Pizza Hut 2014 Annual Report Download

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Yum! Brands 2014 Annual Report

Table of contents

  • Page 1
    Yum! Brands 2014 Annual Report

  • Page 2
    ... product lines such as Doritos® Locos Taco and Cantina Bell. Importantly, Greg has a passion for our global business, with deep international experiences at Unilever and at KFC and Pizza Hut in Australia and New Zealand. He is a well-rounded executive, having previously served as Yum! Brands Chief...

  • Page 3
    ..., which negatively impacted 2013, we recovered and delivered strong results in the first half of 2014. Specifically, our China Division operating profit increased 116% and Yum! EPS grew 27% through our first two quarters, prior to Special Items. We were convinced 2014 would be a year of at least 20...

  • Page 4
    ... 737 new restaurants across the country in 2014. We continued our disciplined approach to development, shifting our new-unit program toward higher return investments. In 2015, we plan to open 700 more new units in China. In addition to the massive new-unit opportunity we have with KFC and Pizza Hut...

  • Page 5
    ... to extreme value for our customers and an experience they cannot get anywhere else in China. In 2015, we intend to grow same-store sales through constant innovation of our core offerings while we grow our breakfast and late night business. Pizza Hut Home Service now has 250 restaurants in 35...

  • Page 6
    ... and mobile innovation to further enhance the Pizza Hut Home Service customer experience and grow same-store sales. Before I move on to our other divisions, I want to provide some details around a further write-down of our investment in Little Sheep. We recorded a noncash Special Item net charge...

  • Page 7
    5

  • Page 8
    ...its global power as an iconic brand, KFC set a new record for international development, opening nearly 670 restaurants. The new news for KFC is the U.S. business is performing much better. The KFC U.S. business grew same-store sales 6% in the 4th quarter and is poised for its best year in some time...

  • Page 9
    ...long runway ahead of us and are making the decisions necessary to drive future growth in the U.S. and globally. Panama U.S. PH consumer photo Opened 465 International Units in 2014 Pizza Hut is a new reporting division and includes all Pizza Hut results outside of the China and India divisions. 7

  • Page 10
    ...DIVISION Taco Bell had a solid 2014, with strong system sales growth. Our breakfast launch last spring was a success and we continue to report strong margins. We had our strongest rate of new-unit development in more than a decade with 236 new restaurants. 89% of these new restaurants were opened by...

  • Page 11
    INDIA DIVISION In India, system sales increased 14%* for the year and we sustained a strong pace of development, with 156 new restaurants. While we are outperforming the category in India, macroeconomic conditions weighed on our overall results. Yum! India President Niren Chaudhary is using this ...

  • Page 12
    ...matter most to consumers. There are a number of points to this evolution, so let me explain. KFC and Pizza Hut are clearly global category leaders. And with 250 restaurants outside the U.S. and strong innovation and operating capability, Taco Bell is growing its global presence. Our brands are world...

  • Page 13
    ...champion. I believe KFC, Pizza Hut and Taco Bell are truly on the ground floor of global growth and the power of Yum! is stronger than ever. I know we have the right structure with 100% brand focused teams, digital innovation, know-how sharing, operating capability and franchise economics to deliver...

  • Page 14
    ... to drive the three things that create Yum! Restaurants Per Million People in the U.S. shareholder value in retail: NEW-UNIT DEVELOPMENT Our new-unit development opportunity in China and other emerging markets remains the best in retail. We plan to open 2,000+ new international restaurants in 2015...

  • Page 15
    91% of Restaurants Outside China and India are Franchise Owned Finally, we have a strong track record of returning significant amounts of cash to our shareholders in the form of dividends and share buybacks. Over the last 5 years, we've repurchased 61 million shares, representing a 13% reduction in...

  • Page 16
    ... same time, I want to welcome Elane Stock to the Board. After reading this Annual Report, I hope you clearly see the strength of our business and the growth opportunities before us to build three global iconic brands people trust and champion. Cheers, Greg Creed Chief Executive Officer, Yum! Brands...

  • Page 17
    ...deଏnhng global company that feeds txe world famous recognhthon culture wxere everyone counts Drive HWWT2 leadership principles every day! Make it a magnet for the best talent Be an "ABR black belt"...Be a "Know How junkie" dynamhc, vhbrant brands everywxere whtx one system operathonal excellence...

  • Page 18
    ... Food 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...

  • Page 19
    ...Chief Executive Officer Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 1, 2015-this notice and the proxy statement are available at www.yum.com/investors/investor_materials.asp. The Annual Report on Form 10-K is available at www.yum.com...

  • Page 20

  • Page 21
    ... the close of business on March 3, 2015. ANNUAL REPORT: ...A copy of our 2014 Annual Report on Form 10-K is included with this proxy statement. WEBSITE: ...You may also read the Company's Annual Report and this Notice and proxy statement on our website at www.yum.com/ annualreport and www.yum.com...

  • Page 22
    ...Equity Awards at Year-End ...Option Exercises and Stock Vested ...Pension Benefits ...Nonqualified Deferred Compensation ...Potential Payments Upon Termination or Change in Control ... 27 28 28 46 47 48 50 52 53 55 58 DIRECTOR COMPENSATION EQUITY COMPENSATION PLAN INFORMATION AUDIT COMMITTEE REPORT...

