Kentucky Fried Chicken 2009 Annual Report Download

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power
the of
Yum! Brands 2009 Annual Customer Mania Report
building the dening
global company
that feeds the world

Table of contents

  • Page 1
    the power of global company building the defining that feeds the world Yum! Brands 2009 Annual Customer Mania Report

  • Page 2
    Financial Highlights (In millions, except for per share amounts) Year-end 2009 2008 % 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 Cash flows provided by operating activities $ 9,...

  • Page 3
    ... in net income and we generated $1.4 billion of cash from operations. Importantly, we continued to be an industry leader with Return On Invested Capital (ROIC) of 20%. We achieved all of our goals with the exception of our same store sales, driven in large part by a weak global economy, significant...

  • Page 4
    2

  • Page 5
    ... Huts with average unit volumes of $1.2 million and margins of 19%. Given these incredible unit economics, we can open up new restaurants with cash paybacks within 2-3 years. Our single biggest advantage is we have arguably the finest operating team in the world that knows how to satisfy customers...

  • Page 6
    4

  • Page 7
    ... profits compared to just 20% when we started our company. According to Business Week, we are one of only five companies in the world to have two of the top global brands with KFC and Pizza Hut. With the benefit of increasing global prosperity, the development of massive, under-penetrated markets...

  • Page 8
    6

  • Page 9
    ... China, Yum! Restaurants International and Taco Bell US." In particular, we wanted to drive home the fact Taco Bell is our big US growth engine, accounting for over 60% of our US profits and consistent net unit growth with lots of potential. While Taco Bell is coming off a year when same store sales...

  • Page 10
    ... audits and racking and stacking operating performance of both company and franchise stores. So we are better prepared to offer the consumer more choice, better value and better service, but like I said we have more to do. Our goal is to stay focused on building the business back the right way and...

  • Page 11
    ... financial shape. 2009: ROIC 20%, EPS + 13% Yum! Stock Price +17% Shareholder & Franchisee Value Ongoing Model: Maintain an IndustryLeading Return On Invested Capital of 20%; Return Meaningful Value to Shareholders Through Share Repurchases and a Dividend Pay-Out Ratio of 35-40% of Net Income...

  • Page 12
    ...per year. For 2010, new unit development outside the United States drives 6 percentage points and we expect the balance of our growth to come from our base business through overall global same store sales growth of 2%, productivity initiatives and expense leverage along with an expected benefit from...

  • Page 13
    ...$45 million dollars of our company's food to domestic food banks annually. As you can see, Yum! Brands and our franchise partners do a lot of good in the communities we serve. Check out our company's Corporate Responsibility Report which is published online at Yum.com. A Defining Global Company will...

  • Page 14

  • Page 15

  • Page 16
    ...Chairman of the Board and Chief Executive Officer Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 20, 2010-this Notice and proxy statement is available at www.yum.com/investors/investor_materials.asp and the Annual Report on Form 10-K is...

  • Page 17

  • Page 18
    ... as may properly come before the meeting. Items of Business: You can vote if you were a shareholder of record as of the close of business on March 22, 2010. You may also read the Company's Annual Report and this notice and proxy statement on our Web site at www.yum.com/annualreport and www.yum.com...

  • Page 19
    ... and Director Biographies ...Item 2: Ratification of Independent Auditors ...Item 3: Shareholder Proposal Relating to Right to Call Special Shareowner Meetings ...STOCK OWNERSHIP INFORMATION ...EXECUTIVE COMPENSATION ...Compensation Discussion and Analysis ...Management Planning and Development...

  • Page 20
    ... Lane Louisville, Kentucky 40213 PROXY STATEMENT For Annual Meeting of Shareholders To Be Held On May 20, 2010 The Board of Directors (the ''Board of Directors'' or the ''Board'') of YUM! Brands, Inc., a North Carolina corporation (''YUM'' or the ''Company''), solicits the enclosed proxy for use at...

  • Page 21
    ... be responsible for any costs associated with electronic access, such as usage charges from Internet service providers and telephone companies. If you are a participant in the Direct Stock Purchase Plan, the administrator of this program, as the shareholder of record, may only vote the shares for...

  • Page 22
    ... Time, on May 19, 2010. Can I vote at the meeting? Shares registered directly in your name as the shareholder of record may be voted in person at the Annual Meeting. Shares held in street name may be voted in person only if you obtain a legal proxy from the broker or nominee that holds your shares...

  • Page 23
    ... beneficial owner of the shares with respect to that proposal, the brokerage firm cannot vote the shares on that proposal. This is called a ''broker non-vote.'' How can I attend the meeting? The Annual Meeting is open to all holders of YUM common stock as of the close of business on March 22, 2010...

  • Page 24
    ... 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 25
    ... 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 26
    ...of business conduct. The 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 all employees of the Company, including...

  • Page 27
    ... to the Company and emphasizes those areas in which the Board believes a better contribution could be made. In addition, the Audit, Management Planning and Development and Nominating and Governance Committees also each conduct similar annual self-evaluations. • Majority Voting Policy. In May...

  • Page 28
    ... and shareholder return, emphasize long-term incentives and require executives to personally invest in Company stock. In 2010, the Management Planning and Development Committee of the Board of Directors oversaw the performance of a risk assessment of our compensation programs for all employees to...

  • Page 29
    ... Executive Officer and President of CVS. In 2007, YUM entered into a transaction with CVS to sublease a long range aircraft through the Fall of 2010. At that time, YUM will have an option to purchase the aircraft from CVS. After reviewing the terms of the transaction, including the lease payments...

  • Page 30
    ... policies on reporting concerns regarding accounting and other matters in addition to our policy on communicating with our non-management directors. Any person, whether or not an employee, who has a concern about the conduct of the Company or any of our people, with respect to accounting, internal...

  • Page 31
    What are the committees of the Board? The Board of Directors has standing Audit, Management Planning and Development, Nominating and Governance and Executive/Finance Committees. Name of Committee and Members Number of Meetings in Fiscal 2009 Functions of the Committee Audit: J. David Grissom, ...

  • Page 32
    ... the performance 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 The Board has...

