Taco Bell 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
    ... 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 Operations Officer. There is no doubt in my mind that he is fully qualified and equipped with...

  • Page 3
    ..., 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% EPS growth. The July Shanghai...

  • Page 4
    ...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 Casual Dining, we will continue to expand Pizza Hut Home Service as well. 737 New Restaurants in 2014 I want to assure...

  • Page 5
    ... what we're doing at KFC China. Our successful menu revamp in the first half of 2014 reinforced the fact that our customers love food innovation. We're going to build on this success and launch two menu revamps in 2015, introducing new products across our menu-breakfast, lunch, dinner and beverages...

  • Page 6
    ... we remain on the ground floor of growth in the world's fastest growing economy. As of January 1, 2014, we combined our Yum! Restaurants International and U.S. divisions into three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India remain separate divisions given their strategic...

  • Page 7
    5

  • Page 8
    ...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. All of this sets up the KFC division for a solid 2015. As strong as the global business...

  • Page 9
    ... are a success. We have a 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...

  • 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
    ... overall results. Yum! India President Niren Chaudhary is using this opportunity to strengthen our positioning with consumers as well as our business model. This will set us up for success in a country which is expected to become the largest consumer market in the world. *India system sales growth...

  • Page 12
    .... 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 renowned and respected...

  • Page 13
    ... 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 strong value...

  • Page 14
    ... best in the retail industry. We generate nearly $2 billion in annual franchise fees and Yum! Restaurants Per Million People in the Top Ten Emerging Markets concentrate our investments in high-growth, highreturn businesses. We've announced plans to take our franchise mix outside of China and India...

  • 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
    ... retired from our Board after a number of years of dedicated service. At the 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...

  • 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
    ...10MAR201507325489 Greg Creed 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...

  • Page 20

  • Page 21
    ... as of 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...

  • Page 22
    ... Executive Compensation (Item 3 on the Proxy Card) ...Shareholder Proposal regarding a Policy on Accelerated Vesting upon a Change in Control (Item 4 on the Proxy Card) ... 1 1 5 14 14 20 21 22 STOCK OWNERSHIP INFORMATION Proxy Statement 25 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...

  • Page 23
    ...as information about our directors and most highly paid executive officers. QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING What is the purpose of the Annual Meeting? ...At our Annual Meeting, shareholders will vote on several important Company matters. In addition, our management will report on...

  • Page 24
    ...vote over the phone, call 1(888) 298-6986); or • By mail - If you received your proxy materials by mail, you can vote by completing, signing and returning the enclosed proxy card in the postage-paid envelope provided. If you are a participant in the Direct Stock Purchase Plan, the administrator of...

  • Page 25
    ... shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is American Stock Transfer and Trust Company, LLC, which may be reached at 1(888) 439-4986. 2015 Proxy Statement YUM! BRANDS...

  • 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
    ... Board's leadership structure? ...The Company's Principles provide that the CEO may serve as Chairman of the Board. These Principles also provide for an independent Lead Director. Our Board believes that Board independence and oversight of management are 6 YUM! BRANDS, INC. 2015 Proxy Statement

  • Page 29
    ... this structure, Mr. Creed is responsible for leading the Company's strategies, organization design, people development and culture and for providing the day-to-day leadership over operations, while Mr. Novak is responsible for supporting the CEO on corporate strategy, innovative business and brand...

  • Page 30
    ...and to outside advisors? ...• Access to Management and Employees. Directors have full and unrestricted access to the management and employees of the Company. Additionally, key members of management attend Board meetings to present information about the results, plans and operations of the business...

  • Page 31
    ... 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 (the ''Committee'') oversaw the risk assessment of our compensation...

  • Page 32
    ...Group President of Kimberly-Clark International, a division of Kimberly Clark Corporation. During 2014, the Company paid Kimberly-Clark Corporation approximately $2.6 million for paper products used in the normal course of business in some of its restaurants. The Board determined that these payments...

  • Page 33
    ...light 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 The Board has determined that all of the members of the Management Planning and Development Committee...

  • Page 34
    ... Number of Meetings in Fiscal 2014 - Functions of the Committee • Exercises all of the powers of the Board in the management of the business and affairs of the Company consistent with applicable law while the Board is not in session Proxy Statement How are directors compensated? ...Employee...

  • Page 35
    ... on page 43. The Company has maintained an ownership culture among its executive and senior managers since its formation. Substantially all executive officers and members of senior management hold stock well in excess of the guidelines. Proxy Statement 13 2015 Proxy Statement YUM! BRANDS, INC.

