Taco Bell 2013 Annual Report Download

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ON THE GROUND FLOOR OF GLOBAL GROWTH
Yum! Brands 2013 Customer Mania Report
4,800,000,000 transactions
1,900,000,000 dollars in franchise fees
1,500,000 associates
40,000 restaurants
1,952 new international restaurants
128 countries
3 powerful brands
THE POWER OF

Table of contents

  • Page 1
    THE POWER OF 4,800,000,000 transactions 1,900,000,000 dollars in franchise fees 1,500,000 associates 40,000 restaurants 1,952 new international restaurants 128 countries 3 powerful brands ON THE GROUND FLOOR OF GLOBAL GROWTH Yum! Brands 2013 Customer Mania Report

  • Page 2
    Financial Highlights (In millions, except for per share amounts) Year-end 2013 2012 % 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 ...

  • Page 3
    ...define and drive the strategic positioning and operating models for KFC, Pizza Hut and Taco Bell, and will work closely with our China and India teams to ensure tight integration on brand initiatives. We believe having 100% focused brand teams will enable us to more aggressively accelerate growth in...

  • Page 4
    2 # KFC 1 FOREIGN BRAND * IN CHINA

  • Page 5
    ... of our restaurant team members are university students. With world-class operations as our foundation, we opened 428 new KFCs this past year and now have almost 4,600 KFCs in over 900 cities in China...that's more than twice the size of our nearest competitor. KFC also has the largest home delivery...

  • Page 6
    ... in our products, menu management, marketing calendar, advertising and the digital customer experience. Overall at KFC China, we know we still have work to do but we're confident we are making progress rebuilding trust with consumers and improving same-store sales. PIZZA HUT CASUAL DINING CHINA For...

  • Page 7
    6:1 LEAD } OVER NEAREST CASUAL DINING COMPETITOR 5

  • Page 8
    ...and are working hard to improve the concept, we remain optimistic this brand will become a significant growth driver down the road. 2014 with plans to open at least 700 new units as we continue to deploy capital into these highreturn investments. NEW RESTAURANTS IN CHINA IN 2013 740 NEW UNITS IN...

  • Page 9
    ... to invest ahead of the growth curve to best position KFC, Pizza Hut and Taco Bell to expand even more rapidly as the country develops. This year we opened 157 new units, including Yum!'s 40,000th restaurant in Goa, and expect to open an additional 150 new units in 2014. And while our 2013 results...

  • Page 10
    Mongolia Ukraine Indonesia Vietnam Russia Malaysia LONG RUNWAY FOR 8 Brazil GROWTH

  • Page 11
    ... business delivered another solid year of profit growth led by high-growth emerging markets in regions like Russia, Southeast Asia, Africa and Latin America. 1,055 NEW RESTAURANTS IN 2013 Yum! is the clear restaurant leader in emerging markets, and we continued to build upon this position in 2013...

  • Page 12
    10 LIVE MÁS

  • Page 13
    ... U.S. profits. Taco Bell delivered another solid year in 2013 with the fourth-quarter representing the eighth consecutive quarter of same-store sales growth. I'm extremely proud of Taco Bell CEO Greg Creed and his team for being named Advertising Age's Marketer of the Year in recognition of our Live...

  • Page 14
    ... 40,000 restaurants have significant capacity to drive even higher same-store sales growth and profitability around the world. We're growing our brands with a powerful combination of innovative new sales layers, expanded day parts, menu variety, strong value offers and by opening new channels with...

  • Page 15
    ... food and world-class operations Drive aggressive unit expansion everywhere, especially in emerging markets - and by building leading brands in every significant category in China and India Create industry leading returns through franchising and disciplined use of capital - maximizing long-term...

  • Page 16
    ... has never been better than it is today. That's why there's no doubt in my mind that 2014 will be a strong bounce-back year as we continue to build the defining global company that feeds the world. Yum! to You! David C. Novak Chairman & Chief Executive Officer Yum! Brands, Inc. COMPANY WITH A 14...

  • Page 17
    ... Make Customer Mania come alive for every customer in every restaurant Build dynasties in every country Always connect with customers, always reach, always lead a company whtx a xuge xeart Open doors and grow each other Truly care about the world...and save lives with the World Food Programme...

  • Page 18
    ... Winning 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...

  • Page 19
    ...Chairman of the Board and Chief Executive Officer Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 1, 2014-this notice and the proxy statement are available at www.yum.com/investors/investor_materials.asp. The Annual Report on Form 10-K is...

  • Page 20

  • Page 21
    ... the close of business on March 3, 2014. ANNUAL REPORT: A copy of our 2013 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/investors...

  • Page 22
    ...Year-End 48 Option Exercises and Stock Vested 50 Pension Benefits 51 Nonqualified Deferred Compensation 53 Potential Payments Upon Termination or Change in Control 56 DIRECTOR COMPENSATION EQUITY COMPENSATION PLAN INFORMATION AUDIT COMMITTEE REPORT ADDITIONAL INFORMATION APPENDIX A YUM! BRANDS...

  • Page 23
    ... 1, 2014, in the YUM! Conference Center, at 1900 Colonel Sanders Lane, Louisville, Kentucky� This proxy statement contains information about the matters to be voted on at the Annual Meeting and the voting process, as well as information about our directors and most highly paid executive officers...