  • Page 23
    ... in order to help lower the costs of delivery and reduce the Company's environmental impact. Who may attend the Annual Meeting? ...The Annual Meeting is open to all shareholders of record as of close of business on March 3, 2015, or their duly appointed proxies. Seating is limited and admission...

  • Page 24
    ... year ending December 26, 2015; • An advisory vote on executive compensation; and • One (1) shareholder proposal. We will also consider other business that properly comes before the meeting. 15MAR201511093851 How does the Board of Directors recommend that I vote? ...Our Board of Directors...

  • Page 25
    ... vote your shares in person at the meeting even if you have previously voted by proxy. Can I change my mind after I vote? ...You may change your vote at any time before the polls close at the Annual Meeting. You may do this by: • Signing another proxy card with a later date and returning it to...

  • Page 26
    ...? ...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...

  • Page 27
    ... OF THE COMPANY The business and affairs of YUM are managed under the direction of the Board of Directors. The Board believes that good corporate governance is a critical factor in achieving business success and in fulfilling the Board's responsibilities to shareholders. The Board believes that...

  • Page 28
    ... are selected based upon contributions they can make to the Board and management. The Committee's assessment of a proposed candidate will include a review of the person's judgment, experience, independence, understanding of the Company's business or other related industries and such other factors as...

  • Page 29
    ... of CEO and Chairman of the Board. The Board created a new position of Lead Director in August 2012, after its annual review which included engaging in dialogue and receiving input from a number of major shareholders. The Lead Director position is structured so that one independent Board member is...

  • Page 30
    ...of the Company and its management. The Lead Director position has no term limit and is subject only to annual approval by the independent members of the Board. Based upon the recommendation of the Nominating and Governance Committee, the Board has determined that the Lead Director is responsible for...

  • Page 31
    ... pay programs that incorporate team and individual performance, customer satisfaction and shareholder return; emphasize long-term incentives; drive ownership mentality; and require executives to personally invest in Company stock. In early 2015, the Management Planning and Development Committee...

  • Page 32
    ... she deems appropriate. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Written correspondence from shareholders relating to accounting, internal controls or auditing matters...

  • Page 33
    ... executive officer and other senior executive officers • Reviews management succession planning The Board has determined that all of the members of the Management Planning and Development Committee are independent within the meaning of the listing standards of the NYSE. 2015 Proxy Statement YUM...

  • Page 34
    ... time the adequacy of the Company's Corporate Governance Principles • Receives comments from all directors and reports annually to the Board with assessment of the Board's performance • Prepares and supervises the Board's annual review of director independence Number of Meetings in Fiscal 2014...

  • Page 35
    ... of our shareholders. How much YUM stock do the directors own? ...Stock ownership information for each director nominee is shown in the table on page 26. Does the Company have stock ownership guidelines for executives and senior management? ...The Management Planning and Development Committee has...

  • Page 36
    ... directors and executive officers of the Company. See ''What are the Company's policies and procedures with respect to related person transactions?'' at page 12. Director ages are as of the date of this proxy statement. 15MAR201511093851 Proxy Statement 14 YUM! BRANDS, INC. 2015 Proxy Statement

  • Page 37
    ... Statement • Operating and management experience, including as chief executive officer of Taco Bell • Expertise in strategic planning, global branding, franchising, and corporate leadership • Public company directorship and committee experience 11MAR201504422029 Greg Creed Age 57 Director...

  • Page 38
    ... Age 71 Director Since 2005 Advisor to the Chairman, American Express Company • 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...

  • Page 39
    ... Proxy Statement 13MAR201511371887 David C. Novak Age 62 Director Since 1997 Executive Chairman, YUM • Operating and management experience, including as chairman and chief executive officer of the Company • Expertise in strategic planning, global branding, franchising, and corporate leadership...

  • Page 40
    ... 69 Director Since 2008 Founder and Retired Chairman/CEO Cardinal Health, Inc. • Operating and management experience, including as chief executive officer, of global healthcare and service provider business • Expertise in finance, business development, business integrations, financial reporting...

  • Page 41
    ... election of directors can be found in our Corporate Governance Principles at www.yum.com/ investors/ governance/principles.asp and at page 7 under ''What other significant Board practices does the Company have? - Majority Voting Policy.'' Proxy Statement 19 2015 Proxy Statement YUM! BRANDS, INC...

  • Page 42
    ...the Company's internal controls over financial reporting, statutory audits and services rendered in connection with the Company's securities offerings. Audit-related fees include audits of financial statements of certain employee benefit plans, agreed upon procedures and other attestations. Tax fees...

  • Page 43
    ... you to read the Compensation Discussion and Analysis section of this proxy statement, beginning on page 28, which discusses in detail how our compensation policies and procedures operate and are designed to meet our compensation goals and how our Management Planning and Development Committee makes...

  • Page 44
    ... on the date this policy is adopted. SUPPORTING STATEMENT Yum! Brands grants senior executives several types of equity awards that normally vest over several years. The company states in its 2014 proxy that 80% of compensation is ''at-risk,'' where the compensation paid is determined based on the...

  • Page 45
    ... to Shareholder Proposal What is the Company's position regarding this proposal? ...The Board of Directors recommends that shareholders vote AGAINST this proposal. YUM employs an effective pay-for-performance compensation program with many governance best practices, including requiring double...