  • Page 33
    ... of $1 million or 2% of that company's total revenues and the related person is not an executive officer of the other company. During fiscal 2009, affiliates of Harman Management Corporation (''Harman''), as KFC, Taco Bell, Pizza Hut, Long John Silver's and A&W All American Food franchisees, paid...

  • Page 34
    ... to hold office until the 2011 Annual Meeting and until their respective successors are elected and qualified are provided below. The biographies of each of the nominees below contains information regarding the person's service as a director, business experience, director positions held currently or...

  • Page 35
    ... a director of AK Steel Holding Corporation, The Home Depot, Inc., and California Water Service Group. She serves as the Lead Director of the Board of Directors of The Home Depot, Inc. She also serves on the Public Company Accounting Oversight Board Investor Advisory Group and the Financial Industry...

  • Page 36
    ... and management experience, including as chief executive officer of a financial services business • Expertise in finance, strategic planning, business development and retail business • Public company directorship and committee experience • Independent of Company 21MAR201012 Proxy Statement...

  • Page 37
    ...and chief executive officer of a global travel-related services company • Expertise in finance, marketing and international business development • Public company directorship and committee experience • Independent of Company 21MAR201012032309 Proxy Statement Thomas C. Nelson Age 47 Director...

  • Page 38
    ... • Operating and management experience, including as chairman and chief executive officer of the Company • Expertise in strategic planning, global branding, franchising, finance and corporate leadership • Public company directorship and committee experience Thomas M. Ryan Age 57 Director since...

  • Page 39
    ... business integrations, financial reporting, compliance and controls • Public company directorship and committee experience • Independent of Company If elected, we expect that all of the aforementioned nominees will serve as directors and hold office until the 2011 Annual Meeting of Shareholders...

  • Page 40
    ... over financial reporting, statutory audits and services rendered in connection with the Company's securities offerings. (2) Audit-related fees for 2009 and 2008 included audits of financial statements of certain employee benefit plans, agreed upon procedures related to certain state tax credits and...

  • Page 41
    ... engagements, including actual services provided and associated fees, and must promptly report any non-compliance with the pre-approval policy to the Chairperson of the Audit Committee. Proxy Statement The complete policy is available on the Company's Web site at www.yum.com/governance/media...

  • Page 42
    ...state law) that apply only to shareowners but not to management and/or the board. Supporting Statement Special meetings allow shareowners to vote on important matters, such as electing new directors, that can arise between annual meetings. If shareowners cannot call special meetings investor returns...

  • Page 43
    ... for parties holding a minority portion of all shares to call meetings that would serve narrow, and possibly short-term, purposes. Management welcomes shareholder input on governance-The Company has strong corporate governance standards and practices that demonstrate the Board's accountability to...

  • Page 44
    ...This information is presented as of December 31, 2009, and is based on stock ownership reports on Schedule 13G filed by each of these shareholders with the SEC and provided to us. Name and Address of Beneficial Owner Number of Shares Beneficially Owned Percent of Class Southeastern Asset Management...

  • Page 45
    ...stock at year-end and the exercise price divided by the fair market value of the stock). (3) These amounts reflect units denominated as common stock equivalents held in deferred compensation accounts for each of the named persons under our Directors Deferred Compensation Plan or our Executive Income...

  • Page 46
    ... their ownership and changes in their ownership of YUM common stock. Directors, executive officers and greater-than-ten percent shareholders are also required to furnish YUM with copies of all ownership reports they file with the SEC. To our knowledge, based solely on a review of the copies of such...

  • Page 47
    ... used in the calculation of the annual bonus (page 33) • Our CEO's compensation (page 38) • Our stock ownership guidelines (page 41) Our Named Executive Officers (NEOs) for 2009: • David C. Novak, Chairman, Chief Executive Officer and President • Richard T. Carucci, Chief Financial Officer...

  • Page 48
    ... our value and, as a result, enhance our shareholders' returns on their investments Provide tax-advantaged means to accumulate retirement benefits Cash Cash Long-term incentive compensation ... Stock Appreciation Rights/Stock Options and Performance Share Units Defined Benefit Plan, Defined...

  • Page 49
    ...incentive award values. The Committee reviews and establishes each executive's total compensation target for the current year which includes base salary, annual bonus opportunities and long-term incentive awards. The Committee's decisions impacting our CEO are also reviewed and ratified by the Board...

  • Page 50
    ... value from the company variable pay programs is reflective of business results and not competitive benchmarking. Comparative Compensation Data Revenue size often correlates to some degree with the market value of compensation for senior executive positions. For companies with significant franchise...

  • Page 51
    ...to make significant contributions 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 32

  • Page 52
    ...'s salary was set above the 50th percentile for 2009 because of the value of their contributions to the company. Performance-Based Annual Incentive Compensation Our performance-based annual incentive compensation program (''YUM Leaders' Bonus Program'') is a cash-based, pay-for-performance plan that...

  • Page 53
    ... and team 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 divisions' current year objectives to grow earnings and sales, develop new restaurants, improve margins and increase customer...

  • Page 54
    ... 200 50% 20% 20% 10% 25 14 20 20 79 84 Creed Operating Profit Growth (Before Tax) System Same Store Sales Growth Restaurant Margin System Customer Satisfaction Total Weighted TP Factor-Taco Bell U.S. 75% Division/25% Yum TP Factor 5% 2.0% 17.0% 84.5% 11.3% (1.3%) 18.4% 86.2% 197 0 200 157 40...

  • Page 55
    ... that his overall individual performance for 2009 was above target based upon Taco Bell US exceeding its profit plan, restaurant margin and customer service targets as well as Mr. Creed's strong leadership in driving product development. Based on this performance, the Committee approved a 135...

  • Page 56
    ...us achieve our long-range performance goals that will enhance our value and, as a result, enhance our shareholders' returns on their investments. Under our LTI Plan, our executive officers are awarded long-term incentives in the form of non-qualified stock options or stock settled stock appreciation...

  • Page 57
    ... 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 2009, the Committee approved the grant date value of the long-term incentive award having a value of $6.3 million. This award...

  • Page 58
    ... of $79.5 million as of the end of 2009. These RSUs are payable only in YUM common stock and are not payable until after Mr. Novak leaves the Company. Through the deferral program, Mr. Novak's ownership of these RSUs aligns his compensation with achievement of YUM's long-term financial and strategic...