  • Page 24
    ...stock as of the close of business on the record date, March 3, 2014. Each share of YUM common stock is entitled to one vote. As of March 3, 2014, YUM had 441,940,908 shares of common stock outstanding. What am I voting on? You will be voting on the following four (4) items of business at the Annual...

  • Page 25
    ... by 11:59 p.m., Eastern Daylight Saving Time, on April 30, 2014. Proxy Statement Can I vote at the Annual Meeting? Shares registered directly in your name as the shareholder of record may be voted in person at the Annual Meeting. Shares held in street name may be voted in person only if you obtain...

  • Page 26
    ... under the YUM! Brands, Inc. Executive Incentive Compensation Plan for 162(m) purposes (Item 4). Proxy Statement What does it mean if I receive more than one proxy card? It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend...

  • Page 27
    ...? 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 of...

  • Page 28
    ... standing for re-election at the Annual Meeting. As discussed in more detail later in this section, the Board has determined that 8 of the 11 current directors standing for re-election are independent under the rules of the New York Stock Exchange ("NYSE"). 6 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 29
    ... they are affiliated and 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...

  • Page 30
    ...at www.yum.com/investors/ governance/conduct.asp. The Company intends to post amendments to or waivers from its Code (to the extent applicable to the Board of Directors or executive officers) on this website. Proxy Statement What other significant Board practices does the Company have? • Private...

  • Page 31
    ... functional risk review reports covering significant areas of risk from senior managers responsible for these functional areas, as well as receiving reports from the Company's Chief Auditor. Our Chief Auditor reports directly to the Chair of the Audit Committee and our Chief Financial Officer. The...

  • Page 32
    ... 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 2014, the Management Planning and Development Committee of the Board of Directors...

  • Page 33
    ... of management and/or the Board of Directors with respect to all concerns it receives. The full text of our Policy on Reporting of Concerns Regarding Accounting and Other Matters is available on our website at www.yum.com/investors/governance/complaint.asp. YUM! BRANDS, INC. - 2014 Proxy Statement...

  • Page 34
    ... of corporate goals set by the Committee • Reviews and approves the compensation of the chief executive officer and other senior executive officers • Reviews management succession planning 4 The Board has determined that all of the members of the Management Planning and Development Committee...

  • Page 35
    ... related person is not an executive officer of the other company. Proxy Statement Does the Company require stock ownership by directors? Yes, the Company requires stock ownership by directors. The Board of Directors expects non-management directors to hold a meaningful number of shares of Company...

  • Page 36
    ... among any of the directors and executive officers of the Company. See "What are the Company's policies and procedures with respect to related person transactions?" at page 13. Director ages are as of the date of this proxy statement. Proxy Statement 14 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 37
    ... • Expertise in branding, marketing, sales and international business development • Public company directorship and committee experience • Independent of Company Proxy Statement David W. Dorman Age 60 Director since 2005 Non-Executive Chairman, CVS Caremark Corporation and Founding Partner...

  • Page 38
    ...Hotels Group. Specific qualifications, experience, skills and expertise: • 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 company...

  • Page 39
    ...Operating and management experience, including as president of the Company's China Division • Expertise in marketing and brand development • Expertise in strategic planning and international business development David C. Novak Age 61 Director since 1997 Chairman and Chief Executive Officer, YUM...

  • Page 40
    ...the election of directors can be found in our Corporate Governance Principles at www.yum.com/ investors/governance/principles.asp and at page 9 under "What other significant Board practices does the Company have?-Majority Voting Policy." Proxy Statement 18 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 41
    ...'s quarterly reports, audits of the effectiveness of the Company's internal controls over financial reporting, statutory audits and services rendered in connection with the Company's securities offerings. (2) Audit-related fees include audits of financial statements of certain employee benefit plans...

  • Page 42
    ... actual services provided and associated fees, and must promptly report any non-compliance with the pre-approval policy to the Chair of the Audit Committee. The complete policy is available on the Company's website at www.yum.com/investors/governance/media/gov_auditpolicy.pdf. Proxy Statement ITEM...

  • Page 43
    ... Peer Group to better align the size of the peer group companies with YUM. • Re-designed 2013-2015 Performance Share Plan Re-designed 2013-2015 Performance Share Plan to measure relative total shareholder return vs. the S&P 500. • Increased Use of Performance Share Units in CEO's Long Term...

  • Page 44
    ... measures: cash flow, earnings per share, return on operating assets, return on equity, operating profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction...

  • Page 45
    ITEM 4 RE-APPROVAL OF YUM! BRANDS, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN PERFORMANCE MEASURES business, subsidiary, or other unit or may be based on the Company or franchise system generally� These measures may be particular to a line of business, a subsidiary of the Company, or other units...

  • Page 46
    ... vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. What is the recommendation of the Board of Directors? The Board of Directors recommends that you vote FOR approval of this proposal. 24 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 47
    ... persons and their family members have sole voting and investment power with respect to the shares of common stock beneficially owned by him or her. None of the persons in this table holds in excess of one percent of the outstanding YUM common stock. Directors and executive officers as a group...

  • Page 48
    ... deferred compensation accounts for each of the named persons under our Director Deferred Compensation Plan or our Executive Income Deferral Program. Amounts payable under these plans will be paid in shares of YUM common stock at termination of directorship/employment or within 60 days if so elected...

