Kentucky Fried Chicken 2010 Annual Report Download

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On The Ground Floor of
Global Growth

That Feeds the World


Table of contents

  • Page 1
    On The Ground Floor of Global Growth Building The Defining Global Company That Feeds the World Yum! Brands 2010 Annual Customer Mania Report

  • Page 2
    ..., except for per share amounts) Year-end 2010 2009 % B/(W) change Company sales Franchise and license fees and income Total revenues Operating Profit Net Income - Yum! Brands, Inc. Diluted Earnings Per Common Share before Special Items Special Items Earnings Per Common Share (a) (a) $ 9,783 1,560...

  • Page 3
    ... net income and nearly $2 billion in cash from operations. Importantly, we continued to be an industry leader with Return on Invested Capital (ROIC) of 20%+. As a result, our share price jumped 40% for the full year. Over the longer term, we take special pride that our five year average total return...

  • Page 4
    ... already a truly global growth company, with approximately 65% of our profits coming from outside the United States, including commanding positions in China and the emerging markets. With our leading global brands, 1.4 million system wide team members around the world already operating in over 110...

  • Page 5
    Building dynamic, vibrant brands everywhere with one system operational excellence as our foundation. Each of our brands make the world a better place by standing for something unique and purposeful: Taco Bell is fuel for the pioneering spirit by offering unbelievable value; KFC creates joyful ...

  • Page 6
    #1 Build Leading Brands Across CHINA In Every Significant Category.

  • Page 7
    ... as KFC made good progress leveraging its assets with 24-hour operations, delivery service and continuing to build a solid breakfast business. We also have 520 casual dining Pizza Huts in 130 cities that had a breakout year, generating double digit same store sales growth in every quarter in 2010...

  • Page 8
    #2 Drive Aggressive INTERNATIONAL Expansion & Build Strong Brands Everywhere. Indonesia

  • Page 9
    ... new growth vehicles by investing in emerging markets like India, Russia and Africa, as well as beginning to develop Taco Bell into a truly global brand. 2010 was a milestone year for our business in India, particularly with the KFC brand. KFC in India surpassed 100 units, had terrific sales growth...

  • Page 10
    #3 Dramatically Improve US Brand Positions, Consistency and Returns.

  • Page 11
    ... of $1.3 million. As the undisputed leader in value, Taco Bell offers our customers everyday low prices and an amazing amount of quality food for the money with our "Why Pay More!" menu. This year we successfully introduced $5 boxes and a home-meal replacement option of 12 tacos for just $10. We...

  • Page 12
    ...Drive Industry-Leading Long-Term shareholder and Franchisee Value. We are extremely proud our share price increased 40% in 2010, rewarding shareholders for our performance in the marketplace. We're also proud we continue to be a leader among consumer companies with Return On Invested Capital (ROIC...

  • Page 13
    ...their hard work, dedication and commitment to help build Yum! as the defining Global company that Feeds the World. After reading this Annual Report, I hope you'll agree we're just on the ground floor of global growth! YUM! TO YOU! David C. Novak Chairman & Chief executive officer Yum! Brands, Inc.

  • Page 14

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  • Page 17
    ...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 19, 2011-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 18
    ... Shareholders to Call Special Meetings. To transact such other business as may properly come before the meeting. Proxy Statement Items of Business: You can vote if you were a shareholder of record as of the close of business on March 21, 2011. You may also read the Company's Annual Report and...

  • Page 19
    ... Company's Articles of Incorporation to Permit Shareholders to Call Special Meetings ...STOCK OWNERSHIP INFORMATION ...EXECUTIVE COMPENSATION ...Compensation Discussion and Analysis ...Management Planning and Development Committee Report ...Summary Compensation Table ...All Other Compensation Table...

  • Page 20
    ... 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 21
    ... to permit shareholders to call Special Meetings. We will also consider other business that properly comes before the meeting. Who may vote? You may vote if you owned YUM common stock as of the close of business on the record date, March 21, 2011. Each share of YUM common stock is entitled...

  • Page 22
    ... Time, on May 18, 2011. 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
    ... 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 21, 2011, or their duly appointed proxies. You will need...

  • Page 24
    ...those 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
    ... 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 the principal executive officer...

  • 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
    ... align team performance, individual performance, customer satisfaction and shareholder return, emphasize long-term incentives and require executives to personally invest in Company stock. In 2011, the Management Planning and Development Committee of the Board of Directors oversaw the performance of...

  • Page 29
    ... Fall of 2010, the Company renewed the sublease through 2017. The sublease was renewed at pricing terms substantially similar to the expiring sublease and at or below market. YUM will have an option to purchase the aircraft in 2012. After reviewing the terms of the 2010 sublease renewal, the Board...

  • Page 30
    ... 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 accounting controls or auditing matters, may, in...

  • Page 31
    ... the annual audited financial statements and results of the audit with management and the independent auditors • Reviews the Company's accounting and financial reporting principles and practices including any significant changes • Advises the Board with respect to Company policies and procedures...

  • Page 32
    ... 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 5 The Board has determined that all of the members of the Management Planning and Development Committee...

  • Page 33
    ... is not an executive officer of the other company. During fiscal 2010, affiliates of Harman Management Corporation (''Harman''), as KFC, Taco Bell, Pizza Hut, Long John Silver's and A&W All American Food franchisees, paid royalties of approximately $13.4 million and contingent store opening fees of...

  • Page 34
    ... this year to hold office until the 2012 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...

  • Page 35
    ..., skills and expertise: • Operating and management experience, including as chief executive officer of global telecommunications-related businesses • Expertise in finance, strategic planning and public company executive compensation • Public company directorship and committee experience...

