Starbucks 2006 Annual Report Download - page 68

Note 16: Earnings per Share
The following table represents the calculation of net earnings per common share — basic and diluted (in thousands,
except earnings per share):
FISCAL YEAR ENDED Oct 1, 2006 Oct 2, 2005 Oct 3, 2004
Net earnings $564,259 $494,370 $388,880
Weighted average common shares and common stock units outstanding
(for basic calculation) 766,114 789,570 794,347
Dilutive effect of outstanding common stock options 26,442 25,847 28,583
Weighted average common and common equivalent shares outstanding
(for diluted calculation) 792,556 815,417 822,930
Net earnings per common share — basic $ 0.74 $ 0.63 $ 0.49
Net earnings per common and common equivalent share — diluted $ 0.71 $ 0.61 $ 0.47
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options
(both vested and non-vested) using the treasury stock method. Potential dilutive shares are excluded from the
computation of earnings per share if their effect is antidilutive. The antidilutive options totaled 10.3 million, 13.7 million
and 0.3 million in fiscal years 2006, 2005 and 2004, respectively.
Note 17: Related Party Transactions
In April 2001, certain members of the Board of Directors and other investors, organized as The Basketball Club of Seattle,
LLC (“The Basketball Club”), purchased the franchises for The Seattle Supersonics and The Seattle Storm basketball
teams. An executive officer of the Company and member of the Board of Directors, Howard Schultz, owned a controlling
interest in The Basketball Club, until the franchises were sold to an unrelated third party in October 2006. Starbucks paid
approximately $0.6 million, $0.8 million and $0.8 million during fiscal years 2006, 2005 and 2004, respectively, for
team sponsorships and ticket purchases. Terms of the team sponsorship agreements did not change as a result of the
related party relationship.
In June 2005, a then-member of the Company’s Board of Directors was appointed president and chief financial officer of
Oracle Corporation. Starbucks had a pre-existing business relationship with Oracle related to financial systems and
systems consulting at the time of the appointment and Starbucks continued to make payments for supplies and services
subsequent to June 2005 in the ordinary course of business. These payments totaled approximately $2.7 million from the
inception of the related party relationship in fiscal 2005 through November 15, 2005 when the former Board member’s
employment relationship with Oracle ended.
Note 18: Commitments and Contingencies
The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and
related interest and fees of an unconsolidated equity investee, Starbucks Coffee Japan, Ltd. The guarantees continue until
the loans, including accrued interest and fees, have been paid in full, with the final loan amount due in 2014. The
maximum amount is limited to the sum of unpaid principal and interest amounts, as well as other related expenses. These
amounts will vary based on fluctuations in the yen foreign exchange rate. As of October 1, 2006, the maximum amount of
the guarantees was approximately $6.0 million. Since there has been no modification of these loan guarantees subsequent
to the Company’s adoption of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indebtedness of Others,” Starbucks has applied the disclosure provisions only and has not
recorded the guarantee on its consolidated balance sheet.
Starbucks has commitments under which it unconditionally guarantees its proportionate share, or 50%, of certain
borrowings of unconsolidated equity investees. The Company’s maximum exposure under these commitments is
approximately $7.2 million, excluding interest and other related costs, and the majority of these commitments expire in
64 STARBUCKS CORPORATION, FORM 10-K