  • Page 49
    ...are more fully described in the Company's Annual Report on Form 10-K for the year ended December 28, 2013 in Part 1, Item 3, Legal Proceedings and Note 19, Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, and in previous SEC filings. Pursuant to North Carolina law...

  • Page 50
    ...with an increase of 16% in total shareholder return. We maintain a long-term view of our business, making decisions that put us in a position of strength. And in 2013, YUM delivered some major accomplishments through our global portfolio of leading brands including: • Opening 1,952 new restaurants...

  • Page 51
    ...Annual Bonus Long-Term Equity Incentive Based on the Company's 2013 performance, compensation fell considerably versus the prior year, specifically: • Cash compensation (base salary and annual bonus) decreased by 60% for the Chief Executive Officer ("CEO") and 33% for the other NEOs. • Direct...

  • Page 52
    ... better align the size of the peer group companies with YUM. • Eliminated use of similar metrics in short-term incentive ("STI") and long-term incentive ("LTI") programs by redesigning our 2013-2015 performance share plan to measure relative total shareholder return vs. the S&P 500. • Increased...

  • Page 53
    ...485% YUM'S LONG-TERM GROWTH UNDER MR. NOVAK'S LEADERSHIP Market Capitalization Growth Build powerful brands • KFC is #1 brand in China; • Pizza Hut China Casual Dining is #1 western casual dining chain with a 6:1 advantage; • Taco Bell named marketer of the year in the U.S. Drive aggressive...

  • Page 54
    ...Proxy Statement EPS EPS in $ 4 3 10 000 000 2 5 000 000 1 0 0 2009 Base Salary 2010 2011 2012 2013 Annual Bonus Long-Term Equity Incentive EPS (1) Represents our CEO's base salary, annual bonus, and long-term equity incentive for each year 32 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 55
    ... compensation for the current year which includes base salary, annual bonus opportunities and long-term incentive awards. The Committee's total compensation decisions impacting our CEO are also reviewed and ratified by the independent members of the Board. In making these compensation decisions...

  • Page 56
    ..., managing product introductions, marketing, driving new unit development, and driving customer satisfaction and overall operations improvements across the entire franchise system. Accordingly, in calibrating size-adjusted market values, our philosophy is to add 25% ($7.7 billion in 2011) of...

  • Page 57
    ...Elements of Executive Compensation Program Our annual executive compensation program has three primary pay components: Base salary, annual performance-based cash bonuses and long-term equity performance-based incentives. We also offer retirement and additional benefits. Element Base salary Objective...

  • Page 58
    ...reviewed by the Board to ensure the goals support the Company's overall strategic objectives. The performance targets were developed through the Company's annual financial planning process, which takes into account division growth strategies, historical performance, and the expected future operating...

  • Page 59
    ... Average Divisions' Team Factors(1) Earnings Per Share Growth 10% (excluding special items) FINAL YUM TEAM FACTOR 45 12% (26)% 0 50% 0 Su Operating Profit Growth(2) System Sales Growth 15% (4)% 0 20% 0 System Gross New Builds 650 740 200 20% 40 System Customer Satisfaction 100 172 172 10% 17 Total...

  • Page 60
    ... 2013 was significantly above target and approved a 145 individual performance factor. This determination was based upon his overall leadership of Taco Bell: exceeding operating profit, restaurant development and restaurant margin plans, driving product innovation and promoting brand differentiation...

  • Page 61
    ...emphasize the Company's focus on long-term growth and they reward employees only if YUM's stock price increases. For each NEO, the breakdown between SARs/stock option award and PSU award values can be found under the Summary Compensation Table, page 44 at columns d and e. Performance Share Plan The...

  • Page 62
    ... Table at footnote 5, beginning in 2013, Mr. Novak started receiving an allocation to his LRP account equal to 9.5% of his base salary and target bonus and will receive an annual earnings Proxy Statement credit on his account balance equal to 120% of the applicable federal rate. For 2013...

  • Page 63
    ...on YUM closing stock price of $75.61 as of December 31, 2013. (3) Mr. Grismer's ownership guidelines will increase by 10,000 shares each of the next two years until 50,000 shares are reached. Payments Upon Termination of Employment The Company does not have agreements with its executives concerning...

  • Page 64
    ... Board of Directors more than six months prior to the actual meeting. The Committee sets the annual grant date as the second business day after our fourth quarter earnings release. The exercise price of awards granted under our LTIP is set as the closing price on the date of grants. We make grants...

  • Page 65
    ... growth (adjusted to exclude special items believed to be distortive of consolidated results on a year-over-year basis-these are the same items excluded in the Company's annual earnings releases). Based on the Company's EPS decline of 9%, the maximum 2013 award opportunity for each executive officer...

  • Page 66
    ... of Taco Bell(8) Muktesh Pant Chief Executive Officer of Yum! Restaurants International(9) Salary Bonus ($) Year ($)(1) (b) (c) 2013 1,450,000 - 2012 1,450,000 - 2011 1,474,038 - 2013 2012 638,462 500,308 Stock Awards ($)(2) (d) 1,568,655 773,022 773,024 Non-Equity Option/ SAR Incentive Plan...

