Pizza Hut 2009 Annual Report Download - page 196

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We have not provided deferred tax on certain undistributed earnings from our foreign subsidiaries as we believe they are
indefinitely reinvested. This amount may become taxable upon an actual or deemed repatriation of assets from the
subsidiaries or a sale or liquidation of the subsidiaries. We estimate that our total net undistributed earnings upon which
we have not provided deferred tax total approximately $875 million at December 26, 2009. A determination of the
deferred tax liability on such earnings is not practicable.
Foreign operating and capital loss carryforwards totaling $610 million and state operating loss carryforwards totaling $1.4
billion at year end 2009 are being carried forward in jurisdictions where we are permitted to use tax losses from prior
periods to reduce future taxable income. These losses will expire as follows: $10 million in 2010, $150 million between
2011 and 2014, $1.4 billion between 2015 and 2029 and $428 million may be carried forward indefinitely. In addition,
tax credits totaling $4 million are available to reduce certain state liabilities, of which all may be carried forward
indefinitely.
We recognize the benefit of our positions taken or expected to be taken in our tax returns in the financial statements when
it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon
examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater
than fifty percent likely of being realized upon settlement.
The Company had $301 million of unrecognized tax benefits at December 26, 2009, $259 million of which, if recognized,
would affect the effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax
benefits follows:
2009 2008
Beginning of Year
$
296 $ 343
Additions on tax
p
ositions related to the current
y
ear 48 53
Additions for tax
p
ositions of
p
rior
y
ears 59 21
Reductions for tax
p
ositions of
p
rior
y
ears
(
68
)
(
110
)
Reductions for settlements
(
33
)
(
2
)
Reductions due to statute ex
p
iration
(
6
)
(
7
)
Forei
g
n currenc
y
translation ad
j
ustment 5
(
2
)
End of Year
$
301 $ 296
The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, China, the
United Kingdom, Mexico and Australia. As of December 26, 2009, the earliest years that the Company was subject to
examination in these jurisdictions were 1999 in the U.S., 2006 in China, 2003 in the United Kingdom, 2001 in Mexico
and 2005 in Australia. In addition, the Company is subject to various U.S. state income tax examinations, for which, in
the aggregate, we had significant unrecognized tax benefits at December 26, 2009. The Company believes that it is
reasonably possible that its unrecognized tax benefits may decrease by approximately $87 million in the next 12 months,
each of which are individually insignificant, including approximately $71 million, which if recognized upon audit
settlement or statute expiration, will affect the 2010 effective tax rate.
At December 26, 2009, long-term liabilities of $264 million, including $49 million for the payment of accrued interest and
penalties, are included in Other liabilities and deferred credits as reported on the Consolidated Balance Sheet. Total
accrued interest and penalties recorded at December 26, 2009 were $41 million. During 2009, accrued interest and
penalties decreased by $8 million, of which $6 million was recognized in our Consolidated Statement of Income. At
December 27, 2008, long-term liabilities of $229 million, including $32 million for the payment of accrued interest and
penalties, were included in Other liabilities and deferred credits as reported on the Consolidated Balance Sheet. Total
accrued interest and penalties recorded at December 27, 2008 were $49 million. During 2008, accrued interest and
penalties decreased $9 million, of which $7 million was recognized in our Consolidated Statement of Income. The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of its income tax
provision.
Form 10-K