Starbucks 2006 Annual Report Download - page 67

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 1, 2006 Oct 2, 2005
Deferred tax assets:
Accrued occupancy costs $ 36,205 $ 31,247
Accrued compensation and related costs 90,815 43,890
Other accrued expenses 34,959 20,199
Foreign tax credits 20,948 15,708
Other 19,095 13,990
Total 202,022 125,034
Valuation allowance (8,767) (8,078)
Total deferred tax asset, net of valuation allowance 193,255 116,956
Deferred tax liabilities:
Property, plant and equipment (12,759) (32,314)
Other (16,249) (11,600)
Total (29,008) (43,914)
Net deferred tax asset $164,247 $ 73,042
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 1, 2006 was related to net operating losses of consolidated foreign subsidiaries. The valuation allowance as of
October 2, 2005 was related to capital loss carryforwards and net operating losses of consolidated foreign subsidiaries.
The net change in the total valuation allowance for the years ended October 1, 2006, and October 2, 2005, was an
increase of $0.7 million and $7.1 million, respectively.
As of October 1, 2006, the Company has foreign tax credit carryforwards of $20.9 million with expiration dates between
fiscal years 2010 and 2016. As of the end of fiscal 2006, the Company also has capital loss carryforwards of $1.2 million,
expiring in fiscal year 2010.
Taxes currently payable of $50.6 million and $41.5 million are included in “Accrued taxes” on the consolidated balance
sheets as of October 1, 2006, and October 2, 2005, 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 $27.6 million and
$33.1 million as of October 1, 2006, and October 2, 2005, respectively, and are included in “Accrued taxes” on the
consolidated balance sheets. These liabilities are provided for in accordance with the requirements of SFAS 5. The
Company believes its contingent tax liabilities are adequate in the event the tax positions are not ultimately upheld.
In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109,” which seeks to reduce the diversity in practice associated with the accounting
and reporting for uncertainty in income tax provisions. This interpretation prescribes a comprehensive model for the
financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to
be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the Company
will adopt the new requirements in its fiscal first quarter of 2008. The cumulative effects, if any, of adopting FIN 48 will
be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company has not
determined the impact, if any, of adopting FIN 48 on its consolidated financial statements.
STARBUCKS CORPORATION, FORM 10-K 63