Starbucks 2007 Annual Report Download - page 64

Prior to the adoption of SFAS 123R, Starbucks presented all tax benefits resulting from the exercise of stock options
as operating cash inflows on the consolidated statements of cash flows, in accordance with the provisions of the
Emerging Issues Task Force (“EITF”) Issue No 00-15, “Classification in the Statement of Cash Flows of the Income
Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.” SFAS 123R
requires the benefits of tax deductions in excess of the tax effect of the compensation cost recognized for those
options to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis. This
amount is shown as “Excess tax benefit from exercise of stock options” on the consolidated statements of cash
flows.
For option grants made in November 2003 and thereafter, the Company may provide for immediate vesting upon
retirement for optionees who have attained at least 10 years of service and are age 55 or older. Prior to adoption of
SFAS 123R, the Company amortized the expense over the related vesting period with acceleration of expense upon
retirement. With the adoption of SFAS 123R, the accounting treatment for retirement features changed. Expense for
awards made prior to adoption of SFAS 123R is still amortized over the vesting period until retirement, at which
point any remaining unrecognized expense is immediately recognized. For awards made on or after October 3,
2005, the related expense is recognized either from grant date through the date the employee reaches the years of
service and age requirements, or from grant date through the stated vesting period, whichever is shorter.
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes-Merton (“BSM”)
option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and
revised, as necessary, to reflect market conditions and the Company’s experience. Options granted are valued using
the multiple option valuation approach, and the resulting expense is recognized using the graded, or accelerated,
attribution method, consistent with the multiple option valuation approach. Compensation expense is recognized
only for those options expected to vest, with forfeitures estimated at the date of grant based on the Company’s
historical experience and future expectations. Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro
forma expense amounts was recognized as the forfeitures occurred.
The following represents total stock based compensation expense recognized in the consolidated financial
statements (in millions):
Fiscal Year Ended Sept 30, 2007 Oct 1, 2006
Stock option expense . ..................................... $ 92.3 $ 94.8
ESPP expense ........................................... 11.6 10.2
Total stock-based compensation expense on the consolidated statements of
earnings ............................................... 103.9 105.0
Total related tax benefit . ..................................... 35.3 36.1
Stock-based compensation capitalized in the current fiscal year, as
included in “Property, plant and equipment, net” and “Inventories” on
the consolidated balance sheets .............................. 2.5 2.1
The fair value of stock awards was estimated at the grant date with the following weighted average assumptions for
the 52 weeks ended September 30, 2007, October 1, 2006 and October 2, 2005:
Fiscal Year Ended 2007 2006
2005
(Pro Forma) 2007 2006
2005
(Pro Forma)
Employee Stock Options
Granted During the Period ESPP
Expected term (in years) .... 4.7 4.4 3.7 0.25 - 0.5 0.25 - 3.0 0.25 - 3.0
Expected stock price
volatility .............. 28.9% 28.9% 33.0% 28% - 31% 22% - 50% 20% - 40%
Risk-free interest rate ...... 4.6% 4.4% 3.5% 4.7% - 5.1% 2.3% - 5.0% 1.9% - 3.5%
Expected dividend yield .... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Estimated fair value per
option granted .......... $11.72 $9.59 $8.10 $6.03 $6.60 $5.05
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