Pizza Hut 2009 Annual Report Download - page 102

11
Our China operations subject us to risks that could negatively affect our business.
A significant and growing portion of our restaurants are located in China. As a result, our financial results are
increasingly dependent on our results in China, and our business is increasingly exposed to risks there. These risks
include changes in economic conditions (including wage and commodity inflation, consumer spending and unemployment
levels), tax rates and laws and consumer preferences, as well as changes in the regulatory environment and increased
competition. In addition, our results of operations in China and the value of our Chinese assets are affected by
fluctuations in currency exchange rates, which may favorably or adversely affect 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.
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 Chinese Renminbi, 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.
Form 10-K