Kentucky Fried Chicken 2008 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... HigHligHts (In millions, except for per share amounts) Year-end 2008 2007 % B/(W) change Company sales Franchise and license fees Total revenues Operating profit Net income Diluted earnings per common share Cash flows provided by operating activities $ 9,843 1,436 $ 9,100 1,316 8 9 8 11...

  • Page 3
    ... day, go to work and muddle in mediocrity when you have a chance to be a part of something special. That's why I'm proud to report that our people are pumped up about pUtting tHe pieces in place to become tHe deFining global company tHat Feeds tHe World. david c. novaK cHairman and cHieF eXecUtive...

  • Page 4
    ... quarters of same store sales growth. Perhaps even more importantly, we strengthened our claim as the number one retail developer of new units outside the United States by opening a record 1,495 units, the eighth straight year we've opened more than 1,000 new units. With this quality growth...

  • Page 5
    ... the numbers on the board that make you a winner with your customers and shareholders. And admittedly, given the current state of the financial markets and economy, 2009 represents our most challenging year yet. In the response to the financial uncertainties posed by declining investment values and...

  • Page 6
    ... 500 cities in China and make Pizza Hut available in nearly 100 cities. We have one of the largest real estate and construction teams of any retailer in the world that opened over 500 traditional restaurants in 2008 as we generated 7% same store sales growth in China. We have also developed target...

  • Page 7
    ...Pizza Hut Home Service can match category leading Dominos in the U.S., achieving 5,000+ units: and East Dawning is attacking the Chinese equivalent to the hamburger category in the U.S., so who knows how high is up? I also often get asked the question: what can go wrong? Well, in the past five years...

  • Page 8
    ...capability to develop global markets. For instance, last year I had the opportunity to visit Vietnam, where there are 85 million people. We are in our early days there, but we are making great progress with 56 KFC restaurants open to date and a plan this year to open up additional Pizza Huts as well...

  • Page 9
    ... we use in making ownership decisions. YRI made $528 million in operating profit during 2008, and together with China, accounts for about 60% of our operating profits compared to just 20% in 1997. With the benefit of increasing global prosperity, our strong global competitive positioning, massive...

  • Page 10
    ...Our two largest U.S. businesses, Taco Bell and Pizza Hut, both delivered solid same store sales and profit growth for the full year in 2008. KFC, however, continues to lag behind the rest of our U.S. brands and it, along with unprecedented commodity inflation, were drivers of under performing profit...

  • Page 11
    ... was Yum!'s Chief Operating and Development Officer. Roger is a great leader who hit the ground running and who is already driving initiatives and leveraging successes we've had in other markets around the globe. Last year KFC introduced its great-tasting, value-priced toasted chicken wrap, Original...

  • Page 12
    ... indUstry leading long-term sHareHolder & FrancHisee valUe. The good news is that at 20%, our Return On Invested Capital (ROIC) ranks us high among other global companies. So, we're going forward from a position of real strength. Any way you look at it, Yum! Brands is an incredible cash machine...

  • Page 13
    ...our 2008 campaign would go to helping those people I saw and met in Haiti. This year, too, Yum! published its first ever Corporate Responsibility Report, "Serving The World." We take very seriously our responsibility to our associates, our customers and the communities in which we do business. While...

  • Page 14

  • Page 15
    ... of your Board of Directors, we are pleased to invite you to attend the 2009 Annual Meeting of Shareholders of YUM! Brands, Inc. The meeting will be held Thursday, May 21, 2009, at 9:00 a.m., local time, in the YUM! Conference Center at 1900 Colonel Sanders Lane in Louisville, Kentucky. This year we...

  • Page 16
    ... Proxy Statement Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 21, 2009-this Notice and proxy statement is available at www.yum.com/investors/investor_materials.asp and the Annual Report on Form 10-K is available at www.yum.com...

  • Page 17
    ... meeting. Items of Business: You can vote if you were a shareholder of record as of the close of business on March 23, 2009. Proxy Statement Annual Report: A copy of our 2008 Annual Report on Form 10-K is included with this proxy statement. Web site: You may also read the Company's Annual Report...

  • Page 18
    ...Fiscal Year-End ...Option Exercises and Stock Vested ...Pension Benefits ...Nonqualified Deferred Compensation ...Potential Payments Upon Termination or Change in Control ...DIRECTOR COMPENSATION ...EQUITY COMPENSATION PLAN INFORMATION ...AUDIT COMMITTEE REPORT ...ADDITIONAL INFORMATION ...EXECUTIVE...

  • Page 19
    ... about our directors and most highly paid executive officers. GENERAL INFORMATION ABOUT THE MEETING 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 the Company's performance over...

  • Page 20
    ... Proxy Statement You may vote if you owned YUM common stock as of the close of business on the record date, March 23, 2009. Each share of YUM common stock is entitled to one vote. As of March 23, 2009, YUM had 460,802,208 shares of common stock outstanding. How does the Board of Directors recommend...

  • Page 21
    ...vote at the meeting? Proxy Statement 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 a legal proxy from the broker or nominee that holds your shares giving you the...

  • Page 22
    ... for director named in this proxy statement; • FOR the ratification of the selection of KPMG LLP as our independent auditors for the fiscal year 2009; • FOR the approval of the Company's Executive Incentive Compensation Plan; and • AGAINST the shareholder proposals. What does it mean if...

  • Page 23
    ... matters discussed in this proxy statement. If any other matters properly come before the meeting and call for a vote of shareholders, validly executed proxies in the enclosed form returned to us will be voted in accordance with the recommendation of the Board of Directors, or, in the absence of...

  • Page 24
    ... 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 25
    ... of the chief executive officer and other senior executives in 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 4 Proxy Statement The Board has...

  • Page 26
    ...Compensation. The annual compensation for each director who is not an employee of YUM is discussed under ''Director Compensation'' beginning on page 76. How much YUM stock do the directors own? Stock ownership information for each director nominee is shown in the table on page 37. How does the Board...

  • Page 27
    ... of $1 million or 2% of that company's total revenues and the related person is not an executive officer of the other company. Proxy Statement During fiscal 2008, affiliates of Harman Management Corporation (''Harman''), as KFC, Taco Bell, Pizza Hut, Long John Silver's and A&W All American Food...

  • Page 28
    ... Gardiner Lane, Louisville, Kentucky 40213. The nomination must contain the information described on page 83. How do shareholders communicate with the Board? Shareholders and other parties interested in communicating directly with individual directors, the non-management directors as a group or the...

  • Page 29
    ...Code of Conduct also sets forth information and procedures for employees to report ethical or accounting concerns, misconduct or violations of the Code in a confidential manner. The Code of Conduct applies to the Board of Directors and the principal executive officer, the principal financial officer...

  • Page 30
    ... 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 within their areas of responsibility...

  • Page 31
    ... as a director of AK Steel Holding Corporation, The Home Depot, Inc., and California Water Service Group. She also serves on the boards of many other organizations, including the Financial Industry Regulatory Authority and the Center for International Private Enterprise. Proxy Statement Massimo...

  • Page 32
    ...became Chairman of the Board on January 1, 2001, and Chief Executive Officer of YUM on January 1, 2000. He also serves as President of YUM, a position he has held since October 21, 1997. Mr. Novak previously served as Group President and Chief Executive Officer, KFC and Pizza Hut from August 1996 to...

