1、yum!world of2005 Annual Customer Mania ReportA16 Dear Partners7 The Yum! Dynasty Model811 A World of Opportunity: China1215 A World of International Growth1619 A World of Leading Brands20 Taco Bell: Think Outside the Bun!21 Pizza Hut: Gather Round the Good Stuff22 KFC: Chicken Capital U.S.A.23 Long
2、John Silvers: Yarr, Genius!24 A&W: Hometown Food Made Fun 2527 A World of Customer Mania2829 A World of Choice 3032 A World of Results: Financial Review3384 Financials81 Selected Financial Data82 Board of Directors and Senior Officers83 Shareholder Information84 Shareholder Servicesinbc A World of G
3、iving Back(In millions, except for per share amounts) % B/(W) Year-end 2005 2004 changeCompany sales $ 8,225 $ 7,992 3 Franchise and license fees 1,124 1,019 10 Total revenues $ 9,349 $ 9,011 4 Operating profit $ 1,153 $ 1,155 Net income $ 762 $ 740 3 Wrench litigation income (expense) $ 2 $ 14 NMAm
4、eriServe and other (charges) credits 2 16 NMSpecial items 4 30 NMIncome tax on special items (1) (11) NMSpecial items, net of tax $ 3 $ 19 NMStock option expense $ (58) NMIncome tax benefit from stock option expense 20 NMStock option expense, net of tax $ (38) $ NMDiluted earnings per common share:
5、Earnings before stock option expense and special items $ 2.67 $ 2.36 13 Stock option expense, net of tax (0.13) NMSpecial items, net of tax 0.01 0.06 NMReported $ 2.55 $ 2.42 5 Cash flows provided by operating activities $ 1,238 $ 1,186 4 In 2005, we began expensing stock options as a result of adop
6、ting SFAS 123R, “Share-Based Payment,” which resulted in a reduction of net income of $38 million or $0.13 per share. We used earnings before stock option expensing and before special items as a key performance measure of results of operations for purposes of evaluating performance internally and de
7、termining incentive compensation in 2005. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, we believe that the presentation of results before special items and stock option expense provides additional information to facil
8、itate the comparison of past and present operations, excluding items that we do not believe are indicative of our ongoing operations and the adoption of SFAS 123R which did not impact our financial statements in the year ended December 25, 2004. AVERAGE U.S. SALES PER SYSTEM UNIT(a)(In thousands) Ye
9、ar-end 2005 2004 2003 2002 2001 5-year growth(b)KFC $ 954 $ 896 $ 898 $ 898 $ 865 3%Pizza Hut 810 794 748 748 724 3%Taco Bell 1,168 1,069 1,005 964 890 5%(a) Excludes license units. (b) Compounded annual growth rate. TABLE OF CONTENTSFinancialHighlightsAt Yum! Brands, we believe in the power of givi
10、ng back to the community to make a difference in the lives of our customers and their families.We commit ourselves to giving back to the communities we serve and to make a difference by financially supporting hun-dreds of charities across the globe. In 2005, Business Week recognized Yum! as one of t
11、he most generous in-kind givers with over $54 million in donated prepared meals. Our employees and franchisees donated nearly $6 million to aid victims of the Southeast Asia tsunami, the Pakistan earthquake and Hurricane Katrina here in the U.S. We support worthy causes financially and through emplo
12、yee volunteerism all around the globe. For example, the KFC China First Light Foundation is a scholarship fund to help Chinese students in need. KFC U.K. supports ChildLine, a free, 24-hour help line for children. KFC and Pizza Hut Thailand are building new elementary schools in impoverished village
13、s across the Kingdom. In the U.S., our efforts are primarily focused on nourishing the bodies, lives, spirits and minds of children in need. We do this through programs dedicated to hunger relief, scholarships, reading incentives and mentoring at-risk teens.Heres a brief look at some of our Communit
14、y Mania: NOURISHING BODIES YUMeals. Hunger remains a pressing social issue in America. One in ten children under the age of five runs the risk of going to bed hungry every night. To help address this issue, Yum! decided to create the worlds largest prepared food recovery program. We now donate over
15、10 mil-lion pounds of prepared food to the hungry every year. NOURISHING LIVES KFCs Colonels Kids. KFC is empowering students to improve their lives with scholarship resources to attend an accredited college within their state of residence through a KFC Colonels Scholars Scholarship. KFC Colonels Sc
16、holars will enable high school students with entrepreneurial drive, strong perseverance and demonstrated financial need to pursue up to four years of study at an accredited institution in the state they reside. This scholarship provides funding for tuition, fees, books and room and board. Awards can
17、 be up to $5,000 per year for up to four years to help complete a bachelors degree. The first class of 50 KFC Colonels Scholars will be announced in June, 2006. NOURISHING SPIRITS Taco Bells Teen Program. The Taco Bell Foundation is committed to helping teens become successful and productive leaders