  • Page 36
    ...we value their significant experience on other public company boards of directors and board committees. There are no family relationships 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...

  • 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
    ..., including as president and chief executive officer of global travel-related services company • Expertise in finance, marketing and international business development • Public company directorship and committee experience • Independent of Company 16 YUM! BRANDS, INC. 2015 Proxy Statement

  • 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
    ...Global operating and management experience, including as group president of a consumer products company • Expertise in branding, marketing, sales, strategic planning and international business development • Independent of Company 11MAR201504415998 Elane B. Stock Age 50 Director Since 2014 Group...

  • 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
    ...-related fees include audits of financial statements of certain employee benefit plans, agreed upon procedures and other attestations. Tax fees consist principally of fees for international tax compliance, tax audit assistance, and VAT and other tax advisory services. 20 YUM! BRANDS, INC. 2015...

  • Page 43
    ... our compensation policies and procedures operate and are designed to meet our compensation goals and how our Management Planning and Development Committee makes compensation decisions under our programs. Accordingly, we ask our shareholders to vote in favor of the following resolution at the Annual...

  • Page 44
    ... of this proposal requires the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. While this vote is advisory and non-binding on the Company, the Board of Directors and the Management Planning and Development Committee will...

  • Page 45
    MATTERS REQUIRING SHAREHOLDER ACTION Management Statement in Opposition 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 ...

  • Page 46
    ... retain talented executives. Adoption of the Proponent's proposal could potentially impact our ability to deliver maximum value to our shareholders during a most critical time. For the reasons above, the Board of Directors recommends you vote AGAINST this proposal. What vote is required to approve...

  • Page 47
    ... is based on a stock ownership report on Schedule 13G filed by such shareholders with the SEC and provided to us. Name and Address of Beneficial Owner Vanguard 100 Vanguard Blvd. Malvern, PA 19355 Blackrock Inc. 55 East 52nd Street New York, NY 10022 (1) Number of Shares Beneficially Owned 23,009...

  • Page 48
    ... executive officers as a group, 51,160 shares The amounts shown include beneficial ownership of shares that may be acquired within 60 days pursuant to stock options and SARs awarded under our employee or director incentive compensation plans. For stock options, we report shares equal to the number...

  • Page 49
    ...Company and certain executive officers. The derivative actions and the securities class action suit are described in the Company's Annual Report on Form 10-K for the year ended December 27, 2014 in Part 1, Item 3, Legal Proceedings and Note 18, Contingencies, to the Consolidated Financial Statements...

  • Page 50
    ...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, innovative products and mobile ordering, fueling 3% same-store sales growth and 5% operating profit growth. • Increased quarterly...

  • Page 51
    ... grow the value of the Company with a long-term perspective in mind. • Drive ownership mentality - We require executives to personally invest in the Company's success by owning a substantial amount of Company stock. • Retain and reward the best talent to achieve superior shareholder results - To...

  • Page 52
    EXECUTIVE COMPENSATION Based on the Company's 2014 performance, cash compensation was significantly below target. This was primarily due to below target results at our China and Pizza Hut divisions. Cash compensation (base salary and annual bonus) was 48% below target for the CEO and on average 24%...

  • Page 53
    ... 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 division presidents will each be required to own...

  • Page 54
    ... Board discretion to ''clawback'' compensation if executive's conduct results in significant financial or reputational harm to Company Make a substantial portion of NEO target pay ''at risk'' Double-trigger vesting of equity awards upon change in control âœ- âœ- Employment agreements Re-pricing...

  • Page 55
    ... earnings per share growth, which is our primary business performance metric. CEO CASH COMPENSATION VS. EPS GROWTH Cash Compensation $8,000,000 EPS Growth 20% $6,000,000 10% Proxy Statement $4,000,000 0% $2,000,000 $0 -10% 2010 2011 2012 Annual Bonus 2013 2014 Base Salary EPS Growth...

  • Page 56
    EXECUTIVE COMPENSATION CEO DIRECT COMPENSATION VS. EPS GROWTH Direct Compensation $15,000,000 EPS No PSU Payout (1) No PSU Payout based Growth on current TSR(1) 20% $10,000,000 10% $5,000,000 0% $0 -10% 2010 Base Salary (1) 2011 Annual Bonus 2012 SARs 2013 PSUs 2014 EPS Growth ...

  • Page 57
    ... 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, and leverage recommendations for the following year...

