Kentucky Fried Chicken 2013 Annual Report Download

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ON THE GROUND FLOOR OF GLOBAL GROWTH
Yum! Brands 2013 Customer Mania Report
4,800,000,000 transactions
1,900,000,000 dollars in franchise fees
1,500,000 associates
40,000 restaurants
1,952 new international restaurants
128 countries
3 powerful brands
THE POWER OF

Table of contents

  • Page 1
    THE POWER OF 4,800,000,000 transactions 1,900,000,000 dollars in franchise fees 1,500,000 associates 40,000 restaurants 1,952 new international restaurants 128 countries 3 powerful brands ON THE GROUND FLOOR OF GLOBAL GROWTH Yum! Brands 2013 Customer Mania Report

  • Page 2
    Financial Highlights (In millions, except for per share amounts) Year-end 2013 2012 % B/(W) change Company sales Franchise and license fees and income Total revenues Operating Profit Net Income - Yum! Brands, Inc. Diluted Earnings Per Common Share before Special Items Special Items Earnings Per ...

  • Page 3
    ... Hut and Taco Bell. China and India will remain separate divisions given their strategic importance and tremendous growth potential. Going forward, our three new divisions will define and drive the strategic positioning and operating models for KFC, Pizza Hut and Taco Bell, and will work closely...

  • Page 4
    2 # KFC 1 FOREIGN BRAND * IN CHINA

  • Page 5
    .... KFC also has the largest home delivery business in China, with 70% of our orders being placed online. As a testament to our success, we were named the #1 foreign brand in China in a 2013 report published by the BBC. There's no doubt KFC has been, and continues to be, a power brand. * 2013 Report...

  • Page 6
    ... that generates two-year cash paybacks on new unit openings, so it's full speed ahead for our Pizza Hut Casual Dining new unit development and expanding into lower-tier cities. 1,000 PIZZA HUT CASUAL DINING UNITS IN 277 CITIES 30% AVERAGE UNIT VOLUME GROWTH PIZZA HUT HOME SERVICE CHINA Now, the...

  • Page 7
    6:1 LEAD } OVER NEAREST CASUAL DINING COMPETITOR 5

  • Page 8
    ... country with new restaurants. Looking at China's new unit development in total, we strengthened our category-leading positions with 740 new restaurants in 2013, exceeding our target of at least 700 new units for the year. Going forward, we expect another strong year of development in Remember, Yum...

  • Page 9
    ... the strategic decision to invest ahead of the growth curve to best position KFC, Pizza Hut and Taco Bell to expand even more rapidly as the country develops. This year we opened 157 new units, including Yum!'s 40,000th restaurant in Goa, and expect to open an additional 150 new units in 2014. And...

  • Page 10
    Mongolia Ukraine Indonesia Vietnam Russia Malaysia LONG RUNWAY FOR 8 Brazil GROWTH

  • Page 11
    ...business as you can possibly have. We've also made targeted investments in emerging markets to accelerate growth. We acquired about 100 restaurants from a franchisee in Turkey and expect to increase our pace of development in this country going forward. We opened our first company-operated Pizza Hut...

  • Page 12
    10 LIVE MÁS

  • Page 13
    ... Taco Bell will eventually become our third global brand. At Pizza Hut, we are pleased we opened 116 net new units this year, our third consecutive year of positive net-unit growth. However, we significantly lagged our competitors in same-store sales as we simply weren't competitive enough on value...

  • Page 14
    ... 40,000 restaurants have significant capacity to drive even higher same-store sales growth and profitability around the world. We're growing our brands with a powerful combination of innovative new sales layers, expanded day parts, menu variety, strong value offers and by opening new channels with...

  • Page 15
    ...-class operations Drive aggressive unit expansion everywhere, especially in emerging markets - and by building leading brands in every significant category in China and India Create industry leading returns through franchising and disciplined use of capital - maximizing long-term shareholder value...

  • Page 16
    ... company special and it has never been better than it is today. That's why there's no doubt in my mind that 2014 will be a strong bounce-back year as we continue to build the defining global company that feeds the world. Yum! to You! David C. Novak Chairman & Chief Executive Officer Yum! Brands...

  • Page 17
    ... as our foundathon Make Customer Mania come alive for every customer in every restaurant Build dynasties in every country Always connect with customers, always reach, always lead a company whtx a xuge xeart Open doors and grow each other Truly care about the world...and save lives with the...

  • Page 18
    ... and World Class Operations Drive Aggressive Unit Expansion Everywhere, Especially in Emerging Markets Build Leading Brands in Every Significant Category in China and India Create Industry Leading Returns Through Franchising and Disciplined Use of Capital Maximize Long-Term Shareholder Value how...

  • Page 19
    ...Chairman of the Board and Chief Executive Officer Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 1, 2014-this notice and the proxy statement are available at www.yum.com/investors/investor_materials.asp. The Annual Report on Form 10-K is...

  • Page 20

  • Page 21
    ...the YUM! Brands, Inc. Executive Incentive Compensation Plan for 162(m) purposes. (5) To transact such other business as may properly come before the meeting. WHO CAN VOTE: You can vote if you were a shareholder of record as of the close of business on March 3, 2014. ANNUAL REPORT: A copy of our 2013...

  • Page 22
    ... and Stock Vested 50 Pension Benefits 51 Nonqualified Deferred Compensation 53 Potential Payments Upon Termination or Change in Control 56 DIRECTOR COMPENSATION EQUITY COMPENSATION PLAN INFORMATION AUDIT COMMITTEE REPORT ADDITIONAL INFORMATION APPENDIX A YUM! BRANDS, INC. EXECUTIVE INCENTIVE...

