Baskin Robbins 2012 Annual Report Download - page 95

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-85-
At December 29, 2012 and December 31, 2011, the total amount of unrecognized tax benefits related to uncertain tax positions
was $15.4 million and $41.4 million, respectively. At December 29, 2012 and December 31, 2011, the Company had
approximately $14.9 million and $16.9 million, respectively, of accrued interest and penalties related to uncertain tax positions.
The Company recorded a net income tax benefit of $0.2 million during fiscal year 2012 and net income tax expense of $3.1
million and $0.6 million during fiscal years 2011 and 2010, respectively, for potential interest and penalties related to uncertain
tax positions. At December 29, 2012 and December 31, 2011, there were $9.4 million and $17.4 million, respectively, of
unrecognized tax benefits that, if recognized, would impact the annual effective tax rate.
The Company’s major tax jurisdictions are the United States and Canada. For Canada, the Company has open tax years dating
back to tax years ended August 2003 and is currently under audit for the tax periods 2009, 2010, and 2011. In the United States,
the Company is currently under audits in certain state jurisdictions for tax periods after December 2006. The audits are in
various stages as of December 29, 2012. The Company estimates that the liability for uncertain tax positions could decrease by
up to $4.0 million within the next twelve months due to the settlement of examinations or issues with tax authorities.
For U.S. federal taxes, the Internal Revenue Service (“IRS”) concluded its examination of fiscal years 2006 through 2009
during fiscal year 2012 and agreed to a settlement regarding the recognition of revenue for gift cards and other matters. The
Company made a cash payment for the additional federal tax due and interest thereon totaling $0.9 million for fiscal years 2006
and 2007 and a cash payment of $8.2 million for the additional federal tax due for fiscal years 2008 and 2009. Based on these
settlements, additional state taxes and federal and state interest owed, net of federal and state benefits, are approximately $2.0
million, of which approximately $1.0 million was paid during fiscal year 2012. For fiscal year 2010, we will be required to
make an additional cash payment of $3.5 million for federal and state taxes and interest owed, net of federal and state benefits.
As the additional federal and state taxes owed for all periods represent temporary differences that will be deductible in future
years, the potential tax expense is limited to federal and state interest, net of federal and state benefits, which we do not expect
to be material.
A summary of the changes in the Company’s unrecognized tax benefits is as follows (in thousands):
Fiscal year ended
December 29,
2012
December 31,
2011
December 25,
2010
Balance at beginning of year $ 41,379 17,549 27,092
Increases related to prior year tax positions 2,063 23,922 792
Increases related to current year tax positions 1,389 — 1,373
Decreases related to prior year tax positions (19,675)—
(4,721)
Decreases related to settlements (9,792)—
(6,622)
Lapses of statutes of limitations (27)(43)(534)
Effect of foreign currency adjustments 91 (49) 169
Balance at end of year $ 15,428 41,379 17,549
(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
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 $4.7 million and $6.9 million at December 29, 2012 and December 31, 2011, respectively. At
December 29, 2012 and December 31, 2011, there were no amounts under such guarantees that were due. The fair value of the
guarantee liability and corresponding asset recorded on the consolidated balance sheets was $601 thousand and $572 thousand,
respectively, at December 29, 2012 and $754 thousand and $874 thousand, respectively, at December 31, 2011. The Company
assesses the risk of performing under these guarantees for each franchisee relationship on a quarterly basis. As of December 29,