Starbucks 2008 Annual Report Download - page 58

issued by the Company are equivalent to nonvested shares, as defined by SFAS 123(R), “Share-Based Payment”
(“SFAS 123R”). See Note 14 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” on the consolidated balance sheets.
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.
On October 1, 2007, the first day of the Company’s first fiscal quarter of 2008, Starbucks adopted FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income tax positions recognized in the
financial statements in accordance with SFAS No. 109. Under FIN 48, the Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on measurement, classifi-
cation, interest and penalties associated with tax positions, and income tax disclosures. The Company recognizes
interest and penalties related to income tax matters in income tax expense. The cumulative effects of applying
FIN 48 have been recorded as a decrease of $1.7 million and $1.6 million, respectively, to the Company’s fiscal
2008 opening balances of retained earnings and additional paid-in capital. See Note 15 for additional details.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares and common stock units
that were outstanding during the period. Diluted earnings per share includes the dilutive effect of common stock
equivalents consisting of certain shares subject to stock options and RSUs, using the treasury stock method.
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 13 for additional information.
Recent Accounting Pronouncements
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 and expands disclosures about fair value measurements. For
financial assets and liabilities, SFAS 157 will be effective for Starbucks first fiscal quarter of 2009. As permitted by
FSP-FAS 157-2, SFAS 157 is effective for nonfinancial assets and liabilities for Starbucks first fiscal quarter of
2010. Starbucks believes the adoption of SFAS 157 for its financial assets and liabilities will not have a material
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