Pizza Hut 2005 Annual Report Download - page 39

INCOME฀TAXES
฀฀2005฀ 2004฀ 2003
Reported
฀ Income฀taxes฀ $฀264฀ $฀286฀ $฀268
฀ Effective฀tax฀rate฀ ฀ 25.8%฀ ฀ 27.9%฀ ฀ 30.2%
The฀reconciliation฀of฀income฀taxes฀calculated฀at฀the฀U.S.฀federal฀
tax฀statutory฀rate฀to฀our฀effective฀tax฀rate฀is฀set฀forth฀below:
฀2005฀2004฀2003
U.S.฀federal฀statutory฀rate฀ ฀ 35.0%฀ ฀ 35.0%฀ ฀ 35.0%
State฀income฀tax,฀net฀of฀฀
฀ federal฀tax฀benefit฀ ฀ 1.6฀ ฀ 1.3฀ ฀ 1.8
Foreign฀and฀U.S.฀tax฀effects฀฀
฀ attributable฀to฀foreign฀operations฀฀ (6.7)฀ ฀ (6.3)฀ ฀ (3.6)
Adjustments฀to฀reserves฀and฀฀
฀ prior฀years฀ ฀ (1.3)฀ ฀ (6.7)฀ ฀ (1.7)
Repatriation฀of฀foreign฀earnings฀ ฀ 2.0฀ ฀ 0.5฀ ฀ —
Non-recurring฀foreign฀tax฀credit฀฀
฀ adjustment฀ ฀ (2.9)฀ ฀ —฀ ฀ (4.1)
Valuation฀allowance฀additions฀฀
฀ (reversals)฀ ฀ (1.4)฀ ฀ 4.2฀ ฀ 2.8
Other,฀net฀ ฀ (0.5)฀ ฀ (0.1)฀ ฀ —
Effective฀income฀tax฀rate฀ ฀ 25.8%฀ ฀ 27.9%฀ ฀ 30.2%
Income฀ taxes฀ and฀ the฀ effective฀tax฀ rate฀ as฀ shown฀ above฀
reflect฀tax฀on฀all฀amounts฀included฀in฀our฀results฀of฀opera-
tions฀ except฀ for฀ the฀ income฀ tax฀ benefit฀ of฀ approximately฀
$1฀million฀on฀the฀$2฀million฀cumulative฀effect฀adjustment฀
recorded฀in฀the฀year฀ended฀December฀27,฀2003฀due฀to฀the฀
adoption฀of฀SFAS฀143.
The฀2005฀effective฀tax฀rate฀decreased฀2.1฀percentage฀
points฀to฀25.8%.฀The฀decrease฀in฀the฀effective฀tax฀rate฀was฀
driven฀by฀a฀number฀of฀factors,฀including฀the฀impact฀of฀year฀
over฀year฀valuation฀allowances฀adjustments฀as฀well฀as฀the฀
recognition฀of฀certain฀foreign฀tax฀credits฀that฀we฀were฀able฀
to฀substantiate฀in฀2005.฀The฀decrease฀was฀partially฀offset฀
by฀the฀impact฀of฀year฀over฀year฀adjustments฀to฀reserves฀and฀
prior฀years฀and฀tax฀provided฀on฀foreign฀earnings฀which฀were฀
repatriated฀to฀the฀U.S.฀in฀2005.
The฀2004฀effective฀tax฀rate฀decreased฀2.3฀percentage฀
points฀ to฀ 27.9%.฀ The฀ decrease฀ in฀ the฀ effective฀ tax฀ rate฀
was฀driven฀ by฀a฀ number฀of฀factors,฀ including฀the฀reversal฀
of฀reserves฀in฀the฀current฀year฀associated฀with฀audits฀that฀
were฀settled฀as฀well฀as฀the฀effects฀of฀certain฀international฀
tax฀planning฀strategies฀implemented฀in฀2004.฀The฀decrease฀
was฀partially฀offset฀by฀the฀impact฀of฀lapping฀the฀benefit฀in฀
2003฀of฀amending฀certain฀prior฀U.S.฀income฀tax฀returns฀to฀
claim฀credit฀for฀foreign฀taxes฀paid฀in฀prior฀years฀as฀well฀as฀
the฀recognition฀in฀2004฀of฀valuation฀allowances฀for฀certain฀
deferred฀tax฀assets฀whose฀realization฀is฀no฀longer฀consid-
ered฀more฀likely฀than฀not.