  • Page 46
    MATTERS REQUIRING SHAREHOLDER ACTION Why does the Company oppose the proposal? ...In short, the Board believes that the Company's current executive compensation program and employment of double-trigger accelerated vesting of all unvested awards is appropriate and effective by aligning the interests...

  • Page 47
    ... of YUM common stock as of December 31, 2014 by • each of our directors, • each of the executive officers named in the Summary Compensation Table on page 46, and • all directors and executive officers as a group. Unless we note otherwise, each of the following persons and their family members...

  • Page 48
    ... director incentive compensation plans. For stock options, we report shares equal to the number of options exercisable within 60 days. For SARs, we report the shares that would be delivered upon exercise (which is equal to the number of SARs multiplied by the difference between the fair market value...

  • Page 49
    ...To our knowledge, based solely on a review of the copies of such reports furnished to YUM and representations that no other reports were required, all of our directors and executive officers complied with all Section 16(a) filing requirements during fiscal 2014. In 2013, three shareholder derivative...

  • Page 50
    ... Pizza Hut and Taco Bell divisions were opened by franchisees, generating high returns for YUM. • The KFC division grew same-store sales 3% and operating profit 9% through robust international performance and an improving US business. • The Taco Bell division launched breakfast, a new value menu...

  • Page 51
    .... Proxy Statement CEO TARGET PAY MIX-2014 Base Salary ALL OTHER NEO TARGET PAY MIX-2014 11% Annual Bonus Annual Bonus 19% 25% Base Salary Long-Term Equity Incentive 50% At-Risk At-Risk Long-Term Equity Incentive 25% 89% 75% 4MAR201521365491 70% 2015 Proxy Statement YUM! BRANDS...

  • Page 52
    ... before our executives realize any value. As shown below, our 2011 PSU award under our Performance Share Plan did not pay out to our NEOs in 2014 since the earnings per share compound annual growth rate (''EPS CAGR'') during the 2011 - 2013 performance cycle did not reach the required minimum...

  • Page 53
    ...to 2015 had been in place for many years and based on the Company's stock price increase over these years had resulted in the guidelines exceeding market practice by quite a wide margin. For 2015, Mr. Creed and Mr. Novak will each be required to own 100,000 shares and our Chief Financial Officer and...

  • Page 54
    ...plan design Periodic review of Executive Peer Group to align appropriately with Company size Limit perquisites Evaluate CEO and executive succession plans Conduct annual shareholder engagement program to obtain feedback from shareholders and consider in annual compensation program design Excise tax...

  • Page 55
    EXECUTIVE COMPENSATION Chief Executive Officer Pay For 2014 ...Our compensation program is designed to support our longterm Company growth model, while holding our executives accountable to achieve key annual results year after year. Our CEO is compensated in accordance with this long-term, pay-for...

  • Page 56
    ...$5,000,000 0% $0 -10% 2010 Base Salary (1) 2011 Annual Bonus 2012 SARs 2013 PSUs 2014 EPS Growth 13MAR201500030573 Proxy Statement The 2011 and 2012 PSU awards did not pay out. The 2013 and 2014 PSU awards, described at page 41, will not pay out if the Company's current TSR ranking against...

  • Page 57
    ... Reviews compensation trends • Reviews market analysis of Director compensation and makes recommendations to Board (bi-annually) Proxy Statement November • Reviews competitive analysis/benchmarking for CEO and all CEO direct reports • Reviews bonus and performance share plan metrics, targets...

  • Page 58
    ..., managing product introductions, marketing, driving new unit development, and customer satisfaction and overall operations improvements across the entire franchise system. Accordingly, in calibrating size-adjusted market values, which values are as of the last completed fiscal year at the time of...

  • Page 59
    ...level of annual compensation. A NEO's actual salary varies based on the role, level of responsibility, experience, individual performance, future potential and market value. Specific salary increases take into account these factors. In addition, salary increases may be warranted based on a promotion...

  • Page 60
    ...objectives were developed through the Company's annual financial planning process, which takes into account division growth strategies, historical performance, and the expected future operating environment. These projections include profit growth to achieve our EPS growth target. A leverage formula...

  • Page 61
    ... 15% 20% 15% 0 0 15 23 38 Proxy Statement FINAL TACO BELL TEAM FACTOR Bergren Operating Profit Growth(2) System Same-Store Sales Growth System Net Builds(7) System Customer Satisfaction Total Weighted Team Performance - Pizza Hut Division FINAL PIZZA HUT TEAM FACTOR(3) (1) Weighted Average(8) 37...

  • Page 62
    ... plans for the year • KFC and Taco Bell increased system sales by 6% and 4% and operating profit by 13% and 5% respectively, despite strong commodity headwinds(2) • Over 2,000 new builds outside the US and increased development in the US driven primarily by Taco Bell's 180 net new builds • YUM...

  • Page 63
    ... Company's focus on long-term growth and they reward employees only if YUM's stock price increases. For each NEO, the breakdown between SAR/ Option award values and PSU award values can be found under the Summary Compensation Table, page 46 at columns e and f. 2014 Long-term Incentive Awards Based...

  • Page 64
    ... Revenue Service limitations on amounts of includible compensation and maximum benefits. The TCN is an unfunded, unsecured account-based retirement plan that provides an annual contribution floor of 7.5% of salary and target bonus and an annual earnings credit of 5% on the balance. The Company...

