Starbucks 1999 Annual Report Download - page 17

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Certain of the Company’s lease agreements provide for scheduled rent increases during the lease
terms or for rental payments commencing at a date other than the date of initial occupancy.
Minimum rental expenses are recognized on a straight-line basis over the terms of the leases.
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The Company’s international operations use their local currency as their functional currency.
Assets and liabilities are translated at exchange rates in effect at the balance sheet date and income
and expense accounts at the average exchange rates during the year. Resulting translation
adjustments are recorded as a separate component of accumulated other comprehensive income.
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The Company computes income taxes using the asset and liability method, under which deferred
income taxes are provided for the temporary differences between the financial reporting basis and
the tax basis of the Company’s assets and liabilities.
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On March 19, 1999, the Company effected a two-for-one stock split for its holders of record on
March 5, 1999. All applicable share and per-share data in these consolidated financial statements
have been restated to give effect to this stock split.
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The computation of basic earnings per share is based on the weighted average number of shares
and common stock units outstanding during the period.The numbers of shares resulting from this
computation for fiscal 1999, 1998 and 1997 were 181.8 million, 176.1 million and 159.3 million,
respectively.
The computation of diluted earnings per share includes the dilutive effect of common stock
equivalents consisting of certain shares subject to stock options. The computation of diluted
earnings per share also assumes conversion of the Company’s formerly outstanding convertible
subordinated debentures using the “if converted” method when such securities were dilutive, with
net income adjusted for the after-tax interest expense and amortization applicable to these
debentures.The numbers of shares resulting from this computation for fiscal 1999, 1998 and 1997
were 188.5 million, 183.8 million and 180.3 million, respectively. Options with exercise prices
greater than the average market price were not included in the computation of diluted earnings
per share.These options totaled 0.6 million, 0.3 million and 0.6 million for fiscal 1999, 1998 and
1997, respectively.
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In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133,“Accounting
for Derivative Instruments and Hedging Activities.” This pronouncement will require the Company
to recognize derivatives on its balance sheet at fair value. Changes in the fair values of derivatives
that qualify as cash-flow hedges will be recognized in accumulated other comprehensive income
until the hedged item is recognized in earnings. The Company is in the process of evaluating the
impact of this new accounting standard and does not expect that it will have a significant effect on
its results of operations.The FASB subsequently issued SFAS No. 137, “Accounting for Derivative
Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133”,
which postpones initial application until fiscal years beginning after June 15, 2000.The Company
expects to adopt SFAS No. 133 in fiscal 2001.
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Certain reclassifications of prior years’ balances have been made to conform to the fiscal
1999 presentation.
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STARBUCKS COFFEE COMPANY