Pizza Hut 2005 Annual Report Download - page 81

1–6฀ Dear฀Partners
7฀ The฀Yum!฀Dynasty฀Model
8–11฀ A฀World฀of฀Opportunity:฀China
12–15฀ A฀World฀of฀International฀Growth
16–19฀ A฀World฀of฀Leading฀Brands
20฀ Taco฀Bell:฀Think฀Outside฀the฀Bun!
21฀ Pizza฀Hut:฀Gather฀’Round฀the฀Good฀Stuff
22฀ KFC:฀Chicken฀Capital฀U.S.A.
23฀ Long฀John฀Silver’s:฀Yarr,฀Genius!
24฀ A&W:฀Hometown฀Food฀Made฀Fun฀
25–27฀ A฀World฀of฀Customer฀Mania
28–29฀ A฀World฀of฀Choice฀
30–32฀ A฀World฀of฀Results:฀Financial฀Review
33–84฀ Financials
81฀ Selected฀Financial฀Data
82฀ Board฀of฀Directors฀and฀Senior฀Officers
83฀ Shareholder฀Information
84฀ Shareholder฀Services
inbc฀ A฀World฀of฀Giving฀Back
(In฀millions,฀except฀for฀per฀share฀amounts)฀ ฀ ฀ %฀B/(W)฀฀
Year-end฀ 2005฀ 2004฀ change
Company฀sales฀ $฀8,225฀ $฀7,992฀ 3฀
Franchise฀and฀license฀fees฀ ฀1,124฀ ฀1,019฀ 10฀
Total฀revenues฀ $฀9,349฀ $฀9,011฀ 4฀
Operating฀profit฀ $฀1,153฀ $฀1,155฀ –฀
Net฀income฀ $฀ 762฀ $฀ 740฀ 3฀
Wrench฀litigation฀income฀(expense)฀ $฀ 2฀ $฀ 14฀ NM
AmeriServe฀and฀other฀(charges)฀credits฀ ฀ 2฀ ฀ 16฀ NM
Special฀items฀ ฀ 4฀ ฀ 30฀ NM
Income฀tax฀on฀special฀items฀ ฀ (1)฀ ฀ (11)฀ NM
Special฀items,฀net฀of฀tax฀ $฀ 3฀ $฀ 19฀ NM
Stock฀option฀expense฀ $฀ (58)฀ ฀ –฀ NM
Income฀tax฀benefit฀from฀stock฀option฀expense฀ ฀ 20฀ ฀ –฀ NM
Stock฀option฀expense,฀net฀of฀tax฀ $฀ (38)฀ $฀ –฀฀฀ NM
Diluted฀earnings฀per฀common฀share:฀ ฀ ฀ ฀ ฀
Earnings฀before฀stock฀option฀expense฀and฀special฀items฀ $฀ 2.67฀ $฀ 2.36฀ 13฀
Stock฀option฀expense,฀net฀of฀tax฀ ฀ (0.13)฀ ฀ –฀฀฀ NM
Special฀items,฀net฀of฀tax฀ ฀ 0.01฀ ฀ 0.06฀ NM
Reported฀฀ $฀ 2.55฀ $฀ 2.42฀ 5฀
Cash฀flows฀provided฀by฀operating฀activities฀ $฀1,238฀ $฀1,186฀ 4฀
In฀2005,฀we฀began฀expensing฀stock฀options฀as฀a฀result฀of฀adopting฀SFAS฀123R,฀“Share-Based฀Payment,”฀which฀resulted฀in฀a฀reduction฀of฀net฀income฀of฀$38฀million฀or฀$0.13฀
per฀share.฀We฀used฀earnings฀before฀stock฀option฀expensing฀and฀before฀special฀items฀as฀a฀key฀performance฀measure฀of฀results฀of฀operations฀for฀purposes฀of฀evaluating฀
performance฀internally฀and฀determining฀incentive฀compensation฀in฀2005.฀This฀non-GAAP฀measurement฀is฀not฀intended฀to฀replace฀the฀presentation฀of฀our฀financial฀results฀
in฀accordance฀with฀GAAP.฀Rather,฀we฀believe฀that฀the฀presentation฀of฀results฀before฀special฀items฀and฀stock฀option฀expense฀provides฀additional฀information฀to฀facilitate฀the฀
comparison฀of฀past฀and฀present฀operations,฀excluding฀items฀that฀we฀do฀not฀believe฀are฀indicative฀of฀our฀ongoing฀operations฀and฀the฀adoption฀of฀SFAS฀123R฀which฀did฀not฀
impact฀our฀financial฀statements฀in฀the฀year฀ended฀December฀25,฀2004.฀
AVERAGE฀U.S.฀SALES฀PER฀SYSTEM฀UNIT(a)
(In฀thousands)฀ ฀฀฀฀฀ ฀
Year-end฀ 2005฀ 2004฀ 2003฀ 2002฀ 2001฀ 5-year฀growth(b)
KFC฀ $฀ 954฀ $฀ 896฀ $฀ 898฀ $฀ 898฀ $฀ 865฀ 3%
Pizza฀Hut฀ ฀ 810฀ ฀ 794฀ ฀ 748฀ ฀ 748฀ ฀ 724฀ 3%
Taco฀Bell฀ ฀1,168฀ ฀1,069฀ ฀1,005฀ ฀ 964฀ ฀ 890฀ 5%
(a)฀Excludes฀license฀units.฀ ฀ ฀ ฀ ฀ ฀
(b)฀Compounded฀annual฀growth฀rate.฀฀ ฀ ฀ ฀ ฀
TABLE฀OF฀CONTENTS
Financial
Highlights
At฀Yum!฀Brands,฀we฀believe฀in฀the฀power฀of฀giving฀back฀฀
to฀the฀community฀to฀make฀a฀difference฀in฀the฀lives฀of฀our฀฀
customers฀and฀their฀families.