  • Page 65
    ... all RSUs awarded under the Company's Executive Income Deferral Program. Based on YUM closing stock price of $72.85 as of December 31, 2014. Payments upon Termination of Employment The Company does not have agreements with its executives concerning payments upon termination of employment except in...

  • Page 66
    ... the Company's Compensation Recovery Policy (i.e., ''clawback'') for stock awards beginning in 2015 and annual bonuses awarded for calendar years after 2014. Pursuant to this amended and restated policy, the Committee may require executive officers (including the NEOs) to return compensation paid...

  • Page 67
    ... ''Compensation Discussion and Analysis'' and, on the basis of that review and discussion, recommended to the Board that the section be incorporated by reference into the Company's Annual Report on Form 10-K and included in this proxy statement. THE MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE...

  • Page 68
    ... Grismer Chief Financial Officer of YUM Jing-Shyh S. Su Vice Chairman of the Board of YUM and Chairman and Chief Executive Officer of YUM Restaurants China Year (b) Salary Bonus ($)(1) ($) (c) (d) Stock Awards ($)(2) (e) Total ($) 2014 1,450,000 2013 1,450,000 2012 1,450,000 2014 2013 2012 707...

  • Page 69
    ... a market rate of interest on his LRP account plus an annual benefit allocation equal to 9.5% of his salary plus target bonus. For Mr. Su, amounts in this column reflect the aggregate increase in actuarial present value of age 62 accrued benefits under the Yum International Retirement Plan (''YIRP...

  • Page 70
    ...information on stock options, SARs, RSUs and PSUs granted for 2014 to each of the Company's NEOs. The full grant date fair value of these awards is shown in the Summary Compensation Table at page 46. All Other Option Exercise or Estimated Possible Payouts Estimated Future Payouts Awards; Number Base...

  • Page 71
    ... in 2013, the Company granted PSU awards with market-based conditions requiring valuation using a Monte Carlo simulation. For SARs/stock options, fair value of $17.45 was calculated using the Black-Scholes value on the February 5, 2014 grant date. For additional information regarding valuation...

  • Page 72
    ... Unexercised SAR Option/ That Stock That Options/ Options/SARs Exercise SAR Have Not Have Not SARs (#) (#) Price Expiration Vested Vested Grant Date Exercisable Unexercisable ($) Date (#)(2) ($)(3) (b) 1/19/2007 1/24/2008 2/5/2009 2/5/2010 2/4/2011 2/8/2012 2/6/2013 2/5/2014 1/19/2007 5/17/2007...

  • Page 73
    ..., this amount represents deferral of his 2012 bonus into the EID Program's Matching Stock Fund. The market value of these awards are calculated by multiplying the number of shares covered by the award by $72.85, the closing price of YUM stock on the NYSE on December 31, 2014. The awards reflected in...

  • Page 74
    ... - - - Name (a) Novak Grismer Su Creed Bergren (1) 15MAR201511093851 Proxy Statement These RSUs represent Mr. Grismer's deferral of his 2011 bonus, which was deferred in 2012 and vested in 2014, under the Company's Executive Income Deferral Program. 52 YUM! BRANDS, INC. 2015 Proxy Statement

  • Page 75
    ... the YUM! Brands International Retirement Plan (''YIRP'') determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements. 2014 FISCAL YEAR PENSION BENEFITS TABLE Number of Years of Credited Service (#) (c) 28 - 25 2 6 6 Present Value of...

  • Page 76
    ... the Company prior to meeting the requirements for Early or Normal Retirement must take their benefits in the form of a monthly annuity and no lump sum is available. When a lump sum is paid from the plan, it is calculated based on actuarial assumptions for lump sums required by Internal Revenue Code...

  • Page 77
    ... the Company. Benefits are payable under the same terms and conditions as the Retirement Plan without regard to Internal Revenue Service limitations on amounts of includible compensation and maximum benefits. (4) Present Value of Accumulated Benefits For all plans, the Present Value of Accumulated...

  • Page 78
    ... 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 LRP, Mr. Novak receives an annual earnings credit equal to 120% of the applicable federal interest rate...

  • Page 79
    ...account based on the value of participant's account at the end of each year. Under the TCN, Mr. Creed receives an annual earnings credit equal to 5%. For Mr. Creed, the Employer Credit for 2014 was equal to 15% of his salary plus target bonus. Distributions under TCN. Under the TCN, participants age...

  • Page 80
    ... if the NEO's employment had terminated on December 31, 2014, 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 81
    ... the executive's base salary and the target bonus or, if higher, the actual bonus for the year preceding the change in control of the Company, and • outplacement services for up to one year following termination. In March 2013, the Company eliminated excise tax gross-ups and implemented a best net...

  • Page 82
    EXECUTIVE COMPENSATION If a change in control and each NEO's involuntary termination had occurred as of December 31, 2014, the following payments or other benefits would have been made or become available. Novak $ Severance Payment Annual Incentive Accelerated Vesting of Stock Options and SARs ...

  • Page 83
    ... amount of time that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board. The Board typically reviews each element of director compensation every two years. In 2014, the Management Planning and Development Committee of...

