v2.4.0.6

Income Taxes | 12 Months Ended
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Dec. 29, 2012
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes U.S. and foreign income before taxes are set forth below:
|  | 2012 |  | 2011 |  | 2010
U.S. |  | $ | 504 |  |  | $ | 266 |  |  | $ | 345 |
Foreign |  | 1,641 |  |  | 1,393 |  |  | 1,249 |
|  | $ | 2,145 |  |  | $ | 1,659 |  |  | $ | 1,594 |
The details of our income tax provision (benefit) 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 benefit |  | 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 benefit 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 benefit 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 benefit 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 reflected on our tax returns, including any adjustments to the Consolidated Balance Sheets. The impact of certain effects or changes may offset items reflected 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 benefit from LJS and A&W divestitures. This item includes a one-time $117 million tax benefit, including approximately $8 million U.S. state benefit, 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 benefits on $86 million of pre-tax losses and other costs, which resulted in $104 million of total net tax benefits 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 reflected 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 benefit 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 Benefit 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 benefit 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.. The details of 2012 and 2011 deferred tax assets (liabilities) are set forth below:
|  | 2012 |  | 2011
Operating losses and tax credit carryforwards |  | $ | 495 |  |  | $ | 592 |
Employee benefits |  | 251 |  |  | 260 |
Share-based compensation |  | 108 |  |  | 106 |
Self-insured casualty claims |  | 50 |  |  | 47 |
Lease-related liabilities |  | 115 |  |  | 134 |
Various liabilities |  | 82 |  |  | 75 |
Property, plant and equipment |  | 39 |  |  | 55 |
Deferred income and other |  | 57 |  |  | 35 |
Gross deferred tax assets |  | 1,197 |  |  | 1,304 |
Deferred tax asset valuation allowances |  | (358 | ) |  | (368 | )
Net deferred tax assets |  | $ | 839 |  |  | $ | 936 |
Intangible assets, including goodwill |  | $ | (256 | ) |  | $ | (167 | )
Property, plant and equipment |  | (95 | ) |  | (121 | )
Other |  | (48 | ) |  | (48 | )
Gross deferred tax liabilities |  | $ | (399 | ) |  | $ | (336 | )
Net deferred tax assets (liabilities) |  | $ | 440 |  |  | $ | 600 |
Reported in Consolidated Balance Sheets as: |  |  |  |
Deferred income taxes – current |  | $ | 111 |  |  | $ | 112 |
Deferred income taxes – long-term |  | 481 |  |  | 549 |
Accounts payable and other current liabilities |  | (5 | ) |  | (16 | )
Other liabilities and deferred credits |  | (147 | ) |  | (45 | )
|  | $ | 440 |  |  | $ | 600 |
We have investments in foreign subsidiaries where the carrying values for financial reporting exceed the tax basis. We have not provided deferred tax on the portion of the excess that we believe is essentially permanent in duration. 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 temporary difference upon which we have not provided deferred tax is approximately $2.6 billion at December 29, 2012. A determination of the deferred tax liability on this amount is not practicable. At December 29, 2012, the Company has foreign operating and capital loss carryforwards of $1.0 billion and U.S. state operating loss, capital loss and tax credit carryforwards of $1.0 billion and U.S. federal capital loss and tax credit carryforwards of $0.2 billion. These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will expire as follows:
|  | Year of Expiration |  |
|  | 2013 |  | 2014-2017 |  | 2018-2032 |  | Indefinitely |  | Total
Foreign |  | $ | 21 |  |  | $ | 66 |  |  | $ | 121 |  |  | $ | 836 |  |  | $ | 1,044 |
U.S. state |  | 20 |  |  | 128 |  |  | 848 |  |  | 5 |  |  | 1,001 |
U.S. federal |  | — |  |  | 107 |  |  | 103 |  |  | — |  |  | 210 |
|  | $ | 41 |  |  | $ | 301 |  |  | $ | 1,072 |  |  | $ | 841 |  |  | $ | 2,255 |
We recognize the benefit of positions taken or expected to be taken in tax returns in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. The Company had $309 million and $348 million of unrecognized tax benefits at December 29, 2012 and December 31, 2011, respectively, $184 million and $197 million of which, if recognized, would impact the effective income tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
|  | 2012 |  | 2011
Beginning of Year |  | $ | 348 |  |  | $ | 308 |
Additions on tax positions - current year |  | 50 |  |  | 85 |
Additions for tax positions - prior years |  | 23 |  |  | 38 |
Reductions for tax positions - prior years |  | (90 | ) |  | (58 | )
Reductions for settlements |  | (6 | ) |  | (8 | )
Reductions due to statute expiration |  | (16 | ) |  | (22 | )
Foreign currency translation adjustment |  | — |  |  | 5 |
End of Year |  | $ | 309 |  |  | $ | 348 |
The Company believes it is reasonably possible its unrecognized tax benefits may decrease by approximately $43 million in the next twelve months, including approximately $28 million which, if recognized upon audit settlement or statute expiration, would affect the 2013 effective tax rate. Each of these positions is individually insignificant. 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 significant unrecognized tax benefits at December 29, 2012, each of which is individually insignificant. 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 benefit of $3 million, net benefit 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 fiscal 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 fiscal years 2004-2006. On January 9, 2013, the Company received an RAR from the IRS for fiscal 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 fiscal years 2007 and 2008. Furthermore, the Company expects the IRS to make similar claims for years subsequent to fiscal 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 filed a protest with the IRS. As the final resolution of the proposed adjustments remains uncertain, the Company will continue to provide for its position in this matter based on the tax benefit 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 final resolution of this issue will not exceed our currently recorded reserve and such payments could have a material, adverse effect on our financial 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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