Pizza Hut 2005 Annual Report Download - page 29

INTRODUCTION฀AND฀OVERVIEW
YUM!฀ Brands,฀ Inc.฀ and฀ Subsidiaries฀ (collectively฀ referred฀
to฀as฀“YUM”฀or฀the฀“Company”)฀comprises฀the฀worldwide฀
operations฀of฀KFC,฀Pizza฀Hut,฀Taco฀Bell,฀Long฀John฀Silver’s฀
(“LJS”)฀and฀A&W฀All-American฀Food฀Restaurants฀(“A&W”)฀
(collectively฀“the฀Concepts”)฀and฀is฀the฀world’s฀largest฀quick฀
service฀restaurant฀(“QSR”)฀company฀based฀on฀the฀number฀of฀
system฀units.฀LJS฀and฀A&W฀were฀added฀when฀YUM฀acquired฀
Yorkshire฀Global฀Restaurants,฀Inc.฀(“YGR”)฀on฀May฀7,฀2002.฀
YUM฀is฀the฀second฀largest฀QSR฀company฀outside฀the฀U.S.฀
with฀ over฀ 13,800฀ units.฀ YUM฀ became฀ an฀ independent,฀
publicly-owned฀company฀on฀October฀6,฀1997฀(the฀“Spin-off฀
Date”)฀via฀a฀tax-free฀distribution฀of฀our฀Common฀Stock฀(the฀
“Distribution”฀or฀“Spin-off”)฀to฀the฀shareholders฀of฀our฀former฀
parent,฀PepsiCo,฀Inc.฀(“PepsiCo”).
Through฀its฀Concepts,฀ YUM฀develops,฀operates,฀ fran-
chises฀ and฀ licenses฀ a฀ system฀ of฀ both฀ traditional฀ and฀
non-traditional฀ QSR฀ restaurants.฀ Traditional฀ units฀ feature฀
dine-in,฀carryout฀and,฀in฀some฀instances,฀drive-thru฀or฀delivery฀
services.฀Non-traditional฀units,฀which฀are฀typically฀licensed฀
outlets,฀include฀express฀units฀and฀kiosks฀which฀have฀a฀more฀
limited฀menu฀ and฀ operate฀in฀non-traditional฀locations฀ like฀
malls,฀airports,฀gasoline฀service฀stations,฀convenience฀stores,฀
stadiums,฀amusement฀parks฀and฀colleges,฀where฀a฀full-scale฀
traditional฀outlet฀would฀not฀be฀practical฀or฀effi฀cient.
The฀retail฀food฀industry,฀in฀which฀the฀Company฀competes,฀
is฀ made฀ up฀ of฀ supermarkets,฀ supercenters,฀ warehouse฀
stores,฀convenience฀stores,฀coffee฀shops,฀snack฀bars,฀deli-
catessens฀and฀restaurants฀(including฀the฀QSR฀segment),฀and฀
is฀intensely฀competitive฀with฀respect฀to฀food฀quality,฀price,฀
service,฀ convenience,฀location฀ and฀concept.฀ The฀ industry฀
is฀often฀affected฀by฀changes฀in฀consumer฀tastes;฀national,฀
regional฀or฀local฀economic฀conditions;฀currency฀fl฀uctuations;฀
demographic฀ trends;฀ traffic฀ patterns;฀ the฀ type,฀ number฀
and฀location฀of฀competing฀food฀retailers฀and฀products;฀and฀
disposable฀purchasing฀power.฀Each฀of฀the฀Concepts฀compete฀
with฀international,฀national฀and฀regional฀restaurant฀chains฀
as฀well฀as฀locally-owned฀restaurants,฀not฀only฀for฀customers,฀
but฀also฀for฀management฀and฀hourly฀personnel,฀suitable฀real฀
estate฀sites฀and฀qualifi฀ed฀franchisees.
Our฀business฀consists฀of฀three฀reporting฀segments:฀United฀
States,฀the฀International฀Division฀and฀the฀China฀Division.฀The฀
China฀Division฀includes฀mainland฀China฀(“China”),฀Thailand฀
and฀KFC฀Taiwan฀and฀the฀International฀Division฀includes฀the฀
remainder฀of฀our฀international฀operations.