  • Page 33
    ... President of YUM's China Division, a position he has held since 1997. Prior to this position he was the Vice President of North Asia for both KFC and Pizza Hut. Jackie Trujillo has been Chairman Emeritus of the Board of Harman Management Corporation (''Harman''), one of KFC's largest franchisees...

  • Page 34
    ... of financial statements of certain employee benefit plans, agreed upon procedures related to certain state tax credits and other attestations. Audit related fees for 2008 also include $675,000 in fees that were reimbursed to the Company by a franchisee in connection with services performed related...

  • Page 35
    ...services provided and associated fees, and must promptly report any non-compliance with the pre-approval policy to the Chairperson of the Audit Committee. The complete policy is available on the Company's Web site at www.yum.com/governance/media/ gov_auditpolicy.pdf and at Exhibit C. Proxy Statement...

  • Page 36
    ...compensation'' and the per participant annual payment limitation will remain at $6,000,000. Proxy Statement Purpose. The purpose of the Incentive Plan is to promote the interests of the Company and its shareholders by (i) motivating executives, by means of performance-related incentives, to achieve...

  • Page 37
    income, revenue growth, shareholder return, system sales, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction or economic value added. To satisfy the requirements that apply to performance-based compensation, these goals must be ...

  • Page 38
    ... is delegated to the Chief Executive Officer or the Chief People Officer of the Company. Amendment or Termination. The Board may, at any time, amend or terminate the Incentive Plan, provided that no amendment or termination may, in the absence of consent to the change by the affected Participant...

  • Page 39
    ... offers in the face of such plans but the existence of the plans allows boards to protect strategies for realizing long-term value and to maximize the value of the shareholders' investment by encouraging potential purchasers to negotiate directly with the board. The Board, therefore, believes it is...

  • Page 40
    ... YOU VOTE AGAINST THIS PROPOSAL. What vote is required to approve this proposal? Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. 23MAR200920294881 Proxy Statement 22

  • Page 41
    ...YUM! Brands request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (''NEOs'') set forth in the proxy statement...

  • Page 42
    ... go into designing and administering a successful compensation program to a ''yes'' or ''no'' vote is an effective or efficient way to obtain shareholder input; • We believe that YUM's executive pay program has driven strong company performance and shareholder returns, and it would not benefit YUM...

  • Page 43
    ...31/08) 1 Year 5 Year 10 Year Proxy Statement YUM! Brands, Inc...S&P 500 Index ...Nondurable Consumer Products Group(2) ...Global Consumer Group (3) ǁ16% 14% 10% ǁ1% 1% 4% ǁ37% ǁ2% ǁ28% ǁ3% ǁ19% 5% 23MAR200920 ... (1) Compound annual growth rate of stock price adjusted for stock splits...

  • Page 44
    ...advisory vote on executive compensation would not be applied uniformly. We also note that a similar proposal was submitted at our last two Annual Meetings. We opposed the proposal each year, and a significant majority of shareholders voted against the proposal both times. After careful consideration...

  • Page 45
    ... level of risk to their ability to supply customers with goods and services cost effectively.'' Yet, the survey found [f]ew executives are confident that their companies can manage these risks successfully and businesses are making surprisingly little use of some well-known analytical tools and...

  • Page 46
    ...developing strategies and initiatives in response. We also issued our first global Corporate Responsibility report in 2008 addressing areas of achievement and opportunity relating to social, environmental and economic impacts. You can download a copy of our Corporate Responsibility report at www.yum...

  • Page 47
    ... regulations of the countries and localities in which they operate. To encourage compliance with all legal requirements and ethical business practices, YUM has established a supplier code of conduct summarized on our web site at www.yum.com/responsibility/supply_chain.asp. Suppliers are expected to...

  • Page 48
    ... and addressed in detail in our global Corporate Responsibility Report. In sum, the proposed sustainability report and review is unnecessary and would not result in any additional benefit to our shareholders or employees. The proposed report would be costly and time-intensive, and is duplicative of...

  • Page 49
    ... American Cancer Society redirected its entire $15 million advertising budget ''to the consequences of inadequate health coverage'' in the United States (New York Times, 8/31/07). John Castellani, president of the Business Roundtable, which represents more than 150 of the country's largest companies...

  • Page 50
    ... through the Company's annual meeting process. Nor does the Board believe that our adoption of the broad and vague principles of one organization will contribute constructively to the public dialogue, will provide better health care solutions for our employees or will benefit our shareholders. FOR...

  • Page 51
    ... reported that 3.7 million birds were scalded to death in one year alone). • Five members of KFC's touted animal welfare council have resigned in frustration. One former member, Adele Douglass, told the Chicago Tribune that KFC ''never had any meetings'' and that she felt that she ''was being used...

  • Page 52
    MANAGEMENT STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL What is the recommendation of the Board of Directors? THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL. What is the Company's position regarding this proposal? YUM, as a major purchaser of food products, has the ...

  • Page 53
    shareholders or employees. In fact, much of what is alleged in the supporting statement to the shareholder proposal is either inaccurate or significantly outdated. A similar proposal was submitted at our last Annual Meeting. We opposed the proposal last year, and shareholders overwhelmingly rejected...

  • Page 54
    ... officers named in the Summary Compensation Table on page 59, and • all directors, director nominees and executive officers as a group. Unless we note otherwise, each of the following persons and their family members has sole voting and investment power with respect to the shares of common stock...

  • Page 55
    ... of the named persons under our Directors Deferred Compensation Plan or our Executive Income Deferral Program. Amounts payable under these plans to the named executive officers and other executive officers will be paid in shares of YUM common stock at termination of employment or within 60 days if...

  • Page 56
    ... our directors, executive officers and persons who own more than 10% of the outstanding shares of YUM common stock to file with the SEC reports of their ownership and changes in their ownership of YUM common stock. Directors, executive officers and greater-than-ten percent shareholders are also...

  • Page 57
    ... straight year of worldwide system same-store-sales growth. Second, we opened a record 1,495 units internationally, remaining the leading developer of new units outside the U.S. Third, we reinforced our position as an industry leader in return on invested capital by increasing our return on invested...

  • Page 58
    ... general managers and executives like owners • design pay programs at all levels that align team and individual performance, customer satisfaction and shareholder return • emphasize long-term incentive compensation • require executives to personally invest in Company stock Objectives of YUM...

  • Page 59
    ... is comprised of the executive officers reporting to the CEO. The total compensation review includes base salary, target bonus award opportunities, and target annual long-term incentive award values. The Committee then sets each executive's compensation target for the current year. Typically, this...

  • Page 60
    ... elect not to use the comparative compensation information at all in the course of making specific compensation decisions. For our named executive officers, other than our CEO, the Committee has set target percentiles for base salary, performance-based annual incentives and long-term incentives as...

  • Page 61
    ... in current and future positions and would be considered a critical loss if they left the Company, we target the 75th percentile for base salary • Performance-based annual incentive compensation-75th percentile to emphasize superior pay for superior performance • Long-term incentives...

  • Page 62
    ... factors and the current market for management talent. Our Compensation Committee reviews each executive officer's salary and performance annually. The Committee does not measure or review the percentile ranking of actual salary decisions. Messrs. Su's and Allan's 2008 salary increase placed their...