  • Page 59
    ... We offer competitive retirement benefits through the YUM! Brands Retirement Plan. This is a broadbased plan designed to provide a retirement benefit based on years of service with the Company and average annual earnings. In addition, the YUM! Brands, Inc. Pension Equalization Plan for employees at...

  • Page 60
    ..., annual incentive award, long-term incentive awards, value of outstanding equity awards (vested and unvested), and lump sum value of pension at retirement and gains realized from exercising stock options. The Committee will continue to review total compensation at least once a year. YUM's Executive...

  • Page 61
    ..., 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 appreciation rights...

  • Page 62
    ... with our executives. The Committee adopted a policy under which the Company will seek shareholder approval for future severance payments to a NEO if such payments would exceed 2.99 times the sum of (a) the NEO's annual base salary as in effect immediately prior to termination of employment; and...

  • Page 63
    ...Revenue Code Section 162(m). Payments made under these plans qualify as performance-based compensation. For 2009, the annual salary paid to Mr. Novak exceeded one million dollars. The Committee sets Mr. Novak's salary as described above under the heading ''Compensation of Our Chief Executive Officer...

  • Page 64
    ... 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 65
    ... Proxy Statement Graham D. Allan President, Yum! Restaurants International Greg Creed President and Chief Concept Officer, Taco Bell U.S. (1) (2) - - 21MAR201012032309 - - Amounts shown are not reduced to reflect the NEOs' elections, if any, to defer receipt of salary into the Executive Income...

  • Page 66
    ... pension plans during the 2009 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 53 for a detailed discussion of the Company's pension benefits. The Company does not pay ''above market...

  • Page 67
    ... reflect payments to the executive of tax reimbursements. For Mr. Su, as explained at page 41, this amount represents the Company provided tax reimbursement for China income taxes incurred on deferred income distributions and stock option exercises which exceed the marginal Hong Kong tax rate. For...

  • Page 68
    GRANTS OF PLAN-BASED AWARDS The following table provides information on stock options, SARs, RSUs and PSUs granted for 2009 to each of the Company's NEOs. The amount of these awards that were expensed is shown in the Summary Compensation Table at page 46. Name and Principal Position (a) Grant Date...

  • Page 69
    ... using the Black-Scholes value on the grant date of $7.29. For additional information regarding valuation assumptions of SARs/stock options, see the discussion of stock awards and option awards contained in Part II, Item 8, ''Financial Statements and Supplementary Data'' of the 2009 Annual Report...

  • Page 70
    ...stock options, SARs, and unvested RSUs and PSUs held by the Company's NEOs on December 31, 2009. Option Awards(1) Stock Awards Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(3) (i) Name and Principal Position (a) Number...2010...

  • Page 71
    ... 4 years. (3) The market value of these awards are calculated by multiplying the number of shares covered by the award by $34.97, the closing price of YUM stock on the NYSE on December 31, 2009. (4) The awards reflected in this column are unvested performance-based PSUs that are scheduled to be paid...

  • Page 72
    ... Plan'') 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. 2008 Fiscal Year Pension Benefits Table Number of Present Value of Years of Accumulated Credited Service Benefit...

  • Page 73
    ... 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 74
    ...! Brands International Retirement Plan. All other non-qualified benefits are paid from the YUM! Brands Inc. Pension Equalization Plan. The estimated lump sum values in the table above are calculated assuming no increase in the participant's Final Average Earnings. The lump sums are estimated using...

  • Page 75
    ... pensionable service and that are derived from a plan maintained or contributed to by the Company or one 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...

  • Page 76
    ... consistent with the methodologies used in financial accounting calculations. In addition, the economic assumptions for the lump sum interest rate, post retirement mortality, and discount rate are also consistent with those used in financial accounting calculations. 21MAR201012 Proxy Statement 57

  • Page 77
    ... provide market rate returns and do not provide for preferential earnings. The S&P 500 index fund, bond market index fund and stable value fund are designed to track the investment return of like-named funds offered under the Company's 401(k) Plan. The YUM! Stock Fund and YUM! Matching Stock Fund...

  • Page 78
    ... then ended-or at a time that begins at or after the executive's retirement or separation or termination of employment. Distributions can be made in a lump sum or up to 20 annual installments. Initial deferrals are subject to a minimum two year deferral. In general, with respect to amounts deferred...

  • Page 79
    ... awarded to executives and credited to their deferral account under the program in 2009 as a result of their election to defer their 2008 annual incentive award into RSUs. As noted above, the NEOs are no longer eligible to participate in the Matching Stock Fund and, therefore, in future years will...

  • Page 80
    ... amounts paid or distributed may be different. Factors that could affect these amounts include the 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 NEOs terminated employment for any reason other than retirement...

  • Page 81
    ... performance. Pension Benefits. The Pension Benefits Table on page 53 describes the general terms of each pension plan in which the NEOs participate, the years of credited service and the present value of the annuity payable to each NEO assuming termination of employment as of December 31, 2009...

  • Page 82
    ...$ Allan $ Creed $ Proxy Statement Annual Incentive ...Severance Payment ...Outplacement ...Excise Tax and Gross-Up ...Accelerated Vesting of Stock Options and SARs ...Accelerated Vesting of RSUs ...Acceleration of PSU Performance/Vesting Forfeiture due to Modified Cap ...Total ... 2,993,760 10,914...

  • Page 83
    ... more fully below, this table summarizes compensation paid to each non-employee director during 2009. Fees Earned or Paid in Cash ($) (b) Stock Awards ($) (c) Option Awards ($)(1)(2) (d) All Other Compensation ($)(3) (e) Name (a) Total ($) (f) Dorman, David ...Ferragamo, Massimo Grissom, David...

  • Page 84
    ...an annual grant of vested stock options.) 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 85
    ... 31, 2009, 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 86
    ... 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 87
    ... assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company's financial statements, the adequacy of the Company's system of internal controls and procedures and disclosure controls and procedures, the Company's risk management, the Company's compliance...

  • Page 88
    ... and responsibilities referred to above and in the Audit Committee Charter, the Committee 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 26, 2009 for filing with the...