  • Page 67
    ..., reflects the aggregate increase in actuarial present value of his accrued benefit under the YUM! Brands Retirement Plan ("Retirement Plan") during the 2013 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). As discussed in...

  • Page 68
    ... these benefits and the perquisites and other personal benefits shown in column (b) for each NEO. These other benefits include: home security expense, home leave expenses, club dues, personal use of Company aircraft and tax preparation assistance. Proxy Statement 46 YUM! BRANDS, INC. - 2014 Proxy...

  • Page 69
    ... of SARs/stock options, see the discussion of stock awards and option awards contained in Part II, Item 8, "Financial Statements and Supplementary Data" of the 2013 Annual Report in Notes to Consolidated Financial Statements at Note 15, "Share-based and Deferred Compensation Plans." There can...

  • Page 70
    ...2010 2/5/2010 2/4/2011 2/8/2012 2/6/2013 2/6/2013 1/28/2005 1/26/2006 1/19/2007 1/24/2008 1/24/2008 2/5/2009 2/5/2010 2/4/2011 2/8/2012 2/6/2013 Grismer Su Market Number Number of Value of Number of of Shares Securities Securities or Units Shares or Option/ Underlying Units of Underlying of Stock...

  • Page 71
    ... deferrals of his 2011 and 2012 bonuses into the EID Program's Matching Stock Fund. (3) The market value of these awards are calculated by multiplying the number of shares covered by the award by $75.61, the closing price of YUM stock on the NYSE on December 31, 2013. (4) The awards reflected...

  • Page 72
    ... Option Exercises and Stock Vested The table below shows the number of shares of YUM common stock acquired during 2013 upon exercise of stock option and SAR awards and vesting of stock awards in the form of RSUs and PSUs, each including accumulated dividends and before payment of applicable...

  • Page 73
    ...! Brands International Retirement Plan ("YIRP") determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements. Number of Years of Present Value of Payments During Credited Service Accumulated Benefit(4) Last Fiscal Year ($) Name Plan...

  • Page 74
    ... Company. multiplied by Projected Service up to 30 years Retirement distributions are always paid in the form of a lump sum. In the case of a participant whose benefits are 52 YUM! BRANDS, INC. - 2014 Proxy Statement Benefits are payable under the same terms and conditions as the Retirement Plan...

  • Page 75
    ... same day we make our annual stock appreciation right grants. Amounts attributable to the matching contribution under the YUM! Matching Stock Fund are reflected in column (c) below as contributions by the Company (and represent amounts actually credited to the NEO's account during 2013)� Beginning...

  • Page 76
    ... 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. Mr. Grismer 54 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 77
    ... of the year-end balance for each executive which has previously been reported as compensation to the executive in the Company's Summary Compensation Table for 2013 and prior years or would have been reported as compensation if the executive had been a Named Executive Officer in those previous...

  • Page 78
    ... on the Company's closing stock price on that date. These benefits are in addition to benefits available generally to salaried employees, such as distributions under the Company's 401(k) Plan, retiree medical benefits, disability benefits and accrued vacation pay. Due to the number of factors that...

  • Page 79
    EXECUTIVE COMPENSATION assuming termination of employment as of December 31, 2013. The table on page 52 provides the present value of the lump sum benefit payable to each NEO when they attain eligibility for Early Retirement (i.e., age 55 with 10 years of service) under the plans. Life Insurance ...

  • Page 80
    ... - Acceleration of PSU Performance/Vesting 624,743 TOTAL 16,963,542 Grismer $ 2,800,068 1,946,760 - 4,746,828 Su $ 5,096,405 $ 13,858,633 311,173 19,266,211 Creed $ 4,135,198 $ - 193,995 4,329,193 Pant $ 5,600,176 - 202,067 5,802,243 $ Proxy Statement 58 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 81
    ... "Financial Statements and Supplementary Data" of the 2013 Annual Report in Notes to Consolidated Financial Statements at Note 15, "Share-based and Deferred Compensation Plans." (3) At December 31, 2013, the aggregate number of options and SARs awards outstanding for each non-management director was...

  • Page 82
    ...31, 2013, the equity compensation plans under which we may issue shares of stock to our directors, officers and employees under the 1999 Long Term Incentive Plan ("1999 Plan"), the 1997 Long Term Incentive Plan (the "1997 Plan"), SharePower Plan and Restaurant General Manager Stock Option Plan ("RGM...

  • Page 83
    ... by the 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...

  • Page 84
    ... 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 the preparation of consolidated financial statements in accordance with accounting principles...

  • Page 85
    ... the Company's financial statements and effectiveness of internal control over financial reporting. What matters have members of the Audit Committee discussed with management and the independent auditors? As part of its oversight of the Company's financial statements, the Committee reviews and...

  • Page 86
    ... website at www.amstock.com and following the applicable instructions. Also, while this consent is in effect, if you decide you would like to receive a hard copy of the proxy materials, you may call, write or e-mail American Stock Transfer and Trust Company, LLC. Proxy Statement I share an address...

  • Page 87
    ... our proxy 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 set forth...

  • Page 88

  • Page 89
    ... measures: cash flow, earnings per share, return on operating assets, return on equity, operating profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction...

