Pizza Hut 2012 Annual Report Download - page 155

YUM! BRANDS, INC.-2012 Form10-K 63
Form 10-K
PART II
ITEM 8Financial Statements andSupplementaryData
The details of our income tax provision (benefi t) are set forth below:
2012 2011 2010
Current: Federal $ 160 $ 78 $ 155
Foreign 314 374 356
State 35 9 15
$ 509 $ 461 526
Deferred: Federal 91 (83) (82)
Foreign (57) (40) (29)
State (6) (14) 1
28 (137) (110)
$ 537 $ 324 $ 416
The reconciliation of income taxes calculated at the U.S. federal tax statutory rate to our effective tax rate is set forth below:
2012 2011 2010
U.S. federal statutory rate $ 751 35.0% $ 580 35.0% $ 558 35.0%
State income tax, net of federal tax benefi t 4 0.2 2 0.1 12 0.7
Statutory rate differential attributable to foreign operations (165) (7.7) (218) (13.1) (235) (14.7)
Adjustments to reserves and prior years (47) (2.2) 24 1.4 55 3.5
Net benefi t from LJS and A&W divestitures — — (72) (4.3) — —
Change in valuation allowances 14 0.6 22 1.3 22 1.4
Other, net (20) (0.9) (14) (0.9) 4 0.2
EFFECTIVE INCOME TAX RATE $ 537 25.0% $ 324 19.5% $ 416 26.1%
Statutory rate differential attributable to foreign operations.This item
includes local taxes, withholding taxes, and shareholder-level taxes, net
of foreign tax credits.The favorable impact is primarily attributable to a
majority of our income being earned outside of the U.S. where tax rates
are generally lower than the U.S. rate.
In 2012, this benefi t was negatively impacted by the repatriation of
current year foreign earnings to the U.S. as we recognized additional tax
expense, resulting from the related effective tax rate being lower than the
U.S. federal statutory rate.
In 2011 and 2010, this benefi t was positively impacted by the repatriation
of current year foreign earnings as we recognized excess foreign tax
credits, resulting from the related effective tax rate being higher than the
U.S. federal statutory rate.
Adjustments to reserves and prior years.This item includes: (1) changes in
tax reserves, including interest thereon, established for potential exposure
we may incur if a taxing authority takes a position on a matter contrary to
our position; and (2) the effects of reconciling income tax amounts recorded
in our Consolidated Statements of Income to amounts refl ected on our tax
returns, including any adjustments to the Consolidated Balance Sheets.
The impact of certain effects or changes may offset items refl ected in the
‘Statutory rate differential attributable to foreign operations’ line.
In 2012, this item was favorably impacted by the resolution of uncertain
tax positions in certain foreign jurisdictions.
Net benefi t from LJS and A&W divestitures. This item includes a one-time
$117million tax benefi t, including approximately $8million U.S. state benefi t,
recognized on the LJS and A&W divestitures in 2011, partially offset by
$45million of valuation allowance, including approximately $4million state
expense, related to capital loss carryforwards recognized as a result of
the divestitures. In addition, we recorded $32million of tax benefi ts on
$86million of pre-tax losses and other costs, which resulted in $104million
of total net tax benefi ts related to the divestitures.
Change in valuation allowances.This item relates to changes for deferred
tax assets generated or utilized during the current year and changes in
our judgment regarding the likelihood of using deferred tax assets that
existed at the beginning of the year.The impact of certain changes may
offset items refl ected in the ‘Statutory rate differential attributable to foreign
operations’ line.
In 2012, $14million of net tax expense was driven by $16million for
valuation allowances recorded against deferred tax assets generated during
the current year, partially offset by a $2million net tax benefi t resulting
from a change in judgment regarding the future use of certain deferred
tax assets that existed at the beginning of the year.
In 2011, $22million of net tax expense was driven by $15million for
valuation allowances recorded against deferred tax assets generated during
the current year and $7million of tax expense resulting from a change in
judgment regarding the future use of certain foreign deferred tax assets that
existed at the beginning of the year. These amounts exclude $45million
in valuation allowance additions related to capital losses recognized as a
result of the LJS and A&W divestitures, which are presented within Net
Benefi t from LJS and A&W divestitures.
In 2010, the $22million of net tax expense was driven by $25million for
valuation allowances recorded against deferred tax assets generated
during the current year.This expense was partially offset by a $3million
tax benefi t resulting from a change in judgment regarding the future use
of U.S. state deferred tax assets that existed at the beginning of the year.
Other.This item primarily includes the impact of permanent differences
related to current year earnings as well as U.S. tax credits and deductions.
In 2012, this item was positively impacted by a one-time pre-tax gain
of $74million, with no related income tax expense, recognized on our
acquisition of additional interest in, and consolidation of Little Sheep.