Dunkin' Donuts 2013 Annual Report Download - page 99

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-89-
At December 28, 2013 and December 29, 2012, the total amount of unrecognized tax benefits related to uncertain tax positions
was $8.2 million and $15.4 million, respectively. At December 28, 2013 and December 29, 2012, the Company had
approximately $4.2 million and $14.9 million, respectively, of accrued interest and penalties related to uncertain tax positions.
The Company recorded net income tax benefits of $5.8 million and $0.2 million during fiscal years 2013 and 2012,
respectively, and net income tax expense of $3.1 million during fiscal year 2011 for potential interest and penalties related to
uncertain tax positions. At December 28, 2013 and December 29, 2012, there were $6.3 million and $9.4 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 August 2003 and is currently under audit for the tax periods 2009 through 2012.
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 28, 2013.
For U.S. federal taxes, the Internal Revenue Service (“IRS”) concluded its examination of fiscal year 2010 during fiscal year
2013 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 totaling $3.0 million. Based on this and previous settlements, additional state
taxes and federal and state interest owed, net of federal and state benefits, are approximately $1.5 million, of which
approximately $0.8 million was paid during fiscal year 2013. 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 28,
2013
December 29,
2012
December 31,
2011
Balance at beginning of year $ 15,428 41,379 17,549
Increases related to prior year tax positions 855 2,063 23,922
Increases related to current year tax positions 219 1,389 —
Decreases related to prior year tax positions (3,091)(19,675)—
Decreases related to settlements (4,797)(9,792)—
Lapses of statutes of limitations —(27)(43)
Effect of foreign currency adjustments (401)91(49)
Balance at end of year $ 8,213 15,428 41,379
(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 $3.0 million and $4.7 million at December 28, 2013 and December 29, 2012, respectively. At
December 28, 2013 and December 29, 2012, 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 $277 thousand and $309 thousand,
respectively, at December 28, 2013 and $601 thousand and $572 thousand, respectively, at December 29, 2012. The Company
assesses the risk of performing under these guarantees for each franchisee relationship on a quarterly basis. As of
December 29, 2012, the Company had recorded reserves for such guarantees of $389 thousand. No reserves were recorded as
of December 28, 2013.