Starbucks 2012 Annual Report Download - page 54

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During the past three fiscal years, we have not made any material changes in the accounting methodology that we
use to calculate our self-insurance reserves. We do not believe there is a reasonable likelihood that there will be a
material change in the estimates or assumptions that we use to calculate our self-insurance reserves for the
foreseeable future. However, if actual results are not consistent with our estimates or assumptions, we may be
exposed to losses or gains that could be material.
A 10% change in our self-insurance reserves at September 30, 2012 would have affected net earnings by
approximately $10 million in fiscal 2012.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying
amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured
using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary
differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and
may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax
benefit will not be realized.
In addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits
include questions regarding our tax filing positions, including the timing and amount of deductions taken and the
allocation of income among various tax jurisdictions. We evaluate our exposures associated with our various tax
filing positions; we recognize a tax benefit only if it is more likely than not that the tax position will be sustained
on examination by the relevant taxing authorities, based on the technical merits of our position. For uncertain tax
positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefits
liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute
of limitations expires for the relevant taxing authority to examine the tax position, or when new information
becomes available.
Income generated in certain foreign jurisdictions has not been subject to US income taxes. We intend to reinvest
these earnings for the foreseeable future. If these amounts were distributed to the US, in the form of dividends or
otherwise, we would be subject to additional US income taxes, which could be material. Determination of the
amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability,
if any, is dependent on circumstances existing if and when remittance occurs.
Deferred tax asset valuation allowances and our liability for unrecognized tax benefits require significant
management judgment regarding applicable statutes and their related interpretation, the status of various income
tax audits, and our particular facts and circumstances. Although we believe that the judgments and estimates
discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be
material. To the extent we prevail in matters for which a liability has been established, or are required to pay
amounts in excess of our established liability, our effective income tax rate in a given financial statement period
could be materially affected.
Litigation Accruals
We are involved in various claims and legal actions that arise in the ordinary course of business. Legal and other
contingency reserves and related disclosures are based on our assessment of the likelihood of a potential loss and
our ability to estimate the loss or range of loss, which includes consultation with outside legal counsel and
advisors. We record reserves related to legal matters when it is probable that a loss has been incurred and the
range of such loss can be reasonably estimated. Such assessments are reviewed each period and revised, based on
current facts and circumstances and historical experience with similar claims, as necessary.
Our disclosures of and accruals for litigation claims, if any, contain uncertainties because management is required
to use judgment to estimate the probability of a loss and a range of possible losses related to each claim. Note 15
to the consolidated financial statements describes the Company’s legal and other contingent liability matters.