Pizza Hut 2011 Annual Report Download - page 116

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Tax matters, including changes in tax rates, disagreements with taxing authorities and imposition of new taxes could impact the
Company's 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. Historically,
the cash we generate outside the U.S. has principally been used to fund our international development. However, if the cash
generated by our U.S. business is not sufficient to meet the Company's need for cash in the U.S., we may need to repatriate a
greater portion of our international earnings to the U.S. in the future. 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. This could cause our worldwide effective
tax rate to increase materially.
We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property,
withholding and franchise taxes in both the U.S. and various foreign jurisdictions. We are also subject to regular reviews,
examinations and audits by the Internal Revenue Service and other taxing authorities with respect to such income and non-income
based taxes inside and outside of the U.S. Although we believe our tax estimates are reasonable, if the IRS or other taxing authority
disagrees with the positions we have taken, 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.
We are directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and regulations
worldwide. Such changes could increase our taxes and have an adverse effect on our operating results and financial condition.
Failure to protect the integrity and security of individually identifiable data of our customers and employees could expose us to
litigation and damage our reputation.
We receive and maintain certain personal information about our customers 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 profit margins.
Item 1B. Unresolved Staff Comments.
The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and
Exchange Commission that were issued 180 days or more preceding the end of its 2011 fiscal year and that remain unresolved.
Item 2. Properties.
As of year end 2011, the Company’s Concepts owned more than 1,200 units and leased land, building or both for nearly 6,200
units worldwide. These units are further detailed as follows:
• The China Division leased land, building or both in more than 3,700 units.
• The International Division owned approximately 400 units and leased land, building or both in nearly 1,200 units.
• The U.S. Division owned more than 800 units and leased land, building or both in nearly 1,300 units.
Form 10-K