  • Page 58
    ... corporate-reported revenues and system-wide revenues. Historically and during 2014, the Company has generally targeted pay for the CEO at the 75th percentile of the market due to Mr. Novak's sustained results. Specifically, 75th percentile total cash and total direct compensation. The Company...

  • Page 59
    ... of cash compensation. Motivate high performance and reward short-term Company, team and individual performance. Align the interests of executives with shareholders and emphasize long-term results. Provide for long-term retirement income and basic health and welfare coverage. Form Cash Cash SARs...

  • Page 60
    ... Statement The performance 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...

  • Page 61
    ...' Team Factors(1) Earnings Per Share Growth (excluding special items) FINAL YUM TEAM FACTOR Su Operating Profit Growth System Sales Growth(2) System Gross New Builds System Customer Satisfaction Total Weighted Team Performance - China Division FINAL CHINA TEAM FACTOR(3) Creed Operating Profit Growth...

  • Page 62
    ... profit 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...

  • Page 63
    ... during 2014 had the Company's average earnings per share during the 2011 - 2013 performance period reached the required minimum average growth threshold of seven percent). Proxy Statement 2014 Grant Value $7,150,000 (1) Reason Award brought his total direct compensation to our target philosophy...

  • Page 64
    ...employee disability plan limits the annual benefit coverage to $300,000. Perquisites Mr. Novak and Mr. Creed (beginning in 2015) are required to use the Company aircraft for personal as well as business travel pursuant to the Company's executive security program established by the Board of Directors...

  • Page 65
    ... December 31, 2014 and represents shares owned outright, vested RSUs and 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...

  • Page 66
    ...Chief Financial Officer pay is not subject to these limits.) The bonus pool for 2014 is equal to 1.5% of operating profit (adjusted to exclude special items believed to be distortive of consolidated results on a yearover-year basis - these are the same items excluded in the Company's annual earnings...

  • Page 67
    EXECUTIVE COMPENSATION Management Planning and Development Committee Report ...The Management Planning and Development Committee of the Board of Directors reports that it has reviewed and discussed with management the section of this proxy statement headed ''Compensation Discussion and Analysis'' ...

  • Page 68
    ... 2012 1,088,462 750,000 750,000 725,000 5,035,711 10,827,980 5,768,264 10,317,901 5,042,547 16,561,455 345,068 238,737 428,872 4,973,503 4,035,284 4,131,387 Proxy Statement Greg Creed 2014 Chief Executive Officer of Taco Bell Division(7) 2013 Scott O. Bergren Chief Executive Officer of Pizza Hut...

  • Page 69
    ...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'') during the 2014 fiscal year. See...

  • Page 70
    ...portion of the performance period following the change in control. Amounts in this column reflect the number of SARs and stock options granted to executives during the Company's 2014 fiscal year. SARs allow the grantee to receive the number of shares of YUM common stock that is equal in value to the...

  • Page 71
    ... Data'' of the 2014 Annual Report in Notes to Consolidated Financial Statements at Note 14, ''Share-based and Deferred Compensation Plans.'' There can be no assurance that the SARs/stock options will ever be exercised or PSU awards paid out (in which case no value will be realized by the executive...

  • Page 72
    ... SARs, and unvested RSUs and PSUs held by the Company's NEOs on December 31, 2014. Option/SAR Awards(1) Stock Awards Equity Equity incentive incentive plan awards: plan awards: market or Number of payout value unearned of unearned shares, units shares, units or other rights or other rights that have...

  • Page 73
    ... years. For Mr. Grismer, 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...

  • 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
    ...sums required by Internal Revenue Code Section 417(e)(3). (2) YUM! Brands, Inc. Pension Equalization Plan The PEP is an unfunded, non-qualified, defined benefit plan that complements the Retirement Plan by providing benefits that federal tax law bars providing under the Retirement Plan. Benefits are...

  • Page 77
    ...or more of the group of corporations that is controlled by 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...

  • Page 78
    ... re-defer. Investments in the YUM! Stock Fund and YUM! Matching Stock Fund are only distributed in shares 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...

  • Page 79
    ... 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 55 or...

  • 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
    ...payment equal to two times the sum of 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...

  • 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
    ... significant 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...

  • Page 84
    ... to executive officers, directors are subject to share ownership requirements. The directors' requirements provide that directors will not sell any of the Company's common stock received as compensation for service on the Board until the director has ceased being a member of the Board for one year...