18、 in their communities. Through its partner-ship with the Boys & Girls Clubs of America, the Taco Bell Foundation supports teen-focused initiatives that are designed to build self-esteem, leadership skills and values. Since 1995, Taco Bell, its franchisees and customers have donated over $15 million
19、to the Boys & Girls Clubs of America for teen programming.NOURISHING MINDS Pizza Huts BOOK IT! Program. For over 20 years, children have found reading a lot more fun and rewarding, thanks to the BOOK IT! Program. As the nations largest reading incentive program, BOOK IT! provides pizza, praise, and
20、recognition for childrens reading achievements. Since 1985, Pizza Hut has invested nearly a half billion dollars in BOOK IT! to encourage children to discover the joy and pleasure of reading. Over 23 million children a year are motivated to read more each year through BOOK IT! backworld ofgivingADav
21、id C. Novak, Chairman and Chief Executive Officer, Yum! Brands, Inc. The world of Yum! makes a world of difference when it comes to delivering consistent growth. Im pleased to report 2005 was once again another year where we demonstrated the underlying power of our global portfolio of leading restau
22、rant brands. Fired by continued profitable international expansion featuring dramatic new unit growth in China, particularly strong performance at Taco Bell and KFC in the United States, and sound execution of financial strategies, Yum! Brands achieved 13% earnings per share growth, the fourth strai
23、ght year we have exceeded our +10% annual target. This consistent growth was achieved in spite of a challenging worldwide environment which included record gasoline prices, Hurricane Katrina and significant con-sumer concerns in China from the perceived threat of the avian flu.Were proving year afte
24、r year that the power of our portfolio enables us to continue to weather whatever inevitable ups and downs come our way. Our diversified worldwide business allows us to consistently deliver on the three drivers of shareholder value in the retail cat-egory: (1) solid and improving same store sales gr
25、owth, Dear Partners, +4% in the U.S., (2) consistent new unit expansion, set-ting a record of 1,554 new openings around the world and (3) best in class return on invested capital, maintain-ing our industry leading ROIC of 18%.Whats more, we are now a demonstrated cash machine with a strong investmen
26、t grade balance sheet. In fact, after spending $609 million in capital expenditures to drive expansion and grow our core business, we had record operating cash flow that allowed us to increase our shareholder payout to over $1 billion primarily through share repurchases and by increasing our quarter
27、ly divi-dend by 15%. Since I was quick to point out in my letter last year that our share price had climbed 37% in 2004, I want to be just as forthcoming to report the news that our shares declined 1% in 2005. Nevertheless, our annual return is 24% for the first half of this decade. And the best new
28、s of all is we are more confident than ever that we will con-tinue our track record of growing earnings per share at least 10% each year going forward. By delivering on these results, and delivering real cash flow and real earnings, we are confident the stock will continue to take care of itself. We
29、 simply are getting better and better at executing four powerfully unique strategies that bolster our claim that we are “Not Your Ordinary Restaurant Company.” Let me now give you my perspective on our opportunities, and hope-fully youll agree we are rightfully bullish about our future.While we have
30、 grown our core business, we have been making targeted investments to develop new emerging consumer markets like Russia, India and Continental Europe.Yum! Brands, Inc. | 1.We are the undeniable leader in this booming country.Given the fact we already have the dominant brands in quick service with ov
31、er 1,900 KFCs, and in casual dining with over 300 Pizza Huts, last year we featured our China business on the cover of our annual report. Well, have you ever heard of the Sports Illustrated cover “jinx” where a world class athlete is featured on SIs cover and then has a difficult time? As chance wou
32、ld have it, the same thing happened to our world class China business! After having a record first quarter, we had an unfortunate supplier issue with a KFC ingredient that should not have been in our food supply. While no customer was harmed in any way, it created a gigantic amount of negative pub-l
33、icity that resulted in a very significant decline in sales. Given the strength of the KFC brand, we steadily built back our business only to have major publicity about avian flu raise concerns later in the year about eating chicken. Even though all the experts agree that properly cooked chicken is p