  • Page 23
    ... Louisville, Kentucky 40213 PROXY STATEMENT For Annual Meeting of Shareholders To Be Held On May 1, 2014 The Board of Directors (the "Board of Directors" or the "Board") of YUM! Brands, Inc�, a North Carolina corporation ("YUM" or the "Company"), solicits the enclosed proxy for use at the Annual...

  • Page 24
    ... the meeting room. Proxy Statement May shareholders ask questions? Yes. Representatives of the Company will answer shareholders' questions of general interest following the Annual Meeting. In order to give a greater number of shareholders an opportunity to ask questions, individuals or groups will...

  • Page 25
    ... program must be received by 11:59 p.m., Eastern Daylight Saving Time, on April 30, 2014. Proxy Statement Can I vote at the Annual Meeting? Shares registered directly in your name as the shareholder of record may be voted in person at the Annual Meeting. Shares held in street name may be voted in...

  • Page 26
    ... the proposal to re-approve the performance measures available under the YUM! Brands, Inc. Executive Incentive Compensation Plan for 162(m) purposes (Item 4). Proxy Statement What does it mean if I receive more than one proxy card? It means that you have multiple accounts with brokers and/or our...

  • Page 27
    ...? The Company will announce the voting results of the Annual Meeting on a Current Report on Form 8-K filed within four business days of the Annual Meeting. What if other matters are presented for consideration at the Annual Meeting? As of the date of this proxy statement, our management knows of...

  • Page 28
    ... Procedures Policy regarding Accounting Matters Compensation • Executive Compensation is Highly Performance Based to Align with Shareholder Interests and Promote Company Business Strategy • At Risk Pay Tied to Performance • Strong Stock Ownership Guidelines • No Employment Agreements or...

  • Page 29
    ... 2015 Annual Meeting, a shareholder must notify YUM's Secretary no later than January 31, 2015. Notices should be sent to: Corporate Secretary, YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213. The nomination must contain the information described on page 65. Proxy Statement What...

  • Page 30
    ... applicable to the Board of Directors or executive officers) on this website. Proxy Statement What other significant Board practices does the Company have? • Private Executive Sessions. Our non-management directors meet in executive session at each regular Board meeting. The executive sessions...

  • Page 31
    ... to Management and Employees. Directors have full and unrestricted access to the management and employees of the Company. Additionally, key members of management attend Board meetings to present information about the results, plans and operations of the business within their areas of responsibility...

  • Page 32
    ...-term incentives; drive ownership mentality; and require executives to personally invest in Company stock� In 2014, the Management Planning and Development Committee of the Board of Directors ("Committee") oversaw the performance of a risk assessment of our compensation programs for all employees...

  • Page 33
    ... of management and/or the Board of Directors with respect to all concerns it receives. The full text of our Policy on Reporting of Concerns Regarding Accounting and Other Matters is available on our website at www.yum.com/investors/governance/complaint.asp. YUM! BRANDS, INC. - 2014 Proxy Statement...

  • Page 34
    ...• Reviews the annual audited financial statements and results of the audit with management and the independent auditors • Reviews the Company's accounting and financial reporting principles and practices including any significant changes • Advises the Board with respect to Company policies and...

  • Page 35
    ...total revenues and the related person is not an executive officer of the other company. Proxy Statement Does the Company require stock ownership by directors? Yes, the Company requires stock ownership by directors. The Board of Directors expects non-management directors to hold a meaningful number...

  • Page 36
    ... this year to hold office until the 2015 Annual Meeting and until their respective successors are elected and qualified are provided below. The biographies of each of the nominees below contains information regarding the person's service as a director, business experience, director positions held...

  • Page 37
    ... of international sales and distribution business • Expertise in branding, marketing, sales and international business development • Public company directorship and committee experience • Independent of Company Proxy Statement David W. Dorman Age 60 Director since 2005 Non-Executive Chairman...

  • Page 38
    ... experience, skills and expertise: • Operating and management experience, including as president and chief executive officer of global travel-related services company • Expertise in finance, marketing and international business development • Public company directorship and committee experience...

  • Page 39
    ...Operating and management experience, including as president of the Company's China Division • Expertise in marketing and brand development • Expertise in strategic planning and international business development David C. Novak Age 61 Director since 1997 Chairman and Chief Executive Officer, YUM...

  • Page 40
    .... Our policy regarding the election of directors can be found in our Corporate Governance Principles at www.yum.com/ investors/governance/principles.asp and at page 9 under "What other significant Board practices does the Company have?-Majority Voting Policy." Proxy Statement 18 YUM! BRANDS, INC...

  • Page 41
    ... Board of Directors recommends that you vote FOR approval of this proposal. What were KPMG's fees for audit and other services for fiscal years 2013 and 2012? The following table presents fees for professional services rendered by KPMG for the audit of the Company's annual financial statements for...

  • Page 42
    ... associated fees, and must promptly report any non-compliance with the pre-approval policy to the Chair of the Audit Committee. The complete policy is available on the Company's website at www.yum.com/investors/governance/media/gov_auditpolicy.pdf. Proxy Statement ITEM 3 Advisory Vote On Executive...

  • Page 43
    ... Executive Peer Group to better align the size of the peer group companies with YUM. • Re-designed 2013-2015 Performance Share Plan Re-designed 2013-2015 Performance Share Plan to measure relative total shareholder return vs. the S&P 500. • Increased Use of Performance Share Units in CEO's Long...

  • Page 44
    ... on equity, operating profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction, economic value added, operating income, earnings before interest and taxes...

  • Page 45
    ... of business, a subsidiary of the Company, or other units or may be based on the Company or franchise system generally� Performance-Based Compensation. A federal income tax deduction will generally be unavailable for annual compensation in excess of $1 million paid to the chief executive officer...

