Pizza Hut 2012 Annual Report Download - page 101

YUM! BRANDS, INC.-2012 Form10-K 9
Form 10-K
PART I
ITEM 1BUnresolved Staff Comments
governmental investigations or proceedings, which could increase our
expenses and adversely affect our reputation and fi nancial condition.
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, fi nes and civil
and criminal liability.
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 fi nancial condition.
A signifi cant percentage of our profi ts 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 suffi cient 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. If the IRS or
another taxing authority disagrees with our tax positions, we could face
additional tax liability, including interest and penalties.Payment of such
additional amounts upon fi nal settlement or adjudication of any disputes
could have a material impact on our results of operations and fi nancial
position.
In addition, 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 fi nancial condition.
Failure to protect the integrity and security
of individually identifi able 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 fi nancial
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,
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 qualifi ed employees could also require us to pay higher wages to
attract a suffi cient number of employees, which could adversely impact
our profi t margins.
Certain aspects of the recently-acquired Little
Sheep business could create additional risk.
On February1, 2012 we acquired an additional 66% interest in Little Sheep
Group Limited (“Little Sheep”) increasing our ownership to 93%.We have
limited or no experience with certain aspects of the Little Sheep business,
including the methods of cooking involved in “hot pot” restaurants, the
manufacturing of soup base seasoning for store and retail use as well as
the minority ownership by Little Sheep of a meat processing facility in Inner
Mongolia.Risks related to these aspects of Little Sheep’s business could
have a material adverse impact on our business, results of operations
and fi nancial condition.
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 2012 fi scal year and that remain unresolved.