Starbucks 2003 Annual Report Download - page 17

28฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 29
Had฀compensation฀cost฀for฀the฀Company’s฀stock฀options฀been฀recognized฀based฀upon฀the฀estimated฀fair฀value฀on฀the฀grant฀date฀
under฀the฀fair฀value฀methodology฀allowed฀by฀SFAS฀No.฀123,฀as฀amended฀by฀SFAS฀No.฀148,฀the฀Company’s฀net฀earnings฀and฀
earnings฀per฀share฀would฀have฀been฀as฀follows฀(in฀thousands,฀except฀earnings฀per฀share):฀
Fiscal฀year฀ended฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Sept฀28,฀2003 ฀฀฀฀฀฀฀฀ Sept฀29,฀2002 ฀฀฀฀฀฀฀฀฀ ฀Sept฀30,฀2001
Net฀earnings ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀ 268,346฀฀฀฀฀฀฀ $ ฀฀฀฀212,686฀฀฀฀฀฀฀ $ ฀฀฀฀ 180,335
Deduct:฀stock-based฀compensation฀expense฀determined฀under฀fair฀value฀method,฀net฀of฀tax ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀37,436฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀37,447฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀40,535
Pro฀forma฀net฀income฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀ 230,910฀฀฀฀฀฀฀ $ ฀฀฀฀175,239฀฀฀฀฀฀฀ $ ฀฀฀฀ 139,800
Earnings฀per฀share:
฀ Basic฀–฀as฀reported ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.69฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.55฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.47
฀ Basic฀–฀pro฀forma ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.59฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.45฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.37
฀ Diluted฀–฀as฀reported ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.67฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.54฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.46
฀ Diluted฀–฀pro฀forma฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.58฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.44฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ 0.36
The฀above฀pro฀forma฀information฀regarding฀net฀income฀and฀earnings฀per฀share฀has฀been฀determined฀as฀if฀the฀Company฀had฀
accounted฀for฀its฀employee฀stock฀options฀under฀the฀fair฀value฀method.฀The฀fair฀value฀for฀these฀stock฀options฀was฀estimated฀at฀
the฀date฀of฀grant฀using฀a฀Black-Scholes฀option฀pricing฀model฀with฀the฀following฀weighted-average฀assumptions:
฀ ฀ Employee฀Stock฀Options
Fiscal฀year฀ 2003฀ 2002฀ 2001
Expected฀life฀(years)฀ 2–5฀ 2–5฀ 2–5
Expected฀volatility฀ 37–55%฀ 43–54%฀ 57%
Risk-free฀interest฀rate฀ 0.92%–4.01%฀ 1.63–4.96%฀ 2.37–5.90%
Expected฀dividend฀yield฀ 0.00%฀ 0.00%฀ 0.00%
฀
฀ ฀ Employee฀Stock฀Purchase฀Plans
Fiscal฀year฀ 2003฀ 2002฀ 2001
Expected฀life฀(years)฀ 0.25–3฀ 0.25฀ 0.25
Expected฀volatility฀ 30–50%฀ 33–51%฀ 41–49%
Risk-free฀interest฀rate฀ .87–2.25%฀ 1.93–2.73%฀ 2.35–4.68%
Expected฀dividend฀yield฀ 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.฀
Because฀Company฀stock฀options฀do฀not฀trade฀on฀a฀secondary฀
exchange,฀ employees฀ can฀ receive฀ no฀ value฀ nor฀ derive฀ any฀
benefit฀from฀holding฀stock฀options฀under฀these฀plans฀without฀
an฀ increase,฀ above฀ the฀ grant฀ price,฀ in฀ the฀ market฀ price฀ of฀
the฀Company’s฀stock.฀Such฀an฀increase฀in฀stock฀price฀would฀
benefit฀all฀stockholders฀commensurately.฀
As฀required฀by฀SFAS฀No.฀123,฀the฀Company฀has฀determined฀
that฀ the฀ weighted฀ average฀ estimated฀ fair฀ values฀ of฀ options฀
granted฀during฀fiscal฀2003,฀2002฀and฀2001฀were฀$8.31,฀$6.48฀
and฀$8.98฀per฀share,฀respectively.฀
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฀2003฀pro฀forma฀adjustments฀are฀not฀
