Sysco 2011 Annual Report Download - page 91

Uncertain Tax Positions
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
2011 2010
(In thousands)
Unrecognized tax benefits at beginning of year . . . ......................................... $ 89,851 $ 92,145
Additions for tax positions related to prior years . . ......................................... 21,099 2,796
Reductions for tax positions related to prior years . ......................................... (11,955) (8,645)
Additions for tax positions related to the current year ........................................ — 19,595
Reductions for tax positions related to the current year ...................................... — —
Reductions due to settlements with taxing authorities ....................................... (25,294) (15,608)
Reductions due to lapse of applicable statute of limitations.................................... (1,610) (432)
Unrecognized tax benefits at end of year ................................................ $ 72,091 $ 89,851
As of July 2, 2011, $15.9 million of the gross liability for unrecognized tax benefits was netted within prepaid income taxes relating to a
payment that occurred during fiscal 2011; however, the liability is considered outstanding until the matters have been settled with the respective
jurisdiction. As of July 2, 2011, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was
$33.2 million, of which $8.7 million was netted within prepaid income taxes relating to a payment that occurred during fiscal 2011; however, the
liability is considered outstanding until the matters have been settled with the respective jurisdiction. The expense recorded for interest and
penalties related to unrecognized tax benefits in fiscal 2011 was $7.2 million.
As of July 3, 2010, $15.9 million of the gross liability for unrecognized tax benefits was netted within prepaid income taxes as payment was
expected to occur during fiscal 2011. As of July 3, 2010, the gross amount of liability for accrued interest and penalties related to unrecognized tax
benefits was $40.6 million, of which $8.7 million was netted within prepaid income taxes as payment was expected to occur during fiscal 2011. The
expense recorded for interest and penalties related to unrecognized tax benefits in fiscal 2010 was $12.0 million.
If Sysco were to recognize all unrecognized tax benefits recorded as of July 2, 2011, approximately $40.1 million of the $72.1 million reserve
would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the
company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit
or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the
consideration of various filing requirements in various states and the allocation of income and expense between tax jurisdictions. In addition, the
amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations
for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of
limitations expiring. At this time, an estimate of the range of the reasonably possible change cannot be made.
The IRS is auditing Sysco’s 2009 and 2010 federal income tax returns. As of July 2, 2011, Sysco’s tax returns in the majority of the state and local
jurisdictions and Canada are no longer subject to audit for the years before 2006. However, some jurisdictions have audits open prior to 2006, with
the earliest dating back to 2002. Certain tax jurisdictions require partial to full payment on audit assessments in order to proceed to the appeals
process. Although the outcome of tax audits is generally uncertain, the company believes that adequate amounts of tax, including interest and
penalties, have been accrued for any adjustments that may result from those open years.
Other
Undistributed income of certain consolidated foreign subsidiaries at July 2, 2011 amounted to $544.0 million for which no deferred
U.S. income tax provision has been recorded because Sysco intends to permanently reinvest such income in those foreign operations. An estimate
of any U.S. taxes or foreign withholding taxes that may be applicable upon actual or deemed repatriation is not practical.
17. ACQUISITIONS
During fiscal 2011, in the aggregate, the company paid cash of $101.1 million for operations acquired during fiscal 2011 and for contingent
consideration related to operations acquired in previous fiscal years. During fiscal 2011, Sysco acquired for cash broadline foodservice operations
in central California; Los Angeles, California; Ontario, Canada; Lincoln, Nebraska and Trenton, New Jersey. The fiscal 2011 acquisitions were
immaterial, individually and in the aggregate, to the consolidated financial statements.
Certain acquisitions involve contingent consideration typically payable over periods up to five years only in the event that certain
outstanding contingencies are resolved. As of July 2, 2011, aggregate contingent consideration amounts outstanding relating to acquisitions was
$56.6 million, of which $46.0 million could result in the recording of additional goodwill.
18. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Sysco is engaged in various legal proceedings which have arisen but have not been fully adjudicated. Management does not believe that
these proceedings will have a material adverse effect upon the consolidated financial position or results of operations of the company. However,
the final results of legal proceedings cannot be predicted with certainty and if the company failed to prevail in one or more of these legal matters,
the company’s consolidated financial position or results of operations could be materially adversely affected in future periods.
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