Adjustments฀ to฀ reser ves฀ and฀ prior฀ years฀ include฀ the฀
effects฀of฀the฀reconciliation฀of฀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.฀Adjustments฀to฀reserves฀and฀
prior฀years฀also฀includes฀changes฀in฀tax฀reserves฀established฀
for฀potential฀exposure฀we฀may฀incur฀if฀a฀taxing฀authority฀takes฀
a฀position฀on฀a฀matter฀contrary฀to฀our฀position.฀We฀evaluate฀
these฀reserves,฀including฀interest฀thereon,฀on฀a฀quarterly฀
basis฀to฀insure฀that฀they฀have฀been฀appropriately฀adjusted฀
for฀events,฀including฀audit฀settlements,฀that฀we฀believe฀may฀
impact฀our฀exposure.
CONSOLIDATED฀CASH฀FLOWS
Net฀cash฀provided฀by฀operating฀activities฀was฀$1,238฀million฀
compared฀ to฀ $1,186฀million฀ in฀ 2004.฀ The฀ increase฀ was฀
driven฀primarily฀by฀an฀increase฀in฀net฀income,฀including฀the฀
non-cash฀impact฀of฀the฀adoption฀of฀SFAS฀123R,฀and฀lower฀
income฀tax฀payments฀in฀2005,฀partially฀offset฀by฀the฀impact฀
of฀ excess฀ tax฀benefits฀ classified฀ in฀ financing฀ activities฀ in฀
2005฀pursuant฀to฀the฀adoption฀of฀SFAS฀123R.
In฀2004,฀net฀cash฀provided฀by฀operating฀activities฀was฀
$1,186฀million฀ compared฀ to฀ $1,099฀million฀in฀2003.฀The฀
increase฀was฀primarily฀driven฀by฀an฀increase฀in฀net฀income฀
and฀a฀decrease฀in฀the฀amount฀of฀voluntary฀contributions฀to฀
our฀funded฀pension฀plan฀compared฀to฀2003,฀partially฀offset฀
by฀higher฀income฀tax฀payments฀in฀2004.
Net฀cash฀used฀in฀investing฀activities฀was฀$345฀million฀
versus฀ $541฀million฀ in฀ 2004.฀ The฀ decrease฀ was฀ driven฀
primarily฀ by฀ lower฀ acquisitions฀ of฀ restaurants฀ from฀ fran-
chisees฀and฀capital฀spending,฀the฀impact฀of฀the฀timing฀of฀
purchases฀ and฀ sales฀ of฀ short-term฀ investments,฀ higher฀
proceeds฀from฀ the฀sale฀of฀ property,฀plant฀and฀equipment฀
versus฀2004฀and฀the฀proceeds฀from฀the฀sale฀of฀our฀Poland/
Czech฀Republic฀unconsolidated฀affiliate.
In฀ 2004,฀ net฀ cash฀ used฀ in฀ investing฀ activities฀ was฀
$541฀million฀versus฀ $565฀million฀ in฀ 2003.฀The฀ decrease฀
was฀primarily฀driven฀by฀higher฀proceeds฀from฀refranchising฀of฀
restaurants฀and฀lower฀capital฀spending฀compared฀to฀2003,฀
partially฀offset฀by฀the฀impact฀of฀the฀timing฀of฀purchases฀and฀
sales฀of฀short–term฀investments.
Net฀cash฀used฀in฀financing฀activities฀was฀$832฀million฀
versus฀ $779฀million฀ in฀ 2004.฀ The฀ increase฀ was฀ driven฀
primarily฀by฀higher฀share฀repurchases,฀partially฀offset฀by฀net฀
debt฀borrowings฀in฀2005฀versus฀net฀debt฀repayments฀in฀2004฀
and฀the฀impact฀of฀excess฀tax฀benefits฀classified฀in฀financing฀
activities฀in฀2005฀pursuant฀to฀the฀adoption฀of฀SFAS฀123R.
In฀ 2004,฀ net฀ cash฀ used฀ in฀ financing฀ activities฀ was฀
$779฀million฀ versus฀ $475฀million฀ in฀ 2003.฀ The฀ increase฀
in฀2004฀was฀primarily฀driven฀by฀higher฀share฀repurchases,฀
higher฀net฀debt฀repayments฀and฀the฀payment฀of฀two฀quar-
terly฀dividends,฀partially฀offset฀by฀higher฀proceeds฀from฀stock฀
option฀exercises.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 43.