  • Page 89
    ... services that offer access to the Internet. Costs normally associated with electronic access, such as usage and telephone charges, will be borne by the shareholder. To elect this option, go to www.amstock.com, click on Shareholder Account Access, log-in and locate the option to Receive Company...

  • Page 90
    ...must include information set forth in our bylaws. The Board is not aware of any matters that are expected to come before the 2010 Annual Meeting other than those referred to in this proxy statement. If any other matter should come before the Annual Meeting, the individuals named on the form of proxy...

  • Page 91
    (This page has been left blank intentionally.)

  • Page 92
    ..., Louisville, Kentucky (Address of principal executive offices) 13-3951308 (I.R.S. Employer Identification No.) 40213 (Zip Code) YUM! BRANDS, INC. Registrant's telephone number, including area code: (502) 874-8300 Securities registered pursuant to Section 12(b) of the Act Title of Each Class Name...

  • Page 93
    ... 10-K and (ii) the factors described in the Management's Discussion and Analysis of Financial Condition and Results 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...

  • Page 94
    ...shareholder approval, the Company changed its name from TRICON Global Restaurants, Inc. to YUM! Brands, Inc. (b) Financial Information about Operating Segments YUM consists of six operating segments: KFC-U.S., Pizza Hut-U.S., Taco Bell-U.S., Long John Silver's ("LJS")-U.S. and A&W All American Food...

  • Page 95
    ...2009, the China Division achieved revenues of $3.7 billion and Operating Profit of $602 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 96
    ... 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.  x As of year end 2009, Pizza Hut was the leader in the U.S. pizza QSR segment, with a 14 percent market share...

  • Page 97
    ... LJS franchise unit opened later the same year. LJS is based in Louisville, Kentucky. As of year end 2009, LJS was the leader in the U.S. seafood QSR segment, with a 36 percent market share (Source: The NPD Group, Inc.; NPD Foodworld; CREST) in that segment.  x LJS operates in 6 countries and...

  • Page 98
    .... When prices increase, the Concepts may attempt to pass on such increases to their customers, although there is no assurance that this can be done practically. U.S. Division. The Company, along with the representatives of the Company's KFC, Pizza Hut, Taco Bell, LJS and A&W franchisee groups, are...

  • Page 99
    ... 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 registration of its important marks whenever feasible...

  • Page 100
    ... 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). The Company expensed $31 million, $34 million...

  • Page 101
    ... As of year end 2009, the Company and its Concepts employed approximately 350,000 persons, approximately 86 percent of whom were part-time. Approximately 21 percent of these employees are employed in the U.S. The Company believes that it provides working conditions and compensation that compare...

  • Page 102
    ... operations in 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...

  • Page 103
    ... the financial or management resources that they need to open or continue operating the restaurants contemplated by their franchise agreements with us. In addition, franchisees may not be able to find suitable sites on which to develop new restaurants or negotiate acceptable lease or purchase terms...

  • Page 104
    ... the resulting ownership mix of Company-operated and franchisee-operated restaurants allows us to meet our financial objectives. In addition, refranchising activity could vary significantly from quarter-toquarter and year-to-year and that volatility could impact our reported earnings. We could be...

  • Page 105
    ...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 the ability of our franchisees to open new restaurants, upgrade existing restaurants, and to operate these restaurants on a profitable basis...

  • Page 106
    ... in which we operate is highly competitive. The retail food industry in which we operate is highly competitive with respect to price and quality of food products, new product development, price, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and...

  • Page 107
    ... operations, cash flows or capital resources. The Company currently does not have a significant number of units that it leases or subleases to franchisees. Pizza Hut and YRI lease their corporate headquarters and a research facility in Dallas, Texas. Taco Bell leases its corporate headquarters and...

  • Page 108
    ... Company and its suppliers on a number of issues, including, but not limited to, compliance with product specifications and terms of procurement and service requirements. Employees At any given time, the Company or its affiliates employ hundreds of thousands of persons, primarily in its restaurants...

  • Page 109
    ... President for YRI and also assisted Pizza Hut in asset strategy development. From November 1999 to July 2002, he was Chief Financial Officer of YRI. Christian L. Campbell, 59, is Senior Vice President, General Counsel, Secretary and Chief Franchise Policy Officer for YUM. He has served as Senior...

  • Page 110
    ...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 111
    ... 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. 2009...

  • Page 112
    ... 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 23, 2004 to December 25, 2009, the last trading day of our 2009 fiscal year. The graph assumes that the value of the investment...

  • Page 113
    ...restaurants Repurchase shares of Common Stock Dividends paid on Common Stock Balance Sheet Total assets Long-term debt Total debt Other Data Number of stores at year end Company Unconsolidated Affiliates Franchisees Licensees System U.S. same store sales growth(e) YRI system sales growth(e) Reported...

  • Page 114
    ... is useful to investors as a significant indicator of the overall strength of our business as it incorporates 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...

  • Page 115
    ... Note 3). Description of Business YUM is the world's largest restaurant company in terms of system restaurants with over 37,000 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 Restaurants brands. Four...

  • Page 116
    ... restaurant concepts of Pizza Hut Home Service (pizza delivery) and East Dawning (Chinese food). Our ongoing earnings growth model in mainland China is driven by new unit development each year and modest same store sales growth, which we expect to drive annual Operating Profit growth of 15%. Drive...

  • Page 117
    ... Profit growth of 5% in the U.S. with same store sales growth of 2%, modest restaurant margin improvement and leverage of our G&A infrastructure. Drive Industry-Leading, Long-Term Shareholder and Franchisee Value - The Company is focused on delivering high returns and returning substantial cash...

  • Page 118
    ... Diluted EPS growth of 13% or $2.17 per share, excluding Special Items. Worldwide system sales growth of 1% prior to foreign currency translation. Worldwide revenue declined 4% driven by foreign currency translation and refranchising. International development of 1,467 new restaurants including 509...

  • Page 119
    ... Amount 2009 Company sales Franchise and license fees and income Total revenues Company restaurant profit % of Company sales Operating Profit Interest expense, net Income tax provision Net Income - including noncontrolling interest Net Income - noncontrolling interest Net Income - YUM! Brands, Inc...