  • Page 63
    ... performance, which will result in increased shareholder value over the long term. These measures are designed to align employee goals with the Company's individual brands' and divisions' current year objectives to grow earnings and sales, develop new restaurants and increase customer satisfaction...

  • Page 64
    ... gross new builds for the China Division, system net new builds for the International Division and the impact of development on system sales for the Taco Bell U.S. brand. In the case of customer satisfaction, the performance target represents the percentage of total system stores that must achieve...

  • Page 65
    ... Mr. Su. For Mr. Allan, the Compensation Committee determined that his overall individual performance for 2008 was significantly above target based upon the International Division meeting profit plan, and exceeding system sales growth, development targets and customer service measures, as well as Mr...

  • Page 66
    ...LTI'') Plan, our executive officers are awarded long-term incentives in the form of non-qualified stock options or stock settled stock appreciation rights (''SARs''). The type of award granted is based upon the executives' local tax jurisdiction. Each year the Committee reviews the mix of long-term...

  • Page 67
    ... superior financial performance of the Company in the areas of total shareholder return, return on net assets, EPS growth and operating income growth under his leadership. How we Compensate our Chief Executive Officer Comparative Compensation Data-Mr. Novak In reviewing and setting 2008 compensation...

  • Page 68
    ... Yum's pay for performance philosophy of rewarding performance by increasing his target bonus percentage and making more of the additional compensation at risk. In January 2008, the Committee approved the grant date value of the long-term incentive award having a value of $5.74 million. This award...

  • Page 69
    ... Company's total shareholder return ranked in the top quartile of its peer group for 2 of the last 3 years, and that the new sales layers at the Pizza Hut and Taco Bell brands had performed well. The Committee also noted that development targets were exceeded in the China and International Divisions...

  • Page 70
    ... shares of Company stock based on the 3 year compound annual growth rate of the Company's earnings per share. Retirement Benefits We offer competitive retirement benefits through the YUM! Brands Retirement Plan and the YUM! Brands, Inc. Pension Equalization Plan for employees at all levels who meet...

  • Page 71
    ...; tax preparation services, tax equalization to the United States for salary and bonus; and tax equalization to Hong Kong (up to a maximum of $5 million) with respect to income attributable to certain stock option and SAR exercises and to distributions of deferred income. When Mr. Su retires from...

  • Page 72
    ... for 2008, the Compensation Committee considered each named executive officer's salary, annual incentive award, stock appreciation rights awards, value of outstanding equity awards (vested and unvested), lump sum value of pension at retirement and gains realized from exercising stock options. The...

  • Page 73
    ... in control agreements, in general, pay, in case of an executive's termination of employment for other than cause within two years of the change in control, a benefit of two times salary and bonus and provide for a tax gross-up in case of any excise tax. In addition, unvested stock options and stock...

  • Page 74
    ... for future severance payments to a named executive officer if such payments would exceed 2.99 times the sum of (a) the named executive officer's annual base salary as in effect immediately prior to termination of employment; and (b) the highest annual bonus awarded to the named executive officer by...

  • Page 75
    ...these plans qualify as performance-based compensation. Proxy Statement For 2008, the annual salary paid to Mr. Novak exceeded one million dollars. The Compensation Committee sets Mr. Novak's salary as described above under the heading ''Compensation of Our Chief Executive Officer.'' The other named...

  • Page 76
    ... 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,'' and, on the basis of that review and discussion, recommended that section be included in our Annual Report on Form 10-K and...

  • Page 77
    ...-Shyh S. Su Vice Chairman, President, China Division Graham D. Allan President, Yum! Restaurants International Greg Creed President and Chief Concept Officer, Taco Bell U.S. (1) Year (b) Salary ($)(1) (c) Bonus Stock Awards ($)(2) (d) Option Awards ($)(3) (e) Total($) (i) 18,362,955 15,518...

  • Page 78
    ...our Long Term Incentive Plan. The grant vests after four years and Mr. Novak may not sell the shares until 6 months following his retirement from the Company. The expense of this award is recognized over the vesting period. Information with respect to the RSUs granted to the named executive officers...

  • Page 79
    ... pension plans during the 2008 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). See the Pension Benefits Table at page 67 for a detailed discussion of the Company's pension benefits. The Company does not pay ''above market...

  • Page 80
    ...the income each executive was deemed to receive from IRS tables related to Company provided life insurance in excess of $50,000. The Company provides every salaried employee with life insurance coverage up to one times the employee's salary plus target bonus. (4) This column reports the total amount...

  • Page 81
    ... table provides information on stock appreciation rights and restricted stock units granted for 2008 to each of the Company's named executive officers. The amount of these awards that were expensed is shown in the Summary Compensation Table at page 59. Name (a) Grant Date (b) Estimated Future...

  • Page 82
    ... value of $7 million. The award will be paid to Mr. Novak in shares of YUM Common stock six months following his retirement provided he does not leave the Company before the award vests. (3) Amounts in this column reflect the number of 2008 stock appreciation rights (''SARs'') and stock options...

  • Page 83
    ... YEAR-END The following table shows the number of shares covered by exercisable and unexercisable stock options, SARs and unvested RSUs held by the Company's named executive officers on December 31, 2008. Option Awards(1) Number of Securities Underlying Unexercised Option Options Exercise (#) Price...

  • Page 84
    ... Exercisable (b) Option Awards(1) Number of Securities Underlying Unexercised Option Options Exercise (#) Price Unexercisable ($) (c) (d) Stock Awards Option Expiration Date (e) Number of Shares or Units of Stock That Have Not Vested (#)(2) (g) Market Value of Shares or Units of Stock That Have...

  • Page 85
    ...'') or the YUM! Brands International Retirement Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements. Number of Years of Credited Service (#) (c) Present Value of Accumulated Benefit(4) ($) (d) Payments During Last Fiscal...

  • Page 86
    ... years of pensionable earnings. Pensionable earnings is the sum of the participant's base pay and annual incentive compensation from the Company, including amounts under the YUM! Leaders' Bonus Program. In general base pay includes salary, vacation pay, sick pay, short term disability payments...

  • Page 87
    ... Internal Revenue Code Section 417(e)(3) (currently this is the annual 30-year Treasury rate for the 2nd month preceding the date of distribution and the gender blended 1994 Group Annuity Reserving Table as set forth in Revenue Ruling 2001-62). (2) YUM! Brands Inc. Pension Equalization Plan The YUM...

  • Page 88
    ... same terms and conditions as the Retirement Plan without regard to Internal Revenue Service limitations on amounts of includible compensation and maximum benefits. (4) Present Value of Accumulated Benefits For all plans, the Present Value of Accumulated Benefits (determined as of December 31, 2008...

  • Page 89
    ... same day we make our annual stock appreciation right grants. Amounts attributable to the matching contribution under the YUM! Discount Stock Fund are reflected in column (c) below as contributions by the Company (and represent amounts actually credited to the named executive's account during 2008...

  • Page 90
    ... to 2005, to delay a distribution the new distribution cannot begin until two years after it would have begun without the election to re-defer. Proxy Statement Investments in the YUM! Stock Fund and YUM! Discount Stock Fund are only distributed in shares of Company stock. 23MAR200920294881 72

  • Page 91
    ... under existing plans and arrangements if the named executive's employment had terminated on December 31, 2008, given the named executive'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...

