Pizza Hut 2003 Annual Report Download - page 72

70.
U.S. and foreign income before income taxes are set
forth below:
2003 2002 2001
U.S. $ 669 $ 665 $ 599
Foreign 217 193 134
$ 886 $ 858 $ 733
The reconciliation of income taxes calculated at the U.S.
federal tax statutory rate to our effective tax rate is set
forth below:
2003 2002 2001
U.S. federal statutory rate 35.0% 35.0% 35.0%
State income tax, net of federal
tax benefit 1.8 2.0 2.1
Foreign and U.S. tax effects
attributable to foreign operations (3.6) (2.8) (0.7)
Adjustments to reserves and
prior years (1.7) (1.8) (1.8)
Foreign tax credit amended
return benefit (4.1) — —
Valuation allowance additions
(reversals) 2.8 — (1.7)
Other, net — (0.3) (0.1)
Effective income tax rate 30.2% 32.1% 32.8%
We amended certain prior year returns in 2003 upon our
determination that it was more beneficial to claim credit on
our U.S. tax returns for foreign taxes paid than to deduct
such taxes, as had been done when the returns were origi-
nally filed. The benefit for amending such returns will be
non-recurring.
The details of 2003 and 2002 deferred tax liabilities
(assets) are set forth below:
2003 2002
Intangible assets and property,
plant and equipment $ 232 $ 229
Other 101 76
Gross deferred tax liabilities $ 333 $ 305
Net operating loss and tax credit
carryforwards $ (231) $ (194)
Employee benefits (115) (100)
Self-insured casualty claims (52) (58)
Capital leases and future rent
obligations related to
sale-leaseback agreements (86) (114)
Various liabilities and other (362) (303)
Gross deferred tax assets (846) (769)
Deferred tax asset valuation
allowances 183 155
Net deferred tax assets (663) (614)
Net deferred tax (assets) liabilities $ (330) $ (309)
Reported in Consolidated Balance Sheets as:
Deferred income tax assets $ (165) $ (121)
Other assets (178) (222)
Accounts payable and other current liabilities 13 34
$ (330) $ (309)
A determination of the unrecognized deferred tax liability
for temporary differences related to our investments in
foreign subsidiaries and investments in foreign unconsoli-
dated affiliates that are essentially permanent in duration
is not practicable.
We have available net operating loss and tax credit
carryforwards totaling approximately $1.5 billion at
December 27, 2003 to reduce future tax of YUM and certain
subsidiaries. The carryforwards are related to a number
of foreign and state jurisdictions. Of these carryforwards,
$18 million expire in 2004 and $1.2 billion expire at various
times between 2005 and 2021. The remaining carryfor-
wards of approximately $313 million do not expire.
REPORTABLE OPERATING SEGMENTS
note
23
We are principally engaged in developing, operating,
franchising and licensing the worldwide KFC, Pizza Hut
and Taco Bell concepts, and since May 7, 2002, the LJS
and A&W concepts, which were added when we acquired
YGR. KFC, Pizza Hut, Taco Bell, LJS and A&W operate
throughout the U.S. and in 88, 86, 12, 3 and 13 coun-
tries and territories outside the U.S., respectively. Our five
largest international markets based on operating profit in
2003 are China, United Kingdom, Australia, Canada and
Korea. At December 27, 2003, we had investments in 9
unconsolidated affiliates outside the U.S. which operate
principally KFC and/or Pizza Hut restaurants. These uncon-
solidated affiliates operate in China, Japan, Poland and
the United Kingdom. Additionally, we had an investment in
an unconsolidated affiliate in the U.S. which operates Yan
Can restaurants.
We identify our operating segments based on manage-
ment responsibility within the U.S. and International. For
purposes of applying SFAS No. 131, “Disclosure About
Segments of An Enterprise and Related Information”
(“SFAS 131”), we consider LJS and A&W to be a single
segment. We consider our KFC, Pizza Hut, Taco Bell and
LJS/A&W operating segments to be similar and therefore
have aggregated them into a single reportable operating
segment. Within our International operating segment, no indi-
vidual country was considered material under the SFAS 131
requirements related to information about geographic areas
and therefore, none have been reported separately.
Revenues 2003 2002 2001
United States $ 5,655 $ 5,347 $ 4,827
International 2,725 2,410 2,126
$ 8,380 $ 7,757 $ 6,953