  • 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
    ...ten years. The RGM Plan is administered by the Committee, and the Committee has delegated its responsibilities to the Chief People Officer of the Company. The Board of Directors approved the RGM Plan on January 20, 1998. 15MAR201511093851 Proxy Statement 64 YUM! BRANDS, INC. 2015 Proxy Statement

  • 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
    ...? ...The Company has adopted a procedure called ''householding'' which has been approved by the SEC. The Company and some brokers household proxy materials, delivering a single Notice and, if applicable, this proxy statement and Annual Report, to multiple shareholders sharing an address unless...

  • 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
    ... Act). â...ª ፼ 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 14, 2014 computed by reference to the closing price of the registrant's Common Stock on the New York Stock Exchange Composite Tape on...

  • Page 92

  • Page 93
    ... with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 12 14 16 35 36 70 70 70 71 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 94

  • Page 95
    ... 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. 13MAR2015160 Form 10-K YUM! BRANDS, INC. - 2014...

  • Page 96
    ... 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 accelerate growth...

  • 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
    ...I ITEM 1 Business time to promote adherence to system standards and mentor restaurant team members. Supply and Distribution The Company's Concepts, including Concept units operated by its franchisees, are substantial purchasers of a number of food and paper products, equipment and other restaurant...

  • Page 99
    ... regulating foreign investment, as well as anti-bribery and corruption laws. See Item 1A ''Risk Factors'' for a discussion of risks relating to federal, state, local and international regulation of our business. Employees As of year end 2014, the Company and its Concepts employed approximately 537...

  • Page 100
    ...affect our business. Our significant China operations subject us to risks that could negatively affect our business. A significant and growing portion of our restaurants are located, and our revenues and profits originate, in China. As a consequence, our financial results are increasingly dependent...

  • Page 101
    ... strategy depends in large part on our ability to increase our net restaurant count in markets outside the U.S., especially China and other emerging markets. The successful development of new units will depend in large part on our ability and the ability of our Concepts' YUM! BRANDS, INC. - 2014...

  • Page 102
    ... 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. Changes in, or noncompliance with, governmental regulations may adversely affect our business operations, growth prospects or financial...

  • Page 103
    ... our international earnings to the U.S. in the future. We are required to record U.S. income tax expense in our financial statements at the point in 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...

  • Page 104
    ... a KFC and Pizza Hut research facility in Plano, 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...

  • Page 105
    ... YUM Operational Excellence Officer from February 2011 to November 2011. He was President and Chief Concept Officer of KFC U.S. from June 2008 to February 2011. David Gibbs, 51, is Chief Executive Officer of Pizza Hut Division. He has served in this position since January 2015. From January 2014 to...

  • Page 106
    ... 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 by quarter for the Company's Common Stock and dividends per common share. 2014...

  • Page 107
    ... provides information as of December 27, 2014 with respect to shares of Common Stock repurchased by the Company during the quarter then ended: Total number of shares Total number of shares purchased as Approximate dollar value of shares purchased Average price part of publicly announced plans or...

  • Page 108
    ... Pizza Hut Division system sales growth(d)(f) Reported Local currency(e) Taco Bell Division system sales growth(d)(f) Reported Local currency(e) India system sales growth(d)(g) Reported Local currency(e) Shares outstanding at year end Cash dividends declared per Common Share Market price per share...

  • Page 109
    ... in KFC and Pizza Hut Divisions as applicable. While there was no impact to our consolidated results, this change negatively impacted India's 2014 reported and local currency system sales growth by 10% and 11%, respectively. (h) Fiscal years 2014, 2013, 2012 and 2010 include 52 weeks and fiscal year...

  • Page 110
    ... 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 accelerate growth...

  • Page 111
    ... a significant, negative impact to sales and profits at both KFC and Pizza Hut. Prior to that incident, YUM experienced a strong first half of the year with China Division Operating Profit increasing 113% and EPS increasing 27% through the first two quarters of 2014. At that point the Company...

  • Page 112
    ...noncontrolling interests Net Income (loss) - noncontrolling interests Net Income - YUM! Brands, Inc. Diluted EPS(a) Diluted EPS before Special Items(a) Reported Effective tax rate Effective tax rate before Special Items (a) See Note 3 for the number of shares used in these calculations. 2012 11,833...

  • 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
    ... to drive annual Operating Profit growth of 15%. See the Results of Operations Summary above for discussion of items 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...

  • Page 115
    ... 2013 6,800 (2,258) (1,360) (2,132) 1,050 15.4% $ $ $ $ $ In 2014, the increase in Company sales and Restaurant profit associated with store portfolio actions was driven by net new unit growth. Significant other factors impacting Company sales and/or Restaurant profit were wage rate inflation...