  • Page 46
    ... vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. What is the recommendation of the Board of Directors? The Board of Directors recommends that you vote FOR approval of this proposal. 24 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 47
    ... INFORMATION Who are our largest shareholders? As of January 31, 2014, the Company did not know of any shareholder that was the owner of more than 5% of YUM common stock� How much YUM common stock is owned by our directors and executive officers? This table shows the beneficial ownership of YUM...

  • Page 48
    ... held in deferred compensation accounts for each of the named persons under our Director Deferred Compensation Plan or our Executive Income Deferral Program. Amounts payable under these plans will be paid in shares of YUM common stock at termination of directorship/employment or within 60 days if so...

  • Page 49
    ... certain executive officers. The derivative actions and the securities class action suit are more fully described in the Company's Annual Report on Form 10-K for the year ended December 28, 2013 in Part 1, Item 3, Legal Proceedings and Note 19, Contingencies, to the Consolidated Financial Statements...

  • Page 50
    ... China. • Growing operating profit by 10%(2) at YRI, driven by samestore sales growth and net new unit development, and 3% in the U.S, with Taco Bell U.S. leading the way by delivering restaurant level margins of 19%. (1) Prior to Special Items (2) Prior to foreign currency translations 28 YUM...

  • Page 51
    ... Company's 2013 performance, compensation fell considerably versus the prior year, specifically: • Cash compensation (base salary and annual bonus) decreased by 60% for the Chief Executive Officer ("CEO") and 33% for the other NEOs. • Direct compensation (base salary, annual bonus and long-term...

  • Page 52
    ... program for 2013: • Updated the Company's Executive Peer Group to better align the size of the peer group companies with YUM. • Eliminated use of similar metrics in short-term incentive ("STI") and long-term incentive ("LTI") programs by redesigning our 2013-2015 performance share plan to...

  • Page 53
    ...485% YUM'S LONG-TERM GROWTH UNDER MR. NOVAK'S LEADERSHIP Market Capitalization Growth Build powerful brands • KFC is #1 brand in China; • Pizza Hut China Casual Dining is #1 western casual dining chain with a 6:1 advantage; • Taco Bell named marketer of the year in the U.S. Drive aggressive...

  • Page 54
    ... CEO's direct compensation, like cash compensation, tracks earnings per share. CEO DIRECT COMPENSATION Direct Compensation in $ 15 000 000 (1) VS. Proxy Statement EPS EPS in $ 4 3 10 000 000 2 5 000 000 1 0 0 2009 Base Salary 2010 2011 2012 2013 Annual Bonus Long-Term Equity Incentive...

  • Page 55
    ... to our executive compensation program and policies as a result of the vote on the 2013 proposal to approve our NEOs' compensation. Proxy Statement Role of the Committee and Chief Executive Officer In January of each year, the Committee reviews the performance and total compensation package of...

  • Page 56
    ... between corporate-reported revenues and system wide revenues. Competitive Positioning Meridian provided the Executive Peer Group compensation data to the Committee and it was used as a frame of reference for establishing compensation targets for base salary, annual bonus and long-term incentives...

  • Page 57
    ...Elements of Executive Compensation Program Our annual executive compensation program has three primary pay components: Base salary, annual performance-based cash bonuses and long-term equity performance-based incentives. We also offer retirement and additional benefits. Element Base salary Objective...

  • Page 58
    ..., some division operating profit growth targets were adjusted to reflect certain Company-approved investments and restaurant divestitures not reflective of annual operating performance. These adjustments had no material impact on our NEOs' compensation. 36 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 59
    ...(1) Earnings Per Share Growth 10% (excluding special items) FINAL YUM TEAM FACTOR 45 12% (26)% 0 50% 0 Su Operating Profit Growth(2) System Sales Growth 15% (4)% 0 20% 0 System Gross New Builds 650 740 200 20% 40 System Customer Satisfaction 100 172 172 10% 17 Total Weighted Team Performance China...

  • Page 60
    ... bonus. • System same-store sales were flat or declined in every division except Taco Bell and YRI; • YRI opened a record 1,055 new restaurants last year and China exceeded their development plan; • Grew operating profit by 10%(2) at YRI, driven by samestore sales growth and net new unit...

  • Page 61
    ...emphasize the Company's focus on long-term growth and they reward employees only if YUM's stock price increases. For each NEO, the breakdown between SARs/stock option award and PSU award values can be found under the Summary Compensation Table, page 44 at columns d and e. Performance Share Plan The...

  • Page 62
    ... at footnote 5, beginning in 2013, Mr. Novak started receiving an allocation to his LRP account equal to 9.5% of his base salary and target bonus and will receive an annual earnings Proxy Statement credit on his account balance equal to 120% of the applicable federal rate. For 2013, Mr. Grismer and...

  • Page 63
    ... Company's Executive Income Deferral Program. (2) Based on YUM closing stock price of $75.61 as of December 31, 2013. (3) Mr. Grismer's ownership guidelines will increase by 10,000 shares each of the next two years until 50,000 shares are reached. Payments Upon Termination of Employment The Company...

  • Page 64
    ... times salary and bonus. The terms of these change in control agreements are described beginning on page 57. In 2013, the Company eliminated tax gross-ups for executives, including the NEOs, for any excise tax due under Section 4999 of the Internal Revenue Code and implemented a "best net after-tax...

  • Page 65
    ... Company's focus on performance-based compensation plans, we expect most compensation paid to the NEOs to continue to qualify as tax deductible. Proxy Statement Management Planning and Development Committee Report The Management Planning and Development Committee of the Board of Directors reports...