  • Page 92
    ... timing during the year of any such event, the Company's stock price and the executive's age. Stock Options and SAR Awards. If one or more named executive officers terminated employment for any reason other than retirement, death, disability or following a change in control as of December 31, 2008...

  • Page 93
    ... Good Reason (defined in the change in control severance agreements to include a diminution of duties and responsibilities or benefits), the executive will be entitled to receive the following: • a proportionate annual incentive assuming achievement of target performance goals under the bonus plan...

  • Page 94
    ... Total ... DIRECTOR COMPENSATION As described more fully below, this table summarizes compensation paid to each non-employee director during 2008. Fees Earned or Paid in Cash ($) (b) Stock Awards ($) (c) Option Awards ($)(1)(2) (d) All Other Compensation ($)(3) (e) Proxy Statement Name (a) Total...

  • Page 95
    ... fair market value on the date of grant. Directors may elect to receive up to one-half of their stock retainer in cash. Directors may also defer payment of their retainers pursuant to the Directors Deferred Compensation Plan. Deferrals are invested in phantom Company stock and paid out in shares of...

  • Page 96
    ... 31, 2008, 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...

  • Page 97
    ... to Area Coaches, Franchise Business Leaders and other supervisory field operation positions that support RGMs and have profit and loss responsibilities within a defined region or area. While all non-executive officer employees are eligible to receive awards under the RGM plan, all awards granted...

  • Page 98
    ... monitor and review the Company's financial reporting process and discuss management's report on the Company's internal control over financial reporting. It is not the Committee's duty or responsibility to conduct audits or accounting reviews or procedures. The Committee has relied, Proxy Statement...

  • Page 99
    ...part of its oversight of the Company's financial statements, the Committee reviews and discusses with both management and the Company's independent auditors all annual and quarterly financial statements prior to their issuance. During 2008, management advised the Committee that each set of financial...

  • Page 100
    ...materials? 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 101
    ... a director of the Company, if elected. Notice of a proposed item of business must include: • a brief description of the substance of, and the reasons for conducting, such business at the Annual Meeting; • the shareholder's name and address as they appear on our records; • the number of shares...

  • Page 102
    ... the foregoing procedures. Bylaw Provisions. You may contact YUM's Corporate Secretary at the address mentioned above for a copy of the relevant Bylaw provisions regarding the requirements for making shareholder proposals and nominating director candidates. 23MAR200920294881 Proxy Statement 84

  • Page 103
    ...profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction or economic value added. Such goals may be particular to a line of business, Subsidiary, or other unit...

  • Page 104
    ...made no later than the fifteenth day of the third month of the calendar year following the calendar year in which the applicable Performance Period ends. If a Participant to whom an Award has been made dies prior to the payment of the Award, such payment shall be delivered to the Participant's legal...

  • Page 105
    ...shall likewise be paid the amount of such annual incentive award as if Yum had fully achieved the applicable performance target(s) for the Performance Period in which the Change in Control occurs paid within ten (10) business days following the occurrence of the applicable Change in Control. SECTION...

  • Page 106
    ... the Board from adopting, continuing, amending or terminating such additional 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...

  • Page 107
    ... from time to time, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13-G. (e) ''Board'' means the Board of Directors of the Company. (f) A Participant's ''Date of Termination'' with respect to any Award shall be the first day...

  • Page 108
    ...subsection 2.1. (i) ''Participant'' means an Eligible Employee who is selected by the Committee to receive one or more Awards under the Plan. (j) ''Performance-Based Compensation'' means amounts satisfying the applicable requirements imposed by section 162(m) of the Internal Revenue Code of 1986, as...

  • Page 109
    ... any compensation from the Company other than Director's fees, which may be received in cash, stock options or other in-kind consideration. Proxy Statement 2. 23MAR200920 3. IV. Meetings of Committee 1. The Committee shall meet at least four (4) times each fiscal year, and at such other times as...

  • Page 110
    ...in carrying out its oversight responsibility: A. Review and discuss with management and the independent auditors, as applicable, (i) critical accounting policies and practices and major issues regarding accounting principles and financial statement presentations, including any significant changes or...

  • Page 111
    ... passed as immaterial or otherwise. Review with management and the General Counsel the Company's system for assessing whether the Company's financial statements, reports and other financial information required to be disseminated to the public and filed with governmental organizations satisfy the...

  • Page 112
    ... carrying out its oversight responsibility with respect to the independent auditors: A. Review the scope, plan and procedures to be used on the annual audit, as recommended by the independent auditors. Proxy Statement 2. 3. B. 23MAR200920294881 C. Prior to filing the Company's Form 10-K, review...

  • Page 113
    ... responsibility: 1. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Worldwide Code of Conduct and Policy on Conflict of Interest. Proxy Statement 2. Obtain reports from management, the Company...

  • Page 114
    ... to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate, and present fairly the financial position, the results of operations and the cash flows of the Company, in compliance with GAAP. This is the responsibility of management and...

  • Page 115
    ... This Policy sets forth the Audit Committee's procedures and conditions for pre-approving: (1) audit and non-audit services performed by a public accounting firm that acts as the registered public accounting firm (the ''Auditor'') responsible for auditing the consolidated financial statements of YUM...

  • Page 116
    ... any non-audit service to the Company related to marketing, planning or opining in favor of the tax treatment of a transaction that is a confidential transaction or that is an aggressive tax position transaction (both as defined by the Public Company Accounting Oversight Board's rules). The Audit...

  • Page 117
    ... regard to tax services performed by the Auditor, a written description of the arrangement, including the fee arrangement, will be discussed with the Audit Committee, along with the potential effects of the services on the Auditor's independence. XI. PROCEDURES Requests or applications to provide...

  • Page 118
    ... Tire & Rubber Company The Williams Companies, Inc. Time Warner Cable Toys R Us TRW Automotive TXU Corp. UAL Corporation Union Pacific Railroad Co. Viacom Inc. Visteon Corporation Weyerhaeuser Company Wyeth Xerox Corporation Yum! Brands, Inc. Hewitt Associates Data- Companies with Revenues Of $10...

  • Page 119
    ... & Resorts Worldwide, Inc. Stryker Corporation Temple-Inland Inc. Tenet Healthcare Corporation Tennessee Valley Authority The Thomson Corporation Tribune Company Unisys Corporation USG Corporation W.W. Grainger, Inc. Yum! Brands, Inc. Hewitt Associates Data- Companies Reporting Group Revenues of...

  • Page 120
    ... & Decker Corporation The Dow Chemical Company The Procter & Gamble Company The ServiceMaster Company The Sherwin-Williams Company The Thomson Corporation The Williams Companies, Inc. Tribune Company TXU Corp. Tyco International Unite Hewitt Associates Data- Companies Reporting Group Revenues of...

  • Page 121
    ...Technology Securitas Security Services USA* Sodexho* Staples Sun Microsystems Sybron Dental Specialties* Tesoro Texas Instruments Textron Union Pacific United Airlines United States Steel Viacom Visteon Weyerhaeuser Whilrpool Wyeth Xerox Yum! Brands Towers Perrin Data-Companies with Revenues $10 to...

