Pizza Hut 2014 Annual Report Download - page 157

PART II
ITEM 8 Financial Statements and Supplementary Data
Income Taxes
U.S. and foreign income before taxes are set forth below:
2014 2013 2012
U.S. $ 506 $ 464 $ 504
Foreign 921 1,087 1,641
$ 1,427 $ 1,551 $ 2,145
The details of our income tax provision (benefit) are set forth below:
2014 2013 2012
Current: Federal $ 255 $ 159 $ 160
Foreign 321 330 314
State 2 22 35
$ 578 $ 511 509
Deferred: Federal $ (67) $ 42 91
Foreign (106) (53) (57)
State 1 (13) (6)
(172) (24) 28
$ 406 $ 487 $ 537
The reconciliation of income taxes calculated at the U.S. federal statutory rate to our effective tax rate is set forth below:
2014 2013 2012
U.S. federal statutory rate $ 500 35.0% $ 543 35.0% $ 751 35.0%
State income tax, net of federal tax benefit 8 0.6 3 0.2 4 0.2
Statutory rate differential attributable to foreign operations (168) (11.7) (177) (11.4) (165) (7.7)
Adjustments to reserves and prior years (5) (0.3) 49 3.1 (47) (2.2)
Change in valuation allowances 35 2.4 23 1.5 14 0.6
Other, net 36 2.5 46 3.0 (20) (0.9)
Effective income tax rate $ 406 28.5% $ 487 31.4% $ 537 25.0%
Statutory rate differential attributable to foreign operations. This item assets that existed at the beginning of the year. The impact of certain
includes local taxes, withholding taxes, and shareholder-level taxes, changes may offset items reflected in the ‘Statutory rate differential
net of foreign tax credits. The favorable impact is primarily attributable attributable to foreign operations’ line.
to a majority of our income being earned outside of the U.S. where tax In 2014, $35 million of net tax expense was driven by $41 million for
rates are generally lower than the U.S. rate. vauation allowances recorded against deferred tax assets generated
In 2012, this benefit was negatively impacted by the repatriation of during the current year, partially offset by $6 million in net tax benefit
current year foreign earnings to the U.S. as we recognized additional resulting from a change in judgment regarding the future use of certain
tax expense, resulting from the related effective tax rate being lower deferred tax assets that existed at the beginning of the year.
than the U.S. federal statutory rate. In 2013, $23 million of net tax expense was driven by $32 million for
valuation allowances recorded against deferred tax assets generated
Adjustments to reserves and prior years. This item includes:
during the current year, partially offset by a $9 million net tax benefit
(1) changes in tax reserves, including interest thereon, established for
resulting from a change in judgment regarding the future use of certain
potential exposure we may incur if a taxing authority takes a position
deferred tax assets that existed at the beginning of the year.
on a matter contrary to our position; and (2) the effects of reconciling
income tax amounts recorded in our Consolidated Statements of In 2012, $14 million of net tax expense was driven by $16 million for
Income to amounts reflected on our tax returns, including any valuation allowances recorded against deferred tax assets generated
adjustments to the Consolidated Balance Sheets. The impact of during the current year, partially offset by a $2 million net tax benefit
certain effects or changes may offset items reflected in the ‘Statutory resulting from a change in judgment regarding the future use of certain
rate differential attributable to foreign operations’ line. deferred tax assets that existed at the beginning of the year.
In 2014, this item was favorably impacted by the resolution of Other. This item primarily includes the impact of permanent
uncertain tax positions in certain foreign jurisdictions. differences related to current year earnings as well as U.S. tax credits
In 2013, this item was negatively impacted by the provision recorded and deductions.
related to the dispute with the IRS regarding the valuation of rights to In years 2014 and 2013, this item was negatively impacted by the
intangibles transferred to certain foreign subsidiaries. See discussion $160 million and $222 million, respectively, of non-cash impairments of
below in the Internal Revenue Service Adjustments for details. Little Sheep goodwill, which resulted in no related tax benefit. See Note 4.
In 2012, this item was favorably impacted by the resolution of In 2012, this item was positively impacted by a one-time pre-tax gain
uncertain tax positions in certain foreign jurisdictions. of $74 million, with no related income tax expense, recognized on our
acquisition of additional interest in, and consolidation of Little Sheep.
Change in valuation allowances. This item relates to changes for
See Note 4.
deferred tax assets generated or utilized during the current year and
changes in our judgment regarding the likelihood of using deferred tax
YUM! BRANDS, INC. - 2014 Form 10-K 63
NOTE 16
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Form 10-K