Starbucks 2003 Annual Report Download - page 22

34฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 35
Note฀14:฀Income฀Taxes฀
A฀reconciliation฀of฀the฀statutory฀federal฀income฀tax฀rate฀with฀the฀Company’s฀effective฀income฀tax฀rate฀is฀as฀follows:฀
Fiscal฀year฀ended฀ Sept฀28,฀2003฀ Sept฀29,฀2002฀ Sept฀30,฀2001
Statutory฀rate ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 35.0฀% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 35.0฀% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 35.0฀%
State฀income฀taxes,฀net฀of฀federal฀income฀tax฀benefit ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀3.6฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀3.4฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3.8฀
Valuation฀allowance฀change฀from฀prior฀year฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 1.4฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀(0.6฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 1.0
Other,฀net ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀(1.5฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀(0.5฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ (2.4฀)
Effective฀tax฀rate฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 38.5฀% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 37.3฀% ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 37.4฀%
The฀provision฀for฀income฀taxes฀consists฀of฀the฀following฀(in฀thousands):
Fiscal฀year฀ended฀ Sept฀28,฀2003฀ Sept฀29,฀2002฀ Sept฀30,฀2001
Currently฀payable:฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
฀ Federal฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀ 140,138฀฀฀฀฀฀฀ $ ฀฀฀฀109,154฀฀฀฀฀฀฀ $ ฀฀฀฀฀ 91,750฀
฀ State ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀25,448฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀16,820฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 17,656฀
฀ Foreign ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 8,523฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 5,807฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀3,198฀
Deferred฀tax฀asset,฀net ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ (6,120฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀ (5,468฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀(4,892฀)
Total ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀ 167,989฀฀฀฀฀฀฀ $ ฀฀฀฀126,313฀฀฀฀฀฀฀ $ ฀฀฀ 107,712฀
Deferred฀ income฀ taxes฀ or฀ tax฀ benefits฀ ref lect฀ the฀ tax฀ effect฀
of฀temporary฀differences฀between฀the฀amounts฀of฀assets฀and฀
liabilities฀ for฀ financial฀ reporting฀ purposes฀ and฀ amounts฀ as฀
measured฀ for฀ tax฀ purposes.฀ The฀ Company฀ will฀ establish฀ a฀
valuation฀allowance฀if฀it฀is฀more฀likely฀than฀not฀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฀
valuation฀allowances฀as฀of฀September฀28,฀2003,฀and฀September฀
29,฀2002,฀were฀related฀to฀losses฀from฀investments฀in฀foreign฀
equity฀investees฀and฀wholly฀owned฀foreign฀subsidiaries.฀The฀
net฀ change฀ in฀ the฀ total฀ valuation฀ allowance฀ for฀ the฀ years฀
ended฀ September฀ 28,฀ 2003,฀ and฀ September฀ 29,฀ 2002,฀ was฀
an฀ increase฀ of฀ $7.0฀ million฀ and฀ a฀ decrease฀ of฀ $2.3฀million,฀
respectively.฀ The฀ tax฀ effect฀ of฀ temporary฀ differences฀ and฀
carryforwards฀that฀cause฀significant฀portions฀of฀deferred฀tax฀
assets฀and฀liabilities฀is฀as฀follows฀(in฀thousands):฀
Fiscal฀year฀ended฀ Sept฀28,฀2003฀ Sept฀29,฀2002
Deferred฀tax฀assets:฀
฀ Equity฀and฀other฀investments฀ $฀ 17,576฀ $฀ 15,270
฀ Capital฀loss฀carry฀forwards฀ ฀ 4,578฀ ฀ 6,077
฀ Accrued฀occupancy฀costs฀ ฀ 15,706฀ ฀ 14,597
฀ Accrued฀compensation฀and฀
฀ ฀ related฀costs฀ ฀ 20,533฀ ฀ 12,726
฀ Other฀accrued฀expenses฀ ฀ 22,410฀ ฀ 16,608
฀ Foreign฀tax฀credits฀ ฀ 14,103฀ ฀ 10,199
฀ Other฀ ฀ 7,084฀ ฀ 6,971
฀ Total฀ ฀ 101,990฀ ฀ 82,448
฀ Valuation฀allowance฀ ฀ (13,685฀)฀ ฀ (6,720฀)
Total฀deferred฀tax฀asset,฀
฀ net฀of฀valuation฀allowance฀ ฀ 88,305฀฀ ฀ 75,728
Deferred฀tax฀liabilities:
฀ Property,฀plant฀and฀equipment฀ ฀ (49,419฀)฀ ฀ (50,819฀)
฀ Other฀ ฀ (10,650฀)฀ ฀ (5,199฀)
฀ Total฀ ฀ (60,069฀)฀ ฀ (56,018฀)
Net฀deferred฀tax฀asset฀ $฀ 28,236฀ $฀ 19,710฀
As฀ of฀ September฀ 28,฀ 2003,฀ the฀ Company฀ had฀ foreign฀ tax฀
credit฀ carryforwards฀ of฀ $14.1฀ million฀ with฀ expiration฀ dates฀
between฀fiscal฀years฀2004฀and฀2008.฀The฀Company฀also฀had฀
capital฀loss฀carryforwards฀of฀$11.9฀million฀expiring฀in฀2006.฀
Taxes฀currently฀payable฀of฀$30.5฀million฀and฀$32.8฀million฀
are฀ included฀ in฀ “Accrued฀ taxes”฀ on฀ the฀ accompanying฀
consolidated฀ balance฀ sheets฀ as฀ of฀ September฀ 28,฀ 2003,฀ and฀
September฀29,฀2002,฀respectively.