34、erfectly safe to eat, perceptions are reality and our sales took another steep decline. Despite the adversity, we slightly grew profits to $211 million and opened up a record 409 new units, continuing to widen our gap versus McDonalds. Thats because we continued to have higher volumes and higher mar
35、gins than our competitor, yielding tremendous unit economics with returns that continue to be well above our cost of capital. The result is that we were able to withstand two unexpected negative sales events and still maintain a business with powerful new unit economics. KFC continues to be one of t
36、he strongest con-sumer brands, if not the strongest, in China. Pizza Hut also has first mover advantage with no other substantial chain competitor in the casual dining segment.Im often asked how we developed such a tremendous China business.Well, consider these powerful competitive advantages. It st
37、arts with an outstanding tenured local Chinese team that has worked together for over ten years building the business from scratch. In fact, we believe our China opera-tions are the best in the world. We uniquely own our own food distribution system that gives us coverage in every major province and
38、 has allowed us to expand into over 360 cities. We also have one of the largest real estate develop-ment teams of any retailer in the world. Given our rapid growth, we now have a major national advertising budget that is building brand awareness and loyalty. This investment in infrastructure and sca
39、le has given us a tremendous head start to tap into an unprecedented opportunity. The Chinese middle class already represents 300 million urban customers who can afford our food. Thats larger than the entire U.S. population. Make no mistake, we are at the ground floor of a booming cate-gory. Thats w
40、hy I always liken it to over forty years ago when pioneers Colonel Sanders, Glen Bell, Dan Carney and Ray Kroc started, respectively, KFC, Taco Bell, Pizza Hut and McDonalds in the United States, building the quick service restaurant category from scratch. Well, we are the pioneers in China and we f
41、ully intend to capitalize on the total opportunity. We have the bold goal to build dominant restaurant brands in every signifi-cant category. So in addition to KFC and Pizza Hut casual dining, weve begun to expand Pizza Hut Home Service Delivery. Just like in the U.S., at-home convenience is in the
42、sweet spot to appeal to the time constrained customer. We are on the forefront of this trend with our pizza delivery service. Our team is also energized by the early consumer acceptance of East Dawning, which is a Chinese fast food concept we have created to provide the everyday local favorite foods
43、 of Chinese customers. We are offering an affordable great-tasting menu in appeal-ing facilities that separate us from local competition. Build Dominant China Brands#1Units in Mainland Chinaas of December 31st* Does not include China Divisions Taiwan or Thailand.McDonaldsYUM1,792*735Our China busine
44、ss continues to deliver significantly higher volumes and higher margins than our global competitors.2. | Yum! Brands, Inc.We are committed to make East Dawning a success and believe it could be our highest potential concept given the obvious mass appeal of Chinese food. As I said in last years lette
45、r, one thing Im sure of is that well have our ups and some unforeseen downs, but theres not a shred of doubt in my mind that one day we will have more restaurants in China than we do in the U.S. Thats my story and Im sticking to it!CHINA DIVISION KEY MEASURES: +20% OPERATING PROFIT GROWTH; +22% SYST
46、EM SALES GROWTH; +400 NEW UNITS/YEAR.Drive Profitable International Expansion#2Our Yum! Restaurants International Division, which includes over 100 countries and territories outside of China and the U.S., had another very good year. For the sixth straight year we opened over 700 restau-rants. In so
47、doing, we generated +6% system sales growth. YRI now generates $372 million in operating profit, continuing its consistent record of growing operating profits at least 10%. The foundation of this consistent growth comes from the competitive advantage of the infrastructure we already have in place. F
48、or this we are largely indebted to PepsiCo who, prior to our spin-off in 1997 , invested 40 years and billions of dollars to establish the global network we inherited. We now have over 11,000 restaurants, 88% of which are owned and operated by our 700+ franchisees. Thankfully for us, the reality is
49、it would take the same time and commitment for our competition to reach our size and scale. The only exception, of course, is McDonalds, which makes $2 billion outside the U.S., which only reinforces the potential we have to grow two already popular global brands, KFC and Pizza Hut, not to mention o
50、ur other brands down the road. Theres no question YRI is a diverse, high return busi-ness. Witness that we grew franchise fees by 17% and the fact that KFC and Pizza Hut opened 730 new units across six continents, with very little capital spending on our part. Were focused on profitably driving inte
