Starbucks 2004 Annual Report Download - page 27

38 Fiscal 2004 Annual Report
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 Oct 3, 2004 Sept 28, 2003 Sept 29, 2002
Statutory rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal income tax benefit 3.5 3.6 3.4
Valuation allowance change/Other, net (1.3) (0.1) (1.1)
Effective tax rate 37.2 % 38.5 % 37.3 %
The provision for income taxes consists of the following (in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003 Sept 29, 2002
Currently payable:
Federal $ 188,647 $ 140,138 $ 109,154
State 36,383 25,448 16,820
Foreign 10,218 8,523 5,807
Deferred taxes, net (2,766) (6,120) (5,468)
Total $ 232,482 $ 167,989 $ 126,313
U.S. income and foreign withholding taxes have not been
provided on approximately $42.8 million of cumulative
nondistributed earnings of foreign subsidiaries and equity
investees. The Company intends to reinvest these earnings
for the foreseeable future. If these amounts were distributed to
the United States, in the form of dividends or otherwise, the
Company would be subject to additional U.S. income taxes.
Because of the availability of U.S. foreign tax credits, the
determination of the amount of unrecognized deferred income
tax liabilities on these earnings is not practicable.
The Company is currently evaluating the impact on its
consolidated fi nancial position and disclosures from new U.S. tax
legislation, the American Jobs Creation Act of 2004 (“American
Jobs Creation Act”), signed into law on October 22, 2004. The
new law allows a deduction of 85% of repatriated qualifi ed
foreign earnings in either fi scal year 2005 or fi scal year 2006.
Any impact from this legislation has not been refl ected in the
amounts shown as reinvested for the foreseeable future.
The tax effect of temporary differences and carryforwards that
comprise signifi cant portions of deferred tax assets and liabilities
is as follows (in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003
Deferred tax assets:
Equity and other investments $ 10,766 $ 17,576
Capital loss carryforwards 4,223 4,578
Accrued occupancy costs 19,683 15,706
Accrued compensation and related costs 31,057 20,533
Other accrued expenses 21,194 22,410
Foreign tax credits 17,514 14,103
Other 9,185 7,084
Total 113,622 101,990
Valuation allowance (8,334 ) (13,685 )
Total deferred tax asset, net of
valuation allowance 105,288 88,305
Deferred tax liabilities:
Property, plant and equipment (58,512 ) (49,419 )
Other (12,219 ) (10,650 )
Total (70,731 ) (60,069 )
Net deferred tax asset $ 34,557 $ 28,236
The Company will establish a valuation allowance if it is
more likely than not that these items will either expire before
the Company is able to realize their benefi ts, 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
October 3, 2004, and September 28, 2003, were related
to nondeductible losses from investments in foreign equity
investees and wholly owned foreign subsidiaries. The net change
in the total valuation allowance for the years ended October 3,
2004, and September 28, 2003, was a decrease of $5.4 million
and an increase of $7.0 million, respectively.
As of October 3, 2004, the Company has foreign tax credit
carryforwards of $17.5 million with expiration dates between
fi scal years 2005 and 2009. Effective in fi scal 2005, the
American Job Creation Act extends the carryforward periods
by an additional fi ve years, to fi scal years 2010 and 2014. As
of the end of fi scal 2004, the Company also has capital loss
carryforwards of $11.1 million, expiring in 2006.
Taxes currently payable of $29.3 million and $30.5 million
are included in “Accrued taxes” on the accompanying
consolidated balance sheets as of October 3, 2004, and
September 28, 2003, 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):
Oct 3, Sept 28, Sept 29,
Fiscal year ended 2004 2003 2002
Net earnings $ 391,775 $ 268,346 $ 212,686
Weighted average common
shares and common stock
units outstanding 397,173 390,753 385,575
Net earnings per common
share – basic $ 0.99 $ 0.69 $ 0.55
The following table represents the calculation of net earnings per
common and common equivalent share – diluted (in thousands,
except earnings per share):
Oct 3, Sept 28, Sept 29,
Fiscal year ended 2004 2003 2002
Net earnings $ 391,775 $ 268,346 $ 212,686
Weighted average common
shares and common stock
units outstanding 397,173 390,753 385,575
Dilutive effect of outstanding
common stock options 14,292 10,895 11,951
Weighted average common
and common equivalent
shares outstanding 411,465 401,648 397,526
Net earnings per common
share – diluted $ 0.95 $ 0.67 $ 0.54
Options with exercise prices greater than the average market
price were not included in the computation of diluted earnings
per share. These options totaled 0.2 million, 0.6 million and 1.8
million in fi scal years 2004, 2003 and 2002, respectively.
Note 16: Related Party Transactions
In April 2001, three members of the Board of Directors and
other investors, organized as The Basketball Club of Seattle,
LLC (the “Basketball Club”), purchased the franchises for The
Seattle Supersonics and The Seattle Storm basketball teams. An
executive offi cer of the Company and member of the Board of
Directors, Howard Schultz, owns a controlling interest in the
Basketball Club. Starbucks paid approximately $0.8 million,