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PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
2013 vs. 2012
Store
Portfolio
Income / (Expense) 2012 Actions Other FX 2013
Company sales $ 993 $ (381) $ (6) $ 3 $ 609
Cost of sales (259) 88 (1) (1) (173)
Cost of labor (305) 119 4 (1) (183)
Occupancy and other (319) 145 (8) — (182)
Restaurant profit $ 110 $ (29) $ (11) $ 1 $ 71
11.2% 11.7%
In 2014, the increase in Company sales associated with store portfolio actions was driven by the impact of net new unit growth, the acquisition of
restaurants in the U.S. and the acquisition of restaurants in Turkey from an existing franchisee in April 2013, partially offset by refranchising.
Significant other factors impacting Company sales and/or Restaurant profit were company same-store sales declines of 4%, commodity inflation,
primarily in the U.S., and higher self-insurance costs.
In 2013, the decrease in 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, partially offset by the acquisition of restaurants in
Turkey from an existing franchisee in April 2013 and net new unit growth. Significant other factors impacting Company sales and/or Restaurant
profit were higher restaurant operating costs, including commodity inflation primarily in the U.S., and company same-store sales declines of 1%.
Franchise and License Fees and Income
In 2014, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by net new unit
growth, partially offset by same-store sales declines.
In 2013, the increase in Franchise and license fees and income, excluding the impact of foreign currency translation, was driven by the
refranchising of our remaining Company-owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012 and net new unit growth.
G&A Expenses
In 2014, the increase in G&A expenses, excluding the impact of foreign currency translation, was driven by strategic investments in international
G&A, higher litigation costs and lapping a pension curtailment gain in the first quarter of 2013 related to one of our UK pension plans, partially
offset by lower pension costs in the U.S.
In 2013, the decrease in G&A expenses, excluding the impact of foreign currency translation, was driven by the refranchising of our remaining
Company-owned 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, the decrease in Operating Profit, excluding the impact of foreign currency translation, was driven by higher G&A, same-store sales
declines and higher restaurant operating costs, partially offset by net new unit growth.
In 2013, the increase in Operating Profit, excluding the impact of foreign currency translation, was driven by refranchising our remaining company-
owned Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012, including lapping restaurant impairment charges, net new unit growth
and lower G&A, partially offset by higher franchise and license expenses, the acquisition of restaurants in Turkey from an existing franchisee in
April 2013 and higher restaurant operating costs.
Taco Bell Division
The Taco Bell Division has 6,199 units, the vast majority of which are in the U.S. The Company owns 16% of the Taco Bell units in the U.S., where
the brand has historically achieved high restaurant margins and returns. Our ongoing earnings growth model includes 100 - 200 net new units per
year and low single-digit same-store sales growth. This combined with restaurant margin improvement and leverage of our G&A structure is
expected to drive annual Operating Profit growth of 6%.
YUM! BRANDS, INC. - 2014 Form 10-K 25
13MAR201516053226
Form 10-K