  • Page 66
    ... Board of YUM Chairman and Chief Executive Officer of YUM Restaurants China Greg Creed Chief Executive Officer of Taco Bell(8) Muktesh Pant Chief Executive Officer of Yum! Restaurants International(9) Salary Bonus ($) Year ($)(1) (b) (c) 2013 1,450,000 - 2012 1,450,000 - 2011 1,474,038 - 2013 2012...

  • Page 67
    ... present value of his accrued benefit under the YUM! Brands Retirement Plan ("Retirement Plan") during the 2013 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). As discussed in the CD&A, effective January 1, 2012, the...

  • Page 68
    ... of these benefits and the perquisites and other personal benefits shown in column (b) for each NEO. These other benefits include: home security expense, home leave expenses, club dues, personal use of Company aircraft and tax preparation assistance. Proxy Statement 46 YUM! BRANDS, INC. - 2014...

  • Page 69
    ...2013 Annual Report in Notes to Consolidated Financial Statements at Note 15, "Share-based and Deferred Compensation Plans." There can be no assurance that the SARs/stock options will ever be exercised or PSU awards paid out (in which case no value will be realized by the executive) or that the value...

  • Page 70
    ... SARs, and unvested RSUs and PSUs held by the Company's NEOs on December 31, 2013. Option/SAR Awards(1) Stock Awards Equity Equity incentive plan awards: incentive market or plan awards: payout value Number of of unearned unearned shares, units shares, units or other rights or other rights that have...

  • Page 71
    ...For Mr. Grismer, this amount represents deferrals of his 2011 and 2012 bonuses into the EID Program's Matching Stock Fund. (3) The market value of these awards are calculated by multiplying the number of shares covered by the award by $75.61, the closing price of YUM stock on the NYSE on December 31...

  • Page 72
    ... in the form of RSUs and PSUs, each including accumulated dividends and before payment of applicable withholding taxes and broker commissions. For 2013, no RSUs became vested and 2011 PSU awards for the 2011-2013 performance cycle were not paid out since the average earnings per share during the...

  • Page 73
    ... YUM! Brands International Retirement Plan ("YIRP") determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements. Number of Years of Present Value of Payments During Credited Service Accumulated Benefit(4) Last Fiscal Year ($) Name...

  • Page 74
    ... Service up to 30 years Retirement distributions are always paid in the form of a lump sum. In the case of a participant whose benefits are 52 YUM! BRANDS, INC. - 2014 Proxy Statement Benefits are payable under the same terms and conditions as the Retirement Plan without regard to Internal Revenue...

  • Page 75
    ...) and are payable as shares of YUM common stock pursuant to the participant's deferral election� Unvested RSUs held in a participant's YUM! Matching Stock Fund account are forfeited if the participant voluntarily terminates employment with the Company within two years of the deferral date� If...

  • Page 76
    ... re-defer. Investments in the YUM! Stock Fund and YUM! Matching Stock Fund are only distributed in shares of Company stock. LRP LRP Account Returns. The LRP provides an annual earnings credit to each participant's account based on the value of participant's account at the end of each year. Under the...

  • Page 77
    ... 86,280,385 2,096,682 7,536,875 3,916,822 4,640,205 The difference between these amounts and the amount of the year-end balance for each executive represents the total aggregate earnings accumulated under the program with respect to that compensation. YUM! BRANDS, INC. - 2014 Proxy Statement 55

  • Page 78
    ... if the NEO's employment had terminated on December 31, 2013, given the NEO's compensation and service levels as of such date and, if applicable, based on the Company's closing stock price on that date. These benefits are in addition to benefits available generally to salaried employees, such as...

  • Page 79
    EXECUTIVE COMPENSATION assuming termination of employment as of December 31, 2013. The table on page 52 provides the present value of the lump sum benefit payable to each NEO when they attain eligibility for Early Retirement (i.e., age 55 with 10 years of service) under the plans. Life Insurance ...

  • Page 80
    ... Severance Payment Annual Incentive Accelerated Vesting of Stock Options and SARs Accelerated Vesting of RSUs Acceleration of PSU Performance/Vesting Outplacement TOTAL $ If a change in control without an involuntary termination had occurred as of December 31, 2013, the following benefits would...

  • Page 81
    ... the assumptions used to value the awards, see the discussion of stock awards and option awards contained in Part II, Item 8, "Financial Statements and Supplementary Data" of the 2013 Annual Report in Notes to Consolidated Financial Statements at Note 15, "Share-based and Deferred Compensation Plans...

  • Page 82
    ...31, 2013, the equity compensation plans under which we may issue shares of stock to our directors, officers and employees under the 1999 Long Term Incentive Plan ("1999 Plan"), the 1997 Long Term Incentive Plan (the "1997 Plan"), SharePower Plan and Restaurant General Manager Stock Option Plan ("RGM...

  • Page 83
    EQUITY COMPENSATION PLAN INFORMATION similar companies and align the interest of employees and directors with those of our shareholders. The 1999 Plan is administered by the Management Planning and Development Committee of the Board of Directors (the "Committee"). The exercise price of a stock ...

  • Page 84
    ... that arise throughout the year. Management is responsible for the Company's financial reporting process, including its system of internal control over financial reporting, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the...

  • Page 85
    ... and responsibilities referred to above and in the Audit Committee Charter, the Committee recommended to the Board of Directors that it include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2013 for filing with the...

  • Page 86
    ... and discontinue my receipt of paper copies? YUM shareholders with shares registered directly in their name who received shareholder materials in the mail may elect to receive future annual reports and proxy statements from us and to vote their shares through the Internet instead of receiving copies...

  • Page 87
    ... our proxy statement. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an Annual Meeting of Shareholders must be submitted in writing to our Corporate Secretary at our principal executive offices and you must include information set forth...

  • Page 88

  • Page 89
    ... on equity, operating profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction, economic value added, operating income, earnings before interest and taxes...