Note฀15:฀Earnings฀per฀Share
The฀ following฀ table฀ represents฀ the฀ calculation฀ of฀ net฀
earnings฀ per฀ common฀ share฀ –฀ basic฀ (in฀ thousands,฀ except฀
earnings฀per฀share):
฀ Sept฀28,฀ Sept฀29,฀ Sept฀30,
Fiscal฀year฀ended฀ 2003฀ 2002฀ 2001฀
Net฀earnings฀ $฀ 268,346฀ $฀212,686฀ $฀ 180,335
฀ Weighted฀average฀common
฀ ฀ shares฀and฀common฀stock
฀ ฀ units฀outstanding฀ ฀ 390,753฀ ฀385,575฀ ฀ 380,566
Net฀earnings฀per฀common฀
฀ share฀–฀basic฀ $฀ 0.69฀ $฀ 0.55฀ $฀ 0.47
The฀following฀table฀represents฀the฀calculation฀of฀net฀earnings฀
per฀ common฀ and฀ common฀ equivalent฀ share฀ –฀ diluted฀ (in฀
thousands,฀except฀earnings฀per฀share):฀
฀ Sept฀28,฀ Sept฀29,฀ Sept฀30,
Fiscal฀year฀ended฀ 2003฀ 2002฀ 2001฀
Net฀earnings฀ $฀ 268,346฀ $฀212,686฀ $฀ 180,335
฀ Weighted฀average฀common฀
฀ ฀ shares฀and฀common฀stock฀
฀ ฀ units฀outstanding฀ ฀ 390,753฀ ฀385,575฀ ฀ 380,566
฀ Dilutive฀effect฀of฀outstanding฀
฀ ฀ common฀stock฀options฀ ฀ 10,895฀ ฀ 11,951฀ ฀ 13,783
฀ Weighted฀average฀common฀
฀ ฀ and฀common฀equivalent
฀ ฀ shares฀outstanding฀ ฀ 401,648฀ ฀397,526฀ ฀ 394,349
Net฀earnings฀per฀common฀
฀ share฀–฀basic฀ $฀ 0.67฀ $฀ 0.54฀ $฀ 0.46
Options฀with฀exercise฀prices฀greater฀than฀the฀average฀market฀
price฀were฀not฀included฀in฀the฀computation฀of฀diluted฀earnings฀
per฀share.฀These฀options฀totaled฀0.6฀million,฀1.8฀million฀and฀
0.9฀million฀in฀fiscal฀2003,฀2002฀and฀2001,฀respectively.฀
Note฀16:฀Related฀Party฀Transactions
Prior฀to฀January฀2003,฀a฀member฀of฀the฀Company’s฀Board฀of฀
Directors฀served฀as฀a฀board฀member฀of,฀and฀owned฀an฀indirect฀
interest฀in,฀a฀privately฀held฀company฀that฀provides฀Starbucks฀
with฀ in-store฀ music฀ services.฀ Starbucks฀ paid฀ $0.7฀ million,฀
$3.0฀million฀and฀$2.3฀million฀to฀the฀privately฀held฀company฀
for฀ music฀ services฀ during฀ fiscal฀ 2003,฀ 2002฀ and฀ 2001,฀
respectively,฀while฀the฀related฀party฀relationship฀existed.
There฀were฀31,294฀shares฀issued฀under฀the฀plan฀during฀fiscal฀
2003฀at฀prices฀ranging฀from฀$11.33฀to฀$12.02.฀No฀shares฀had฀
been฀ issued฀ prior฀ to฀ fiscal฀ 2003฀ and฀ 568,706฀ shares฀ remain฀
available฀for฀future฀issuance.฀
Deferred฀Stock฀Plan
The฀ Company฀ has฀ a฀ deferred฀ stock฀ plan฀ for฀ certain฀ key฀
employees฀ that฀ enables฀ participants฀ in฀ the฀ plan฀ to฀ defer฀
receipt฀of฀ownership฀of฀common฀shares฀from฀the฀exercise฀of฀
non-qualified฀stock฀options.฀The฀ minimum฀ deferral฀ period฀
is฀five฀years.฀As฀of฀September฀28,฀2003,฀receipt฀of฀1,697,100฀
shares฀was฀deferred฀under฀the฀terms฀of฀this฀plan.฀The฀rights฀
to฀receive฀these฀shares,฀represented฀by฀common฀stock฀units,฀
are฀included฀in฀the฀calculation฀of฀basic฀and฀diluted฀earnings฀
per฀share฀as฀common฀stock฀equivalents.฀
Defined฀Contribution฀Plans
Starbucks฀ maintains฀ voluntary฀ defined฀ contribution฀
plans฀ covering฀ eligible฀ employees฀ as฀ defined฀ in฀ the฀ plan฀
documents.฀Participating฀employees฀may฀elect฀to฀defer฀and฀
contribute฀a฀portion฀of฀their฀compensation฀to฀the฀plans฀up฀to฀
the฀plan฀limits฀stated฀in฀the฀plan฀documents,฀not฀to฀exceed฀
the฀dollar฀amounts฀set฀by฀applicable฀laws.฀For฀employees฀in฀
the฀United฀States฀and฀Canada,฀the฀Company฀matched฀25%฀
to฀150%฀of฀each฀employee’s฀ eligible฀contribution฀ based฀ on฀
years฀of฀service,฀up฀to฀a฀maximum฀of฀the฀first฀4%฀of฀each฀
employee’s฀compensation.
The฀ Company’s฀ matching฀ contributions฀ to฀ all฀ plans฀ were฀
approximately฀$6.8฀million,฀$3.1฀million฀and฀$1.6฀million฀in฀
fiscal฀2003,฀2002฀and฀2001,฀respectively.