Income Taxes
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Income Before Income Taxes | | | | | |
Domestic (including U.S. exports) | $ | 8,972 |
| | $ | 8,105 |
| | $ | 7,330 |
|
Foreign subsidiaries | 648 |
| | 1,155 |
| | 713 |
|
| $ | 9,620 |
| | $ | 9,260 |
| | $ | 8,043 |
|
|
| | | | | | | | | | | |
Income Tax Expense/(Benefit) | | | | | |
Current | | | | | |
Federal | $ | 2,354 |
| | $ | 1,975 |
| | $ | 1,851 |
|
State | 98 |
| | 227 |
| | 272 |
|
Foreign (1) | 474 |
| | 422 |
| | 521 |
|
| 2,926 |
| | 2,624 |
| | 2,644 |
|
Deferred | | | | | |
Federal | 29 |
| | 465 |
| | 147 |
|
State | 61 |
| | (2 | ) | | (6 | ) |
Foreign | (32 | ) | | — |
| | — |
|
| 58 |
| | 463 |
| | 141 |
|
| $ | 2,984 |
| | $ | 3,087 |
| | $ | 2,785 |
|
(1) Includes foreign withholding taxes
|
| | | | | | | |
| September 28, 2013 | | September 29, 2012 |
Components of Deferred Tax Assets and Liabilities | | | |
Deferred tax assets | | | |
Accrued liabilities | $ | (2,019 | ) | | $ | (3,034 | ) |
Foreign subsidiaries | (795 | ) | | (579 | ) |
Equity-based compensation | (86 | ) | | (160 | ) |
Noncontrolling interest net operating losses | (632 | ) | | (584 | ) |
Other | (396 | ) | | (361 | ) |
Total deferred tax assets | (3,928 | ) | | (4,718 | ) |
Deferred tax liabilities | | | |
Depreciable, amortizable and other property | 5,987 |
| | 4,924 |
|
Licensing revenues | 325 |
| | 336 |
|
Leveraged leases | 22 |
| | 33 |
|
Other | 117 |
| | 100 |
|
Total deferred tax liabilities | 6,451 |
| | 5,393 |
|
Net deferred tax liability before valuation allowance | 2,523 |
| | 675 |
|
Valuation allowance | 1,042 |
| | 811 |
|
Net deferred tax liability | $ | 3,565 |
| | $ | 1,486 |
|
The valuation allowance primarily relates to a $632 million deferred tax asset for the noncontrolling interest share of net operating losses at the International Theme Parks. The ultimate recognition of the noncontrolling interest share of the net operating losses, which have an indefinite carryforward period in France and Hong Kong and a five-year carryforward period in China, would not have an impact on net income attributable to Disney as any income tax benefit would be offset by a charge to noncontrolling interests in the income statement.
As of September 28, 2013, the Company had undistributed earnings of foreign subsidiaries of approximately $1.5 billion for which deferred taxes have not been provided. The Company intends to reinvest these earnings for the foreseeable future. If these amounts were distributed to the United States, in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes. Assuming the permanently reinvested foreign earnings were repatriated under laws and rates applicable at 2013 fiscal year end, the incremental federal tax applicable to the earnings would be approximately $315 million.
A reconciliation of the effective income tax rate to the federal rate is as follows:
|
| | | | | | | | |
| 2013 | | 2012 | | 2011 |
Federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State taxes, net of federal benefit | 1.8 |
| | 2.0 |
| | 2.1 |
|
Domestic production activity deduction | (2.5 | ) | | (2.5 | ) | | (2.3 | ) |
Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate | (1.9 | ) | | (0.5 | ) | | (0.2 | ) |
Other, including tax reserves and related interest | (1.4 | ) | | (0.7 | ) | | — |
|
| 31.0 | % | | 33.3 | % | | 34.6 | % |
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding the related accrual for interest, is as follows:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Balance at the beginning of the year | $ | 668 |
| | $ | 718 |
| | $ | 680 |
|
Increases for current year tax positions | 222 |
| | 85 |
| | 75 |
|
Increases for prior year tax positions | 365 |
| | 26 |
| | 41 |
|
Decreases in prior year tax positions | (9 | ) | | (68 | ) | | (17 | ) |
Settlements with taxing authorities | (126 | ) | | (93 | ) | | (61 | ) |
Balance at the end of the year | $ | 1,120 |
| | $ | 668 |
| | $ | 718 |
|
The fiscal year-end 2013, 2012 and 2011 balances include $449 million, $452 million, and $480 million, respectively, that if recognized, would reduce our income tax expense and effective tax rate. These amounts are net of the offsetting benefits from other tax jurisdictions.
As of the end of fiscal 2013, 2012 and 2011, the Company had $211 million, $209 million and $175 million, respectively, in accrued interest and penalties related to unrecognized tax benefits. During fiscal years 2013, 2012 and 2011, the Company accrued additional interest of $42 million, $25 million and $17 million, respectively, and recorded reductions in accrued interest of $55 million, $12 million and $13 million, respectively, as a result of audit settlements and other prior-year adjustments. The Company’s policy is to report interest and penalties as a component of income tax expense.
The Company is no longer subject to U.S. federal examination for years prior to 2010 and is no longer subject to examination in any of its major state or foreign tax jurisdictions for years prior to 2004.
In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to the resolution of certain tax matters, which could include payments on those tax matters. These resolutions and payments could reduce our unrecognized tax benefits by $434 million.
In fiscal years 2013, 2012 and 2011, income tax benefits attributable to equity-based compensation transactions exceeded the amounts recorded based on grant date fair value. Accordingly, $204 million, $120 million and $109 million were credited to shareholders’ equity, respectively in these years.
