Income Taxes

The components of earnings/(loss) before income taxes were as follows (in millions):



Fiscal Year Ended	Sep 29, 2013								Sep 30, 2012		Oct 2, 2011
	Total			Litigation charge			All Other		Sep 30, 2012		Oct 2, 2011
United States	$	(674.0	)	$	(2,784.1	)	$	2,110.1	$	1,679.6	$	1,523.4
Foreign	444.1			—			444.1		379.5		287.7
Total earnings/(loss) before income taxes	$	(229.9	)	$	(2,784.1	)	$	2,554.2	$	2,059.1	$	1,811.1

Provision/(benefit) for income taxes (in millions):



Fiscal Year Ended	Sep 29, 2013									Sep 30, 2012			Oct 2, 2011
	Total			Litigation charge			All Other			Sep 30, 2012			Oct 2, 2011
Current taxes:
US federal	$	616.6		$	—		$	616.6		$	466.0		$	344.7
US state and local	93.8			—			93.8			79.9			61.2
Foreign	95.9			—			95.9			76.8			37.3
Total current taxes	806.3			—			806.3			622.7			443.2
Deferred taxes:
US federal	(898.8		)	(922.3		)	23.5			49.2			111.6
US state and local	(144.0		)	(148.7		)	4.7			(0.7		)	8.3
Foreign	(2.2		)	—			(2.2		)	3.2			—
Total deferred taxes	(1,045.0		)	(1,071.0		)	26.0			51.7			119.9
Total provision/(benefit) for income taxes	$	(238.7	)	$	(1,071.0	)	$	832.3		$	674.4		$	563.1

Reconciliation of the statutory US federal income tax rate with our effective income tax rate:



Fiscal Year Ended	Sep 29, 2013						Sep 30, 2012		Oct 2, 2011
	Total		Litigation charge		All Other		Sep 30, 2012		Oct 2, 2011
Statutory rate	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	15.8	%	3.5	%	2.4	%	2.5	%	2.5	%
Benefits and taxes related to foreign operations	37.5	%	—	%	(3.4	)%	(3.3	)%	(3.1	)%
Domestic production activity deduction	8.1	%	—	%	(0.7	)%	(0.7	)%	(0.8	)%
Domestic tax credits	2.8	%	—	%	(0.3	)%	(0.3	)%	(0.7	)%
Charitable contributions	3.9	%	—	%	(0.3	)%	(0.5	)%	(0.3	)%
Other, net⁽¹⁾	0.7	%	—	%	(0.1	)%	0.1	%	(1.5	)%
Effective tax rate	103.8	%	38.5	%	32.6	%	32.8	%	31.1	%


⁽¹⁾	Fiscal 2011 includes a benefit of 0.9% related to the acquisition of the remaining ownership interest in Switzerland and Austria.

Our effective tax rate in 2013 was significantly affected by the litigation charge we recorded as a result of the conclusion of our arbitration with Kraft. In order to provide a more meaningful analysis of tax expense and the effective tax rate, the tables above present separate reconciliations of the effect of the litigation charge. The deferred tax asset related to the litigation charge is estimated to be recovered over a period of years; the deferred tax asset has been classified between current and non-current consistent with the expected recovery period for income tax reporting purposes.

US income and foreign withholding taxes have not been provided on approximately $1.9 billion of cumulative undistributed earnings of foreign subsidiaries and equity investees. 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 of the complexities with its hypothetical calculation, and the amount of liability, if any, is dependent on circumstances existing if and when remittance occurs.

Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):



	Sep 29, 2013			Sep 30, 2012
Deferred tax assets:
Property, plant and equipment	$	64.9		$	62.7
Accrued occupancy costs	69.0			72.0
Accrued compensation and related costs	77.6			66.9
Other accrued liabilities	22.0			15.7
Asset retirement obligation asset	21.0			20.1
Deferred revenue	49.9			43.7
Asset impairments	33.3			38.5
Tax credits	19.1			14.6
Stock based compensation	120.9			131.8
Net operating losses	99.0			99.2
Litigation charge	1,071.9			—
Other	62.7			80.9
Total	$	1,711.3		$	646.1
Valuation allowance	(160.5		)	(154.2		)
Total deferred tax asset, net of valuation allowance	$	1,550.8		$	491.9
Deferred tax liabilities:
Property, plant and equipment	(182.9		)	(89.0		)
Intangible assets and goodwill	(81.6		)	(34.0		)
Other	(53.1		)	(44.8		)
Total	(317.6		)	(167.8		)
Net deferred tax asset	$	1,233.2		$	324.1
Reported as:
Current deferred income tax assets	$	277.3		$	238.7
Long-term deferred income tax assets	967.0			97.3
Current deferred income tax liabilities (included in Accrued liabilities)	(1.0		)	(1.3		)
Long-term deferred income tax liabilities (included in Other long-term liabilities)	(10.1		)	(10.6		)
Net deferred tax asset	$	1,233.2		$	324.1

The valuation allowance as of September 29, 2013 and September 30, 2012 is primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries. The net change in the total valuation allowance for the years ended September 29, 2013 and September 30, 2012, was an increase of $6.3 million and $16.8 million, respectively.

As of September 29, 2013, Starbucks has state tax credit carryforwards of $19.1 million with an expiration date of fiscal 2024. Starbucks has foreign net operating loss carryforwards of $324 million, with the predominant amount having no expiration date.

Uncertain Tax Positions

As of September 29, 2013, we had $88.8 million of gross unrecognized tax benefits of which $59.6 million, if recognized, would affect our effective tax rate. We recognize interest and penalties related to income tax matters in income tax expense. As of September 29, 2013 and September 30, 2012, we had accrued interest and penalties of $4.7 million and $5.5 million, respectively, before the benefit of the federal tax deduction, recorded on our consolidated balance sheets.

The following table summarizes the activity related to our unrecognized tax benefits (in millions):



	Sep 29, 2013			Sep 30, 2012			Oct 2, 2011
Beginning balance	$	75.3		$	52.9		$	68.4
Increase related to prior year tax positions	8.9			8.8			4.4
Decrease related to prior year tax positions	(9.3		)	—			(32.3		)
Increase related to current year tax positions	19.3			20.0			26.0
Decrease related to current year tax positions	(0.4		)	(1.1		)	(0.8		)
Decreases related to settlements with taxing authorities	—			(0.5		)	(5.0		)
Decreases related to lapsing of statute of limitations	(5.0		)	(4.8		)	(7.8		)
Ending balance	$	88.8		$	75.3		$	52.9

We are currently under routine audit by various jurisdictions inside and outside the US as well as US state taxing jurisdictions for fiscal years 2006 through 2012. We are no longer subject to US federal or state examination for years prior to fiscal year 2010, with the exception of nine states. We are no longer subject to examination in any material international markets prior to 2006.

There is a reasonable possibility that the unrecognized tax benefits will change within 12 months, but we do not expect this change to be significant to the consolidated financial statements.