Pizza Hut 2008 Annual Report Download - page 133

11
In addition, any significant or prolonged deterioration in U.S.-China relations could adversely affect our China business.
Many of the risks and uncertainties of doing business in China are solely within the control of the Chinese government.
China’s government regulates the scope of our foreign investments and business conducted within China. Although
management believes it has structured our China operations to comply with local laws, there are uncertainties regarding
the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights
in China. If we were unable to enforce our intellectual property or contract rights in China, our business would be
adversely impacted.
Our other foreign operations subject us to risks that could negatively affect our business.
A significant portion of our restaurants are operated in foreign countries and territories outside of the U.S. and China, and
we intend to continue expansion of our international operations. As a result, our business is increasingly exposed to risks
inherent in foreign operations. These risks, which can vary substantially by market, include political instability,
corruption, social and ethnic unrest, changes in economic conditions (including wage and commodity inflation, consumer
spending and unemployment levels), the regulatory environment, tax rates and laws and consumer preferences as well as
changes in the laws and policies that govern foreign investment in countries where our restaurants are operated.
In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency
exchange rates, which may favorably or adversely affect reported earnings. More specifically, an increase in the value of
the United States Dollar relative to other currencies, such as the Australian Dollar, the British Pound, the Canadian Dollar
and the Euro, could have an adverse effect on our reported earnings. There can be no assurance as to the future effect of
any such changes on our results of operations, financial condition or cash flows.
Changes in commodity and other operating costs could adversely affect our results of operations.
Any increase in certain commodity prices, such as food, energy and supply costs, could adversely affect our operating
results. Because we provide moderately priced food, our ability to pass along commodity price increases to our customers
may be limited. Significant increases in gasoline prices could also result in a decrease of customer traffic at our
restaurants or the imposition of fuel surcharges by our distributors, each of which could adversely affect our business.
Our operating expenses also include employee benefits and insurance costs (including workers’ compensation, general
liability, property and health) which may increase over time.
Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce
revenues.
We are dependent upon third parties to make frequent deliveries of food products and supplies that meet our specifications
at competitive prices. Shortages or interruptions in the supply of food items and other supplies to our restaurants could
adversely affect the availability, quality and cost of items we buy and the operations of our restaurants. Such shortages or
disruptions could be caused by inclement weather, natural disasters such as floods, drought and hurricanes, increased
demand, problems in production or distribution, the inability of our vendors to obtain credit, food safety warnings or
advisories or the prospect of such pronouncements (such as reports during 2008 relating to tomatoes and jalapenos in the
U.S.), or other conditions beyond our control. A shortage or interruption in the availability of certain food products or
supplies could increase our costs and limit the availability of products critical to our restaurant operations. In addition, if
a principal distributor for us and/or our franchisees fails to meet its service requirements for any reason, it could lead to a
disruption of service or supply until a new distributor is engaged, which could have an adverse effect on our business.
Form 10-K