  • Page 90
    ... in Control (as defined in the Yum! Brands, Inc. Long Term Incentive Plan) to the extent that Awards were granted before a Change in Control. Proxy Statement (ii) The Committee shall have the discretion to adjust performance goals and the methodology used to measure the determination of the degree...

  • Page 91
    ... employment with the Company was involuntarily terminated (other than for cause) during a Potential Change in Control (as defined in the Yum! Brands, Inc. Long Term Incentive Plan) and within one year preceding the occurrence of a Change in Control shall likewise be paid the amount of such annual...

  • Page 92
    ... employee's or Participant's employment, termination of employment, leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data...

  • Page 93
    ... from time to time, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13-G. (e) (f) "Board" means the Board of Directors of the Company. A Participant's "Date of Termination" with respect to any Award shall be the first day...

  • Page 94

  • Page 95
    ... of shares of Common Stock) held by non-affiliates of the registrant as of June 15, 2013 computed by reference to the closing price of the registrant's Common Stock on the New York Stock Exchange Composite Tape on such date was approximately $31,700,000,000. All executive officers and directors of...

  • Page 96

  • Page 97
    ... Executive Compensation ...73 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...73 Certain Relationships and Related Transactions, and Director Independence ...73 Principal Accountant Fees and Services ...73 PART IV ITEM 15 74 Exhibits and Financial...

  • Page 98
    ...-looking statements, which speak only as of the date hereof. In making these statements, we are not undertaking to address or update any of our forward-looking statements set forth herein in future filings or communications regarding our business results. Form 10-K 2 YUM! BRANDS, INC. - 2013 Form...

  • Page 99
    ...information during 2014 for consistent presentation. Form 10-K Narrative Description of Business General YUM has over 40,000 restaurants in more than 125 countries and territories. Primarily through the three concepts of KFC, Pizza Hut and Taco Bell (the "Concepts"), the Company develops, operates...

  • Page 100
    ... in and/or carry out food. In addition, Taco Bell and KFC offer a drive-thru option in many stores. Pizza Hut offers a drive-thru option on a much more limited basis. Pizza Hut and KFC, on a more limited basis primarily in China, offer delivery service. Each Concept has proprietary menu items and...

  • Page 101
    ... (Pizza Hut U.S. and YRI); Irvine, California (Taco Bell); Louisville, Kentucky (KFC U.S.) and several other locations outside the U.S. The Company expensed $31 million, $30 million and $34 million in 2013, 2012 and 2011, respectively, for R&D activities. From time to time, independent suppliers...

  • Page 102
    ... to federal, state, local and international regulation of our business. Employees As of year end 2013, the Company and its Concepts employed approximately 539,000 persons, approximately 86 percent of whom were part-time. The Company believes that it provides working conditions and compensation that...

  • Page 103
    ... of operations, financial condition or cash flows. We may not attain our target development goals, and aggressive development could cannibalize existing sales. Our growth strategy depends in large part on our ability to increase our net restaurant count in markets outside the U.S., especially China...

  • Page 104
    ... Our operating expenses also include employee wages and benefits and insurance costs (including workers' compensation, general liability, property and health) which may increase over time. Any such increase could adversely affect our profit margins. out-of-date information. The inappropriate use of...

  • Page 105
    ... time when our management determines that such funds are not permanently invested outside the U.S. This could cause our worldwide effective tax rate to increase materially. We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property...

  • Page 106
    ... from time-to-time with suppliers on a number of issues, including, but not limited to, general performance, compliance with product specifications and terms of procurement and service requirements. Employees At any given time, the Company or its Concepts employ hundreds of thousands of persons...

  • Page 107
    ... May 2012. Prior to this position, Mr. Carucci served as Chief Financial Officer of YUM, a position he held beginning in March 2005. Mr. Carucci will retire as President of YUM in March 2014. Greg Creed, 56, is Chief Executive Officer of Taco Bell. He has served in this position since February 2011...

  • Page 108
    ... share of Common Stock, one of which had a distribution date of February 1, 2013. The Company targets an annual dividend payout ratio of 35% to 40% of net income. As of February 11, 2014, there were 61,700 registered holders of record of the Company's Common Stock. 12 YUM! BRANDS, INC. - 2013 Form...

  • Page 109
    ... plans or programs (millions) $ 463 $ $ $ $ 266 987 953 953 On November 16, 2012, our Board of Directors authorized share repurchases through May 2014 of up to $1 billion (excluding applicable transaction fees) of our outstanding Common Stock. On November 22, 2013, our Board of Directors authorized...

  • Page 110
    PART II ITEM 6 Selected Financial Data SELECTED FINANCIAL DATA YUM! BRANDS, INC. AND SUBSIDIARIES 2013 2012 Fiscal Year 2011 2010 2009 (in millions, except per share and unit amounts) Summary of Operations Revenues Company sales Franchise and license fees and income Total Closures and ...

  • Page 111
    ... may not recompute due to rounding. Form 10-K Description of Business YUM has over 40,000 restaurants in more than 125 countries and territories operating primarily under the KFC, Pizza Hut or Taco Bell brands, which are the global leaders in the chicken, pizza and Mexican-style food categories...

  • Page 112
    ... 90% of the Company's operating profits, excluding Corporate and unallocated income and expenses. In the first quarter of 2014, we will combine our YRI and U.S. businesses and begin reporting segment information for three global divisions: KFC, Pizza Hut and Taco Bell. China and India will remain...

  • Page 113
    ... 13 Company sales Franchise and license fees and income TOTAL REVENUES COMPANY RESTAURANT PROFIT % OF COMPANY SALES OPERATING PROFIT Interest expense, net Income tax provision Net Income - including noncontrolling interests Net Income (loss) - noncontrolling interests NET INCOME - YUM! BRANDS, INC...

