Starbucks 2005 Annual Report Download - page 71

elect to repatriate earnings in fiscal 2006. Earnings under consideration for repatriation range from $0 to
$75 million and the related income tax effects range from $0 to $5 million. As provided in FSP 109-2,
Starbucks has not adjusted its tax expense or deferred tax liability to reflect the repatriation provision.
The tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax
assets and liabilities is as follows (in thousands):
Fiscal Year Ended Oct 2, 2005 Oct 3, 2004
Deferred tax assets:
Accrued occupancy costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 31,247 $ 27,006
Accrued compensation and related costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,890 37,333
Other accrued expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,199 14,918
Foreign tax credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15,708 17,514
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,990 16,769
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 125,034 113,540
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8,078) (929)
Total deferred tax asset, net of valuation allowanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 116,956 112,611
Deferred tax liabilities:
Property, plant and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (32,314) (58,512)
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11,600) (12,219)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (43,914) (70,731)
Net deferred tax asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 73,042 $ 41,880
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 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 allowance as of October 2, 2005 was related to capital loss
carryforwards and net operating losses of consolidated foreign subsidiaries. The valuation allowance as of
October 2, 2004 related solely to net operating losses of consolidated foreign subsidiaries. The net change in
the total valuation allowance for the years ended October 2, 2005, and October 3, 2004, was an increase of
$7.1 million and a decrease of $8.4 million, respectively.
As of October 2, 2005, the Company has foreign tax credit carryforwards of $15.7 million with expiration dates
between fiscal years 2011 and 2014. As of the end of fiscal 2005, the Company also has capital loss
carryforwards of $12.3 million, with $11.1 million and $1.2 million expiring in fiscal years 2006 and 2011,
respectively.
Taxes currently payable of $41.5 million and $29.2 million are included in ""Accrued taxes'' on the
consolidated balance sheets as of October 2, 2005, and October 3, 2004, respectively.
The Company has established, and periodically reviews and re-evaluates, an estimated contingent tax liability
to provide for the possibility of unfavorable outcomes in tax matters. Contingent tax liabilities totaled
$33.1 million as of October 2, 2005, and are included in ""Accrued income taxes.'' These liabilities are
provided for in accordance with the requirements of SFAS No. 5, ""Accounting for Contingencies.'' The
Company believes its contingent tax liabilities are adequate in the event the tax positions are not ultimately
upheld.
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