  • Page 84
    ... for service on the Board until the director has ceased being a member of the Board for one year (sales are permitted to cover income taxes attributable to any stock retainer payment or exercise of a stock option or SAR). Matching Gifts. To further YUM's support for charities, non-employee directors...

  • Page 85
    ...Management Planning and Development Committee of the Board of Directors (the ''Committee''). The exercise price of a stock option grant or SAR under the 1999 Plan may not be less than the average market price of our stock on the date of grant for years prior to 2008 or the closing price of our stock...

  • Page 86
    ... Area Coaches, Franchise Business Leaders and other supervisory field operation positions that support RGMs and have profit and loss responsibilities within a defined region or area. While all non-executive officer employees are eligible to receive awards under the RGM plan, all awards granted have...

  • Page 87
    ... its Chair from time to time, as senior management deems advisable or appropriate, in connection with issues or concerns 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...

  • Page 88
    ... 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 27, 2014 for filing with the SEC. Based on the Committee's discussions with management and the independent auditors...

  • Page 89
    ... of the Corporate Secretary. Under our bylaws, certain procedures are provided that a shareholder must follow to nominate persons for election as directors or to introduce an item of business at an Annual Meeting of Shareholders that is not included in our proxy 2015 Proxy Statement YUM! BRANDS...

  • Page 90
    ... INFORMATION 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...

  • Page 91
    ...-affiliates of the registrant as of June 14, 2014 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 $34,800,000,000. All executive officers and directors of the registrant have been deemed, solely...

  • Page 92

  • Page 93
    ... Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes...

  • Page 94

  • Page 95
    ... and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. In making these statements, we are not undertaking to address or update any...

  • Page 96
    ... United States, China and India. In the first Narrative Description of Business General YUM has over 41,000 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, franchises and...

  • Page 97
    ... franchise unit was opened. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. • Pizza Hut operates in 92 countries and territories throughout the world. As of year end 2014, Pizza Hut had 1,572 units in China, 431 units in India...

  • Page 98
    ... in terms of number of system units or system sales, either on a worldwide or individual country basis. Form 10-K Research and Development (''R&D'') The Company operates R&D facilities in Shanghai, China (China Division); Plano, Texas (KFC and Pizza Hut Divisions); Irvine, California (Taco Bell...

  • Page 99
    ..., state, local and international regulation of our business. Employees As of year end 2014, the Company and its Concepts employed approximately 537,000 persons, approximately 87 percent of whom were part-time. The Company believes that it provides working conditions and compensation that compare...

  • Page 100
    ...non-income based tax rates and laws) and the regulatory environment, as well as increased media scrutiny of our business and industry and increased competition. In addition, our results of operations in China and the value of our Chinese assets are affected by fluctuations in currency exchange rates...

  • Page 101
    ... 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. Form 10-K Our operating results are closely tied to the success of our Concepts...

  • Page 102
    ... our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation. Changes in, or noncompliance with, governmental regulations may adversely affect our business operations, growth prospects or financial condition. Our Concepts...

  • Page 103
    ... 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 104
    ...Texas are owned by Pizza Hut. Taco Bell leases its corporate headquarters and research facility in Irvine, California. The YUM corporate headquarters and a KFC research facility in Louisville, Kentucky are owned by the Company. Additional information about the Company's properties is included in the...

  • Page 105
    ...2014. Prior to this position he served as Chief Executive Officer of YRI from December 2011 to December 2013. Mr. Pant served as President of YRI from May 2010 to December 2011 and as President of Global Brand Building for YUM from February 2009 to December 2011. He served as Chief Marketing Officer...

  • Page 106
    ...Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange (''NYSE''). The following sets forth the high and low NYSE composite closing sale prices...

  • Page 107
    ... day of our 2014 fiscal year. The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 24, 2009 and that all dividends were reinvested. 300.00 250.00 Form 10-K 200.00 150.00 13MAR2015160 100.00 50.00 2009 YUM! 2010 S&P 500 2011 2012 2013 2014...

  • Page 108
    ...Financial Data YUM! Brands, Inc. and Subsidiaries (in millions, except per share and unit amounts) Income Statement Data Revenues Company sales Franchise and license fees and income Total Closures and impairment income (expenses) Refranchising gain (loss)(b) Operating Profit(c) Interest expense, net...

  • Page 109
    ..., basis within our global brand divisions. Our China and India Divisions report on a monthly basis and thus did not have a 53rd week in 2011. The estimated impacts of the 53rd week on Company sales, Franchise and license fees and income and Operating Profit in 2011 were increases of $72 million...

  • Page 110
    ... Statements and the Risk Factors set forth in Item 1A. YUM! Brands, Inc. (''YUM'' or the ''Company'') operates, franchises or licenses a worldwide system of over 41,000 restaurants in more than 125 countries and territories operating primarily under the KFC, Pizza Hut or Taco Bell (collectively...

  • Page 111
    ...full year 2014. Also during 2014: • KFC Division system sales and Operating Profit increased by 6% and 13%, respectively. Same store sales grew 3% and the Division opened 666 new international units. • Pizza Hut Division grew system sales by 1% and Operating Profit declined 13%. Same-store sales...

  • Page 112
    ...2013 (5) 6 (4) (15) 2014 Company sales Franchise and license fees and income Total revenues Restaurant profit Restaurant Margin % Operating Profit Interest expense, net Income tax provision Net Income - including noncontrolling interests Net Income (loss) - noncontrolling interests Net Income - YUM...

