Pizza Hut 2013 Annual Report Download - page 101

YUM! BRANDS, INC.-2013 Form10-K 5
Form 10-K
PART I
ITEM 1Business
Restaurant Supply Chain Solutions, LLC (“RSCS”), formerly known as
the Unified Foodservice Purchasing Co-op, LLC, which is responsible for
purchasing certain restaurant products and equipment in the U.S. The core
mission of the RSCS is to provide the lowest possible sustainable store-
delivered prices for restaurant products and equipment. This arrangement
combines the purchasing power of the Company-owned and franchisee
restaurants in the U.S. which the Company believes leverages the system’s
scale to drive cost savings and effectiveness in the purchasing function.
The Company also believes that the RSCS fosters closer alignment of
interests and a stronger relationship with its franchisee community.
Most food products, paper and packaging supplies, and equipment used
in restaurant operations are distributed to individual restaurant units by
third-party distribution companies. McLane Company, Inc. (“McLane”) is
the exclusive distributor for the majority of items used in Company-owned
restaurants and for a substantial number of franchisee and licensee stores.
The Company entered into an agreement with McLane effective January 1,
2011 relating to distribution to Company-owned restaurants. This agreement
extends through December 31, 2016 and generally restricts Company-
owned restaurants from using alternative distributors for most products.
International and India Divisions Outside China and the U.S., we and our
franchisees use decentralized sourcing and distribution systems involving
many different global, regional, and local suppliers and distributors. In
our YRI markets and India Division, we have approximately 3,000 and
150 suppliers, respectively, including U.S.-based suppliers that export
to many countries.
Trademarks and Patents
The Company and its Concepts own numerous registered trademarks and
service marks. The Company believes that many of these marks, including its
Kentucky Fried Chicken®, KFC®, Pizza Hut® and Taco Bell® marks, have
significant value and are materially important to its business. The Company’s
policy is to pursue registration of its important marks whenever feasible and
to oppose vigorously any infringement of its marks.
The use of these marks by franchisees and licensees has been authorized
in our franchise and license agreements. Under current law and with proper
use, the Company’s rights in its marks can generally last indefinitely. The
Company also has certain patents on restaurant equipment which, while
valuable, are not material to its business.
Working Capital
Information about the Company’s working capital is included in MD&A in
Part II, Item 7, pages 15 through 35 and the Consolidated Statements of
Cash Flows in Part II, Item 8, page 40.
Seasonal Operations
The Company does not consider its operations to be seasonal to any
material degree.
Competition
The retail food industry, in which our Concepts compete, is made up of
supermarkets, supercenters, warehouse stores, convenience stores,
coffee shops, snack bars, delicatessens 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 fluctuations; demographic trends; traffic patterns;
the type, number and location of competing food retailers and products;
and disposable purchasing power. Each of the Concepts competes 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 qualified franchisees.
Given the various types and vast number of competitors, our Concepts
do not constitute a significant portion of the retail food industry in terms
of number of system units or system sales, either on a worldwide or
individual country basis.
Research and Development (“R&D”)
The Company operates R&D facilities in Shanghai, China (China Division);
Plano, Texas (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 also conduct research and development activities for the benefit
of the YUM system.
Environmental Matters
The Company is not aware of any federal, state or local environmental laws
or regulations that will materially affect its earnings or competitive position,
or result in material capital expenditures. However, the Company cannot
predict the effect on its operations of possible future environmentallegislation
or regulations. During 2013, there were no material capital expenditures
for environmental control facilities and no such material expenditures are
anticipated.
Government Regulation
U.S. Division. The Company and its U.S. Division are subject to various
federal, state and local laws affecting its business. Each of the Concepts’
restaurants in the U.S. must comply with licensing and regulation by a
number of governmental authorities, which include health, sanitation,
safety, fire and zoning agencies in the state and/or municipality in which
the restaurant is located. In addition, each Concept must comply with
various state and federal laws that regulate the franchisor/franchisee
relationship. To date, the Company has not been materially adversely
affected by such licensing and regulation or by any difficulty, delay or
failure to obtain required licenses or approvals.
The Company and each Concept are also subject to federal and state laws
governing such matters as immigration, employment and pay practices,
overtime, tip credits and working conditions. The bulk of the Concepts’
employees are paid on an hourly basis. The Company has not been
materially adversely affected by such laws to date.
The Company and each Concept are also subject to federal and state
child labor laws which, among other things, prohibit the use of certain
“hazardous equipment” by employees younger than 18 years of age. The
Company has not been materially adversely affected by such laws to date.
The Company and each Concept are also subject to laws relating to
information security, privacy, cashless payments, consumer credit, protection
and fraud. The Company has not been materially adversely affected by
such laws to date.
The Company and each Concept are also subject to laws relating to
nutritional content, nutritional labeling, product safety and menu labeling. The
Company has not been materially adversely affected by such laws to date.
The Company and each Concept, as applicable, continue to monitor their
facilities for compliance with the Americans with Disabilities Act (“ADA”)
in order to conform to its requirements. Under the ADA, the Company
or the relevant Concept could be required to expend funds to modify its
restaurants to better provide service to, or make reasonable accommodation
for the employment of, disabled persons. The Company has not been
materially adversely affected by such laws to date.
International, China and India Divisions. The Company’s restaurants outside
the U.S. are subject to national and local laws and regulations which are
similar to those affecting U.S. restaurants, including laws and regulations
concerning information security, labor, health, sanitation and safety.