  • Page 90
    ... legal representative or to such other person or persons as shall be determined by the Committee. The Company shall have the right to deduct from all amounts payable under the Plan any taxes required by law to be withheld with respect thereto; provided, A-2 YUM! BRANDS, INC. - 2014 Proxy Statement

  • Page 91
    ... compensation arrangements as it deems desirable for Participants under this Plan, including, without limitation, any thrift, savings, investment, stock purchase, stock option, profit sharing, pension, retirement, insurance or other incentive plan. YUM! BRANDS, INC. - 2014 Proxy Statement A-3

  • Page 92
    ...all persons. (d) In controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the articles and by-laws of the Company, and applicable state corporate law. Section 6 Amendment and Termination The Board may, at any time, amend...

  • Page 93
    ... Employee" means Executive Officers or other members of senior management of the Company. (h) "Grant Date" with respect to any Award for any Participant means the date on which the Award is granted to the Participant in accordance with subsection 2.1. YUM! BRANDS, INC. - 2014 Proxy Statement...

  • Page 94

  • Page 95
    ...company (as defined in Rule 12b-2 of the Exchange Act). The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of June 15, 2013 computed by reference to the closing price of the registrant's Common Stock on the New...

  • Page 96

  • Page 97
    ... Market Risk ...35 Financial Statements and Supplementary Data ...36 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ...72 Controls and Procedures ...72 Other Information ...72 PART III ITEM 10 ITEM 11 ITEM 12 ITEM 13 ITEM 14 73 Directors, Executive Officers...

  • Page 98
    ...-looking statements, which speak only as of the date hereof. In making these statements, we are not undertaking to address or update any of our forward-looking statements set forth herein in future filings or communications regarding our business results. Form 10-K 2 YUM! BRANDS, INC. - 2013 Form...

  • Page 99
    ... in the related Consolidated Financial Statements in Part II, Item 8, pages 36 through 71. In the first quarter of 2014, we will combine our YRI and U.S. businesses and begin reporting segment information for three global divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate...

  • Page 100
    ...India units are Company-owned. • Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items. Taco Bell units feature a distinctive bell logo on their signage. Restaurant Operations Through its Concepts, YUM...

  • Page 101
    ... 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...

  • Page 102
    ... the related Consolidated Financial Statements in Part II, Item 8, pages 36 through 71. Available Information The Company makes available through the Investor Relations section of its internet website at http://yum.com its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports...

  • Page 103
    ... changes on our results of operations, financial condition or cash flows. We may not attain our target development goals, and aggressive development could cannibalize existing sales. Our growth strategy depends in large part on our ability to increase our net restaurant count in markets outside the...

  • Page 104
    ... affect our profit margins. out-of-date information. The inappropriate use of social media by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation. Our operating results are closely tied to the success of our...

  • Page 105
    ... food industry in which we operate is highly competitive. The retail food industry in which we operate is highly competitive with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location...

  • Page 106
    ...at replacement sites without a significant impact on our operations, cash flows or capital resources� Company-owned restaurants in the U�S� with leases are generally leased for initial terms of 15 or 20 years and generally have renewal options; however, Pizza Hut delivery/carryout units in the...

  • Page 107
    ... Executive Officer of KFC. He has served in this position since January 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...

  • Page 108
    ...'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 by quarter for the Company's Common Stock and dividends per common share. $ 2012 Quarter First Second Third Fourth Form 10...

  • Page 109
    ...Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities Issuer Purchases of Equity Securities The following table provides information as of December 28, 2013 with respect to shares of Common Stock repurchased by the Company during the quarter then ended: Total number of shares...

  • Page 110
    PART II ITEM 6 Selected Financial Data SELECTED FINANCIAL DATA YUM! BRANDS, INC. AND SUBSIDIARIES 2013 2012 Fiscal Year 2011 2010 2009 (in millions, except per share and unit amounts) Summary of Operations Revenues Company sales Franchise and license fees and income Total Closures and ...

  • Page 111
    ... Hut or Taco Bell brands, which are the global leaders in the chicken, pizza and Mexican-style food categories, respectively. Of the over 40,000 restaurants, 20% are operated by the Company, 75% are operated by franchisees and unconsolidated affiliates and 5% are operated by licensees. YUM! BRANDS...

  • Page 112
    ... digit same-store sales growth and moderate margin improvement, which we expect to drive Operating Profit growth of 15%. Drive Aggressive International Expansion and Build Strong Brands Everywhere - Outside the U.S. and China the Company and its franchisees opened over 1,200 new restaurants in 2013...

  • Page 113
    ... income TOTAL REVENUES COMPANY RESTAURANT PROFIT % OF COMPANY SALES OPERATING PROFIT Interest expense, net Income tax provision Net Income - including noncontrolling interests Net Income (loss) - noncontrolling interests NET INCOME - YUM! BRANDS, INC. DILUTED EPS(a) DILUTED EPS BEFORE SPECIAL ITEMS...

  • Page 114
    ... within Special Items. Form 10-K U.S. Refranchising gain (loss) In the years ended December 28, 2013 and December 29, 2012, we recorded pre-tax refranchising gains of $91 million and $122 million, respectively, in the U.S. primarily due to gains on sales of Taco Bell restaurants. In the year ended...