  • Page 113
    ... Pizza Hut UK dine-in business (See Note 4) Other Special Items Income (Expense)(a) Special Items Income (Expense) - Operating Profit Losses related to the extinguishment of debt - Interest Expense, net (See Note 4) Special Items Income (Expense) before income taxes Tax Benefit (Expense) on Special...

  • Page 114
    ... impacting China's 2014 performance. % B/(W) 2014 Company sales Franchise and license fees and income Total revenues Restaurant profit Restaurant margin % G&A expenses Operating Profit $ 6,821 113 $ $ $ $ 6,934 $ $ 2013 6,800 105 6,905 $ $ 2012 6,797 101 6,898 1,233 18.1% 334 1,015 2014 Reported Ex...

  • Page 115
    ... declines, higher restaurant operating costs and higher G&A expenses, partially offset by net new unit growth and increased Other income due to an insurance recovery related to the 2012 poultry supply incident. See the Summary at the beginning of this section for discussion of China sales. In 2013...

  • Page 116
    ...2013 Reported Ex FX (1) 5 1 (7) (0.9) ppts. 2 4 2014 System Sales Growth, reported System Sales Growth, excluding FX Same-Store Sales Growth % 2% 6% 3% 1 8 3 (5) (0.9) ppts. 1 7 2013 -% 3% 1% 2014 Company sales Franchise and license fees and income Total revenues Restaurant profit Restaurant margin...

  • Page 117
    ...Form 10-K Operating Profit In 2014, the increase in Operating Profit, excluding the impact of foreign currency translation, was driven by growth in same-store sales and net new units, partially offset by higher restaurant operating costs in international markets. In 2013, the increase in Operating...

  • Page 118
    ... ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 2014 Company sales Franchise and license fees and income Total revenues Restaurant profit Restaurant margin % G&A expenses Operating Profit $ 607 541 $ $ $ $ 1,148 $ $ 2013 609 538 1,147 $ $ 2012 993 517...

  • Page 119
    ... Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012, lower incentive compensation costs and a pension curtailment gain in the first quarter of 2013 related to one of our UK pension plans, partially offset by strategic investments in international G&A. Operating Profit In 2014...

  • Page 120
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 2014 Company sales Franchise and license fees and income Total revenues Restaurant profit Restaurant margin % G&A expenses Operating Profit $ 1,452 411 $ $ $ $ 1,863 $ $ 2013 1,474 395 1,869 $ $ ...

  • Page 121
    ...by higher restaurant operating costs. In 2013, the increase in Operating Profit was driven by same-store sales growth, lower G&A and net new unit growth, partially offset by refranchising. Form 10-K India Division The India Division has 833 units, predominately KFC and Pizza Hut restaurants. While...

  • Page 122
    ... Acquired - - - Acquired (6) 6 - (a) Effective the beginning of 2014, results from our 28 Mauritius stores are included in KFC and Pizza Hut Divisions as applicable. Prior year units have been adjusted for comparability while division System Sales Growth, Total Revenues and Operating Profit (loss...

  • Page 123
    ... our company-owned stores and from our extensive franchise operations which require a limited YUM investment. Net cash provided by operating activities has exceeded $1 billion in each of the last thirteen fiscal years, including over $2 billion in each fiscal year since 2011. We expect these levels...

  • Page 124
    ... 2014 our Board of Directors approved cash dividends of $0.41 per share of Common Stock that were distributed on February 6, 2015 to shareholders of record at the close of business on January 16, 2015. The Company targets an ongoing annual dividend payout ratio of 40% to 45% of net income. rate for...

  • Page 125
    ...effect on our net funding position as they drive our asset balances and discount rate assumptions. Future changes in investment performance and corporate bond rates could impact our funded status and the timing and amounts of required contributions in 2015 and beyond. Our post-retirement plan in the...

  • Page 126
    ... (which are aligned based on geography) in our KFC, Pizza Hut and Taco Bell Divisions and individual brands in our China and India Divisions. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted 32 YUM! BRANDS, INC. - 2014 Form 10-K

  • Page 127
    ... II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations agreement is at prevailing market rates our primary consideration is consistency with the terms of our current franchise agreements both within the country that the restaurants are being refranchised...

  • Page 128
    ... and Analysis of Financial Condition and Results of Operations tax assets primarily relate to temporary differences in profitable U.S. federal, state and foreign jurisdictions, net operating losses in certain foreign jurisdictions, the majority of which do not expire, and U.S. foreign tax credit...

  • Page 129
    ... market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We manage our exposure to this risk primarily through pricing agreements with our vendors. YUM! BRANDS, INC. - 2014...

  • Page 130
    ... Financial Statements and Supplementary Data Index to Financial Information Page Reference Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for the fiscal years ended December 27, 2014, December 28, 2013 and December 29, 2012...

  • Page 131
    ... 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 27, 2014 and December 28, 2013, and the related...

  • Page 132
    ... FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions, except per share data) Revenues Company sales Franchise and license fees and income Total revenues Costs and Expenses, Net Company restaurants Food and paper Payroll and employee benefits Occupancy...

  • Page 133
    ... Data Consolidated Statements of Comprehensive Income YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions) Net income - including noncontrolling interests Other comprehensive income (loss), net of tax: Translation...