  • Page 116
    ...Our ongoing earnings growth model for the KFC Division includes low-single-digit percentage net unit and 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 10%. % B/(W) 2014 Reported Ex FX...

  • Page 117
    ... April 2013. Significant other factors impacting Company sales and/or Restaurant profit were higher restaurant operating costs in international markets and higher commodity costs, which was offset by Company same-store sales growth of 2%. Franchise and License Fees and Income In 2014, the increase...

  • Page 118
    ... 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 $ 607 541 $ $ $ $ 1,148 $ $ 2013 609 538 1,147 $ $ 2012 993...

  • Page 119
    ...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...

  • Page 120
    ... 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 $ $ 2012...

  • Page 121
    ..., predominately KFC and Pizza Hut restaurants. While we believe India is a significant long-term growth driver, our ongoing earnings model currently assumes no impact from India growth. % B/(W) 2014 Total revenues Operating Profit (loss) (a) % B/(W) 2013 Reported Ex FX 24 NM 2014 36 NM 2013 11% 20...

  • Page 122
    ...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) have not been restated due to...

  • Page 123
    ... new restaurants, acquisitions of restaurants from franchisees, repurchases of shares of our Common Stock and dividends paid to our shareholders. We generate a significant amount of cash from operating activities outside the U.S. that we have used historically to fund our international development...

  • 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
    ...quarterly or annual results of operations or financial condition. Changes in the estimates and judgments could significantly affect our results of operations, financial condition and cash flows in future years. A description of what we consider to be our most significant critical accounting policies...

  • Page 126
    ... 27, 2014). Given so few Company-operated restaurants, the primary drivers of fair value in 2014 include franchise revenue growth and cash flows associated with a wholly-owned business that sells seasoning to retail customers. Franchise revenue growth reflects annual same-store sales growth of...

  • Page 127
    PART 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 ...

  • Page 128
    PART II ITEM 7 Management's Discussion 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 ...

  • Page 129
    ... exchange rates impact the translation of our reported foreign currency denominated earnings, cash flows and net investments in foreign operations and the fair value of our foreign currency denominated financial instruments. Historically, we have chosen not to hedge foreign currency risks related...

  • 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
    ... 28, 2013, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the fiscal years in the three-year period ended December 27, 2014. We also have audited YUM's internal control over financial reporting as of December 27, 2014, based...

  • Page 132
    ...BRANDS, Inc. AND SUBSIDIARIES 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...

  • Page 133
    PART II ITEM 8 Financial Statements and Supplementary 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 ...

  • Page 134
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Cash Flows YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012 (in millions) Cash Flows - Operating Activities Net Income - including noncontrolling ...

  • Page 135
    ... Redeemable noncontrolling interest Shareholders' Equity Common Stock, no par value, 750 shares authorized; 434 shares and 443 shares issued in 2014 and 2013, respectively Retained earnings Accumulated other comprehensive income (loss) Total Shareholders' Equity - YUM! Brands, Inc. Noncontrolling...

  • Page 136
    PART II ITEM 8 Financial Statements and Supplementary Data Consolidated Statements of Shareholders' Equity YUM! BRANDS, INC. AND SUBSIDIARIES FISCAL YEARS ENDED DECEMBER 27, 2014, DECEMBER 28, 2013 AND DECEMBER 29, 2012 Yum! Brands, Inc. Accumulated Other Total Redeemable Retained Comprehensive ...

  • Page 137
    ... 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 accelerate growth...

  • Page 138
    ... 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 scheduled to include a 53rd week...

  • Page 139
    ... a franchise agreement with terms substantially at market. The after-tax cash flows incorporate reasonable assumptions we believe a franchisee would make such as sales growth and margin improvement. The discount rate used in the fair value calculation is our estimate of the required rate of return...

  • Page 140
    ... the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years...

  • Page 141
    ... 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 that a third-party buyer would expect to receive when purchasing a business from us that...

  • Page 142
    ...not be at prevailing market rates. As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations. As a result, the...

  • Page 143
    ... for the periods presented. NOTE 4 Items Affecting Comparability of Net Income and Cash Flows Form 10-K purchase approval and ownership transition phase, and our efforts to regain sales momentum were significantly compromised in May 2013 due to negative publicity regarding quality issues with...

  • Page 144
    ... (Gain) Loss The Refranchising (gain) loss by reportable segment is presented below. We do not allocate such gains and losses to our segments for performance reporting purposes. Refranchising (gain) loss 2014 2013 2012 China KFC Division Pizza Hut Division(a) Taco Bell Division India Worldwide...

