Starbucks 1999 Annual Report Download - page 24

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The Company has an employee stock purchase plan which provides that eligible employees may
contribute up to 10% of their base earnings, up to $25,000 annually, toward the quarterly
purchase of the Company’s common stock. The employee’s purchase price is 85% of the lesser
of the fair market value of the stock on the first business day or the last business day of the
quarterly offering period. No compensation expense is recorded in connection with the plan.The
total number of shares issuable under the plan is 8,000,000. There were 492,231 shares issued
under the plan during fiscal 1999 at prices ranging from $14.05 to $25.18.There were 271,778
shares issued under the plan during fiscal 1998 at prices ranging from $15.99 to $19.58. There
were 185,492 shares issued under the plan during fiscal 1997 at prices ranging from $11.79 to
$12.86. Of the 18,555 employees eligible to participate, 4,972 were participants in the plan as of
October 3, 1999.
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The Company has a Deferred Stock Plan for certain key employees that enables participants in the
plan to defer receipt of ownership of common shares from the exercise of non-qualified stock
options. The minimum deferral period is five years. As of October 3, 1999, receipt of 848,550
shares was deferred under the terms of this plan. The rights to receive these shares, represented
by common stock units, are included in the calculation of basic and diluted earnings per share as
common stock equivalents.
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The Company accounts for its stock-based awards using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
and its related interpretations. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements.
SFAS No.123, “Accounting for Stock-Based Compensation,” requires the disclosure of pro forma net
income and net income per share as if the Company adopted the fair-value method of accounting for
stock-based awards as of the beginning of fiscal 1996. The fair value of stock-based awards to
employees is calculated using the Black-Scholes option-pricing model with the following weighted
average assumptions:
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Expected life (years) 1.5 - 6 1.5 - 6 1.5 - 6 .25 .25 .25
Expected volatility 50% 45% 40% 44 - 66% 37 - 45% 45 - 47%
Risk-free interest rate 4.60 - 6.21% 5.28 - 6.05% 5.41 - 6.54% 4.26 - 5.63% 5.26 - 5.74% 5.27 - 5.53%
Expected dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
The Company’s valuations are based upon a multiple option valuation approach and forfeitures are
recognized as they occur. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly subjective assump-
tions, including the expected stock-price volatility. The Company’s employee stock options have
characteristics significantly different from those of traded options, and changes in the subjective
input assumptions can materially affect the fair value estimate.
.  STARBUCKS COFFEE COMPANY