Kentucky Fried Chicken 2013 Annual Report Download - page 160

YUM! BRANDS, INC.-2013 Form10-K64
Form 10-K
PART II
ITEM 8Financial Statements andSupplementaryData
NOTE17 Income Taxes
U.S. and foreign income before taxes are set forth below:
2013 2012 2011
U.S. $ 464 $ 504 $ 266
Foreign 1,087 1,641 1,393
$ 1,551 $ 2,145 $ 1,659
The details of our income tax provision (benefit) are set forth below:
2013 2012 2011
Current: Federal $ 159 $ 160 $ 78
Foreign 330 314 374
State 22 35 9
$ 511 $ 509 461
Deferred: Federal $ 42 $ 91 $ (83)
Foreign (53) (57) (40)
State (13) (6) (14)
(24) 28 (137)
$ 487 $ 537 $ 324
The reconciliation of income taxes calculated at the U.S. federal tax statutory rate to our effective tax rate is set forth below:
2013 2012 2011
U.S. federal statutory rate $ 543 35.0% $ 751 35.0% $ 580 35.0%
State income tax, net of federal tax benefit 3 0.2 4 0.2 2 0.1
Statutory rate differential attributable to foreign operations (177) (11.4) (165) (7.7) (218) (13.1)
Adjustments to reserves and prior years 49 3.1 (47) (2.2) 24 1.4
Net benefit from LJS and A&W divestitures — — — — (72) (4.3)
Change in valuation allowances 23 1.5 14 0.6 22 1.3
Other, net 46 3.0 (20) (0.9) (14) (0.9)
EFFECTIVE INCOME TAX RATE $ 487 31.4% $ 537 25.0% $ 324 19.5%
Statutory rate differential attributable to foreign operations. This item
includes local taxes, withholding taxes, and shareholder-level taxes, net
of foreign tax credits. The favorable impact is primarily attributable to a
majority of our income being earned outside of the U.S. where tax rates
are generally lower than the U.S. rate.
In 2012, this benefit was negatively impacted by the repatriation of
current year foreign earnings to the U.S. as we recognized additional tax
expense, resulting from the related effective tax rate being lower than the
U.S. federal statutory rate.
In 2011, this benefit was positively impacted by the repatriation of current
year foreign earnings as we recognized excess foreign tax credits, resulting
from the related effective tax rate being higher than the U.S. federal
statutory rate.
Adjustments to reserves and prior years. This item includes: (1) changes in
tax reserves, including interest thereon, established for potential exposure
we may incur if a taxing authority takes a position on a matter contrary to
our position; and (2) the effects of reconciling income tax amounts recorded
in our Consolidated Statements of Income to amounts reflected on our tax
returns, including any adjustments to the Consolidated Balance Sheets�
The impact of certain effects or changes may offset items reflected in the
‘Statutory rate differential attributable to foreign operations’ line�
In 2013, this item was negatively impacted by the provision recorded related
to the continuing dispute with the IRS regarding the valuation of rights
to intangibles transferred to certain foreign subsidiaries� See discussion
below in the Internal Revenue Service Proposed Adjustments for details�
In 2012, this item was favorably impacted by the resolution of uncertain
tax positions in certain foreign jurisdictions�
Net benefit from LJS and A&W divestitures� This item includes a one-time
$117 million tax benefit, including approximately $8 million U.S. state
benefit, recognized on the LJS and A&W divestitures in 2011, partially
offset by $45 million of valuation allowance, including approximately
$4 million state expense, related to capital loss carryforwards recognized
as a result of the divestitures. In addition, we recorded $32 million of tax
benefits on $86 million of pre-tax losses and other costs, which resulted in
$104 million of total net tax benefits related to the divestitures.
Change in valuation allowances. This item relates to changes for deferred
tax assets generated or utilized during the current year and changes in
our judgment regarding the likelihood of using deferred tax assets that
existed at the beginning of the year. The impact of certain changes may
offset items reflected in the ‘Statutory rate differential attributable to foreign
operations’ line�
In 2013, $23 million of net tax expense was driven by $32 million for
valuation allowances recorded against deferred tax assets generated during
the current year, partially offset by a $9 million net tax benefit resulting
from a change in judgment regarding the future use of certain deferred
tax assets that existed at the beginning of the year.
In 2012, $14 million of net tax expense was driven by $16 million for
valuation allowances recorded against deferred tax assets generated during
the current year, partially offset by a $2 million net tax benefit resulting
from a change in judgment regarding the future use of certain deferred
tax assets that existed at the beginning of the year.
In 2011, $22 million of net tax expense was driven by $15 million for
valuation allowances recorded against deferred tax assets generated during
the current year and $7 million of tax expense resulting from a change in
judgment regarding the future use of certain foreign deferred tax assets that
existed at the beginning of the year. These amounts exclude $45 million
in valuation allowance additions related to capital losses recognized as a
result of the LJS and A&W divestitures, which are presented within Net
Benefit from LJS and A&W divestitures.