Pizza Hut 2010 Annual Report Download - page 156

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Income Taxes
At December 25, 2010, we had a valuation allowance of $191 million primarily to reduce our net operating loss and tax
credit carryforward benefits of $220 million, as well as our other deferred tax assets, to amounts that will more likely than
not be realized. The net operating loss and tax credit carryforward benefits exist in state and foreign jurisdictions that
have varying carryforward periods and restrictions on usage, including approximately $108 million in certain foreign
jurisdictions that may be carried forward indefinitely. The estimation of future taxable income in these jurisdictions and
our resulting ability to utilize net operating loss and tax credit carryforward benefits can significantly change based on
future events, including our determinations as to the feasibility of certain tax planning strategies. Thus, recorded
valuation allowances may be subject to material future changes.
As a matter of course, we are regularly audited by federal, state and foreign tax authorities. We recognize the benefit of
positions taken or expected to be taken in our tax returns in our Income tax provision 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 these 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. At December 25, 2010, we had $308 million of unrecognized tax benefits, $227 million of
which, if recognized, would affect the effective tax rate. We evaluate unrecognized tax benefits, including interest
thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements,
which may impact our ultimate payment for such exposures.
Additionally, we have not provided deferred tax for investments in foreign subsidiaries where the carrying values for
financial reporting exceed the tax basis, totaling approximately $1.3 billion at December 25, 2010, as we believe the
excess is essentially permanent in duration. If our intentions were to change in the future based on a change in
circumstances, deferred tax may need to be provided on this excess that could materially impact income taxes.
See Note 17 for a further discussion of our income taxes.
Form 10-K