  • Page 122
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  • Page 123
    ... solely of shares of Common Stock) held by non-affiliates of the registrant as of June 14, 2008 computed by reference to the closing price of the registrant's Common Stock on the New York Stock Exchange Composite Tape on such date was $17,938,014,271. All executive officers and directors of the...

  • Page 124
    ... of Operations included in Part II, Item 7 of this Form 10-K. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. In making these statements, we are not undertaking to address or update any risk factor set forth herein, in future filings or...

  • Page 125
    ... 106. (c) Narrative Description of Business Form 10-K General YUM is the world's largest quick service restaurant ("QSR") company based on number of system units, with more than 36,000 units in more than 110 countries and territories. Through the five concepts of KFC, Pizza Hut, Taco Bell, LJS and...

  • Page 126
    ...2008, the China Division achieved revenues of $3.1 billion and Operating Profit of $469 million. Restaurant Concepts Most restaurants in each Concept offer consumers the ability to dine in and/or carry out food. In addition, Taco Bell, KFC, LJS and A&W offer a drive-thru option in many stores. Pizza...

  • Page 127
    ...the first 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 is based in Dallas, Texas. As of year end 2008, Pizza Hut was the leader in the U.S. pizza QSR segment, with a 15 percent market share...

  • Page 128
    ... the first LJS franchise unit opened later the same year. LJS is based in Louisville, Kentucky. As of year end 2008, LJS was the leader in the U.S. seafood QSR segment, with a 35 percent market share (Source: The NPD Group, Inc.; NPD Foodworld; CREST) in that segment. LJS operates in 7 countries and...

  • Page 129
    ... registered trademarks and service marks. The Company believes that many of these marks, including its Kentucky Fried Chicken®, KFC®, Pizza Hut®, Taco Bell® and Long John Silver's® marks, have significant value and are materially important to its business. The Company's policy is to pursue...

  • Page 130
    ... the competitive market outside the U.S. Research and Development ("R&D") The Company's subsidiaries operate R&D facilities in Louisville, Kentucky (KFC); Dallas, Texas (Pizza Hut and YRI); and Irvine, California (Taco Bell) and in several locations outside the U.S., including Shanghai, China (China...

  • Page 131
    ... or competitive position. Employees As of year end 2008, the Company employed approximately 336,000 persons, approximately 85 percent of whom were part-time. Approximately 26 percent of the Company's employees are employed in the U.S. The Company believes that it provides working conditions and...

  • Page 132
    ... China and the value of our Chinese assets are affected by fluctuations in currency exchange rates, which may favorably or adversely affect reported earnings. There can be no assurance as to the future effect of any such changes on our results of operations, financial condition or cash flows. Form...

  • Page 133
    ... operating expenses also include employee benefits and insurance costs (including workers' compensation, general liability, property and health) which may increase over time. Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues...

  • Page 134
    ... number of our franchisees become financially distressed, this could harm our operating results through reduced or delayed royalty payments or increased rent obligations for leased properties on which we are contingently liable. Our results and financial condition could be affected by the success...

  • Page 135
    ... to attract and retain employees. We may not attain our target development goals. Our growth strategy depends in large part on our ability to increase our net restaurant count in markets outside the United States. The successful development of new units will depend in large part on our ability and...

  • Page 136
    ... successfully with other retail food outlets in new and existing markets, our business could be adversely affected. In the retail food industry, labor is a primary operating cost component. Competition for qualified employees could also require us to pay higher wages to attract a sufficient number...

  • Page 137
    ... our operations, cash flows or capital resources. The Company currently does not have a significant number of units that it leases or sub-leases to franchisees. Pizza Hut and YRI lease their corporate headquarters and a research facility in Dallas, Texas. Taco Bell leases its corporate headquarters...

  • Page 138
    ... addition, each year thousands of persons seek employment with the Company and its restaurants. From time to time, disputes arise regarding employee hiring, compensation, termination and promotion practices. Like other retail employers, the Company has been faced in a few states with allegations of...

  • Page 139
    ... to joining Taco Bell, Mr. Brolick served as Senior Vice President of New Product Marketing, Research & Strategic Planning for Wendy's International, Inc. from August 1995 to July 2000. Scott O. Bergren, 62, is President and Chief Concept Officer of Pizza Hut. He has served in this position since...

  • Page 140
    ...Board since March 2008, and he has served as President of YUM Restaurants China since 1997. Prior to this, he was the Vice President of North Asia for both KFC and Pizza Hut. Mr. Su started his career with YUM in 1989 as KFC International's Director of Marketing for the North Pacific area. Executive...

  • Page 141
    .... 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. All per share and share amounts...

  • Page 142
    ... Securities The following table provides information as of December 27, 2008 with respect to shares of Common Stock repurchased by the Company during the quarter then ended: Total number of shares purchased as part of publicly announced plans or programs - Approximate dollar value of shares that may...

  • Page 143
    ...the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Stock Index and the S&P 500 Consumer Discretionary Sector, a peer group that includes YUM, for the period from December 26, 2003 to December 26, 2008, the last trading day of our 2008 fiscal year. The graph...

  • Page 144
    ... Data. Selected Financial Data YUM! Brands, Inc. and Subsidiaries (in millions, except per share and unit amounts) Fiscal Year 2006 2008 Summary of Operations Revenues Company sales Franchise and license fees Total Closures and impairment income (expenses)(a) Refranchising gain (loss)(a) Operating...

  • Page 145
    ... all our revenue drivers, Company and franchise same store sales as well as net unit development. Same store sales growth includes the results of all restaurants that have been open one year or more. Additionally, we began reporting information for our international business in two separate...

  • Page 146
    ... 26, 2007 stock split (see Note 3). Description of Business YUM is the world's largest restaurant company in terms of system restaurants with over 36,000 restaurants in more than 110 countries and territories operating under the KFC, Pizza Hut, Taco Bell, Long John Silver's or A&W All-American Food...

  • Page 147
    ... of Pizza Hut Home Service (pizza delivery) and East Dawning (Chinese food). Our ongoing earnings growth model includes annual system-sales growth of 20% in mainland China driven by new unit development each year, which we expect to drive annual operating profit growth of 20% in the China Division...

  • Page 148
    ... on Operating Profit Changes in foreign currency exchange rates positively impacted the translation of our foreign currency denominated Operating Profit in our International and China Divisions by $9 million and $41 million, respectively, for the year ended December 27, 2008 and $24 million and...

  • Page 149
    ... for performance reporting purposes. In the year ended December 27, 2008, we recorded a pre-tax loss of $5 million from refranchising in the U.S., pre-tax expense related to U.S. G&A productivity initiatives and realignment of resources of $49 million, and pre-tax expense related to investments in...

  • Page 150
    ... rate changes positively impacted our 2008 net income by approximately $20 million compared to what it would have otherwise been had no new tax legislation been enacted. The impacts on our income tax provision and operating profit in the year ended December 29, 2007 were not significant. Pizza Hut...

  • Page 151
    ... were Company stores in the prior year. The following table summarizes the impact of refranchising as described above: Form 10-K Decreased Company sales Increased Franchise and license fees Decrease in Total revenues $ $ U.S. (300) 16 (284) $ $ YRI (106) 6 (100) 2008 China Division Worldwide...

