Starbucks 2008 Annual Report Download - page 72

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The fair value of stock option awards and ESPP shares was estimated at the grant date with the following weighted
average assumptions for the fiscal years ended September 28, 2008, September 30, 2007 and October 1, 2006:
Fiscal Year Ended 2008 2007 2006 2008 2007 2006
Employee Stock Options
Granted During the Period ESPP
Expected term (in years) .... 4.7 4.7 4.4 0.25 - 0.5 0.25 - 0.5 0.25 - 3.0
Expected stock price
volatility .............. 29.3% 28.9% 28.9% 26% - 44% 28% - 31% 22% - 50%
Risk-free interest rate . . .... 3.4% 4.6% 4.4% 1.3% - 4.5% 4.7% - 5.1% 2.3% - 5.0%
Expected dividend yield .... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Weighted average grant
price ................. $22.11 $36.04 $30.52 $ 14.52 $ 24.59 $ 26.81
Estimated fair value per
option granted .......... $ 6.85 $11.72 $ 9.59 $ 4.00 $ 6.03 $ 6.60
The expected term of the options represents the estimated period of time until exercise and is based on historical
experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. Expected stock price volatility is based on a combination of historical volatility of the
Company’s stock and the one-year implied volatility of its traded options, for the related vesting periods. The risk-
free interest rate is based on the implied yield available on US Treasury zero-coupon issues with an equivalent
remaining term. The Company has not paid dividends in the past and does not currently anticipate paying any
dividends in the near future.
The BSM option valuation model was developed for use in estimating the fair value of traded options, which have
no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics
significantly different from those of traded options, and changes in the subjective input assumptions can materially
affect the fair value estimate. Because Starbucks stock options do not trade on a secondary exchange, employees do
not derive a benefit from holding stock options unless there is an increase, above the grant price, in the market price
of the Company’s stock. Such an increase in stock price would benefit all shareholders commensurately.
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