Office Depot 2012 Annual Report Download - page 76

OFFICE DEPOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the activity related to uncertain tax positions:
Included in the balance of $4.6 million at December 29, 2012, are $2.8 million of net uncertain tax positions that, if recognized,
would affect the effective tax rate. The difference of $1.8 million primarily results from positions which if sustained would be fully
offset by a change in valuation allowance.
The Company files a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations for years before 2009. As
discussed above, U.S. federal filings for 2009 and 2010 are awaiting final resolution from the IRS Appeals Division. The 2011 IRS
Examination has been completed, and pending the final resolution of the tentative settlement with the IRS Appeals Division for 2009
and 2010 the IRS has made a deemed royalty assessment of $12.4 million ($4.3 million tax-effected) relating to 2011 foreign
operations. The Company disagrees with this assessment and believes that no uncertain tax position accrual is required as o
f
December 29, 2012. Additionally, the U.S. federal tax return for 2012 is under concurrent year review, and it is reasonably possible
that the audits for one or more of these periods will be closed prior to the end of 2013. Significant international tax jurisdictions
include the UK, the Netherlands, France and Germany. Generally, the Company is subject to routine examination for years 2008 and
forward in these jurisdictions. It is reasonably possible that certain of these audits will close within the next 12 months, which the
Company does not believe would result in a material change in its accrued uncertain tax positions. Additionally, the Company
anticipates that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the
balance of unrecognized tax benefits, however, an estimate of such changes cannot reasonably be made.
The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in the provision for income
taxes. Because of the expiration of statute and settlement reached with certain taxing authorities, net interest credits of $30.4 million
in 2011 and $6.7 million in 2010 were recognized. The Company recognized expense from interest of approximately $1.9 million in
2012. The Company had approximately $8.8 million accrued for the payment of interest and penalties as of December 29, 2012.
In connection with the expensing of the fair value of employee stock options, the Company has elected to calculate the pool of excess
tax benefits under the alternative or “short-cut” method. At adoption, this pool of benefits was approximately $55.3 million and was
approximately $100.7 million as of December 29, 2012. This pool may increase in future periods if tax benefits realized are in excess
of those based on grant date fair values or may decrease if used to absorb future tax deficiencies determined for financial reporting
purposes.
NOTE G – COMMITMENTS AND CONTINGENCIES
Operating Leases: The Company leases retail stores and other facilities and equipment under operating lease agreements. Facility
leases typically are for a fixed non-cancellable term with one or more renewal options. In addition to minimum rentals, there are
certain executory costs such as real estate taxes, insurance and common area maintenance on most of the facility leases. Many lease
agreements contain tenant improvement allowances, rent holidays, and/or rent escalation clauses. For purposes of recognizing
incentives and minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial
possession to begin amortization.
73
(In thousands) 2012 2011 2010
Be
g
innin
g
balance $6,527 $110,540 $141,125
Additions based on tax
p
ositions related to the current
y
ear
—
—
3,436
Additions for tax
p
ositions of
p
rior
y
ears 2,907 471,081 24,936
Reductions for tax
p
ositions of
p
rior
y
ears (829) (40,083) (32,572)
Statute ex
p
irations
—
(60,131) (17)
Settlements
(4,053) (474,880) (26,368)
Endin
g
balance $4,552 $6,527 $110,54
0