  • Page 145
    ... 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, lease reserves established...

  • Page 146
    ... and equipment was $702 million, $686 million and $629 million in 2014, 2013 and 2012, respectively. Accounts Payable and Other Current Liabilities Accounts payable Accrued capital expenditures Accrued compensation and benefits Dividends payable Accrued taxes, other than income taxes Other current...

  • 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
    ... the agreement. Given the Company's strong balance sheet and cash flows, we were able to comply with all debt covenant requirements at December 27, 2014 with a considerable amount of cushion. Additionally, the Credit Facility contains cross-default provisions whereby our failure to make any payment...

  • Page 149
    ... headquarters 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...

  • Page 150
    ... the years ended December 27, 2014 or December 28, 2013. Level Foreign Currency Forwards, net Interest Rate Swaps, net Other Investments Total The fair value of the Company's foreign currency forwards and interest rate swaps were determined based on the present value of expected future cash flows...

  • Page 151
    ... of year Service cost Interest cost Plan amendments Curtailments Special termination benefits Benefits paid Settlements(a)(b) Actuarial (gain) loss Administrative expense Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan...

  • Page 152
    ... benefits. (b) Settlement losses result when benefit payments exceed the sum of the service cost and interest cost within a plan during the year. During the fourth quarter of 2012 and continuing through 2013, the Company allowed certain former employees with deferred vested balances an opportunity...

  • Page 153
    ... on closing 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...

  • Page 154
    ... incentive compensation over the requisite service period which includes the vesting period. Historically, the Company has repurchased shares on the open market in excess of the amount necessary to satisfy award exercises and expects to continue to do so in 2015. At year end 2014, we had four stock...

  • Page 155
    ... $ $ $ 13MAR2015160 Cash received from stock option exercises for 2014, 2013 and 2012, was $29 million, $37 million and $62 million, respectively. Tax benefits realized on our tax returns from tax deductions associated with share-based compensation for 2014, 2013 and 2012 totaled $61 million, $65...

  • Page 156
    PART II ITEM 8 Financial Statements and Supplementary Data NOTE 15 Shareholders' Equity Under the authority of our Board of Directors, we repurchased shares of our Common Stock during 2014, 2013 and 2012. All amounts exclude applicable transaction fees. Shares Repurchased (thousands) ...

  • Page 157
    ...earnings as well as U.S. tax credits and deductions. In years 2014 and 2013, this item was negatively impacted by the $160 million and $222 million, respectively, of non-cash impairments of Little Sheep goodwill, which resulted in no related tax benefit. See Note 4. In 2012, this item was positively...

  • Page 158
    PART II ITEM 8 Financial Statements and Supplementary Data The details of 2014 and 2013 deferred tax assets (liabilities) are set forth below: 2014 Operating losses and tax credit carryforwards Employee benefits Share-based compensation Self-insured casualty claims Lease-related liabilities Various...

  • Page 159
    ... operating segments. China KFC Division(a) Pizza 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...

  • Page 160
    ...ITEM 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...

  • Page 161
    ... maximum aggregate loss limits is remote. Franchise Loan Pool and Equipment Guarantees We have agreed to provide financial support, if required, to a variable interest entity that operates a franchisee lending program used primarily to assist franchisees in the development of new restaurants or the...

  • Page 162
    PART II ITEM 8 Financial Statements and Supplementary Data who purchased the Company's stock between February 6, 2012 and February 4, 2013 (the ''Class Period''). The Amended Complaint no longer includes allegations relating to misstatements regarding the Company's business or financial condition ...

  • Page 163
    ... 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 share $ 2,099 436 2,535...

  • Page 164
    ... - Integrated 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...

  • Page 165
    ...Company's definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 27, 2014. ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding equity compensation plans...

  • Page 166
    ... 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 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
    ... Financial Statement Schedules YUM! Brands, Inc. Exhibit Index (Item 15) Exhibit Number 3.1 3.2 4.1 Description of Exhibits Restated Articles of Incorporation of YUM, effective May 26, 2011, which is incorporated herein by reference from Exhibit 3.1 to YUM's Report on Form 8-K filed on May 31, 2011...

  • Page 169
    ...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 and...

  • 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
    ... 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 at...

  • 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
    ...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 Patrick Grismer 53 Chief Financial Officer, Yum! Brands, Inc. Brian Niccol 40 Chief Executive Officer, Taco Bell Muktesh...

  • 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.