  • Page 115
    ... - YUM! Brands, Inc. For the year ended December 28, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 18% and increased Franchise and license fees and income and Operating Profit by 2% and 3%, respectively, for the YRI Division versus 2012. Losses and...

  • Page 116
    ... refranchised 331 remaining Company-owned dine-in restaurants in the Pizza Hut UK business. The following table summarizes our worldwide refranchising activities, including amounts characterized as Special Items: 2013 286 260 2012 897 364 $ (78) $ 2011 529 246 72 Form 10-K refranchising activities...

  • Page 117
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations The following table summarizes the impact of refranchising on Total revenues as described above: 2013 Decreased Company sales Increased Franchise and license fees and income DECREASE IN TOTAL ...

  • Page 118
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Restaurant Unit Activity Worldwide Balance at end of 2011 New Builds Acquisitions(b) Refranchising Closures Other Balance at end of 2012 New Builds Acquisitions Refranchising Closures Other BALANCE...

  • Page 119
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations U.S. Balance at end of 2011 New Builds Refranchising Closures Other Balance at end of 2012 New Builds Acquisitions Refranchising Closures Other BALANCE AT END OF 2013 % of Total Franchisees 13,867...

  • Page 120
    ... sales for the year ended December 29, 2012. Company-Operated Store Results The following tables detail the key drivers of the year-over-year changes of Company sales and Restaurant profit for each reportable segment by year. Store portfolio actions represent the net impact of new unit openings...

  • Page 121
    ... Pizza Hut dine-in restaurants in the UK in the fourth quarter of 2012. Net new unit development and the acquisition of 106 stores in Turkey from a franchisee partially offset the decline in Company sales related to refranchising. Significant other factors impacting Company sales and/or Restaurant...

  • Page 122
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Income/(Expense) Company sales Cost of sales Cost of labor Occupancy and other RESTAURANT PROFIT Restaurant margin $ $ 2011 3,000 (917) (912) (809) 362 12.1% 2012 vs. 2011 Store Portfolio 53rd ...

  • Page 123
    ...-owned Pizza Hut UK dine-in restaurants in the fourth quarter of 2012, lapping certain prior year headquarter restructuring costs and a pension curtailment gain in the first quarter of 2013 related to one of our UK pension plans, partially offset by higher headcount in strategic growth markets. YRI...

  • Page 124
    ... and the Pizza Hut UK refranchising, the increase was driven by the impact of same-store sales growth and net new unit development, partially offset by higher restaurant operating costs and higher franchise and license expenses. YRI Division Operating Profit increased 10% in 2012, excluding the...

  • Page 125
    ... million in 2011. The increase was primarily driven by higher Operating Profit before Special Items, partially offset by timing of cash payments for operating expenses and higher income taxes paid. Net cash used in investing activities was $886 million in 2013 compared to $1,005 million in 2012. The...

  • Page 126
    ... pension plans recognized in 2013. See Note 14. Liquidity and Capital Resources Operating in the QSR industry allows us to generate substantial cash flows from the operations of our Company-owned stores and from our extensive franchise operations which require a limited YUM investment� Net cash...

  • Page 127
    ... current funding status of the Plan and our UK pension plans, we currently estimate that we will not be required to make any contributions in 2014. Investment performance and corporate bond rates have a significant effect on our net funding position as they drive our asset balances and discount rate...

  • Page 128
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations New Accounting Pronouncements Not Yet Adopted In March 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-05, Foreign Currency Matters, (...

  • Page 129
    ... equipment and intangible assets. three years. At such pre-acquisition sales and profit levels, we believe that the Little Sheep restaurant-level unit economics will support the new unit development we assumed in the fair value estimation of the reporting unit. Long-term average growth assumptions...

  • Page 130
    ...expected term and pre-vesting forfeitures. These groups consist of grants made primarily to restaurant-level employees under our Restaurant General Manager Stock Option Plan (the "RGM Plan") and grants made to executives under our other stock award plans. Historically, less than 10% of total options...

  • Page 131
    ... taxes. ITEM 7A Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to financial market risks associated with interest rates, foreign currency exchange rates and commodity prices. In the normal course of business and in accordance with our policies, we manage these...

  • Page 132
    ... which we operate. We manage our exposure to this risk primarily through pricing agreements with our vendors. ITEM 8 Financial Statements and Supplementary Data Index to Financial Information Page Reference Consolidated Financial Statements Report of Independent Registered Public Accounting Firm...

  • Page 133
    ... II ITEM 8 Financial Statements and Supplementary 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 28, 2013...

  • Page 134
    ... per share data) 2013 $ 11,184 1,900 13,084 $ 2012 11,833 1,800 13,633 $ 2011 10,893 1,733 12,626 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 and other operating...

  • Page 135
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Comprehensive Income YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 (in millions) Net income - including noncontrolling interests Other ...

  • Page 136
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Cash Flows YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 (in millions) 2013 $ 1,064 $ 721 331 (100) (23) 30 120 - (24) (26) 43 (44) 49 (12) 18 (...

  • Page 137
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Balance Sheets YUM! BRANDS, INC. AND SUBSIDIARIES DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions) 2013 2012 ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Inventories Prepaid ...

  • Page 138
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Shareholders' Equity YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 28, 2013, DECEMBER 29, 2012 AND DECEMBER 31, 2011 Yum! Brands, Inc. Issued Common Accumulated Other Stock Retained Comprehensive...

