Starbucks 2008 Annual Report Download - page 77

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As of September 28, 2008, the Company had $52.6 million of gross unrecognized tax benefits of which
$21.4 million, if recognized, would affect the effective tax rate. The Company recognizes interest and penalties
related to income tax matters in income tax expense. During fiscal 2008, interest and penalties included in income
tax expense was $2.5 million. As of September 28, 2008 and October 1, 2007, the Company had accrued interest and
penalties of $9.1 million and $11.4 million, respectively, before benefit of federal tax deduction, recorded on its
consolidated balance sheets.
The following table summarizes the activity related to the Company’s unrecognized tax benefits from October 1,
2007 to September 28, 2008 (in millions):
Balance as of October 1, 2007 .............................................. $58.3
Increase related to prior year tax positions ...................................... 64.9
Decrease related to prior year tax positions ..................................... (37.2)
Increase related to current year tax positions .................................... 17.0
Decrease related to current year tax positions ................................... (5.4)
Decreases related to settlements with taxing authorities ............................ (11.1)
Decreases related to lapsing of statute of limitations . . ............................ (33.9)
Balance as of September 28, 2008............................................ $52.6
Starbucks is currently under routine audit by various state taxing jurisdictions for fiscal years 2003 through 2006.
During fiscal year 2008, the Company reached a settlement with the IRS on its 2005 federal income tax
examination. As a result, unrecognized tax benefits were reduced by $11.1 million and the tax provision was
reduced by $6.5 million. The Company reversed a portion of long-term taxes payable, which resulted in recording a
tax benefit in fiscal year 2008. The Company is no longer subject to US federal or state examination for years before
fiscal year 2005, with the exception of nine states. As a result of federal and certain state statute closures related to
fiscal year 2004, the Company reversed the long-term income taxes payable, which resulted in recording an
additional tax benefit in the third quarter of fiscal year 2008. The Company is subject to income tax in many
jurisdictions outside the United States, none of which are individually material to the consolidated financial
statements.
There is a reasonable possibility that the unrecognized tax benefits will change within the next 12 months, but the
Company does not expect this change to be material to the consolidated financial statements.
Note 16: Earnings per Share
The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in
millions, except EPS):
Fiscal Year Ended Sep 28, 2008 Sep 30, 2007 Oct 1, 2006
Net earnings .................................... $315.5 $672.6 $564.3
Weighted average common shares and common stock
units outstanding (for basic calculation) . . .......... 731.5 749.8 766.1
Dilutive effect of outstanding common stock options and
RSUs ..................................... 10.2 20.3 26.5
Weighted average common and common equivalent
shares outstanding (for diluted calculation) .......... 741.7 770.1 792.6
EPS — basic .................................... $ 0.43 $ 0.90 $ 0.74
EPS — diluted .................................. $ 0.43 $ 0.87 $ 0.71
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
71