We฀commit฀ourselves฀to฀giving฀back฀to฀the฀communities฀we฀serve฀and฀to฀make฀a฀difference฀by฀financially฀supporting฀hun-
dreds฀of฀charities฀across฀the฀globe.฀In฀2005,฀Business฀Week฀recognized฀Yum!฀as฀one฀of฀the฀most฀generous฀in-kind฀givers฀
with฀over฀$54฀million฀in฀donated฀prepared฀meals.฀Our฀employees฀and฀franchisees฀donated฀nearly฀$6฀million฀to฀aid฀victims฀
of฀the฀Southeast฀Asia฀tsunami,฀the฀Pakistan฀earthquake฀and฀Hurricane฀Katrina฀here฀in฀the฀U.S.฀We฀support฀worthy฀causes฀
financially฀and฀through฀employee฀volunteerism฀all฀around฀the฀globe.฀For฀example,฀the฀KFC฀China฀First฀Light฀Foundation฀is฀a฀
scholarship฀fund฀to฀help฀Chinese฀students฀in฀need.฀KFC฀U.K.฀supports฀ChildLine,฀a฀free,฀24-hour฀help฀line฀for฀children.฀KFC฀
and฀Pizza฀Hut฀Thailand฀are฀building฀new฀elementary฀schools฀in฀impoverished฀villages฀across฀the฀Kingdom.฀
In฀the฀U.S.,฀our฀efforts฀are฀primarily฀focused฀on฀nourishing฀the฀bodies,฀lives,฀spirits฀and฀minds฀of฀children฀in฀need.฀We฀do฀
this฀through฀programs฀dedicated฀to฀hunger฀relief,฀scholarships,฀reading฀incentives฀and฀mentoring฀at-risk฀teens.
Here’s฀a฀brief฀look฀at฀some฀of฀our฀Community฀Mania:฀
NOURISHING฀BODIES฀฀
YUMeals.฀Hunger฀remains฀a฀pressing฀
social฀issue฀in฀America.฀One฀in฀ten฀
children฀under฀the฀age฀of฀five฀runs฀
the฀risk฀of฀going฀to฀bed฀hungry฀every฀
night.฀To฀help฀address฀this฀issue,฀
Yum!฀decided฀to฀create฀the฀world’s฀
largest฀prepared฀food฀recovery฀
program.฀We฀now฀donate฀over฀10฀mil-
lion฀pounds฀of฀prepared฀food฀to฀the฀
hungry฀every฀year.฀
NOURISHING฀LIVES฀฀
KFC’s฀Colonel’s฀Kids®.฀KFC฀is฀
empowering฀students฀to฀improve฀
their฀lives฀with฀scholarship฀resources฀
to฀attend฀an฀accredited฀college฀
within฀their฀state฀of฀residence฀
through฀a฀KFC฀Colonel’s฀Scholars฀
Scholarship.฀KFC฀Colonel’s฀Scholars฀
will฀enable฀high฀school฀students฀with฀
entrepreneurial฀drive,฀strong฀perseverance฀
and฀demonstrated฀financial฀need฀to฀pursue฀
up฀to฀four฀years฀of฀study฀at฀an฀accredited฀
institution฀in฀the฀state฀they฀reside.฀This฀
scholarship฀provides฀funding฀for฀tuition,฀
fees,฀books฀and฀room฀and฀board.฀Awards฀
can฀be฀up฀to฀$5,000฀per฀year฀for฀up฀to฀four฀
years฀to฀help฀complete฀a฀bachelor’s฀degree.฀
The฀first฀class฀of฀50฀KFC฀Colonel’s฀Scholars฀
will฀be฀announced฀in฀June,฀2006.฀
NOURISHING฀SPIRITS฀฀
Taco฀Bell’s฀Teen฀Program.฀The฀Taco฀Bell฀
Foundation฀is฀committed฀to฀helping฀teens฀
become฀successful฀and฀productive฀leaders฀
in฀their฀communities.฀Through฀its฀partner-
ship฀with฀the฀Boys฀&฀Girls฀Clubs฀of฀America,฀
the฀Taco฀Bell฀Foundation฀supports฀teen-
focused฀initiatives฀that฀are฀designed฀to฀build฀
self-esteem,฀leadership฀skills฀and฀values.฀
Since฀1995,฀Taco฀Bell,฀its฀franchisees฀
and฀customers฀have฀donated฀over฀
$15฀million฀to฀the฀Boys฀&฀Girls฀Clubs฀฀
of฀America฀for฀teen฀programming.
NOURISHING฀MINDS฀
Pizza฀Hut’s฀BOOK฀IT!®฀Program.฀฀
For฀over฀20฀years,฀children฀have฀found฀
reading฀a฀lot฀more฀fun฀and฀rewarding,฀
thanks฀to฀the฀BOOK฀IT!฀Program.฀As฀฀
the฀nation’s฀largest฀reading฀incentive฀
program,฀BOOK฀IT!฀provides฀pizza,฀praise,฀
and฀recognition฀for฀children’s฀reading฀
achievements.฀Since฀1985,฀Pizza฀Hut฀has฀
invested฀nearly฀a฀half฀billion฀dollars฀in฀
BOOK฀IT!฀to฀encourage฀children฀to฀discover฀
the฀joy฀and฀pleasure฀of฀reading.฀Over฀
23฀million฀children฀a฀year฀are฀motivated฀฀
to฀read฀more฀each฀year฀through฀BOOK฀IT!฀
฀
back
world฀of
giving
A