  • Page 114
    ... dine-in business Losses and other costs relating to the LJS and A&W divestitures Other Special Items Income (Expense) Special Items Income (Expense) - Operating Profit Losses related to the extinguishment of debt - Interest Expense, net Special Items Income (Expense) before income taxes Tax Benefit...

  • Page 115
    ... in a net impairment charge of $258 million allocated to Net Income - YUM! Brands, Inc. For the year ended December 28, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 18% and increased Franchise and license fees and income and Operating Profit by 2% and...

  • Page 116
    ... fourth quarter. KFC China's fourth quarter same-store sales declined 4% compared to same store sales declines of 15% for the full year. Given the momentum of the KFC business and the continued strength of Pizza Hut Casual Dining, China Division 2014 Operating Profit is expected to return to 2012...

  • Page 117
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations The following table summarizes the impact of refranchising on Total revenues as described above: 2013 Decreased Company sales Increased Franchise and license fees and income DECREASE IN TOTAL ...

  • Page 118
    ... and Analysis of Financial Condition and Results of Operations Restaurant Unit Activity Worldwide Balance at end of 2011 New Builds Acquisitions(b) Refranchising Closures Other Balance at end of 2012 New Builds Acquisitions Refranchising Closures Other BALANCE AT END OF 2013 % of Total Franchisees...

  • Page 119
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations U.S. Balance at end of 2011 New Builds Refranchising Closures Other Balance at end of 2012 New Builds Acquisitions Refranchising Closures Other BALANCE AT END OF 2013 % of Total Franchisees 13,867...

  • Page 120
    ... sales for the year ended December 29, 2012. Company-Operated Store Results The following tables detail the key drivers of the year-over-year changes of Company sales and Restaurant profit for each reportable segment by year. Store portfolio actions represent the net impact of new unit openings...

  • Page 121
    ... 12�9% $ Form 10-K $ In 2013, the decrease in YRI Company sales and Restaurant profit associated with store portfolio actions was driven by the refranchising of our remaining Company-owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012. Net new unit development and the...

  • Page 122
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Income/(Expense) Company sales Cost of sales Cost of labor Occupancy and other RESTAURANT PROFIT Restaurant margin $ $ 2011 3,000 (917) (912) (809) 362 12.1% 2012 vs. 2011 Store Portfolio 53rd ...

  • Page 123
    ...of Little Sheep(b) Foreign exchange net (gain) loss and other OTHER (INCOME) EXPENSE $ 2013 (26) $ - 10 (16) $ 2012 (47) $ (74) 6 (115) $ 2011 (47) - (6) (53) $ (a) Declines in the year ended December 28, 2013 are due to the impact of KFC sales declines in China on net income of our unconsolidated...

  • Page 124
    ... recorded in the fourth quarter of 2012. Excluding foreign currency and the Pizza Hut UK refranchising, the increase was driven by the impact of same-store sales growth and net new unit development, partially offset by higher restaurant operating costs and higher franchise and license expenses. YRI...

  • Page 125
    ...170 million in 2011. The increase was primarily driven by higher Operating Profit before Special Items, partially offset by timing of cash payments for operating expenses and higher income taxes paid. Net cash used in investing activities was $886 million in 2013 compared to $1,005 million in 2012...

  • Page 126
    ...2013, partially offset by higher dividends paid on common stock and lower tax benefits from share-based compensation. In 2012, net cash used in financing activities was $1,716 million compared to $1,413 million in 2011. The increase was driven by increased share repurchases. Consolidated Financial...

  • Page 127
    ... compensation and other unfunded benefit plans to be paid upon separation of employee's service or retirement from the company, as we cannot reasonably estimate the dates of these future cash payments. We have not included in the contractual obligations table approximately $224 million of long-term...

  • Page 128
    ...benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. ASU 2013-11 is effective for the Company in our first quarter...

  • Page 129
    ... to its carrying value. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted expected future after-tax cash flows from Company-owned restaurant operations and franchise royalties� Future cash flow estimates and the discount rate are...

  • Page 130
    ... plan assets of $933 million at December 28, 2013. The PBO reflects the actuarial present value of all benefits earned to date by employees and incorporates assumptions as to future compensation levels. Due to the relatively long time frame over which benefits earned to date are expected to be paid...

  • Page 131
    ...our income taxes. ITEM 7A Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to financial market risks associated with interest rates, foreign currency exchange rates and commodity prices. In the normal course of business and in accordance with our policies, we manage...

  • Page 132
    ..., 2011 Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012 Consolidated Statements of Shareholders' Equity for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011 Notes to Consolidated Financial Statements Management's Responsibility for Financial...

  • Page 133
    ... II ITEM 8 Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders YUM! Brands, Inc. We have audited the accompanying consolidated balance sheets of YUM! Brands, Inc. and Subsidiaries (YUM) as of December 28, 2013...

  • Page 134
    ... 31, 2011 (in millions, except per share data) 2013 $ 11,184 1,900 13,084 $ 2012 11,833 1,800 13,633 $ 2011 10,893 1,733 12,626 Revenues Company sales Franchise and license fees and income Total revenues Costs and Expenses, Net Company restaurants Food and paper Payroll and employee benefits...

  • Page 135
    ... Statements of Comprehensive Income YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 (in millions) Net income - including noncontrolling interests Other comprehensive income (loss), net of tax: Translation adjustments and gains (losses...

  • Page 136
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Cash Flows YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 (in millions) 2013 $ 1,064 $ 721 331 (100) (23) 30 120 - (24) (26) 43 (44) 49 (12) 18 (...

  • Page 137
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Balance Sheets YUM! BRANDS, INC. AND SUBSIDIARIES DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions) 2013 2012 ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Inventories Prepaid ...

