Dunkin' Donuts 2015 Annual Report Download - page 97

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-87-
deferred tax liability will be recognized when the Company is no longer able to demonstrate that it plans to permanently
reinvest undistributed earnings. As of December 26, 2015 and December 27, 2014, the undistributed earnings of these joint
ventures were approximately $128.2 million and $136.7 million, respectively.
The Company has not recognized a deferred tax liability of $9.5 million for the undistributed earnings of our foreign
subsidiaries since such earnings are considered indefinitely reinvested outside the United States. As of December 26, 2015 and
December 27, 2014, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $18.3
million and $8.5 million, respectively. If in the future we decide to repatriate such foreign earnings, we could incur incremental
U.S. federal and state income tax. However, our intent is to keep these funds indefinitely reinvested outside of the United States
and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.
At December 26, 2015 and December 27, 2014, the total amount of unrecognized tax benefits related to uncertain tax positions
was $2.7 million and $3.7 million, respectively. At December 26, 2015 and December 27, 2014, the Company had
approximately $1.3 million and $1.2 million, respectively, of accrued interest and penalties related to uncertain tax positions.
The Company recorded net income tax expense of $0.1 million during fiscal year 2015 and net income tax benefits of $2.3
million and $5.8 million during fiscal years 2014 and 2013, respectively, for potential interest and penalties related to uncertain
tax positions. At December 26, 2015 and December 27, 2014, there were $1.1 million and $2.0 million, respectively, of
unrecognized tax benefits that, if recognized, would impact the annual effective tax rate.
The Company’s major tax jurisdictions subject to income tax are the United States and Canada. For Canada, the Company has
open tax years dating back to tax years ended December 2006 and finalized its audit for the tax periods 2009 through 2012
during fiscal year 2014. In the United States, the Company has been audited by the IRS through fiscal year 2010 and is
currently under audit in various jurisdiction for tax periods after December 2010.
A summary of the changes in the Company’s unrecognized tax benefits is as follows (in thousands):
Fiscal year ended
December 26,
2015
December 27,
2014
December 28,
2013
Balance at beginning of year $ 3,672 8,213 15,428
Increases related to prior year tax positions — 488 855
Increases related to current year tax positions 111 96 219
Decreases related to prior year tax positions (301)(4,567)(3,091)
Decreases related to settlements (636)(296)(4,797)
Effect of foreign currency adjustments (193)(262)(401)
Balance at end of year $ 2,653 3,672 8,213
(17) Commitments and contingencies
(a) Lease commitments
The Company is party to various leases for property, including land and buildings, leased automobiles, and office equipment
under noncancelable operating and capital lease arrangements (see note 11).
(b) Guarantees
Financial Guarantees
The Company has established agreements with certain financial institutions whereby the Company’s franchisees can obtain
financing with terms of approximately 3 to 10 years for various business purposes. Substantially all loan proceeds are used by
the franchisees to finance store improvements, new store development, new central production locations, equipment purchases,
related business acquisition costs, working capital, and other costs. In limited instances, the Company guarantees a portion of
the payments and commitments of the franchisees, which is collateralized by the store equipment owned by the franchisee.
Under the terms of the agreements, in the event that all outstanding borrowings come due simultaneously, the Company would
be contingently liable for $2.0 million and $2.2 million at December 26, 2015 and December 27, 2014, respectively. At
December 26, 2015 and December 27, 2014, there were no amounts under such guarantees that were due. The Company
assesses the risk of performing under these guarantees for each franchisee relationship on a quarterly basis.