Pizza Hut 2005 Annual Report Download - page 45

international฀markets฀exposes฀the฀Company฀to฀movements฀
in฀foreign฀currency฀exchange฀rates.฀The฀Company’s฀primary฀
exposures฀ result฀ from฀ our฀ operations฀ in฀Asia-Pacific,฀ the฀
Americas฀and฀Europe.฀Changes฀in฀foreign฀currency฀exchange฀
rates฀ would฀impact฀ the฀ translation฀of฀ our฀ investments฀ in฀
foreign฀ operations,฀ the฀ fair฀ value฀ of฀ our฀ foreign฀ currency฀
denominated฀financial฀instruments฀and฀our฀reported฀foreign฀
currency฀denominated฀earnings฀and฀cash฀flows.฀For฀the฀fiscal฀
year฀ended฀December฀31,฀2005,฀operating฀profit฀would฀have฀
decreased฀$70฀million฀if฀all฀foreign฀currencies฀had฀uniformly฀
weakened฀ 10%฀relative฀ to฀ the฀ U.S.฀ dollar.฀The฀estimated฀
reduction฀assumes฀ no฀changes฀in฀ sales฀volumes฀or฀local฀
currency฀sales฀or฀input฀prices.
We฀ attempt฀ to฀ minimize฀ the฀ exposure฀ related฀ to฀ our฀
investments฀in฀foreign฀operations฀by฀financing฀those฀invest-
ments฀with฀local฀currency฀debt฀when฀practical.฀In฀addition,฀
we฀ attempt฀ to฀ minimize฀ the฀ exposure฀ related฀ to฀ foreign฀
currency฀denominated฀financial฀instruments฀by฀purchasing฀
goods฀ and฀services฀from฀third฀parties฀ in฀local฀currencies฀
when฀practical.฀Consequently,฀foreign฀currency฀denominated฀
financial฀instruments฀consist฀primarily฀of฀intercompany฀short-
term฀receivables฀and฀payables.฀At฀times,฀we฀utilize฀forward฀
contracts฀to฀reduce฀our฀exposure฀related฀to฀these฀intercom-
pany฀ short-term฀ receivables฀ and฀ payables.฀ The฀ notional฀
amount฀and฀maturity฀dates฀of฀these฀contracts฀match฀those฀
of฀ the฀ underlying฀ receivables฀ or฀ payables฀ such฀ that฀ our฀
foreign฀currency฀exchange฀risk฀related฀to฀these฀instruments฀
is฀eliminated.
Commodity฀Price฀Risk฀ We฀are฀subject฀to฀volatility฀in฀food฀
costs฀as฀a฀result฀of฀market฀risk฀associated฀with฀commodity฀
prices.฀Our฀ability฀to฀recover฀increased฀costs฀through฀higher฀
pricing฀is,฀at฀times,฀limited฀by฀the฀competitive฀environment฀
in฀which฀we฀operate.฀We฀manage฀our฀exposure฀to฀this฀risk฀
primarily฀through฀pricing฀agreements฀as฀well฀as,฀on฀a฀limited฀
basis,฀commodity฀future฀and฀option฀contracts.฀Commodity฀
future฀and฀option฀contracts฀entered฀into฀for฀the฀fiscal฀years฀
ended฀December฀31,฀2005,฀and฀December฀25,฀2004,฀did฀
not฀significantly฀impact฀our฀financial฀position,฀results฀of฀oper-
ations฀or฀cash฀flows.