  • Page 120
    ... China Loss as a result of our offer to refranchise an equity market outside the U.S. Gain upon the sale of our interest in our Japan unconsolidated affiliate Total Special Items Income (Expense) Tax Benefit (Expense) on Special Items Special Items Income (Expense), net of tax Average diluted shares...

  • Page 121
    ... 2008 and 2009. Additionally, the Company recognized a reduction to Franchise and license fees and income of $32 million, pre-tax, in the year ended December 26, 2009 related to investments in our U.S. Brands. These investments reflect our reimbursements to KFC franchisees for installation costs of...

  • Page 122
    ... increase the China Division's Company sales by approximately $100 million, decrease Franchise and license fees and income by approximately $6 million and provide a modest increase to Operating Profit during the first half of 2010. Refranchising of an International Equity Market In the third quarter...

  • Page 123
    ... Company same store sales growth of 3% resulting from pricing actions we took. China Division restaurant margin increased 1.8 percentage points and declined 1.7 percentage points in 2009 and 2008, respectively. The 2009 improvement was largely driven by commodity deflation of $61 million offsetting...

  • Page 124
    ... this entity increased the China Division's Company sales by approximately $300 million and decreased Franchise and license fees and income by approximately $20 million. The consolidation of this entity positively impacted Operating Profit by approximately $20 million in 2008. The positive impact on...

  • Page 125
    ...income tax rate changes positively impacted our 2009 and 2008 Net Income - YUM! Brands, Inc. by approximately $15 million and $20 million, respectively, 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...

  • Page 126
    ... in restaurant profit, which reflects the decrease in Company sales, and G&A expenses and (b) the increase in franchise fees from the restaurants that have been refranchised. The tables presented below reflect the impacts on Total revenues and on Operating Profit from stores that were operated by...

  • Page 127
    ...(1) (944) (32) 34,880 100% Total Excluding Licensees(a) 17,977 363 1 United States Balance at end of 2007 New Builds Acquisitions Refranchising Closures Other Balance at end of 2008 New Builds Acquisitions Refranchising Closures Other Balance at end of 2009 % of Total Company 3,896 94 95 (700) (71...

  • Page 128
    ... Licensees(a) 3,086 571 - - (75) - 3,582 569 China Division Balance at end of 2007 New Builds Acquisitions Refranchising Closures Other(c) Balance at end of 2008 New Builds Acquisitions Refranchising Closures Other(d) Balance at end of 2009 % of Total (a) Company 2,087 447 7 (4) (54) 182 2,665 476...

  • Page 129
    ...unit count. Similarly, a new multibrand restaurant, while increasing sales and points of distribution for two brands, results in just one additional unit count. System Sales Growth The following tables detail the key drivers of system sales growth for each reportable segment by year. Net unit growth...

  • Page 130
    .... Significant other factors impacting Company Sales and/or Restaurant Profit were Company same store sales growth of 3%, commodity inflation of $119 million (primarily cheese, meat, chicken and wheat costs), higher labor costs (primarily wage rate and salary increases) and higher property and...

  • Page 131
    ...In 2009, the increase in YRI Company Sales and Restaurant Profit associated with store portfolio actions was driven by new unit development partially offset by refranchising and closures. Significant other factors impacting Company Sales and/or Restaurant Profit were Company same store sales growth...

  • Page 132
    .../or Restaurant Profit were Company same store sales declines of 1% and commodity deflation (primarily chicken) of $61 million. In 2008, the increase in China Division Company Sales and Restaurant Profit associated with store portfolio actions was primarily driven by the development of new units and...

  • Page 133
    ... $32 million as a result of our reimbursements to KFC franchisees for installation costs for the national launch of Kentucky Grilled Chicken that has not been allocated to the U.S. segment for performance reporting purposes. U.S. Franchise and license fees and income for 2009 and 2008 was positively...

  • Page 134
    ... expenses for 2009 were driven by the actions taken as part of our U.S. business transformation measures. In 2008, the decrease in U.S. G&A expenses was driven by refranchising company stores. The increase in Unallocated G&A expense was driven by approximately $49 million of charges associated with...

  • Page 135
    ... of income associated with receipt of payment for a note receivable arising from the 2005 sale of our fifty percent interest in the entity that operated almost all KFCs and Pizza Huts in Poland and the Czech Republic to our then partner in the entity. Fiscal year 2007 reflects financial recoveries...

  • Page 136
    ... impact of same store sales growth and net unit development on Restaurant Profit. The increase was partially offset by higher restaurant operating costs and higher G&A expenses. Unallocated Franchise and license fees and income for 2009 reflects our reimbursements to KFC franchisees for installation...

  • Page 137
    ... to prior year. Interest expense, net increased $60 million or 36% in 2008. The increase was driven by an increase in borrowings in 2008 compared to 2007, partially offset by a decrease in interest rates on the variable portion of our debt. Income Taxes 2009 Reported Income taxes Effective tax rate...

  • Page 138
    ... 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 139
    ..., higher share repurchases and higher dividend payments in 2008. Consolidated Financial Condition The acquisition of additional ownership in, and consolidation of, a former unconsolidated affiliate that operates the KFCs in Shanghai, China during 2009 impacted our Consolidated Balance Sheet at...

  • Page 140
    ...December 26, 2009, we paid cash dividends of $362 million. Additionally, on November 20, 2009 our Board of Directors approved cash dividends of $0.21 per share of Common Stock to be distributed on February 5, 2010 to shareholders of record at the close of business on January 15, 2010. The Company is...

  • Page 141
    ... Notes to repay a variable rate senior unsecured term loan in an aggregate principal amount of $375 million that was scheduled to mature in 2011 and to make discretionary payments to our pension plans in the fourth quarter of 2009. Our Senior Unsecured Notes, Credit Facility, and ICF all contain...

  • Page 142
    ...26, 2009, the Plan was in a net underfunded position of $83 million. Based on the current funding status of the Plan, we will not be required to make minimum contributions in 2010. Investment performance and corporate bond rates have a significant effect on our net funding position as they drive our...

  • Page 143
    ...about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for interim and annual reporting periods beginning after December 15, 2010. In June 2009, the FASB issued guidance on transfers and servicing of financial assets...