  • Page 138
    ... Data Consolidated Statements of Shareholders' Equity YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 Yum! Brands, Inc. Issued Common Accumulated Other Stock Retained Comprehensive Noncontrolling Shares Amount Earnings Income (Loss...

  • Page 139
    ... to Consolidated Financial Statements (Tabular amounts in millions, except share data) NOTE 1 Description of Business Restaurants International ("YRI" or "International Division"), KFC U.S., Pizza Hut U.S., Taco Bell U.S., and YUM Restaurants India ("India" or "India Division"). The China Division...

  • Page 140
    ... Financial Statements for prior periods to be comparable with the classification for the fiscal year ended December 28, 2013. These reclassifications had no effect on previously reported Net Income - YUM! Brands, Inc. Franchise and License Operations. We execute franchise or license agreements...

  • Page 141
    ... $34 million in 2013, 2012 and 2011, respectively. Share-Based Employee Compensation. We recognize all share-based payments to employees, including grants of employee stock options and stock appreciation rights ("SARs"), in the Consolidated Financial Statements as compensation cost over the service...

  • Page 142
    ... the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years...

  • Page 143
    ... unit's fair value is compared to its carrying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using discounted expected future after-tax cash flows from Company-owned restaurant operations and franchise royalties� The discount rate is our...

  • Page 144
    ... other comprehensive income (loss). The net periodic benefit costs associated with the Company's defined benefit pension and post-retirement medical plans are determined using assumptions regarding the projected benefit obligation and, for funded plans, the market-related value of plan assets as...

  • Page 145
    ... Little Sheep restaurant-level unit economics will support the new unit development we assumed in the fair value estimations of the trademark and reporting unit. Long-term average growth assumptions subsequent to this assumed recovery include same-store-sales growth of 4% and average annual net unit...

  • Page 146
    ... its carrying amount. For the year ended December 28, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 18% and increased Franchise and license fees and income and Operating Profit by 2% and 3%, respectively, for the YRI Division versus 2012. During 2011, we...

  • Page 147
    ...29 37 U.S. - $ 5 5 $ India - $ 2 2 $ Worldwide (5) 41 36 (a) Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company-owned restaurant that was closed, lease reserves established when we cease using a property under an operating lease...

  • Page 148
    ... property, plant and equipment was $686 million, $629 million and $599 million in 2013, 2012 and 2011, respectively. Accounts Payable and Other Current Liabilities Accounts payable Accrued capital expenditures Accrued compensation and benefits Dividends payable Accrued taxes, other than income taxes...

  • Page 149
    ... II ITEM 8 Financial Statements and Supplementary Data NOTE 9 Goodwill and Intangible Assets The changes in the carrying amount of goodwill are as follows: China Balance as of December 31, 2011 Goodwill, gross Accumulated impairment losses Goodwill, net Acquisitions(a) Disposals and other, net...

  • Page 150
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 10 Short-term Borrowings and Long-term Debt 2013 2012 $ 10 2,750 170 2,920 (10) 2,910 22 2,932 Short-term Borrowings Current maturities of long-term debt Long-term Debt Senior Unsecured Notes Capital lease obligations (See Note 11) ...

  • Page 151
    ... $ Interest expense on short-term borrowings and long-term debt was $270 million, $169 million and $184 million in 2013, 2012 and 2011, respectively. 2013 included $118 million in losses recorded in Interest expense, net as a result of premiums paid and other costs related to the extinguishment of...

  • Page 152
    ... to their carrying value of $2.8 billion. We estimated the fair value of debt using market quotes and calculations based on market rates. Foreign Currency Forwards, net Interest Rate Swaps, net Other Investments TOTAL Level 2 $ 2 1 $ 2012 (5) 24 17 36 56 YUM! BRANDS, INC. - 2013 Form 10-K

  • Page 153
    ...fourth quarter of 2012 and continuing through 2013, the Company allowed certain former employees with deferred vested balances in our U.S. pension plans an opportunity to voluntarily elect an early payout of their pension benefits. See Note 4 for details. Form 10-K YUM! BRANDS, INC. - 2013 Form 10...

  • Page 154
    ... Special termination benefits Exchange rate changes Benefits paid Settlements(a)(b) Actuarial (gain) loss Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Participant contributions Settlement...

  • Page 155
    ... for performance reporting purposes. See Note 4 for discussion of the settlement payments and settlement losses. (c) Special termination benefits primarily related to the U.S. business transformation measures taken in 2013, 2012 and 2011. (d) Gain is a result of terminating future service benefits...

  • Page 156
    ... used to determine the net periodic benefit cost for fiscal years: U.S. Pension Plans 2012 4.90% 7.25% 3.75% International Pension Plans 2013 2012 4.69% 4.75% 5.37% 5.55% 1.74% 3.85% Discount rate Long-term rate of return on plan assets Rate of compensation increase 2013 4.40% 7.25% 3.75% 2011...

  • Page 157
    ... of $12 million in 2013, $13 million in 2012 and $14 million in 2011. NOTE 15 Overview Share-based and Deferred Compensation Plans At year end 2013, we had four stock award plans in effect: the YUM! Brands, Inc. Long-Term Incentive Plan and the 1997 Long-Term Incentive Plan (collectively the...

  • Page 158
    ... volatility associated with our publicly traded options. The expected dividend yield is based on the annual dividend yield at the time of grant. The fair values of RSU and PSU awards granted prior to 2013 are based on the closing price of our stock on the date of grant. In 2013, the Company granted...

  • Page 159
    ... ITEM 8 Financial Statements and Supplementary Data Impact on Net Income The components of share-based compensation expense and the related income tax benefits are shown in the following table: 2013 44 6 (1) 49 15 11 2012 42 5 3 50 15 5 2011 49 5 5 59 18 2 Options and SARs Restricted Stock Units...