  • Page 152
    ...20 (354) YRI (144) 9 (135) China Division Worldwide (3) $ $ (521) - 29 (3) $ $ (492) Decreased Company sales Increased Franchise and license fees Decrease in Total revenues $ $ $ $ The following table summarizes the estimated impact on Operating Profit of refranchising: 2008 U.S. (19) 16 7 4 YRI...

  • Page 153
    ...(a) 18,117 349 1 - (492) 2 17,977 363 1 United States Balance at end of 2006 New Builds Acquisitions Refranchising Closures Other Balance at end of 2007 New Builds Acquisitions Refranchising Closures Other Balance at end of 2008 % of Total Company 4,212 87 8 (304) (106) (1) 3,896 94 95 (700...

  • Page 154
    ... - 272 8% Form 10-K The Worldwide, U.S. and YRI totals exclude 2,168, 1,994 and 174 licensed units, respectively, at December 27, 2008. There are no licensed units in the China Division. Licensed units are generally units that offer limited menus and operate in non-traditional locations like malls...

  • Page 155
    ...a new multibrand restaurant, while increasing sales and points of distribution for two brands, results in just one additional unit count. Franchise unit counts include both franchisee and unconsolidated affiliate multibrand units. Multibrand restaurant totals were as follows: 2008 U.S. YRI Worldwide...

  • Page 156
    ... tables detail the key drivers of system sales growth for each reportable segment by year. Same store sales growth is the estimated growth in sales of all restaurants that have been open one year or more. Net unit growth and other represents the net impact of actual system sales growth due to new...

  • Page 157
    ... U.S. YRI China Division Worldwide The following tables detail the key drivers of the year-over-year changes of Company sales and Franchise and license fees. Same store sales growth is the estimated growth in sales of all restaurants that have been open one year or more. Net unit growth represents...

  • Page 158
    ... China Division Worldwide $ The percentage changes in franchise and license fees by year were as follows: 2008 vs. 2007 U.S. 2% 1 2 - N/A 5% N/A YRI 6% 5 1 1 2 15% 13% China Division 4% 6 - (16) 8 2% (6)% Worldwide 4% 3 2 (1) 1 9% 8% Same store sales growth (decline) Net unit growth Refranchising...

  • Page 159
    ... wage rates) and the impact of lower margins associated with Pizza Hut units in the U.K. which we now operate. As a percentage of sales, Pizza Hut U.K. restaurants negatively impacted payroll and employee benefits and occupancy and other expenses and positively impacted food and paper. Form 10...

  • Page 160
    ... The increase was driven by higher annual incentive and other compensation costs, including amounts associated with strategic initiatives in China and other international growth markets. Worldwide Franchise and License Expenses Franchise and license expenses increased 86% in 2008. The increase was...

  • Page 161
    ... and an increase in Other income. YRI Operating Profit increased 10% in 2008, including a 2% favorable impact from foreign currency translation. The increase was driven by the impact of same store sales growth and net unit development on Franchise and license fees. These increases were partially...

  • Page 162
    ... store sales growth and new unit development on restaurant profit and franchise and license fees. The increase was partially offset by higher G&A expenses (including expenses which were previously netted within equity income prior to our acquisition of the remaining fifty percent of the Pizza Hut...

  • Page 163
    ... realized in the future. Our 2007 effective income tax rate was positively impacted by valuation allowance reversals. In December 2007, the Company finalized various tax planning strategies based on completing a review of our international operations, distributed a $275 million intercompany dividend...

  • Page 164
    ...thus reported on our Consolidated Statement of Cash Flows for the year ended December 29, 2007. The offset to this cash on our Consolidated Balance Sheet at December 29, 2007 was in accounts payable and other current liabilities. In 2007, net cash used in investing activities was $416 million versus...

  • Page 165
    ... credit markets while continuing to build our liquidity and maintaining our financial flexibility, we do not currently plan to repurchase shares in 2009. Additionally, we are managing our cash and debt positions in order to maintain our current investment grade ratings from Standard & Poor's Rating...

  • Page 166
    ... other transactions specified in 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, 2008 with a considerable amount of cushion. The majority of our remaining long-term debt primarily comprises Senior...

  • Page 167
    ... status. We currently estimate that we will contribute approximately $80 million to the U.S. Plan in 2009. Contributions beyond 2009 will depend upon the timing and amount of our asset returns as well as changes in applicable discount rates. At our 2008 measurement date, our pension plans in the...

  • Page 168
    ... table payments we may make for exposures for which we are selfinsured, including workers' compensation, employment practices liability, general liability, automobile liability, product liability and property losses (collectively "property and casualty losses") and employee healthcare and long-term...

  • Page 169
    ... business management units internationally (typically individual countries). Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using either discounted expected future cash flows from operations or the present value of the estimated future franchise...

  • Page 170
    ...company sales, franchise and license fees and restaurant profit and are consistent with our internal operating plans. 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 constitutes a reporting unit...

  • Page 171
    ... our pension expense. Our estimated long-term rate of return on U.S. plan assets represents the weighted-average of historical returns for each asset category, adjusted for an assessment of current market conditions. Our expected long-term rate of return on U.S. plan assets at December 27, 2008 was...

  • Page 172
    ...20% of all awards granted to above-store executives will be forfeited. Income Taxes At December 27, 2008, we had a valuation allowance of $254 million primarily to reduce our net operating loss and tax credit carryforward benefits of $256 million, as well as our other deferred tax assets, to amounts...

  • Page 173
    ... tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. At December 27, 2008, we had $296 million of unrecognized tax benefits, $225 million of which, if recognized, would affect the effective tax rate. Since...

  • Page 174
    ... volatility in food costs as a result of market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We manage our exposure to this risk primarily through pricing agreements with...

  • Page 175
    ... Balance Sheets as of December 27, 2008 and December 29, 2007 Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) for the fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006 Notes to Consolidated Financial Statements Management...

  • Page 176
    ... Public Accounting Firm The Board of Directors and Shareholders YUM! Brands, Inc.: We have audited the accompanying consolidated balance sheets of YUM! Brands, Inc. and Subsidiaries (YUM) as of December 27, 2008 and December 29, 2007, and the related consolidated statements of income, cash...

  • Page 177
    ...the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of YUM as of December 27, 2008 and December 29, 2007, and the related consolidated statements of income, cash flows, and shareholders' equity (deficit) and comprehensive income (loss) for each of the years...

  • Page 178
    ...(in millions, except per share data) 2008 2007 Revenues Company sales $ 9,843 $ 9,100 Franchise and license fees 1,436 1,316 Total revenues 11,279 10,416 Costs and Expenses, Net Company restaurants Food and paper Payroll and employee benefits Occupancy and other operating expenses Company restaurant...

  • Page 179
    ... Stock Excess tax benefit from share-based compensation Employee stock option proceeds Dividends paid on Common Stock Other, net Net Cash Used in Financing Activities Effect of Exchange Rate on Cash and Cash Equivalents Net Increase (Decrease) in Cash and Cash Equivalents Change in Cash and Cash...

  • Page 180
    ...Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders' Equity (Deficit) Common Stock, no par value, 750 shares authorized; 459 shares and 499 shares issued in 2008 and 2007, respectively Retained earnings Accumulated other comprehensive income (loss) Total Shareholders...

  • Page 181
    Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006 (in millions, except per share data) Issued Common Stock Shares Amount 556 $ - Retained Earnings ...