  • Page 134
    ... YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions) Cash Flows - Operating Activities Net Income - including noncontrolling interests Depreciation and amortization Closures and impairment (income) expenses Refranchising (gain) loss Losses and other costs related...

  • Page 135
    ... Data Consolidated Balance Sheets YUM! BRANDS, INC. AND SUBSIDIARIES DECEMBER 27, 2014 AND DECEMBER 28, 2013 (in millions) ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Deferred income taxes Advertising...

  • Page 136
    ... Compensation-related events (includes tax impact of $11 million) Balance at December 29, 2012 Net Income (loss) Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $2 million) Pension and post-retirement benefit plans (net...

  • Page 137
    ...and we began reporting this information by three new reporting segments: KFC Division, Pizza Hut Division and Taco Bell Division. China and India remain separate reporting segments. This new structure is designed to drive greater global brand focus, enabling us to more effectively share know-how and...

  • Page 138
    ...Income or Consolidated Statements of Cash Flows. months in the second and third quarters and four months in the fourth quarter. International businesses within our KFC, Pizza Hut and Taco Bell divisions close approximately one month earlier to facilitate consolidated reporting. Our next fiscal year...

  • Page 139
    ... 8 Financial Statements and Supplementary Data Revenue Recognition. Revenues from Company-owned restaurants are recognized when payment is tendered at the time of sale. The Company presents sales net of sales-related taxes. Income from our franchisees and licensees includes initial fees, continuing...

  • Page 140
    ..., associated with a closed store, any gain or loss upon that sale is also recorded in Closures and impairment (income) expenses. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, sublease income and refranchising...

  • Page 141
    ... 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 Companyowned restaurant operations and franchise royalties. The discount rate is our estimate of the required rate of return...

  • Page 142
    ... year. The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of future salary increases, as applicable. The difference between the projected benefit obligations and the fair value of plan assets that has not previously been Form...

  • Page 143
    ... expected return on assets in net periodic benefit costs. We recognize differences in the fair value versus the market-related value of plan assets evenly over five years. For each individual plan we amortize into pension expense the net amounts in Accumulated other comprehensive income (loss), as...

  • Page 144
    ...(gain) loss 2014 2013 2012 China KFC Division Pizza Hut Division(a) Taco Bell Division India Worldwide $ (17) (18) 4 (4) 2 (33) $ (5) (8) (3) (84) - (100) $ (17) (3) 53 (111) - (78) Pension Settlement Charges During the fourth quarter of 2012 and continuing through 2013, the Company allowed certain...

  • Page 145
    ... (income) expenses $ $ (4) 13 9 $ $ KFC 1 11 12 Pizza Hut $ $ 10 2 12 2012 Taco Bell $ $ 1 3 4 India $ $ - - - Worldwide $ $ 8 29 37 (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...

  • Page 146
    ...(a) China poultry supply insurance recovery(b) Foreign exchange net (gain) loss and other Other (income) expense (a) See Note 4. (b) Recovery related to lost profits associated with a 2012 poultry supply incident. $ $ $ NOTE 8 Supplemental Balance Sheet Information 2014 $ 55 14 185 254 $ 2013...

  • Page 147
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 9 Goodwill and Intangible Assets China KFC $ 281 - 281 75 - (18) 338 - 338 2 - (28) 312 - $ 312 $ Pizza Hut $ 194 (17) 177 11 - (1) 204 (17) 187 - - (4) 200 (17) 183 $ Taco Bell $ $ 110 - 110 - - (4) 106 - 106 8 - - 114 - 114 $ India ...

  • Page 148
    ... days after notice. Form 10-K The following table summarizes all Senior Unsecured Notes issued that remain outstanding at December 27, 2014: (a) Issuance Date 13MAR201517272138 April 2006 October 2007 October 2007 August 2009 August 2009 August 2010 August 2011 October 2013 October 2013 Maturity...

  • Page 149
    ... and support functions, as well as certain office and restaurant equipment. We do not consider any of these individual leases material to our operations. Most leases require us to pay related executory costs, which include property taxes, maintenance and insurance. At December 27, 2014 we operated...

  • Page 150
    ... and hourly U.S. employees. The qualified plan meets the requirements of certain sections of the Internal Revenue Code and provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard 56 YUM! BRANDS, INC. - 2014 Form 10...

  • Page 151
    ... on plan assets Employer contributions Settlement payments(a) Benefits paid Administrative expenses Fair value of plan assets at end of year Funded status at end of year (a) For discussion of the settlement payments and settlement losses, see Components of net periodic benefit cost below. (b) 2013...

  • Page 152
    ... measurement dates: 2014 Discount rate Rate of compensation increase Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years: 2014 Discount rate Long-term rate of return on plan assets Rate of compensation increase 5.40% 6.90% 3.75% 2013 4.40% 7.25% 3.75% 2012...

  • Page 153
    ... market prices or net asset values. A mutual fund held as an investment by the Plan includes shares of YUM common stock valued at $0.5 million at December 27, 2014 and $0.2 million at December 28, 2013 (less than 1% of total plan assets in each instance). 13MAR2015160 Form 10-K Benefit Payments...

  • Page 154
    .... At year end 2014, approximately 14 million shares were available for future share-based compensation grants under the above plans. 13MAR201517272138 Award Valuation We estimated the fair value of each stock option and SAR award as of the date of grant using the Black-Scholes option-pricing model...

