Pizza Hut 2010 Annual Report Download - page 112

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We are also subject to increasing environmental regulations, which could result in increased taxation or future restrictions
on or increases in costs associated with food and other restaurant supplies, transportation costs and utility costs, any of
which could decrease our operating profits and/or necessitate future investments in our restaurant facilities and equipment
to achieve compliance.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional
requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to
respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of
doing business and therefore have an adverse effect on our results of operations. Failure to comply with the laws and
regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required
licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and
regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
Our effective tax rate could increase, negatively impacting our results of operations and financial condition.
A significant percentage of our profits are earned outside the U.S. and taxed at lower rates than the U.S. statutory rates. If
we were to experience an unforeseen decrease in our cash flows from our U.S. businesses or were unable to refinance
future U.S. debt maturities we may be required to repatriate future international earnings to fund our U.S. cash needs.
Such international earnings would be subject to U.S. tax at the point in time we did not believe they were permanently
invested outside the U.S., which could cause our worldwide effective tax rate to increase.
Additionally, our federal, state and local tax returns are frequently the subject of audits by taxing authorities, and those
audits may result in tax assessments and/or penalties. Although we believe our tax estimates are reasonable, if the IRS or
other taxing authority disagrees with the positions we have taken on our tax returns, we could face additional tax liability,
including interest and penalties. There can be no assurance that payment of such additional amounts upon final
adjudication of any disputes will not have a material impact on our results of operations and financial position.
Failure to protect the integrity and security of individually identifiable data of our guests and employees could expose us
to litigation and damage our reputation.
We receive and maintain certain personal information about our guests and employees. The use of this information by us
is regulated by applicable law, as well as by certain third party contracts. If our security and information systems are
compromised or our business associates fail to comply with these laws and regulations and this information is obtained by
unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as our restaurant operations
and results of operations and financial condition. Additionally, we could be subject to litigation or the imposition of
penalties. As privacy and information security laws and regulations change, we may incur additional costs to ensure we
remain in compliance.
The retail food industry in which we operate is highly competitive.
The retail food industry in which we operate is highly competitive with respect to price and quality of food products, new
product development, price, advertising levels and promotional initiatives, customer service, reputation, restaurant
location, and attractiveness and maintenance of properties. If consumer or dietary preferences change, or our restaurants
are unable to compete successfully with other retail food outlets in new and existing markets, our business could be
adversely affected. We also face growing competition as a result of convergence in grocery, deli and restaurant services,
including the offering by the grocery industry of convenient meals, including pizzas and entrees with side dishes. In
addition, in the retail food industry, labor is a primary operating cost component. Competition for qualified employees
could also require us to pay higher wages to attract a sufficient number of employees, which could adversely impact our
margins.
Form 10-K