Pizza Hut 2012 Annual Report Download - page 157

YUM! BRANDS, INC.-2012 Form10-K 65
Form 10-K
PART II
ITEM 8Financial Statements andSupplementaryData
The Company’s income tax returns are subject to examination in the U.S. federal jurisdiction and numerous foreign jurisdictions.The following table summarizes
our major jurisdictions and the tax years that are either currently under audit or remain open and subject to examination:
Jurisdiction Open Tax Years
U.S. Federal 2004–2012
China 2009–2012
United Kingdom 2003–2012
Mexico 2006–2012
Australia 2008–2012
In addition, the Company is subject to various U.S. state income tax examinations, for which, in the aggregate, we had signifi cant unrecognized tax
benefi ts at December29, 2012, each of which is individually insignifi cant.
The accrued interest and penalties related to income taxes at December29, 2012 and December31, 2011 are set forth below:
2012 2011
Accrued interest and penalties $50$53
During 2012, 2011 and 2010, a net benefi t of $3million, net benefi t of
$2million and net expense of $13million, respectively, for interest and
penalties was recognized in our Consolidated Statements of Income as
components of its income tax provision.
On June23, 2010, the Company received a Revenue Agent Report (RAR)
from the Internal Revenue Service (the “IRS”) relating to its examination
of our U.S. federal income tax returns for fi scal years 2004 through
2006.The IRS has proposed an adjustment to increase the taxable value
of rights to intangibles used outside the U.S. that YUM transferred to
certain of its foreign subsidiaries.The proposed adjustment would result
in approximately $700million of additional taxes plus net interest to date
of approximately $220million for fi scal years 2004-2006.On January9,
2013, the Company received an RAR from the IRS for fi scal years 2007
and 2008. As expected, the IRS proposed an adjustment similar to their
proposal for 2004-2006 that would result in approximately $270million of
additional taxes plus net interest to date of approximately $30million for
fi scal years 2007 and 2008. Furthermore, the Company expects the IRS
to make similar claims for years subsequent to fi scal 2008. The potential
additional taxes for 2009 through 2012, computed on a similar basis to
the 2004-2008 additional taxes, would be approximately $130million plus
net interest to date of approximately $5million.
We believe that the Company has properly reported taxable income and
paid taxes in accordance with applicable laws and that the proposed
adjustments are inconsistent with applicable income tax laws, Treasury
Regulations and relevant case law.We intend to defend our position
vigorously and have fi led a protest with the IRS.As the fi nal resolution of
the proposed adjustments remains uncertain, the Company will continue
to provide for its position in this matter based on the tax benefi t that we
believe is the largest amount that is more likely than not to be realized upon
settlement of this issue.There can be no assurance that payments due upon
fi nal resolution of this issue will not exceed our currently recorded reserve
and such payments could have a material, adverse effect on our fi nancial
position.Additionally, if increases to our reserves are deemed necessary
due to future developments related to this issue, such increases could
have a material, adverse effect on our results of operations as they are
recorded.The Company does not expect resolution of this matter within
twelve months and cannot predict with certainty the timing of such resolution.
NOTE18 Reportable Operating Segments
We are principally engaged in developing, operating, franchising and
licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza
Hut and Taco Bell operate in 120, 97, and 27 countries and territories,
respectively.Our fi ve largest international markets based on operating
profi t in 2012 are China, Asia Franchise, United Kingdom, Australia and
Latin America Franchise.
We identify our operating segments based on management responsibility.The
China Division includes mainland China and the India Division includes India,
Bangladesh, Mauritius, Nepal and Sri Lanka. YRI includes the remainder
of our international operations.We consider our KFC, Pizza Hut and
Taco Bell operating segments in the U.S. to be similar and therefore have
aggregated them into a single reportable operating segment. Our U.S. and
YRI segment results also include the operating results of our LJS and A&W
businesses prior to our disposal of those businesses in December2011.
Revenues
2012 2011 2010
China $ 6,898 $ 5,566 $ 4,135
YRI 3,281 3,192 3,039
U.S. 3,352 3,786 4,120
India 102 82 49
$ 13,633 $ 12,626 $ 11,343