  • Page 139
    ... businesses through the sale date are included in the Company's results for 2011. In the first quarter of 2014, we will combine our YRI and U.S. businesses and begin reporting segment information for three global divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate reporting...

  • Page 140
    ... to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to our approval and their payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration. The internal costs we incur to provide support services to our...

  • Page 141
    ... generally based on a percentage of sales. Our advertising expenses were $607 million, $608 million and $593 million in 2013, 2012 and 2011, respectively. We report substantially all of our direct marketing costs in Occupancy and other operating expenses. Research and Development Expenses. Research...

  • Page 142
    ..., license and lease agreements� Trade receivables consisting of royalties from franchisees and licensees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable on our Consolidated Balance Sheets. Our provision for...

  • Page 143
    ... 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 Company-owned restaurant operations and franchise royalties� The discount rate is our estimate of the required rate of return that a third-party...

  • Page 144
    ... Earnings in 2013, 2012 and 2011, respectively. See Note 16 for additional information. Pension and Post-retirement Medical Benefits. We measure and recognize the overfunded or underfunded status of our pension and post-retirement plans as an asset or liability in our Consolidated Balance Sheet...

  • Page 145
    ... increased China Division Revenues by 4% and did not have a significant impact on China Division Operating Profit versus 2011. The purchase price paid for the additional 66% interest and the resulting purchase price allocation assumed same-store sales growth and new unit development for the brand...

  • Page 146
    ... value of the Pizza Hut UK reporting unit exceeded its carrying amount. For the year ended December 28, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 18% and increased Franchise and license fees and income and Operating Profit by 2% and 3%, respectively...

  • Page 147
    ... effective tax rate was 6.4 percentage points higher than 2012. See Note 17 for further discussion of our effective tax rate. Form 10-K NOTE 5 Supplemental Cash Flow Data 2013 2012 $ 166 $ 417 17 $ 112 35 2011 199 349 58 65 55 Cash Paid For: Interest(a) Income taxes Significant Non-Cash Investing...

  • Page 148
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 6 Franchise and License Fees and Income $ 2013 90 $ (13) 77 1,823 1,900 $ 2012 92 $ (24) 68 1,732 1,800 $ 2011 83 (21) 62 1,671 1,733 Initial fees, including renewal fees Initial franchise fees included in Refranchising (gain) loss ...

  • Page 149
    ... assets, net for the years ended 2013 and 2012 are as follows: 2013 Gross Carrying Accumulated Amount Amortization Definite-lived intangible assets Reacquired franchise rights Franchise contract rights Lease tenancy rights Favorable operating leases Other Indefinite-lived intangible assets KFC...

  • Page 150
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 10 Short-term Borrowings and Long-term Debt 2013 2012 $ 10 2,750 170 2,920 (10) 2,910 22 2,932 Short-term Borrowings Current maturities of long-term debt Long-term Debt Senior Unsecured Notes Capital lease obligations (See Note 11) ...

  • Page 151
    PART II ITEM 8 Financial Statements and Supplementary Data The annual maturities of short-term borrowings and long-term debt as of December 28, 2013, excluding capital lease obligations of $172 million and fair value hedge accounting adjustments of $14 million, are as follows: Year ended: 2014 ...

  • Page 152
    ... December 29, 2012 were: Fair Value 2013 17 $ 2 (1) 18 $ Interest Rate Swaps - Asset Foreign Currency Forwards - Asset Foreign Currency Forwards - Liability TOTAL $ $ 2012 24 - (5) 19 Consolidated Balance Sheet Location Other assets Prepaid expenses and other current assets Accounts payable and...

  • Page 153
    ... liabilities that employees have chosen to invest in phantom shares of a Stock Index Fund or Bond Index Fund� The other investments are classified as trading securities in Other assets in our Consolidated Balance Sheets and their fair value is determined based on the closing market prices of the...

  • Page 154
    ... Settlement payments(a) Benefits paid Exchange rate changes Administrative expenses Fair value of plan assets at end of year FUNDED STATUS AT END OF YEAR Amounts recognized in the Consolidated Balance Sheet: U.S. Pension Plans 2013 10 $ (8) (94) (92) $ International Pension Plans 2013 2012 33...

  • Page 155
    ... of the settlement payments and settlement losses. (c) Special termination benefits primarily related to the U.S. business transformation measures taken in 2013, 2012 and 2011. (d) Gain is a result of terminating future service benefits for all participants in one of our UK plans in 2013. The gain...

  • Page 156
    ...Pension Plans 2013 2012 4.69% 4.75% 5.37% 5.55% 1.74% 3.85% Discount rate Long-term rate of return on plan assets Rate of compensation increase 2013 4.40% 7.25% 3.75% 2011 5.90% 7.75% 3.75% 2011 5.40% 6.64% 4.41% (a) As of 2013, both plans presented are now frozen to future service cost credits...

  • Page 157
    PART II ITEM 8 Financial Statements and Supplementary Data Benefit Payments The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are set forth below: Year ended: 2014 2015 2016 2017 2018 2019-2023 U.S. Pension Plans International ...

