Pizza Hut 2009 Annual Report Download - page 103

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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, or other conditions beyond our control. A shortage or interruption in
the availability of certain food products or supplies could increase costs and limit the availability of products critical to
restaurant operations. In addition, if a principal distributor for our Concepts 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.
Risks associated with the suppliers from whom our products are sourced and the safety of those products could adversely
affect our financial performance.
The products we sell are sourced from a wide variety of domestic and international suppliers. Political and economic
instability in the countries in which foreign suppliers are located, the financial instability of suppliers, suppliers’ failure to
meet our supplier standards, product quality issues, inflation, and other factors relating to the suppliers and the countries
in which they are located are beyond our control. These and other factors affecting our suppliers and our access to
products could adversely affect our financial performance.
Concerns regarding the safety of food ingredients or products that we source from our suppliers could cause customers to
avoid purchasing certain products from us even if the basis for the concern is outside of our control. Any lost confidence
on the part of our customers would be difficult and costly to reestablish.
Our operating results are closely tied to the success of our Concepts’ franchisees.
We receive significant revenues in the form of royalties from our franchisees. Because a significant and growing portion
of our restaurants are run by franchisees, the success of our business is increasingly dependent upon the operational and
financial success of our franchisees. While our franchise agreements set forth certain operational standards and
guidelines, we have limited control over how our franchisees’ businesses are run, and any significant inability of our
franchisees to operate successfully could adversely affect our operating results through decreased royalty payments. For
example, franchisees may not have access to the financial or management resources that they need to open or continue
operating the restaurants contemplated by their franchise agreements with us. In addition, franchisees may not be able to
find suitable sites on which to develop new restaurants or negotiate acceptable lease or purchase terms for the sites, obtain
the necessary permits and government approvals or meet construction schedules.
If our franchisees incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing
debt, it could result in financial distress or even possible insolvency or bankruptcy. If a significant number of our
franchisees become financially distressed, this could harm our operating results through reduced or delayed royalty
payments or increased rent obligations for leased properties on which we are contingently liable.
Form 10-K