CAUTIONARY฀STATEMENTS
From฀time฀to฀time,฀in฀both฀written฀reports฀and฀oral฀state-
ments,฀we฀present฀“forward-looking฀statements”฀within฀the฀
meaning฀of฀Section฀27A฀of฀the฀Securities฀Act฀of฀1933,฀as฀
amended,฀and฀Section฀21E฀of฀the฀Securities฀Exchange฀Act฀of฀
1934,฀as฀amended.฀The฀statements฀include฀those฀identified฀
by฀such฀words฀as฀“may,”฀“will,”฀“expect,”฀“project,”฀“antici-
pate,”฀“believe,”฀“plan”฀and฀other฀similar฀terminology.฀These฀
“forward-looking฀statements”฀reflect฀ our฀current฀expecta-
tions฀ regarding฀ future฀ events฀ and฀operating฀and฀financial฀
performance฀and฀are฀based฀upon฀data฀available฀at฀the฀time฀
of฀the฀statements.฀Actual฀results฀involve฀risks฀and฀uncertain-
ties,฀including฀both฀those฀specific฀to฀the฀Company฀and฀those฀
specific฀ to฀ the฀ industry,฀ and฀ could฀ differ฀ materially฀ from฀
expectations.฀Accordingly,฀you฀are฀cautioned฀not฀to฀place฀
undue฀reliance฀on฀forward-looking฀statements.
Company฀risks฀and฀uncertainties฀include,฀ but฀are฀ not฀
limited฀to,฀changes฀in฀effective฀tax฀rates;฀potential฀unfavor-
able฀variances฀between฀estimated฀and฀actual฀liabilities;฀our฀
ability฀to฀secure฀distribution฀of฀products฀and฀equipment฀to฀
our฀restaurants฀on฀favorable฀economic฀terms฀and฀our฀ability฀
to฀ensure฀adequate฀supply฀of฀restaurant฀products฀and฀equip-
ment฀ in฀ our฀stores;฀ unexpected฀disruptions฀ in฀ our฀ supply฀
chain;฀effects฀and฀outcomes฀of฀any฀pending฀or฀future฀legal฀
claims฀involving฀the฀Company;฀the฀effectiveness฀of฀operating฀
initiatives฀ and฀marketing฀and฀advertising฀ and฀ promotional฀
efforts;฀our฀ability฀to฀continue฀to฀recruit฀and฀motivate฀quali-
fied฀restaurant฀personnel;฀the฀ongoing฀financial฀viability฀of฀our฀
franchisees฀and฀licensees;฀the฀success฀of฀our฀refranchising฀
strategy;฀the฀success฀of฀our฀strategies฀for฀international฀devel-
opment฀and฀operations;฀volatility฀of฀actuarially฀determined฀
losses฀and฀loss฀estimates;฀and฀adoption฀of฀new฀or฀changes฀
in฀accounting฀ policies฀and฀ practices฀ including฀pronounce-
ments฀promulgated฀by฀standard฀setting฀bodies.
Industry฀ risks฀ and฀ uncertainties฀ include,฀ but฀ are฀ not฀
limited฀to,฀economic฀and฀political฀conditions฀in฀the฀countries฀
and฀territories฀where฀we฀operate,฀including฀effects฀of฀war฀and฀
terrorist฀activities;฀new฀legislation฀and฀governmental฀regula-
tions฀or฀changes฀in฀laws฀and฀regulations฀and฀the฀consequent฀
impact฀on฀our฀business;฀new฀product฀and฀concept฀develop-
ment฀by฀us฀and/or฀our฀food฀industry฀competitors;฀changes฀
in฀commodity,฀labor,฀and฀other฀operating฀costs;฀changes฀in฀
competition฀in฀the฀food฀industry;฀publicity฀which฀may฀impact฀our฀
business฀and/or฀industry;฀severe฀weather฀conditions;฀volatility฀
of฀commodity฀costs;฀increases฀in฀minimum฀wage฀and฀other฀
operating฀costs;฀availability฀and฀cost฀of฀land฀and฀construction;฀
consumer฀preferences฀or฀perceptions฀concerning฀the฀products฀
of฀the฀Company฀and/or฀our฀competitors,฀spending฀patterns฀
and฀demographic฀trends;฀political฀or฀economic฀instability฀in฀
local฀markets฀and฀changes฀in฀currency฀exchange฀and฀interest฀
rates;฀and฀the฀impact฀that฀any฀widespread฀illness฀or฀general฀
health฀concern฀may฀have฀on฀our฀business฀and/or฀the฀economy฀
of฀the฀countries฀in฀which฀we฀operate.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 49.