  • Page 160
    ... item includes local taxes, withholding taxes, and shareholder-level taxes, net of foreign tax credits. The favorable impact is primarily attributable to a majority of our income being earned outside of the U.S. where tax rates are generally lower than the U.S. rate. Form 10-K In 2012, this benefit...

  • Page 161
    ...2012, this item was positively impacted by a one-time pre-tax gain of $74 million, with no related income tax expense, recognized on our acquisition of additional interest in, and consolidation of Little Sheep. Operating losses and tax credit carryforwards Employee benefits Share-based compensation...

  • Page 162
    ...in developing, operating, franchising and licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza Hut and Taco Bell operate in 118, 91, and 21 countries and territories, respectively. Our five largest international markets based on Operating Profit in 2013 are China, Asia Franchise...

  • Page 163
    ... and impairment expense(a)(e) Unallocated Other income (expense)(a)(f) Unallocated Refranchising gain (loss)(a)(g) Operating Profit Interest expense, net(h) INCOME BEFORE INCOME TAXES Operating Profit; Interest Expense, Net; and Income Before Income Taxes 2013 2012 2011 $ 777 $ 1,015 $ 908 760 715...

  • Page 164
    ... II ITEM 8 Financial Statements and Supplementary Data China YRI U.S. India Corporate $ $ Long-Lived Assets(k) 2013 2012 2,667 $ 2,779 $ 1,732 1,561 1,489 1,555 66 47 32 32 5,986 $ 5,974 $ 2011 1,546 1,600 1,805 35 36 5,022 (a) Amounts have not been allocated to any segment for performance...

  • Page 165
    ... the Company's business or financial condition and instead alleges that, during the Class Period, defendants purportedly omitted information about the Company's supply chain in China, thereby inflating the prices at which the Company's securities traded� On October 4, 2013, the Company and...

  • Page 166
    ... Financial Statements cannot be made at this time. On May 16, 2013, a putative class action styled Bernardina Rodriguez v. Taco Bell Corp. was filed in California Superior Court. The plaintiff seeks to represent a class of current and former California hourly restaurant employees alleging...

  • Page 167
    ...61 0.335 First Quarter Second Quarter Revenues: Company sales Franchise and license fees and income Total revenues Restaurant profit Operating Profit(b) Net Income - YUM! Brands, Inc. Basic earnings per common share Diluted earnings per common share Dividends declared per common share $ 2,344 $ 399...

  • Page 168
    ... Company's internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended December 28, 2013. ITEM 9B Other Information None. 72 YUM! BRANDS, INC. - 2013 Form...

  • Page 169
    ... Information regarding equity compensation plans and security ownership of certain beneficial owners and management appearing under the captions "Executive Compensation" and "Stock Ownership Information" is incorporated by reference from the Company's definitive proxy statement which will be filed...

  • Page 170
    ... 15 Exhibits and Financial Statement Schedules (a) (1) (2) Financial Statements: Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. Financial Statement Schedules: No schedules are required because either the required information is not...

  • Page 171
    ... of the Board, Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial officer) Vice President, Finance and Corporate Controller (principal accounting officer) Director Director Director Director Director Director Director Director Director Vice-Chairman...

  • Page 172
    ... Report on Form 10-Q for the quarter ended June 13, 2009. YUM 1997 Long Term Incentive Plan, as effective October 7, 1997, which is incorporated herein by reference from Exhibit 10.8 to YUM's Annual Report on Form 10-K for the fiscal year ended December 27, 1997. YUM Executive Incentive Compensation...

  • Page 173
    ...to YUM's Quarterly Report on Form 10-Q for the quarter ended September 4, 2004. Form of YUM 1999 Long Term Incentive Plan Award Agreement (2013) (Stock Options), as incorporated by reference from Exhibit 10.15.1 to YUM's Quarterly Report on Form 10-Q for the quarter ended March 23, 2013. YUM! Brands...

  • Page 174
    ... are omitted in the copy of the exhibit electronically filed with the SEC. The omitted information has been filed separately with the SEC pursuant to our application for confidential treatment. Indicates a management contract or compensatory plan. Form 10-K 78 YUM! BRANDS, INC. - 2013 Form 10-K

  • Page 175
    ... Retrieve a duplicate Form 1099-B • Purchase shares of YUM through the Company's Direct Stock Purchase Plan • Sell shares held at AST Access accounts online at the following URL: https://secure.amstock.com/Shareholder/sh_login.asp. Your account number and Social Security Number are required. If...

  • Page 176
    ...-0535 STOCK TRADING SYMBOL-YUM The New York Stock Exchange is the principal market for YUM Common Stock, which trades under the symbol YUM. Franchise Inquiries ONLINE FRANCHISE INFORMATION Information about potential franchise opportunities is available at www.yumfranchises.com YUM's Annual Report...

  • Page 177
    ..., Mayfair Capital, Inc. and Chairman, The Glenview Trust Company Niren Chaudhary 51 President, Yum! Restaurants India Greg Creed 56 Chief Executive Officer, Taco Bell Roger Eaton 53 President, KFC and Chief Operations Officer, Yum! Brands, Inc. Bonnie G. Hill 72 President, B. Hill Enterprises, LLC...

  • Page 178
    ...YUM! RESTAURANTS PER MILLION PEOPLE IN THE U.S. Only 2 YUM! RESTAURANTS PER MILLION PEOPLE IN THE TOP TEN EMERGING MARKETS. ON THE GROUND FLOOR OF GLOBAL GROWTH 20 Yum! Brands, Inc., trades under the symbol YUM and is proud to meet the listing requirements of the NYSE, the world's leading equities...