necessarily฀indicative฀of฀future฀period฀pro฀forma฀adjustments.฀
Foreign฀Currency฀Translation
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.฀ Income฀ and฀ expense฀ accounts฀ are฀ translated฀ at฀ the฀
average฀ monthly฀ exchange฀ rates฀ during฀ the฀ year.฀ Resulting฀
translation฀adjustments฀are฀recorded฀as฀a฀separate฀component฀
of฀accumulated฀other฀comprehensive฀income/(loss).฀
Income฀Taxes
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.฀
Stock฀Split
On฀ April฀ 27,฀ 2001,฀ the฀ Company฀ effected฀ a฀ two-for-one฀
stock฀split฀of฀its฀$0.001฀par฀value฀common฀stock฀for฀holders฀
of฀record฀on฀March฀30,฀2001.฀All฀ applicable฀share฀ and฀per-
share฀ data฀ in฀ these฀ consolidated฀ financial฀ statements฀ have฀
been฀restated฀to฀give฀effect฀to฀this฀stock฀split.฀
Earnings฀Per฀Share฀
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฀ computation฀ of฀ diluted฀
earnings฀per฀share฀includes฀the฀dilutive฀effect฀of฀common฀stock฀
equivalents฀consisting฀of฀certain฀shares฀subject฀to฀stock฀options.฀
Recent฀Accounting฀Pronouncements
In฀November฀2002,฀the฀Emerging฀Issues฀Task฀Force฀reached฀
a฀ consensus฀ regarding฀ Issue฀ No.฀ 02-16,฀ “Accounting฀ by฀ a฀
Customer฀ (Including฀ a฀ Reseller)฀ for฀ Certain฀ Consideration฀
Received฀from฀a฀Vendor.”฀Issue฀No.฀02-16฀provides฀guidance฀for฀
classification฀in฀the฀reseller’s฀statements฀of฀earnings฀for฀various฀
circumstances฀under฀which฀cash฀consideration฀is฀received฀from฀
a฀vendor฀by฀a฀reseller.฀The฀provisions฀of฀Issue฀No.฀02-16฀apply฀
to฀all฀agreements฀entered฀into฀or฀modified฀after฀December฀31,฀
2002.฀Issue฀No.฀02-16฀did฀not฀have฀a฀material฀impact฀on฀the฀
Company’s฀consolidated฀financial฀statements.
In฀January฀2003,฀FASB฀Interpretation฀No.฀46฀(“FIN฀No.฀46”),฀
“Consolidation฀of฀Variable฀Interest฀Entities,฀an฀interpretation฀
of฀ Accounting฀ Research฀ Bulletin฀ No.฀ 51,”฀ was฀ issued.฀ FIN฀
No.฀ 46฀ requires฀ identification฀ of฀ a฀ company’s฀ participation฀
in฀ variable฀ interest฀ entities฀ (“VIE”s),฀ which฀ are฀ defined฀ as฀
entities฀ with฀a฀ level฀of฀ invested฀ equity฀ that฀ is฀ not฀sufficient฀
to฀ fund฀ future฀ operations฀ on฀ a฀ stand-alone฀ basis,฀ or฀ whose฀
equity฀ holders฀ lack฀ certain฀ characteristics฀ of฀ a฀ controlling฀
financial฀interest.฀For฀identified฀VIEs,฀FIN฀No.฀46฀sets฀forth฀
a฀ model฀ to฀ evaluate฀ potential฀ consolidation฀ based฀ on฀ an฀
assessment฀of฀which฀party฀to฀the฀VIE,฀if฀any,฀bears฀a฀majority฀
of฀the฀exposure฀to฀its฀expected฀losses,฀or฀stands฀to฀gain฀from฀a฀
majority฀of฀its฀expected฀returns.฀FIN฀No.฀46฀further฀requires฀
the฀disclosure฀of฀certain฀information฀related฀to฀VIEs฀in฀which฀
a฀company฀holds฀a฀significant฀variable฀interest.฀
FIN฀ No.฀ 46฀ was฀ effective฀ for฀ new฀ VIEs฀ established฀ or฀
purchased฀subsequent฀to฀January฀31,฀2003.฀For฀VIEs฀entered฀
into฀prior฀ to฀ February฀1,฀ 2003,฀ FIN฀ No.฀46฀ was฀originally฀
effective฀for฀interim฀periods฀beginning฀after฀June฀15,฀2003.฀
In฀October฀2003,฀the฀FASB฀deferred฀this฀effective฀date฀until฀
interim฀or฀annual฀periods฀ending฀after฀December฀15,฀2003.฀
On฀ December฀ 17,฀ 2003,฀ the฀ FASB฀ elected฀ to฀ immediately฀
defer฀the฀application฀of฀FIN฀No.฀46฀for฀entities฀not฀previously฀
subject฀ to฀ special฀ purpose฀ entity฀ guidance.฀ Additionally,฀
the฀ FASB฀ announced฀ that฀ it฀ will฀ issue฀ FIN฀ No.฀ 46R,฀
“Consolidation฀of฀Variable฀Interest฀Entities฀–฀A฀Modification฀
of฀FASB฀Interpretation฀No.฀46,”฀before฀the฀end฀of฀December฀
2003,฀which฀amends฀FIN฀No.฀46฀and,฀among฀other฀things,฀