for Operating Leases (Summary)

Starbucks Corp., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

Adjusted Debt to Equity

Adjusted Return on Assets (ROA)

Adjusted Interest Coverage

Estimation of Depreciation Expense, Operating Leased Assets

Estimation of Interest Expense, Operating Lease Obligations

Present Value of Operating Lease Payments, at Beginning of Year