The฀Company’s฀key฀strategies฀are:
Building฀dominant฀restaurant฀brands฀in฀China
Driving฀profi฀table฀international฀expansion
Improving฀restaurant฀operations
Multibranding฀category-leading฀brands
The฀ Company฀is฀ focused฀on฀ fi฀ve฀long-term฀measures฀
identifi฀ed฀as฀essential฀to฀our฀growth฀and฀progress.฀These฀
fi฀ve฀measures฀and฀related฀key฀performance฀indicators฀are฀
as฀follows:
Management’s฀Discussion฀and฀Analysis฀
of฀Financial฀Condition฀and฀
Results฀of฀Operations
China฀Division฀and฀International฀Division฀expansion
฀ •฀฀China฀Division฀and฀International฀Division฀system-sales฀
growth฀(local฀currency)
฀ •฀฀Number฀of฀new฀China฀Division฀and฀International฀
Division฀restaurant฀openings
฀ •฀฀Net฀China฀Division฀and฀International฀Division฀
unit฀growth
Multibrand฀innovation฀and฀expansion
฀ •฀Number฀of฀multibrand฀restaurant฀locations
฀ •฀Number฀of฀multibrand฀units฀added
฀ •฀Number฀of฀franchise฀multibrand฀units฀added
Portfolio฀of฀category-leading฀U.S.฀brands
฀ •฀U.S.฀blended฀same฀store฀sales฀growth
฀ •฀U.S.฀system฀sales฀growth
Global฀franchise฀fees
฀ •฀New฀restaurant฀openings฀by฀franchisees
฀ •฀Franchise฀fee฀growth
Strong฀cash฀generation฀and฀returns
฀ •฀Cash฀generated฀from฀all฀sources
฀ •฀฀Cash฀generated฀from฀all฀sources฀after฀
capital฀spending
฀ •฀Restaurant฀margins
Our฀ progress฀ against฀ these฀ measures฀ is฀ discussed฀
throughout฀ the฀ Management’s฀ Discussion฀ and฀ Analysis฀
(“MD&A”).
Throughout฀ the฀ MD&A,฀ the฀ Company฀ provides฀ the฀
percentage฀change฀excluding฀the฀impact฀of฀foreign฀currency฀
translation.฀These฀amounts฀are฀derived฀by฀translating฀current฀
year฀results฀at฀prior฀year฀average฀exchange฀rates.฀We฀believe฀
the฀elimination฀of฀the฀foreign฀currency฀translation฀ impact฀
provides฀better฀year-to-year฀comparability฀without฀the฀distor-
tion฀of฀foreign฀currency฀fl฀uctuations.
This฀ MD&A฀ should฀ be฀ read฀ in฀ conjunction฀ with฀ our฀
Consolidated฀Financial฀Statements฀on฀pages฀54฀through฀57฀
and฀the฀Cautionary฀Statements฀on฀page฀49.฀All฀Note฀refer-
ences฀herein฀refer฀to฀the฀Notes฀to฀the฀Consolidated฀Financial฀
Statements฀ on฀ pages฀ 58฀ through฀ 81.฀ Tabular฀ amounts฀
are฀displayed฀in฀millions฀except฀ per฀ share฀ and฀unit฀ count฀
amounts,฀or฀as฀otherwise฀specifi฀cally฀identifi฀ed.
FACTORS฀AFFECTING฀COMPARABILITY฀
OF฀2005฀RESULTS฀TO฀2004฀RESULTS฀AND฀
2004฀RESULTS฀TO฀2003฀RESULTS
International฀ Reporting฀ Changes In฀ 2005,฀ we฀ began฀
reporting฀information฀for฀our฀international฀business฀in฀two฀
separate฀operating฀segments฀as฀a฀result฀of฀changes฀to฀our฀
management฀reporting฀structure.฀The฀China฀Division฀includes฀
mainland฀China฀(“China”),฀Thailand฀and฀KFC฀Taiwan,฀and฀the฀
International฀Division฀includes฀the฀remainder฀of฀our฀interna-
tional฀operations.฀While฀this฀reporting฀change฀did฀not฀impact฀
our฀consolidated฀results,฀segment฀information฀for฀previous฀
periods฀has฀been฀restated฀to฀be฀consistent฀with฀the฀current฀
period฀presentation.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 33.