  • Page 182
    ...to as "YUM" or the "Company") comprises the worldwide operations of KFC, Pizza Hut, Taco Bell, Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") (collectively the "Concepts"). YUM is the world's largest quick service restaurant company based on the number of system units, with...

  • Page 183
    ... Balance Sheet representing our transferable right to tenancy under commercial property leases in certain International locations. Additionally, we reclassified $54 million from long-term Deferred income tax assets to Other liabilities and deferred credits to present deferred tax assets associated...

  • Page 184
    ... Company presents sales net of sales tax and other sales related taxes. We recognize initial fees received from a franchisee or licensee as revenue when we have performed substantially all initial services required by the franchise or license agreement, which is generally upon the opening of a store...

  • Page 185
    ... closed store, any gain or loss upon that sale is also recorded in store closure (income) costs. Refranchising (gain) loss includes the gains or losses from the sales of our restaurants to new and existing franchisees and the related initial franchise fees, reduced by transaction costs. In executing...

  • Page 186
    ... between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating 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 in which...

  • Page 187
    ... with its carrying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using either discounted expected future cash flows from operations or the present value of the estimated future franchise royalty stream plus any estimated sales proceeds from...

  • Page 188
    ...the cost of any further share repurchases as a reduction in retained earnings. Due to the large number of share repurchases and the increase in our Common Stock market value over the past several years, our Common Stock balance is frequently zero at the end of any period. Accordingly, $1,434 million...

  • Page 189
    ... interest on restaurant construction projects, the leases of our then Pizza Hut United Kingdom ("U.K.") unconsolidated affiliate and certain state tax benefits. The net income statement impact on any given year from the use of these nonGAAP conventions was immaterial both individually and in the...

  • Page 190
    ... tax returns instead of in the year the benefit originated. We increased our 2006 beginning retained earnings by approximately $7 million to recognize these state tax benefits as deferred tax assets. New Accounting Pronouncements Not Yet Adopted. In February 2008, the FASB issued FASB Staff Position...

  • Page 191
    ... May 17, 2007, the Company announced that its Board of Directors approved a two-for-one split of the Company's outstanding shares of Common Stock. The stock split was effected in the form of a stock dividend and entitled each shareholder of record at the close of business on June 1, 2007 to receive...

  • Page 192
    ... in a pre-tax loss of $5 million. These refranchising losses were the net result of our refranchising of, or offers to refranchise, stores or groups of stores in the U.S. at prices less than their recorded carrying values. We provided severance and early retirement benefits to certain U.S. based...

  • Page 193
    ... pre-tax expenses of $7 million related to investments in our U.S. Brands. We are not including the impacts of these U.S. business transformation measures in our U.S. segment for performance reporting purposes as we do not believe they are indicative of our ongoing operations. Pizza Hut United...

  • Page 194
    ... to segments for performance reporting purposes. Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company restaurant that was closed, lease reserves established when we cease using a property under an operating lease and subsequent...

  • Page 195
    ... total $31 million and $9 million, respectively, of U.S. property, plant and equipment and are included in prepaid expenses and other current assets on our Consolidated Balance Sheets. Note 6 - Supplemental Cash Flow Data 2008 Cash Paid For: Interest Income taxes Significant Non-Cash Investing and...

  • Page 196
    ... all KFCs and Pizza Huts in Poland and the Czech Republic to our then partner in the entity. Reflects an $8 million charge associated with the termination of a beverage agreement in the U.S. segment. Fiscal year 2007 reflects financial recoveries from settlements with insurance carriers related to...

  • Page 197
    ... expense related to property, plant and equipment was $542 million, $514 million and $466 million in 2008, 2007 and 2006, respectively. Note 10 - Goodwill and Intangible Assets The changes in the carrying amount of goodwill are as follows: China Division $ 58 - 2 $ 60 6 - $ 66 Balance as...

  • Page 198
    ... intangible assets will approximate $17 million annually in 2009 through 2012 and $14 million in 2013. Note 11 - Accounts Payable and Other Current Liabilities 2008 Accounts payable $ 508 Capital expenditure liability 130 Accrued compensation and benefits 376 Dividends payable 87 Proceeds from sale...

  • Page 199
    ...the Alternate Base Rate, as applicable, depends on our performance under specified financial criteria. Interest on any outstanding borrowings under the Credit Facility is payable at least quarterly. We also have a $350 million, syndicated revolving credit facility (the "International Credit Facility...

  • Page 200
    ... other transactions specified in 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, 2008 with a considerable amount of cushion. The majority of our remaining long-term debt primarily comprises Senior...

  • Page 201
    ... pay related executory costs, which include property taxes, maintenance and insurance. In 2007, we entered into an agreement to lease a corporate aircraft to enhance our international travel capabilities. This lease provided for an upfront payment of $10 million and monthly payments for three years...

  • Page 202
    ... to interest expense. As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our...

  • Page 203
    ... time to time we have guaranteed certain lines of credit and loans of unconsolidated affiliates. At December 27, 2008 there are no guarantees outstanding for unconsolidated affiliates. Our unconsolidated affiliates had total revenues of $871 million for the year ended December 27, 2008 and assets...

  • Page 204
    ...in part, by the large number of franchisees and licensees of each Concept and the short-term nature of the franchise and license fee receivables. On December 30, 2007, the Company adopted the provisions of SFAS 157 related to its financial assets and liabilities. The carrying amounts and fair values...

  • Page 205
    ... Note 2. Pension Benefits. We sponsor noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the "Plan"), is funded while benefits from the other U.S. plans are paid by the Company as...

  • Page 206
    ... Service cost Interest cost Participant contributions Plan amendments Acquisitions Curtailment gain Settlement loss Special termination benefits Exchange rate changes Benefits paid Settlement payments Actuarial (gain) loss Benefit obligation at end of year Change in plan assets Fair value of plan...

  • Page 207
    ... Income: U.S. Pension Plans 2008 2007 $ 371 $ 77 3 3 $ 374 $ 80 International Pension Plans 2008 2007 $ 41 $ 13 - - $ 41 $ 13 Actuarial net loss Prior service cost The accumulated benefit obligation for the U.S. and International pension plans was $970 million and $900 million at December 27, 2008...

  • Page 208
    ...payments from a non-funded plan exceeding the sum of the service cost and interest cost for that plan during the year. Special termination benefits primarily related to the U.S. business transformation measures taken in 2008. Excludes pension expense for the Pizza Hut U.K. pension plan of $4 million...

  • Page 209
    ...75% International Pension Plans 2008 2007 5.50% 5.60% 4.10% 4.30% Discount rate Rate of compensation increase Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years: U.S. Pension Plans Discount rate Long-term rate of return on plan assets Rate of compensation...

  • Page 210
    ... million. Note 16 - Stock Options and Stock Appreciation Rights At year end 2008, we had four stock award plans in effect: the YUM! Brands, Inc. Long-Term Incentive Plan ("1999 LTIP"), the 1997 Long-Term Incentive Plan ("1997 LTIP"), the YUM! Brands, Inc. Restaurant General Manager Stock Option Plan...

  • Page 211
    ...than ten years after grant. At year end 2008, approximately 30 million shares were available for future share-based compensation grants under the above plans. We estimated the fair value of each award made during 2008, 2007 and 2006 as of the date of grant using the BlackScholes option-pricing model...