  • Page 144
    ... 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 follows. Impairment or Disposal of Long-Lived Assets We review our long-lived assets of restaurants (primarily PP&E and...

  • Page 145
    ...agreements. These cash flows incorporated a decline in future profit expectations for our LJS/A&WU.S. reporting unit, which were due in part to the impact of a reduced emphasis on multi-branding as a long-term U.S. growth strategy. The fair value of the Pizza Hut South Korea reporting unit was based...

  • Page 146
    ... parties. The potential total exposure for lease assignments is significant when aggregated, with approximately $425 million representing the present value, discounted at our pre-tax cost of debt, of the minimum payments of the assigned leases at December 26, 2009. Current franchisees are the...

  • Page 147
    ... on plan assets due to increases in the plan assets balance during 2009. A 50 basis point change in our discount rate assumption at our measurement date would impact our 2010 U.S. pension expense by approximately $13 million. The assumption we make regarding our expected long-term rates of return on...

  • Page 148
    ... term and pre-vesting forfeitures. These groups consist of grants made primarily to restaurant-level employees under our Restaurant General Manager Stock Option Plan (the "RGM Plan") and grants made to executives under our other stock award plans. Historically, approximately 10% - 15% of total...

  • Page 149
    ... Market Risk. The Company is exposed to financial market risks associated with interest rates, foreign currency exchange rates and commodity prices. In the normal course of business and in accordance with our policies, we manage these risks through a variety of strategies, which may include the use...

  • Page 150
    ... 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 26, 2009, December 27, 2008 and December 29, 2007 Consolidated Statements of Cash...

  • Page 151
    ..., and the related consolidated statements of income, cash flows, and shareholders' equity (deficit) and comprehensive income (loss) for each of the fiscal years in the three-year period ended December 26, 2009. We also have audited YUM's internal control over financial reporting as of December 26...

  • Page 152
    ... per share data) 2009 2008 Revenues Company sales 9,413 $ 9,843 $ Franchise and license fees and income 1,423 1,461 Total revenues 10,836 11,304 Costs and Expenses, Net Company restaurants Food and paper Payroll and employee benefits Occupancy and other operating expenses Company restaurant expenses...

  • Page 153
    ... - payments Three months or less, net Repurchase shares of Common 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 Rates on Cash and Cash Equivalents Net Increase...

  • Page 154
    ... Income taxes payable Short-term borrowings Advertising cooperative liabilities Total Current Liabilities Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders' Equity (Deficit) Common Stock, no par value, 750 shares authorized; 469 shares and 459 shares issued in 2009...

  • Page 155
    ... adjustment Pension and post-retirement benefit plans (net of tax impact of $9 million) Net unrealized gain on derivative instruments (net of tax impact of $3 million) Comprehensive Income Purchase of subsidiary shares from noncontrolling interest Dividends declared Employee stock option and...

  • Page 156
    ... (Tabular amounts in millions, except share data) Note 1 - Description of Business YUM! Brands, Inc. and Subsidiaries (collectively referred 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...

  • Page 157
    ... of $25 million and $19 million, respectively in both Franchise and license expenses and Franchise and license fees and income in our Consolidated Statement of Income. A similar amount of rental income was reported in Franchise and license fees and income in the year ended December 26, 2009. Form 10...

  • Page 158
    ...million were included in Franchise and license expenses in 2009, 2008 and 2007, respectively. Revenue Recognition. Revenues from Company operated restaurants are recognized when payment is tendered at the time of sale. The Company presents sales net of sales tax and other sales related taxes. Income...

  • Page 159
    ...related assets and is determined by discounting the estimated future after-tax cash flows of the restaurant. The after-tax cash flows incorporate reasonable assumptions we believe a franchisee would make such as sale growth and margin improvement. The discount rate used in the fair value calculation...

  • Page 160
    ... sell assets, primarily land, associated with a closed store, any gain or loss upon that sale is also recorded in Closures and impairment (income) expenses. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, sublease...

  • Page 161
    ... future tax consequences attributable to temporary differences 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...

  • Page 162
    ... incentives upon opening a store that is subject to a lease. We expense rent associated with leased land or buildings while a restaurant is being constructed whether rent is paid or we are subject to a rent holiday. Additionally, certain of the Company's operating leases contain predetermined...

  • Page 163
    ... value with its carrying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using discounted expected future after-tax cash flows from Company operations and franchise royalties. The discount rate is our estimate of the required rate of return...

  • Page 164
    ... million, or $6 million after-tax, for our pension plans and $2 million, or $1 million after-tax, for our post-retirement medical plan, respectively, during the fourth quarter of 2008. Note 3 - Two-for-One Common Stock Split On May 17, 2007, the Company announced that its Board of Directors approved...

  • Page 165
    ... payments in the year ended December 26, 2009 totaled approximately $26 million. Additionally, the Company recognized a reduction to Franchise and license fees and income of $32 million, pre-tax, in the year ended December 26, 2009 related to investments in our U.S. Brands. These investments...

  • Page 166
    ... Sheet. The fair value of our investment in Little Sheep was approximately $156 million as of December 26, 2009. Equity income recognized from our investment in Little Sheep was not significant in the year ended December 26, 2009. Little Sheep is the leading brand in China's "Hot Pot" restaurant...

  • Page 167
    ... of this entity increased Company sales by $192 million and decreased Franchise and license fees and income by $12 million. The consolidation of this entity positively impacted Operating Profit by $4 million for the year ended December 26, 2009. The impact on Net Income - YUM! Brands, Inc. was not...

  • Page 168
    ... this entity increased the China Division's Company sales by approximately $300 million and decreased Franchise and license fees and income by approximately $20 million. The consolidation of this entity positively impacted Operating Profit by approximately $20 million in 2008. The positive impact on...

  • Page 169
    ... reporting purposes. During 2009 we recognized a $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. The sale of the market was consummated in the first quarter of 2010. Form 10-K (b) Store closure (income) costs include the net...

  • Page 170
    ...and other current assets in our Consolidated Balance Sheet. Note 6 - Supplemental Cash Flow Data 2009 Cash Paid For: Interest Income taxes Significant Non-Cash Investing and Financing Activities: Capital lease obligations incurred to acquire assets Net investment in direct financing leases $ 209 308...