  • Page 158
    ...our publicly traded options. The expected dividend yield is based on the annual dividend yield at the time of grant. The fair values of RSU and PSU awards granted prior to 2013 are based on the closing price of our stock on the date of grant. In 2013, the Company granted PSU awards with market-based...

  • Page 159
    ...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 14 Pension Benefits for further information. YUM! BRANDS...

  • Page 160
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 17 Income Taxes U.S. and foreign income before taxes are set forth below: 2013 464 1,087 1,551 2012 504 1,641 2,145 2011 266 1,393 1,659 U.S. Foreign $ $ $ $ $ $ The details of our income tax provision (benefit) are set forth ...

  • Page 161
    ...ASSETS (LIABILITIES) Reported in Consolidated Balance Sheets as: Deferred income taxes - current Deferred income taxes - long-term Accounts payable and other current liabilities Other liabilities and deferred credits We have investments in foreign subsidiaries where the carrying values for financial...

  • Page 162
    ... prior to our disposal of those businesses in December 2011. Revenues 2012 6,898 $ 3,281 3,352 102 13,633 $ We are principally engaged in developing, operating, franchising and licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza Hut and Taco Bell operate in 118, 91, and 21...

  • Page 163
    ... 99 68 553 686 8,695 $ 9,013 $ China YRI U.S. India Corporate(c) $ $ 2011 258 183 179 5 12 637 China YRI U.S. India Corporate $ $ 2011 405 240 256 16 23 940 China(i) YRI U.S. India Corporate(j) $ $ 2011 2,527 2,847 2,070 52 1,338 8,834 Form 10-K YUM! BRANDS, INC. - 2013 Form 10-K 67

  • Page 164
    PART II ITEM 8 Financial Statements and Supplementary Data China YRI U.S. India Corporate $ $ Long-Lived Assets(k) 2013 2012 2,667 $ 2,779 $ 1,732 1,561 1,489 1,555 66 47 32 32 5,986 $ 5,974 $ 2011 1,546 1,600 1,805 35 36 5,022 (a) Amounts have not been allocated to any segment for ...

  • Page 165
    ...loss cannot be made at this time. Taco Bell was named as a defendant in a number of putative class action suits filed in 2007, 2008, 2009 and 2010 alleging violations of California labor laws including unpaid overtime, failure to timely pay wages on termination, failure to pay accrued vacation wages...

  • Page 166
    ... 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 167
    ...61 0.335 First Quarter Second Quarter Revenues: Company sales Franchise and license fees and income Total revenues Restaurant profit Operating Profit(b) Net Income - YUM! Brands, Inc. Basic earnings per common share Diluted earnings per common share Dividends declared per common share $ 2,344 $ 399...

  • Page 168
    ... financial reporting was effective as of December 28, 2013. KPMG LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and the effectiveness of our internal control over financial reporting and has issued...

  • Page 169
    ...Company's definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 28, 2013. ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding equity compensation plans...

  • Page 170
    ... 15 Exhibits and Financial Statement Schedules (a) (1) (2) Financial Statements: Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. Financial Statement Schedules: No schedules are required because either the required information is not...

  • Page 171
    ... 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 18, 2014...

  • Page 172
    ... 2005, and as Amended through December 30, 2008, which is incorporated by reference from Exhibit 10.13.1 to YUM's Quarterly Report on Form 10-Q for the quarter ended June 13, 2009. YUM! Brands Pension Equalization Plan Amendment, as effective January 1, 2012, which is incorporated by reference from...

  • Page 173
    ...op Agreement, dated as of January 1, 2012, between YUM and the Unified Foodservice Purchasing Co-op, LLC, which is incorporated herein by reference from Exhibit 10.11 to YUM's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. YUM Restaurant General Manager Stock Option Plan, as...

  • Page 174
    PART IV ITEM 15 Exhibit Index Exhibit Number 101.INS 101.SCH...filed with the SEC. The omitted information has been filed separately with the SEC pursuant to our application for confidential treatment. Indicates a management contract or compensatory plan. Form 10-K 78 YUM! BRANDS, INC. - 2013 Form...

  • Page 175
    ... of YUM through the Company's Direct Stock Purchase Plan • Sell shares held at AST Access accounts online at the following URL: https://secure.amstock.com/Shareholder/sh_login.asp. Your account number and Social Security Number are required. If you do not know your account number, please call AST...

  • Page 176
    ... Vice President, Investor Relations & Corporate Strategy Yum! Brands, Inc. 1441 Gardiner Lane Louisville, KY 40213 Phone: (502) 874-8006 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...

  • Page 177
    ...Inc. and Chairman, The Glenview Trust Company Niren Chaudhary 51 President, Yum! Restaurants India Greg Creed 56 Chief Executive Officer, Taco Bell Roger Eaton 53 President, KFC and Chief Operations Officer, Yum! Brands, Inc. Bonnie G. Hill 72 President, B. Hill Enterprises, LLC Jonathan S. Linen...

  • Page 178
    ...YUM! RESTAURANTS PER MILLION PEOPLE IN THE U.S. Only 2 YUM! RESTAURANTS PER MILLION PEOPLE IN THE TOP TEN EMERGING MARKETS. ON THE GROUND FLOOR OF GLOBAL GROWTH 20 Yum! Brands, Inc., trades under the symbol YUM and is proud to meet the listing requirements of the NYSE, the world's leading equities...