  • Page 155
    ... prior to 2013 are based on the closing price of our stock on the date of grant. Beginning in 2013, the Company grants PSU awards with market-based conditions which we value using a Monte Carlo simulation. Award Activity Stock Options and SARs WeightedAverage Remaining Contractual Term Aggregate...

  • Page 156
    ... pension and post-retirement benefit plan losses during 2013 include amortization of net losses of $51 million, settlement charges of $30 million, amortization of prior service cost of $2 million and the related income tax benefit of $30 million. See Note 13. 62 YUM! BRANDS, INC. - 2014 Form 10-K

  • Page 157
    ... 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. In 2012, this benefit was negatively impacted by the repatriation of current year...

  • Page 158
    ...: 2014 Operating losses and tax credit carryforwards Employee benefits Share-based compensation Self-insured casualty claims Lease-related liabilities Various liabilities Property, plant and equipment Deferred income and other Gross deferred tax assets Deferred tax asset valuation allowances Net...

  • Page 159
    ... Hut Division(a) Taco Bell Division(a) India $ 6,934 3,193 1,148 1,863 141 13,279 Form 10-K $ $ $ 13MAR2015160 Operating Profit; Interest Expense, Net; and Income Before Income Taxes 2014 2013 2012 China(b) KFC Division Pizza Hut Division Taco Bell Division India Unallocated restaurant costs...

  • Page 160
    ...8 Financial Statements and Supplementary Data Depreciation and Amortization 2014 2013 2012 China KFC Division Pizza Hut Division Taco Bell Division India Corporate $ 411 187 39 83 10 9 739 $ 394 190 36 84 9 8 721 $ 337 161 55 98 6 8 665 $ $ $ 2014 China KFC Division Pizza Hut Division Taco Bell...

  • Page 161
    ...of California against the Company and certain executive officers alleging claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs alleged that defendants made false and misleading statements concerning the Company's current and future business and financial condition...

  • Page 162
    ... 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 163
    ... 0.89 0.87 0.37 13MAR2015160 Form 10-K First Quarter Revenues: Company sales Franchise and license fees and income Total revenues Restaurant profit Operating Profit(b) Net Income - YUM! Brands, Inc.(c) Basic earnings per common share Diluted earnings per common share Dividends declared per common...

  • Page 164
    ... Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 27, 2014. KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and...

  • Page 165
    ... the Securities and Exchange Commission no later than 120 days after December 27, 2014. Information regarding executive officers of the Company is included in Part I. ITEM 11 Executive Compensation Information regarding executive and director compensation and the Compensation Committee appearing...

  • Page 166
    ... in the Consolidated Financial Statements thereto filed as a part of this Form 10-K. Exhibits: The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-K. The Index to Exhibits specifically identifies each management contract or compensatory plan required to be filed...

  • Page 167
    ... 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 of the Board Director Date February 17, 2015...

  • Page 168
    ... Foodservice Purchasing Co-op, LLC, McLane Foodservice, Inc., and certain subsidiaries of Yum! Brands, Inc., which are incorporated herein by reference from Exhibit 10.1 to YUM's Quarterly Report on Form 10-Q for the quarter ended September 4, 2010. Credit Agreement, dated March 22, 2012 among YUM...

  • Page 169
    ....27 to YUM's Annual Report on Form 10-K for the fiscal year ended December 25, 2010. 1999 Long Term Incentive Plan Award (Stock Appreciation Rights) by and between the Company and David C. Novak, dated as of February 6, 2015, as filed herewith. YUM! Brands, Inc. Compensation Recovery Policy, Amended...

  • Page 170
    PART IV ITEM 15 Exhibits and Financial Statement Schedules Exhibit Number 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.LAB 101.PRE 101.DEF + †Description of Exhibits Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to ...

  • Page 171
    ... functions online at the website of American Stock Transfer & Trust Company, LLC (''AST''): www.amstock.com. • Access account balance and other general account information • Change an account's mailing address • View a detailed list of holdings represented by certificates and the identifying...

  • Page 172
    ... Vice President, Investor Relations & Corporate Strategy Yum! Brands, Inc. 1441 Gardiner Lane Louisville, KY 40213 Phone: (888) 298-6986 INDEPENDENT AUDITORS KPMG LLP 400 West Market Street, Suite 2600 Louisville, KY 40202 Phone: (502) 587-0535 STOCK TRADING SYMBOL-YUM The New York Stock Exchange is...

  • Page 173

  • Page 174
    ... and Chief Franchise Policy Officer, Yum! Brands, Inc. Niren Chaudhary 52 President, Yum! Restaurants India Roger Eaton 54 President, KFC and Chief Operations Officer, Yum! Brands, Inc. Larry Gathof 53 Vice President and Treasurer, Yum! Brands, Inc. David Gibbs 51 Chief Executive Officer, Pizza Hut...

  • Page 175
    ..., except for per share amounts) Year-end 2014 2013 % 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 Common Share (a) (a) $ 11,324 1,955...

  • Page 176
    ALONE WE'RE DELICIOUS. TOGETHER WE'RE YUM! Yum! Brands, Inc., trades under the symbol YUM and is proud to meet the listing requirements of the NYSE, the world's leading equities market.