Starbucks 2007 Annual Report Download - page 63

The Company also has employee stock purchase plans (“ESPP”).
Stock Option Plans
Stock options to purchase the Company’s common stock are granted at the fair market value of the stock on the date
of grant. The majority of options become exercisable in four equal installments beginning a year from the date of
grant and generally expire 10 years from the date of grant. Certain options granted prior to October 1, 2006 become
exercisable in three equal installments beginning a year from the date of grant. Options granted to non-employee
directors generally vest over one to three years. Nearly all outstanding stock options are non-qualified stock options.
Prior to the October 3, 2005 adoption of the SFAS 123R, Starbucks accounted for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations. Accordingly, because the stock option grant price equaled
the market price on the date of grant, and any purchase discounts under the Company’s stock purchase plans were
within statutory limits, no compensation expense was recognized by the Company for stock-based compensation.
As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based
compensation was included as a pro forma disclosure in the notes to the consolidated financial statements.
Effective October 3, 2005, the beginning of Starbucks first fiscal quarter of 2006, the Company adopted the fair
value recognition provisions of SFAS 123R, using the modified-prospective transition method. Under this transition
method, stock-based compensation expense was recognized in the consolidated financial statements for granted,
modified, or settled stock options and RSUs and for expense related to the ESPP, since the related purchase
discounts exceeded the amount allowed under SFAS 123R for non-compensatory treatment. Compensation expense
recognized included the estimated expense for stock options granted on and subsequent to October 3, 2005, based
on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expense
for the portion vesting in the period for options granted prior to, but not vested as of October 3, 2005, based on the
grant date fair value estimated in accordance with the original provisions of SFAS 123. Results for prior periods
were not restated, as provided for under the modified-prospective method.
The following table shows the effect on net earnings and earnings per share had compensation cost been recognized
based upon the estimated fair value on the grant date of stock options, and ESPP, in accordance with SFAS 123, as
amended by SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” (in
thousands, except earnings per share):
Fiscal Year Ended Oct 2, 2005
Net earnings ......................................................... $494,370
Deduct: stock-based compensation expense determined under fair value method, net of
tax............................................................... (58,742)
Pro forma net earnings.................................................. $435,628
Earnings per share:
Basic — as reported .................................................. $ 0.63
Deduct: stock-based compensation expense determined under fair value method, net of
tax............................................................. (0.08)
Basic — pro forma ................................................... $ 0.55
Diluted — as reported ................................................ $ 0.61
Deduct: stock-based compensation expense determined under fair value method, net of
tax............................................................. (0.08)
Diluted — pro forma ................................................. $ 0.53
Disclosures for the years ended September 30, 2007 and October 1, 2006 are not presented because the amounts are
recognized in the consolidated financial statements.
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