  • Page 171
    ... of income associated with receipt of payments for a note receivable arising from the 2005 sale of our fifty percent interest in the entity that operated almost all KFCs and Pizza Huts in Poland and the Czech Republic to our then partner in the entity. Fiscal year 2007 reflects financial recoveries...

  • Page 172
    ... and equipment was $553 million, $542 million and $514 million in 2009, 2008 and 2007, respectively. Accounts Payable and Other Current Liabilities Accounts payable Capital expenditure liability Accrued compensation and benefits Dividends payable Accrued taxes, other than income taxes Other current...

  • Page 173
    ...$12 million for our Pizza Hut South Korea reporting unit in the fourth quarter of 2009 as the carrying value of this reporting unit exceeded its fair value. The fair value of this reporting unit was based on the discounted expected after-tax cash flows from company operations and franchise royalties...

  • Page 174
    Intangible assets, net for the years ended 2009 and 2008 are as follows: 2009 Gross Carrying Amount Definite-lived intangible assets Franchise contract rights Trademarks/brands Lease tenancy rights Favorable operating leases Reacquired franchise rights Other $ 153 225 66 27 121 7 599 Accumulated ...

  • Page 175
    ...2009 Short-term Borrowings Current maturities of long-term debt Other $ $ Long-term Debt Unsecured International Revolving Credit Facility, expires November 2012 Unsecured Revolving Credit Facility, expires November 2012 Senior, Unsecured Term Loan, due July 2011 Senior Unsecured Notes Capital lease...

  • Page 176
    ...Senior Unsecured Notes to repay a variable rate senior unsecured term loan, in an aggregate principal amount of $375 million that was scheduled to mature in 2011 and to make discretionary payments to our pension plans in the fourth quarter of 2009. The following table summarizes all Senior Unsecured...

  • Page 177
    .... We also lease office space for 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...

  • Page 178
    ...2010 2011 2012 2013 2014 Thereafter At December 26, 2009 and December 27, 2008, the present value of minimum payments under capital leases was $249 million and $234 million, respectively. At December 26, 2009 and December 27, 2008, unearned income associated with direct financing lease receivables...

  • Page 179
    ...Asset Foreign Currency Forwards - Liability Total The unrealized gains associated with our interest rate swaps that hedge the interest rate risk for a portion of our debt have been reported as an addition of $36 million to long-term debt at December 26, 2009. During the year ended December 26, 2009...

  • Page 180
    ... are used to offset fluctuations in deferred compensation liabilities that employees have chosen to invest in phantom shares of a Stock Index Fund or Bond Index Fund. The other investments are classified as trading securities and their fair value is determined based on the closing market prices of...

  • Page 181
    ..., 2009 30 - Total Losses 2009 $ 56 38 Level 1 $ - - Level 2 $ - - Level 3 $ 30 - Long-lived assets held for use presented in the table above include restaurants or groups of restaurants that were impaired as a result of our semi-annual impairment review or restaurants not meeting held for sale...

  • Page 182
    ... 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 183
    ... net loss Prior service cost The accumulated benefit obligation for the U.S. and International pension plans was $1,099 million and $970 million at December 26, 2009 and December 27, 2008, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets...

  • Page 184
    ... million in 2010 to one of these plans. We do not anticipate any plan assets being returned to the Company during 2010 for any plans. Components of net periodic benefit cost: U.S. Pension Plans Net periodic benefit cost Service cost Interest cost Amortization of prior service cost(a) Expected return...

  • Page 185
    ...% International Pension Plans 2009 2008 5.50% 5.50% 4.41% 4.10% 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 186
    ... investment strategy for the Plan's assets, which make up 86% of total pension plan assets at the 2009 measurement date, are to reduce interest rate and market risk, to provide adequate liquidity to meet immediate and future payment requirements and to meet minimum funding requirements. To achieve...

  • Page 187
    ... International Pension Plans $ 2 2 2 2 2 10 Year ended: 2010 2011 2012 2013 2014 2015 - 2019 Expected benefits are estimated based on the same assumptions used to measure our benefit obligation on the measurement date and include benefits attributable to estimated further employee service. Form...

  • Page 188
    ...31 million. Note 16 - Stock Options and Stock Appreciation Rights At year end 2009, we had four stock award plans in effect: the YUM! Brands, Inc. Long-Term Incentive Plan and the 1997 Long-Term Incentive Plan ("collectively the "LTIPs"), the YUM! Brands, Inc. Restaurant General Manager Stock Option...

  • Page 189
    ...than ten years after grant. At year end 2009, approximately 24 million shares were available for future share-based compensation grants under the above plans. We estimated the fair value of each award made during 2009, 2008 and 2007 as of the date of grant using the BlackScholes option-pricing model...

  • Page 190
    .... In 2009 we modified our long-term incentive compensation program for certain executives, including our CEO, Chief Financial Officer and our operating segment Presidents. As part of these changes we granted 78,499 performance share units, with a total grant date fair value of $2.3 million, under...

  • Page 191
    ... EID Plan totaled approximately 6.4 million shares. We recognized compensation expense for amortization of the Company match of $5 million, $6 million and $5 million, in 2009, 2008 and 2007, respectively. These expense amounts do not include the salary or bonus actually credited to Common Stock of...

  • Page 192
    ... directly to shareholders' equity. Amounts included in accumulated other comprehensive loss for the Company's derivative instruments and unrecognized pension and post-retirement losses are recorded net of the related income tax effects. Refer to Note 15 for additional information about our pension...

  • Page 193
    ..., $43 million and $16 million in 2009, 2008 and 2007, respectively, for increases in valuation allowances recorded against deferred tax assets generated during the year. The increase for 2008 includes a full valuation allowance for net operating losses generated by certain tax planning strategies...

  • Page 194
    ... rate State income tax, net of federal tax benefit Foreign and U.S. tax effects attributable to foreign operations Adjustments to reserves and prior years Valuation allowance additions (reversals) Other, net Effective income tax rate Our 2009 effective tax rate was positively impacted by the year...

