Starbucks 2001 Annual Report Download - page 27

Fiscal 2001 Annual Report 43
DEFERRED STOCK PLAN
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 September 30,2001,receipt of 1,697,100 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.
ACCOUNTING FOR STOCK-BASED COMPENSATION
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:
EMPLOYEE STOCK OPTIONS EMPLOYEE STOCK PURCHASE PLAN
2001 2000 1999 2001 2000 1999
Expected life (years) 2–5 2–6 1.5–6 0.25 0.25 0.25
Expected volatility 57 % 55 % 50 % 41–49 % 42–82 % 44–66 %
Risk-free interest rate 2.37–5.90 % 5.65–6.87 % 4.60–6.21 % 2.35–4.68 % 5.97–6.40 % 4.26–5.63 %
Expected dividend yield 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
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 assumptions, 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.
As required by SFAS No. 123, the Company has determined that the weighted average estimated fair
values of options granted during fiscal 2001, 2000 and 1999 were $8.98, $5.37 and $4.43 per share,
respectively.Had compensation costs for the Company’s stock-based compensation plans been accounted
for using the fair value method of accounting described by SFAS No. 123, the Company’s net earnings
and earnings per share would have been as follows (in thousands, except earnings per share):
PRO FORMA
UNDER SFAS
Fiscal year ended AS REPORTED NO. 123
September 30, 2001:
Net earnings $ 181,210 $ 140,675
Net earnings per common share:
Basic $ 0.48 $ 0.37
Diluted $ 0.46 $ 0.36
October 1, 2000:
Net earnings $ 94,564 $ 66,241
Net earnings per common share:
Basic $ 0.25 $ 0.18
Diluted $ 0.24 $ 0.17
October 3, 1999:
Net earnings $ 101,693 $ 75,326
Net earnings per common share:
Basic $ 0.28 $ 0.21
Diluted $ 0.27 $ 0.20
In applying SFAS No. 123, the impact of outstanding stock options granted prior to 1996 has been
excluded from the pro forma calculations; accordingly, the 2000 and 1999 pro forma adjustments are
not necessarily indicative of future period pro forma adjustments.