  • Page 212
    ..., it does not currently plan to repurchase shares during 2009. In January 2008, we granted an award of 187,398 restricted stock units to our Chief Executive Officer ("CEO"). The award was made under the 1999 LTIP. The award vests after four years and had a market value of $7.0 million as of January...

  • Page 213
    ...20 million, $17 million and $16 million in 2008, 2007 and 2006, respectively. Contributory 401(k) Plan We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for eligible U.S. salaried and hourly employees...

  • Page 214
    ... (0.6 million shares) with trade dates prior to the 2006 fiscal year end but cash settlement dates subsequent to the 2006 fiscal year end. (b) (c) Accumulated Other Comprehensive Income (Loss) - Comprehensive income is net income plus certain other items that are recorded directly to shareholders...

  • Page 215
    ... from a tax law change. The $17 million of expense for 2007 includes $20 million for the Mexico tax law change enacted during the fourth quarter of 2007. The 2008 deferred state tax provision includes $18 million ($12 million, net of federal tax) of expense for the impact associated with our plan to...

  • Page 216
    ... realized in the future. Our 2007 effective income tax rate was positively impacted by valuation allowance reversals. In December 2007, the Company finalized various tax planning strategies based on completing a review of our international operations, distributed a $275 million intercompany dividend...

  • Page 217
    ... Net deferred tax assets Intangible assets and property, plant and equipment Lease related assets Other Gross deferred tax liabilities Net deferred tax assets (liabilities) Reported in Consolidated Balance Sheets as: Deferred income taxes - current Deferred income taxes - long-term Accounts payable...

  • Page 218
    ..., certain long-term Deferred income tax assets against unrecognized tax benefits included as part of Other liabilities and deferred credits recorded on our Consolidated Balance Sheet at December 29, 2007. The Company had $296 million of unrecognized tax benefits at December 27, 2008, $225 million of...

  • Page 219
    ...KFC, Pizza Hut, Taco Bell, LJS and A&W operate throughout the U.S. and in 108, 96, 16, 6 and 9 countries and territories outside the U.S., respectively. Our five largest international markets based on operating profit in 2008 are China, Asia Franchise, Australia, United Kingdom, and Europe Franchise...

  • Page 220
    ... Includes investment in unconsolidated affiliates of $65 million, $90 million and $74 million for 2008, 2007 and 2006, respectively, for the China Division. Primarily includes deferred tax assets, property, plant and equipment, net, related to our office facilities and cash. Includes property, plant...

  • Page 221
    .... Includes long-lived assets of $905 million, $651 million and $495 million in mainland China for 2008, 2007 and 2006, respectively. See Note 5 for additional operating segment disclosures related to impairment, store closure (income) costs and the carrying amount of assets held for sale. Note...

  • Page 222
    ... 20, 2008, the court entered an Order Granting Final Judgment. The costs associated with the settlement did not significantly impact our results of operations. On August 4, 2006, a putative class action lawsuit against Taco Bell Corp. styled Rajeev Chhibber vs. Taco Bell Corp. was filed in Orange...

  • Page 223
    ..., failure to pay wages upon discharge, failure to provide itemized wage statements, unfair business practices and wrongful termination and discrimination. This case is very similar to the Medlock case; accordingly, on July 3, 2008, Taco Bell filed a notice of related case. The Company was dismissed...

  • Page 224
    ... time. Likewise, the amount of any potential loss cannot be reasonably estimated. On October 14, 2008, a putative class action styled Kenny Archila v. KFC U.S. Properties, Inc., was filed in California state court on behalf of all California hourly employees alleging various California Labor Code...

  • Page 225
    ... 71 persons who became ill in association with the outbreak in the above-mentioned area during the above time frame, and that no deaths have been reported. On December 6, 2006, a lawsuit styled Tyler Vormittag, et. al. v. Taco Bell Corp, Taco Bell of America, Inc. and Yum! Brands, Inc. was filed in...

  • Page 226
    ... to its reputation and business as a result of publications and/or statements it claims were made by Taco Bell in connection with Taco Bell's reporting of results of certain tests conducted during investigations on green onions used at Taco Bell restaurants. The Company believes that the Complaint...

  • Page 227
    ... 22 - Selected Quarterly Financial Data (Unaudited) 2008 Third Quarter $ 2,482 353 2,835 358 407 282 0.60 0.58 - First Quarter Revenues: Company sales Franchise and license fees Total revenues Restaurant profit(a) Operating Profit(b) Net income Basic earnings per common share Diluted earnings per...

  • Page 228
    ... internal control over financial reporting, designed to provide reasonable assurance as to the reliability of the financial statements, as well as to safeguard assets from unauthorized use or disposition. The system is supported by formal policies and procedures, including an active Code of Conduct...

  • Page 229
    ... covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company's management, including the Chairman, Chief Executive Officer and President (the "CEO") and the Chief Financial Officer (the "CFO"), the Company's management, including the CEO...

  • Page 230
    ... proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 27, 2008. Information regarding executive officers of the Company is included in Part I. Item 11. Executive Compensation. Information regarding executive and director compensation...

  • Page 231
    ...in the financial statements or the related notes thereto filed as a part of this Form 10-K. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this Form 10-K. The Index to Exhibits specifically identifies each management contract or compensatory plan required to...

  • Page 232
    ... the Board, Chief Executive Officer and President (principal executive officer) Chief Financial Officer (principal financial officer) Senior Vice President Finance and Corporate Controller (principal accounting officer) Director Director Director Director Director Director Director Director Director...

  • Page 233
    ... Amended and Restated Sales and Distribution Agreement between AmeriServe Food Distribution, Inc., YUM, Pizza Hut, Taco Bell and KFC, effective as of November 1, 1998, which is incorporated herein by reference from Exhibit 10 to YUM's Annual Report on Form 10-K for the fiscal year ended December 26...

  • Page 234
    ...Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company and David C. Novak, dated as of January 24, 2008, which is incorporated herein by reference from Exhibit 10.33 to YUM's Annual Report on Form 10-K for the fiscal year ended December 29, 2007. Credit Agreement...

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  • Page 236
    ... Form 1099-B x Purchase shares of YUM through the Company's Direct Stock Purchase Plan x Sell shares held by AST Shareholder Services DIRECT STOCK PURCHASE PLAN A prospectus and a brochure explaining this convenient plan are available from our transfer agent: American Stock Transfer & Trust Company...

  • Page 237
    ... STOCK TRADING SYMBOL-YUM The New York Stock Exchange is the principal market for YUM Common Stock. Franchise Inquiries DOMESTIC FRANCHISING INQUIRY PHONE LINE (866) 2YUMYUM (298-6986) INTERNATIONAL FRANCHISING INQUIRY PHONE LINE (972) 338-8100 ext. 4480 ONLINE FRANCHISE INFORMATION http://www.yum...

  • Page 238
    ... and Corporate Controller, Yum! Brands, Inc. Patrick C. Murtha 51 Chief Operating Officer, Pizza Hut Laurence Roberts 49 Chief Operating Officer, KFC Rob Savage 48 Chief Operating Officer, Taco Bell Kenneth Langone 73 Founder, Chairman, Chief Executive Officer and President, Invemed Associates, LLC...

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    alone We're delicioUs. togetHer We're yUm! WWW.yUm.com/annUalreport