Sysco 2014 Annual Report Download - page 95

SYSCO CORPORATION-Form10-K 83
PARTII
ITEM8Financial Statements and Supplementary Data
The effective tax rate of 35.87% for  scal 2013 was favorably impacted primarily by two items. First, the company recorded a tax bene t of $14.0 million
related to changes in estimates for the prior year domestic tax provision. Second, the company recorded a tax bene t of $8.8 million related to disqualifying
dispositions of Sysco stock pursuant to share-based compensation arrangements. The effective tax rate was negatively impacted by the recording of $5.7
million in tax and interest related to various federal, foreign and state uncertain tax positions. Inde nitely reinvested earnings taxed at foreign statutory rates
less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax rate for  scal 2012 was 37.13%. Inde nitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate had the
impact of reducing the effective tax rate.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of gross unrecognized tax bene ts, excluding interest and penalties, is as follows:
(Inthousands) 2014 2013
Unrecognized tax bene ts at beginning of year $ 108,337 $ 103,988
Additions for tax positions related to prior years 2,128 15,431
Reductions for tax positions related to prior years (41,802) (2,030)
Additions for tax positions related to the current year - -
Reductions for tax positions related to the current year - -
Reductions due to settlements with taxing authorities (19,483) (9,052)
Reductions due to lapse of applicable statute of limitations - -
UNRECOGNIZED TAX BENEFITS AT END OF YEAR $ 49,180 $ 108,337
As of June 28, 2014, the gross amount of liability for accrued interest and penalties related to unrecognized tax bene ts was $36.7 million. The expense
recorded for interest and penalties related to unrecognized tax bene ts in  scal 2014 was $14.8 million. In the fourth quarter of  scal 2014, we reclassi ed
a receivable that would arise upon the resolution of an unrecognized tax bene t from a gross position in other assets to a net position in other long-term
liabilities on our consolidated balance sheet due to a change in circumstances related to transfer pricing positions.
As of June 29, 2013, $11.6 million of the gross liability for unrecognized tax bene ts was netted within prepaid income taxes due to expected payment
in  scal 2014. As of June 29, 2013, the gross amount of liability for accrued interest and penalties related to unrecognized tax bene ts was $36.8 million,
of which $5.8 million was netted within prepaid income taxes due to expected payment in  scal 2014. The expense recorded for interest and penalties
related to unrecognized tax bene ts in  scal 2013 was $5.0 million.
If Sysco were to recognize all unrecognized tax bene ts recorded as of June 28, 2014, approximately $35.1 million of the $49.2 million reserve would
reduce the effective tax rate. If Sysco were to recognize all unrecognized tax bene ts recorded as of June 29, 2013, approximately $42.0 million of the
$108.3 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax bene ts 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 bene ts primarily include the consideration of
various  ling requirements in various states and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax
bene ts 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 has open audits for Sysco’s 2006, 2007, 2008 and 2009 federal income tax returns. As of June 28, 2014, 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 2008. However, in Canada, the company remains open to
transfer pricing adjustments back to 2003 for some entities. Certain tax jurisdictions require partial to full payment on audit assessments or the posting of
letters of credit 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 June 28, 2014 amounted to $1,104.1 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. income or
foreign withholding taxes that may be applicable upon actual or deemed repatriation is not practical due to the complexities associated with the hypothetical
calculation.