Starbucks 2007 Annual Report Download - page 51

issued by the Company are equivalent to nonvested shares, as defined by SFAS 123(R), “Share-Based Payment”
(“SFAS 123R”). See Note 13 for additional details.
Foreign Currency Translation
The Company’s international operations generally 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.”
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 statement carrying amounts and the tax basis of the
Company’s assets and liabilities. The Company will establish a valuation allowance for deferred tax assets if it is
more likely than not that these items will either expire before the Company is able to realize their benefits, or that
future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on
management’s assessments of realizable deferred tax assets. The Company establishes, and periodically reviews
and re-evaluates, an estimated contingent tax liability to provide for the possibility of unfavorable outcomes in tax
matters in accordance with the requirements of SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”). See the
Recent Accounting Pronouncements at the end of this Note for a discussion of the new accounting and disclosure
requirements for uncertain tax positions, which the Company will adopt in its first fiscal quarter of 2008.
Earnings per Share
The computation of basic earnings per share is based on the weighted average number of shares and common stock
units that were 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 and RSUs.
Common Stock Share Repurchases
The Company may repurchase shares of its common stock under a program authorized by its Board of Directors
including pursuant to a contract, instruction or written plan meeting the requirements of Rule 10b5-1(c)(1) of the
Securities Exchange Act of 1934. In accordance with the Washington Business Corporation Act, share repurchases
are not displayed separately as treasury stock on the consolidated balance sheets or consolidated statements of
shareholders’ equity. Instead, the par value of repurchased shares is deducted from “Common stock” and the
remaining excess repurchase price over par value is deducted from “Additional paid-in capital” and from “Retained
earnings,” once additional paid-in capital is depleted. See Note 12 for additional information.
Recent Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpre-
tation of FASB Statement No. 109” (“FIN 48”), which seeks to reduce the diversity in practice associated with the
accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive
model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15,
2006, and the Company will adopt the new requirements in its first fiscal quarter of 2008. The cumulative effect of
adopting FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption.
The Company expects that the effect of adopting FIN 48 will result in an immaterial adjustment to fiscal year 2008
opening retained earnings.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted.
Starbucks must adopt these new requirements no later than its first fiscal quarter of 2009. Starbucks has not yet
49