Starbucks 2005 Annual Report Download - page 40

recoverable, the Company recognizes an impairment loss as a charge against current operations. Property,
plant and equipment assets are grouped at the lowest level for which there are identifiable cash flows when
assessing impairment. Cash flows for retail assets are identified at the individual store level. Long-lived assets
to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell.
Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the
Company to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by
factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions and
changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying
amounts of its long-lived assets, these factors could cause the Company to realize material impairment
charges.
Self Insurance Reserves
The Company uses a combination of insurance and self-insurance mechanisms, including a wholly owned
captive insurance entity and participation in a reinsurance pool, to provide for the potential liabilities for
workers' compensation, healthcare benefits, general liability, property insurance, director and officers' liability
insurance and vehicle liability. Liabilities associated with the risks that are retained by the Company are not
discounted and are estimated, in part, by considering historical claims experience, demographic factors,
severity factors and other actuarial assumptions. The estimated accruals for these liabilities, portions of which
are calculated by third party actuarial firms, could be significantly affected if future occurrences and claims
differ from these assumptions and historical trends.
NEW ACCOUNTING STANDARDS
In November 2005, the FASB issued Staff Position No. FAS 115-1, ""The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments'' (""FSP 115-1''). FSP 115-1 provides
accounting guidance for identifying and recognizing other-than-temporary impairments of debt and equity
securities, as well as cost method investments in addition to disclosure requirements. FSP 115-1 is effective for
reporting periods beginning after December 15, 2005, and earlier application is permitted. The Company has
adopted this new pronouncement in its fourth quarter of fiscal 2005. The adoption of FSP 115-1 did not have
an impact on the Company's consolidated financial statements. The required disclosures are presented in
Notes 4 and 7 of this Report.
In March 2005, the FASB issued Interpretation No. 47, ""Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No. 143'' (""FIN 47''). FIN 47 requires the recognition of a
liability for the fair value of a legally-required conditional asset retirement obligation when incurred, if the
liability's fair value can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for
fiscal years ending after December 15, 2005, or no later than Starbucks fiscal fourth quarter of 2006. The
Company has not yet determined the impact of adoption on its consolidated statement of earnings and balance
sheet.
In December 2004, the FASB issued SFAS No. 123R, ""Share-Based Payment'' (""SFAS 123R''), a revision
of SFAS 123. SFAS 123R will require Starbucks to, among other things, measure all employee stock-based
compensation awards using a fair value method and record the expense in the Company's consolidated
financial statements. The provisions of SFAS 123R, as amended by SEC Staff Accounting Bulletin No. 107,
""Share-Based Payment,'' are effective no later than the beginning of the next fiscal year that begins after
June 15, 2005. Starbucks will adopt the new requirements using the modified prospective transition method in
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