Starbucks 2005 Annual Report Download - page 41

its first fiscal quarter of 2006, which ends January 1, 2006. In addition to the recognition of expense in the
financial statements, under SFAS 123R, any excess tax benefits received upon exercise of options will be
presented as a financing activity inflow rather than as an adjustment of operating activity as currently
presented. Based on its current analysis and information, management has determined that the impact of
adopting SFAS 123R will result in a reduction of net earnings and expects diluted earnings per share to be
reduced by approximately $0.09 on a full year basis for fiscal 2006.
In December 2004, the FASB issued Staff Position No. FAS 109-1, ""Application of SFAS No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the
American Jobs Creation Act of 2004'' (""FSP 109-1''). FSP 109-1 states that qualified domestic production
activities should be accounted for as a special deduction under SFAS No. 109, ""Accounting for Income
Taxes,'' and not be treated as a rate reduction. The provisions of FSP 109-1 are effective immediately. The
Company will qualify for a benefit beginning in fiscal 2006, which is not expected to be material to the
Company's consolidated financial statements.
In December 2004, the FASB issued Staff Position No. FAS 109-2, ""Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004''
(""FSP 109-2''). The American Jobs Creation Act allows a special one-time dividends received deduction on
the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria
are met. The law allows the Company to make an election to repatriate earnings through fiscal 2006.
FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. Although FSP 109-2
was effective upon its issuance, it allows companies additional time beyond the enactment date to evaluate the
effects of the provision on its plan for investment or repatriation of unremitted foreign earnings. The Company
continues to evaluate the impact of the new Act to determine whether it will repatriate foreign earnings and
the impact, if any, this pronouncement will have on its consolidated financial statements. As of October 2,
2005, the Company has not made an election to repatriate earnings under this provision. The Company may or
may not elect to repatriate earnings in fiscal 2006. Earnings under consideration for repatriation range from $0
to $75 million and the related income tax effects range from $0 to $5 million. As provided in FSP 109-2,
Starbucks has not adjusted its tax expense or deferred tax liability to reflect the repatriation provision.
In November 2004, the FASB issued Statement No. 151, ""Inventory Costs, an amendment of ARB No. 43,
Chapter 4'' (""SFAS 151''). SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities,
excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current
period charges. The provisions of SFAS 151 are effective for fiscal years beginning after June 15, 2005. The
adoption of SFAS 151 in fiscal 2006 is not expected to have a significant impact on the Company's
consolidated balance sheet or statement of earnings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to the section entitled ""Management's
Discussion and Analysis of Financial Condition and Results of Operations Ì Commodity Prices, Availability
and General Risk Conditions'' and ""Management's Discussion and Analysis of Financial Condition and
Results of Operations Ì Financial Risk Management'' in Item 7 of this Report.
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