Pizza Hut 2014 Annual Report Download - page 101

PART I
ITEM 1A Risk Factors
franchisees to open new restaurants and to operate these restaurants
Failure to protect the integrity and on a profitable basis. We cannot guarantee that we, or our Concepts’
security of personal information of our franchisees, will be able to achieve our expansion goals or that new
restaurants will be operated profitably. Further, there is no assurance
customers and employees could result in that any new restaurant will produce operating results similar to those
substantial costs, expose us to litigation of our existing restaurants. Other risks which could impact our ability
and damage our reputation. to increase our net restaurant count include prevailing economic
conditions and our, or our Concepts’ franchisees’, ability to obtain
We receive and maintain certain personal financial and other suitable restaurant locations, negotiate acceptable lease or purchase
information about our customers and employees. The use of this terms for the locations, obtain required permits and approvals in a
information is regulated by evolving and increasingly demanding laws, timely manner, hire and train qualified personnel and meet
as well as by certain third-party contracts. If our security and construction schedules.
information systems are compromised as a result of data corruption or
loss, cyber-attack or a network security incident or our employees, Expansion into target markets could also be affected by our Concepts’
franchisees or vendors fail to comply with these laws and regulations franchisees’ ability to obtain financing to construct and open new
and this information is obtained by unauthorized persons or used restaurants. If it becomes more difficult or more expensive for our
inappropriately, it could result in liabilities and penalties and could Concepts’ franchisees to obtain financing to develop new restaurants,
damage our reputation, cause us to incur substantial costs and result the expected growth of our system could slow and our future revenues
in a loss of customer confidence, which could adversely affect our and operating cash flows could be adversely impacted.
restaurant operations and results of operations and financial In addition, the new restaurants could impact the sales of our existing
condition. Additionally, we could be subject to litigation and restaurants nearby. There can be no assurance that sales
government enforcement actions as a result of any such failure. cannibalization will not occur or become more significant in the future
as we increase our presence in existing markets.
Shortages or interruptions in the
availability and delivery of food and other Changes in commodity and other
supplies may increase costs or reduce operating costs could adversely affect
revenues. our results of operations.
The products sold by our Concepts and their franchisees are sourced Any increase in certain commodity prices, such as food, supply and
from a wide variety of domestic and international suppliers. We are energy costs, could adversely affect our operating results. Because
also dependent upon third parties to make frequent deliveries of food our Concepts and their franchisees provide competitively priced food,
products and supplies that meet our specifications at competitive our ability to pass along commodity price increases to our customers
prices. Shortages or interruptions in the supply of food items and other is limited. Significant increases in gasoline prices could also result in a
supplies to our restaurants could adversely affect the availability, decrease of customer traffic at our restaurants or the imposition of fuel
quality and cost of items we buy and the operations of our restaurants. surcharges by our distributors, each of which could adversely affect
Such shortages or disruptions could be caused by inclement weather, our profit margins. Our operating expenses also include employee
natural disasters such as floods, drought and hurricanes, increased wages and benefits and insurance costs (including workers’
demand, problems in production or distribution, the inability of our compensation, general liability, property and health) which may
vendors to obtain credit, political instability in the countries in which increase over time. Any such increase could adversely affect our profit
foreign suppliers and distributors are located, the financial instability of margins.
suppliers and distributors, suppliers’ or distributors’ failure to meet our
standards, product quality issues, inflation, other factors relating to the Our operating results are closely tied to
suppliers and distributors and the countries in which they are located,
food safety warnings or advisories or the prospect of such the success of our Concepts’
pronouncements or other conditions beyond our control. A shortage or franchisees.
interruption in the availability of certain food products or supplies could
increase costs and limit the availability of products critical to A significant portion of our restaurants are operated by franchisees
restaurant operations, which in turn could lead to restaurant closures from whom we derive a significant portion of our revenues in the form
and/or a decrease in sales. In addition, failure by a principal distributor of royalty payments. As a result, the success of our business depends
for our Concepts and/or our Concepts’ franchisees to meet its service in part upon the operational and financial success of our Concepts’
requirements could lead to a disruption of service or supply until a new franchisees. We have limited control over how our Concepts’
distributor is engaged, and any disruption could have an adverse franchisees’ businesses are run, and the inability of our Concepts’
effect on our business. franchisees to operate successfully could adversely affect our
operating results through decreased royalty payments.
We may not attain our target If franchisees incur too much debt or if economic or sales trends
deteriorate such that they are unable to operate profitably or repay
development goals, and aggressive existing debt, it could result in financial distress, including insolvency
development could cannibalize existing or bankruptcy. If a significant franchisee or a significant number of our
sales. Concepts’ franchisees become financially distressed, our operating
results could be impacted through reduced or delayed royalty
Our growth strategy depends in large part on our ability to increase our payments or increased rent obligations for leased properties on which
net restaurant count in markets outside the U.S., especially China and we are contingently liable.
other emerging markets. The successful development of new units will
depend in large part on our ability and the ability of our Concepts’
YUM! BRANDS, INC. - 2014 Form 10-K 7
13MAR201516053226
Form 10-K