  • Page 195
    ...Net operating loss and tax credit carryforwards Employee benefits Share-based compensation Self-insured casualty claims Lease related liabilities Various liabilities Deferred income and other Gross deferred tax assets Deferred tax asset valuation allowances Net deferred tax assets Intangible assets...

  • Page 196
    ... affect the 2010 effective tax rate. Form 10-K At December 26, 2009, long-term liabilities of $264 million, including $49 million for the payment of accrued interest and penalties, are included in Other liabilities and deferred credits as reported on the Consolidated Balance Sheet. Total accrued...

  • Page 197
    ...the worldwide KFC, Pizza Hut, Taco Bell, LJS and A&W concepts. KFC, Pizza Hut, Taco Bell, LJS and A&W operate in 108, 92, 20, 6 and 9 countries and territories, respectively. Our five largest international markets based on operating profit in 2009 are China, Asia Franchise, Australia, United Kingdom...

  • Page 198
    ... for the national launch of Kentucky Grilled Chicken. See Note 5. Amounts have not been allocated to the U.S., YRI or China Division segments for performance reporting purposes. Includes equity income of unconsolidated affiliates of $36 million, $40 million and $47 million in 2009, 2008 and 2007...

  • Page 199
    ... million and $651 million in mainland China for 2009, 2008 and 2007, respectively. (f) (g) (h) (i) (j) (k) 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 21 - Contingencies Lease...

  • Page 200
    ... loss trends. Beginning Balance $ 196 $ 197 Ending Balance $ 173 $ 196 2009 Activity 2008 Activity Expense 44 68 Payments (67) (69) Form 10-K In the U.S. and in certain other countries, we are also self-insured for healthcare claims and long-term disability for eligible participating employees...

  • Page 201
    ... normal course of business. We provide reserves for such claims and contingencies when payment is probable and reasonably estimable. On November 26, 2001, Kevin Johnson, a former Long John Silver's ("LJS") restaurant manager, filed a collective action against LJS in the United States District Court...

  • Page 202
    ... and other related entities styled Sandrika Medlock v. Taco Bell Corp., was filed in United States District Court, Eastern District, Fresno, California. The case was filed on behalf of all hourly employees who have worked at corporate-owned restaurants in California since September 2003 and alleges...

  • Page 203
    ...Bell and the Company styled Endang Widjaja vs. Taco Bell Corp., et al. The case was filed on behalf of Widjaja, a former California hourly assistant manager, and purportedly all other individuals employed in Taco Bell's California restaurants as managers and alleges failure to reimburse for business...

  • Page 204
    ... time penalties. Plaintiff is a current non-managerial KFC restaurant employee represented by the same counsel that filed the Archila action described above. KFC filed an answer on October 28, 2009, in which it denied plaintiff's claims and allegations. KFC removed the action to the United States...

  • Page 205
    ... damage 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 parties participated in...

  • Page 206
    Note 22 - Selected Quarterly Financial Data (Unaudited) 2009 Third Quarter $ 2,432 346 2,778 425 470 334 0.71 0.69 - First Quarter Revenues: Company sales Franchise and license fees and income Total revenues Restaurant profit Operating Profit(a) Net Income - YUM! Brands, Inc. Basic earnings per ...

  • Page 207
    ... 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 program intended to ensure employees adhere to the highest standards of personal and professional...

  • Page 208
    ...- Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 26, 2009. KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and the...

  • Page 209
    ... owners and management appearing under the captions "Executive Compensation" and "Stock Ownership Information" is incorporated by reference from the Company's definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 26, 2009...

  • Page 210
    ...(a) (1) Exhibits and Financial Statement Schedules. 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 present...

  • Page 211
    ... 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature /s/ David C. Novak David C. Novak Title Chairman of the Board, Chief Executive Officer and President (principal executive officer) Date...

  • Page 212
    ... Robert D. Walter Robert D. Walter Director February 17, 2010 Director February 17, 2010 Director February 17, 2010 Director February 17, 2010 Director February 17, 2010 Vice-Chairman of the Board February 17, 2010 Director February 17, 2010 Director February 17, 2010 Form 10-K 121

  • Page 213
    ... 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 214
    ... Report on Form 10-Q for the quarter ended June 13, 2009. YUM 1997 Long Term Incentive Plan, as effective October 7, 1997, which is incorporated herein by reference from Exhibit 10.8 to YUM's Annual Report on Form 10-K for the fiscal year ended December 27, 1997. YUM Executive Incentive Compensation...

  • Page 215
    ... to YUM's Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Form of YUM Director Stock Option Award Agreement, which is incorporated herein by reference from Exhibit 10.25 to YUM's Quarterly Report on Form 10-Q for the quarter ended September 4, 2004. Form of YUM 1999 Long Term...

  • Page 216
    ....34 to YUM's Quarterly Report on Form 10-Q for the quarter ended June 14, 2008. YUM! Performance Share Plan, as effective January 1, 2009 (as filed herewith). YUM! Brands Third Country National Retirement Plan, as effective January 1, 2009 (as filed herewith). 2010 YUM! Brands Supplemental Long Term...

  • Page 217
    ... certificate numbers • Request a certificate for shares held by AST • Replace a lost or stolen certificate • Retrieve a duplicate Form 1099-B • Purchase shares of YUM through the Company's Direct Stock Purchase Plan • Sell shares held by AST Shareholder Services DIRECT STOCK PURCHASE PLAN...

  • Page 218
    ...298-6986) INTERNATIONAL FRANCHISING INQUIRY PHONE LINE (972) 338-8164 ONLINE FRANCHISE INFORMATION http://www.yum.com/franchising/default.asp Yum! Brands' Annual Report contains many of the valuable trademarks owned and used by Yum! Brands and its subsidiaries and affiliates in the United States and...

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    ...Vice President, Finance and Corporate Controller, Yum! Brands, Inc. Patrick C. Murtha 52 Chief Operating Officer, Pizza Hut Muktesh (''Micky'') Pant 55 President Global Brand Building, Yum! Brands, Inc. Laurance Roberts 50 Chief Operating Officer, KFC Rob Savage 49 Chief Operating Officer, Taco Bell

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    Alone we're delicious. Together we're Yum!® www.yum.com/annualreport 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.