Starbucks 2007 Annual Report Download - page 68

consolidated foreign subsidiaries. The net change in the total valuation allowance for the years ended September 30,
2007, and October 1, 2006, was an increase of $4.9 million and $0.7 million, respectively.
As of September 30, 2007, the Company has foreign tax credit carryforwards of $11.1 million with expiration dates
between fiscal years 2012 and 2014. As of the end of fiscal 2007, the Company also has capital loss carryforwards of
$0.7 million, expiring in fiscal year 2010.
Taxes currently payable of $38.5 million and $50.6 million are included in “Accrued taxes” on the consolidated
balance sheets as of September 30, 2007 and October 1, 2006, respectively.
The Company has established, and periodically reviews and re-evaluates, estimated contingent tax liabilities to
provide for the possibility of unfavorable outcomes in tax matters. Contingent tax liabilities totaled $25.9 million
and $27.6 million as of September 30, 2007 and October 1, 2006, 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.
The Company will adopt FIN 48 in its first fiscal quarter of 2008. See Note 1 for additional information.
Note 15: Earnings per Share
The following table represents the calculation of net earnings per common share — basic and diluted (in thousands,
except earnings per share):
Fiscal Year Ended Sept 30, 2007 Oct 1, 2006 Oct 2, 2005
Net earnings .................................... $672,638 $564,259 $494,370
Weighted average common shares and common stock
units outstanding (for basic calculation) ............ 749,763 766,114 789,570
Dilutive effect of outstanding common stock options..... 20,328 26,442 25,847
Weighted average common and common equivalent shares
outstanding (for diluted calculation) . . ............. 770,091 792,556 815,417
Net earnings per common share — basic . . ............. $ 0.90 $ 0.74 $ 0.63
Net earnings per common and common equivalent share —
diluted ....................................... $ 0.87 $ 0.71 $ 0.61
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock
options (both vested and non-vested) and unvested RSUs using the treasury stock method. Potential dilutive shares
are excluded from the computation of earnings per share if their effect is antidilutive. The number of antidilutive
options and RSUs totaled 10.4 million, 10.3 million and 13.7 million in fiscal years 2007, 2006 and 2005,
respectively.
Note 16: Related Party Transactions
In April 2001, certain 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 officer of the Company and member of the Board of Directors, Howard Schultz,
owned a controlling interest in The Basketball Club, until the franchises were sold to an unrelated third party in
October 2006. Starbucks paid no amounts in fiscal 2007 and approximately $0.6 million and $0.8 million during
fiscal years 2006 and 2005, respectively, for team sponsorships and ticket purchases during the time when
Mr. Schultz owned a controlling interest in The Basketball Club. Terms of the team sponsorship agreements did not
change as a result of the related party relationship.
In June 2005, a then-member of the Company’s Board of Directors was appointed president and chief financial
officer of Oracle Corporation. Starbucks had a pre-existing business relationship with Oracle related to financial
systems and systems consulting at the time of the appointment and Starbucks continued to make payments for
supplies and services subsequent to June 2005 in the ordinary course of business. These payments totaled
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