Pizza Hut 2004 Annual Report Download - page 70

INCOME฀TAXES฀
NOTE฀22
The฀details฀of฀our฀income฀tax฀provision฀(benefit)฀are฀set฀forth฀
below.฀ Amounts฀ do฀ not฀ include฀ the฀ income฀ tax฀ benefit฀ of฀
approximately฀$1฀million฀on฀the฀$2฀million฀cumulative฀effect฀
adjustment฀ recorded฀ on฀ December฀29,฀ 2002฀ due฀ to฀ the฀
adoption฀of฀SFAS฀143.
฀2004฀ 2003฀ 2002
Current:฀ ฀Federal฀ $฀ 78฀ $฀181฀ $฀137฀
Foreign฀ ฀ 79฀ ฀114฀ ฀ 93฀
State฀ ฀ (13)฀ ฀ (4)฀ ฀ 24
฀฀฀฀ ฀144฀ ฀291฀ ฀254
Deferred:฀฀Federal฀ ฀ 41฀ ฀ (23)฀ ฀ 29฀
Foreign฀ ฀ 67฀ ฀ (16)฀ ฀ (6)฀
State฀ ฀ 34฀ ฀ 16฀ ฀ (2)
฀฀฀฀ ฀142฀ ฀ (23)฀ ฀ 21
฀฀฀฀ $฀286฀ $฀268฀ $฀275
Included฀in฀the฀federal฀deferred฀tax฀provision฀above฀is฀approxi-
mately฀$6฀million฀in฀tax฀provided฀on฀undistributed฀earnings฀in฀
one฀of฀our฀foreign฀investments฀which฀we฀intend฀to฀repatriate฀
to฀the฀U.S.฀We฀have฀made฀the฀determination฀to฀repatriate฀
such฀earnings฀as฀the฀result฀of฀The฀American฀Jobs฀Creation฀
Act฀of฀2004฀which฀ became฀ law฀on฀October฀22,฀2004฀ (the฀
“Act”).฀ The฀ Act฀ allows฀ a฀ dividends฀ received฀ deduction฀ of฀
85%฀of฀repatriated฀qualified฀foreign฀earnings฀in฀fiscal฀year฀
2005.฀The฀$6฀million฀in฀tax฀is฀being฀provided฀as฀a฀result฀of฀
our฀determination฀to฀repatriate฀approximately฀$110฀million฀at฀
December฀25,฀2004.฀In฀accordance฀with฀FASB฀Staff฀Position฀
109-2,฀“Accounting฀and฀Disclosure฀Guidance฀for฀the฀Foreign฀
Earnings฀Repatriation฀ Provisions฀ within฀the฀American฀Jobs฀
Creation฀Act฀of฀2004,”฀we฀continue฀to฀evaluate฀whether฀we฀
will฀now฀repatriate฀other฀undistributed฀earnings฀from฀foreign฀
investments฀as฀a฀result฀of฀the฀Act.฀The฀range฀of฀additional฀
amounts฀that฀we฀might฀repatriate฀through฀the฀Act’s฀effective฀
date฀is฀$0฀to฀approximately฀$400฀million.฀The฀associated฀tax฀
if฀such฀amounts฀were฀repatriated฀in฀accordance฀with฀the฀Act฀
would฀range฀from฀$0฀to฀$20฀million.฀We฀will฀ complete฀the฀
evaluation฀of฀which฀of฀these฀earnings฀we฀will฀repatriate,฀if฀any,฀
during฀2005.
Taxes฀payable฀were฀reduced฀by฀$102฀million,฀$26฀million฀
and฀$49฀million฀in฀2004,฀2003฀and฀2002,฀respectively,฀as฀a฀
result฀of฀stock฀option฀exercises.
Valuation฀allowances฀related฀to฀deferred฀tax฀assets฀in฀
foreign฀countries฀increased฀by฀$45฀million,฀$19฀million฀and฀
$6฀million฀in฀2004,฀2003฀and฀2002,฀respectively.฀Valuation฀
allowances฀ in฀ cer tain฀ states฀ increased฀ by฀ $6฀million฀
($4฀million,฀ net฀ of฀ federal฀ tax)฀ and฀ $1฀million฀ ($1฀million,฀
net฀of฀federal฀tax)฀in฀2003฀ and฀2002,฀respectively.฀ These฀
increases฀were฀as฀a฀result฀of฀determining฀that฀it฀is฀more฀likely฀
than฀not฀that฀certain฀loss฀carryforwards฀will฀not฀be฀utilized฀
prior฀to฀expiration.
In฀2004,฀the฀deferred฀foreign฀tax฀provision฀included฀a฀
$1฀million฀credit฀to฀reflect฀the฀impact฀of฀changes฀in฀statu-
tory฀tax฀rates฀in฀various฀countries.฀The฀deferred฀foreign฀tax฀
provision฀for฀2002฀included฀a฀$2฀million฀credit฀to฀reflect฀the฀
impact฀of฀changes฀in฀statutory฀tax฀rates฀in฀various฀countries.
U.S.฀and฀ foreign฀income฀before฀income฀taxes฀ are฀set฀
forth฀below:
฀2004฀ 2003฀ 2002
U.S.฀฀ $฀ 704฀ $฀669฀ $฀665
Foreign฀ ฀ 322฀ ฀217฀ ฀193
฀฀฀฀ $฀1,026฀ $฀886฀ $฀858
The฀reconciliation฀of฀income฀taxes฀calculated฀at฀ the฀ U.S.฀
federal฀tax฀statutory฀rate฀to฀our฀effective฀tax฀rate฀is฀set฀forth฀
below:
฀2004฀ 2003฀ 2002
U.S.฀federal฀statutory฀rate฀ 35.0%฀ 35.0%฀ 35.0%
State฀income฀tax,฀฀
฀ net฀of฀federal฀tax฀benefit฀ 1.3฀ 1.8฀ 2.0
Foreign฀and฀U.S.฀tax฀effects฀฀
฀ attributable฀to฀foreign฀operations฀ (5.8)฀ (3.6)฀ (2.8)
Adjustments฀to฀reserves฀฀
฀ and฀prior฀years฀ (6.7)฀ (1.7)฀ (1.8)
Foreign฀tax฀credit฀amended฀฀
฀ return฀benefit฀ —฀ (4.1)฀ —
Valuation฀allowance฀additions฀฀
฀ (reversals)฀ 4.2฀ 2.8฀ —
Other,฀net฀ (0.1)฀ —฀ (0.3)
Effective฀income฀tax฀rate฀ 27.9%฀ 30.2%฀ 32.1%
The฀adjustments฀to฀reserves฀and฀prior฀years฀in฀2004฀was฀
primarily฀driven฀by฀the฀reversal฀of฀reserves฀associated฀with฀
audits฀that฀were฀settled.
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฀originally฀filed.฀
The฀benefit฀for฀amending฀such฀returns฀will฀be฀non-recurring.
The฀ details฀ of฀ 2004฀ and฀ 2003฀ deferred฀tax฀liabilities฀
(assets)฀are฀set฀forth฀below:
฀2004฀ 2003
Intangible฀assets฀and฀property,฀฀
฀ plant฀and฀equipment฀ $฀ 153฀ $฀ 131
Other฀ ฀ 209฀ ฀ 126
Gross฀deferred฀tax฀liabilities฀ $฀ 362฀ $฀ 257
Net฀operating฀loss฀and฀tax฀credit฀carryforwards฀ $฀(231)฀ $฀(231)
Employee฀benefits฀ ฀(111)฀ ฀(105)
Self-insured฀casualty฀claims฀ ฀ (46)฀ ฀ (52)
Capital฀leases฀and฀future฀rent฀obligations฀฀
฀ related฀to฀sale-leaseback฀agreements฀ ฀ (25)฀ ฀ (20)
Various฀liabilities฀and฀other฀ ฀(479)฀ ฀(362)
Gross฀deferred฀tax฀assets฀ ฀(892)฀ ฀(770)
Deferred฀tax฀asset฀valuation฀allowances฀ ฀ 351฀ ฀ 183
Net฀deferred฀tax฀assets฀ ฀(541)฀ ฀(587)
Net฀deferred฀tax฀(assets)฀liabilities฀ $฀(179)฀ $฀(330)
Reported฀in฀Consolidated฀Balance฀Sheets฀as:
฀ Deferred฀income฀taxes฀ $฀(156)฀ $฀(165)
฀ Other฀assets฀ ฀ (89)฀ ฀(178)
฀ Other฀liabilities฀and฀deferred฀credits฀ ฀ 52฀ ฀ —
฀ Accounts฀payable฀and฀other฀current฀liabilities฀ ฀ 14฀ ฀ 13
฀฀฀฀ $฀(179)฀ $฀(330)
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