  • Page 36
    ... expertise: • Operating and management experience, including as a managing director of a consulting firm and chief executive officer of consumer, branded business • Expertise in finance, strategic planning, marketing, business development and corporate governance • Public company directorship...

  • Page 37
    ..., skills and expertise: • Operating and management experience, including as chief executive officer of a highly regulated financial services business • Expertise in finance, strategic planning, business development and retail business • Public company directorship and committee experience...

  • Page 38
    ... Corporation from 2004 to 2010. Specific qualifications, experience, skills and expertise: • Operating and management experience, including as chief executive officer of a global pharmacy healthcare business • Expertise in finance, strategic planning and public company executive compensation...

  • Page 39
    ... and expertise: • Operating and management experience, including as chief executive officer, of a global healthcare and service provider business • Expertise in finance, business development, business integrations, financial reporting, compliance and controls • Public company directorship and...

  • Page 40
    ... over financial reporting, statutory audits and services rendered in connection with the Company's securities offerings. (2) Audit-related fees for 2010 and 2009 included audits of financial statements of certain employee benefit plans, agreed upon procedures related to certain state tax credits and...

  • Page 41
    (3) Tax fees for 2010 and 2009 consisted principally of fees for international tax compliance and tax audit assistance. What is the Company's policy regarding the approval of audit and non-audit services? The Audit Committee has implemented a policy for the pre-approval of all audit and permitted ...

  • Page 42
    ... how our compensation policies and procedures operate and are designed to meet our compensation goals. Accordingly, we ask our shareholders to vote on the following resolution at the Annual Meeting: RESOLVED, that the shareholder approve the compensation awarded to our named executive officers, as...

  • Page 43
    ... of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. Proxy Statement What is the recommendation of the Board of Directors? THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE ONE YEAR ON THE FREQUENCY FOR CONDUCTING THE ADVISORY VOTE ON EXECUTIVE COMPENSATION...

  • Page 44
    ... for Calling Special Meetings of Shareholders North Carolina law provides that a public corporation shall hold a special meeting of shareholders on call of (1) its board of directors or (2) the person or persons authorized to do so by the articles of incorporation or bylaws. Currently, the Company...

  • Page 45
    ... in the shareholder request and properly brought before the special meeting. In addition, a special meeting will not be held if (1) the proposed business is to be included at an annual or special meeting called by the Board of Directors to be held within 90 days after the special meeting request is...

  • Page 46
    ... management to be the owner of 5% or more of YUM common stock. This information is presented as of December 31, 2010, and is based on a stock ownership report on Schedule 13G filed by such shareholder with the SEC and provided to us. Name and Address of Beneficial Owner Number of Shares Beneficially...

  • Page 47
    ... and executive officers as a group, 33,923 shares (2) The amounts shown include beneficial ownership of shares that may be acquired within 60 days pursuant to stock options and stock appreciation rights awarded under our employee or director incentive compensation plans. For stock options, we report...

  • Page 48
    ... 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 49
    ... how we set the challenging performance goals for our annual incentive bonuses. We believe that our compensation program in 2010 and in prior years shows that we have closely linked pay to performance. Executive Summary Overview of 2010 Performance As we stated last year, the power of YUM is in...

  • Page 50
    ... equity compensation consisting of stock-settled stock appreciation rights (''SARs'') and Performance Share Units (''PSUs''). • Pay for Performance. We emphasize pay-for-performance in order to align executive compensation with our business strategy and the creation of long-term shareholder value...

  • Page 51
    ... International Expansion and Build Strong Brands Everywhere • Improve U.S. Brand Positions, Consistency and Returns • Provide Long-Term Shareholder and Franchisee Value Our compensation program is designed to support these strategies. For our annual bonus program, the Committee sets performance...

  • Page 52
    ... as those excluded in the Company's annual earning releases. Annual Total Shareholder Return Through 12/31/10 84th percentile 43.3% 9MAR201101 Proxy Statement 94th percentile 18.1% 14.8% 79th percentile 11.0% 3.5% 5.3% 1-Year 3-Year 5-Year YUM Compensation Peer Group 14MAR201107231102 33

  • Page 53
    ... of the Company's strong performance during 2010, as well as its sustained performance over the years, the Committee believes that the program's stated objective of paying our Chief Executive Officer at the 75th percentile and our other NEOs at the 75th percentile for salary and annual bonus and the...

  • Page 54
    ... International Division (''YRI'') • Scott Bergren, Chief Executive Officer-Pizza Hut U.S. and Yum! Innovation YUM's Compensation Philosophy YUM's compensation philosophy is reviewed annually by the Committee. Our philosophy is to: • reward performance • pay our restaurant general managers...

  • Page 55
    ...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 independent members of the Board. In making...

  • Page 56
    ... 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 operations...

  • Page 57
    ... 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 58
    ... performance, but correspondingly no payment unless a threshold percentage of the goal was achieved. Each executive officer's annual incentive compensation depends on the degree to which the Company achieves its business and financial goals and the degree to which each executive officer meets...

  • Page 59
    ... 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 60
    ...% 20% 10% 45 5 21 19 90 107 10 117 Proxy Statement Bergren Operating Profit Growth (Before Tax) System Same Store Sales Growth Restaurant Margin System Customer Satisfaction Total Weighted TP Factor-Pizza Hut U.S. 75% Division/25% Yum TP Factor 5% 3.5% 12.0% 61.5% 10.2% 7.7% 12.4% 56% 200 200...

  • Page 61
    ...individual performance for 2010 was significantly above target based upon Pizza Hut U.S. significantly improving year over year sales and profit growth, as well as his leadership in reshaping the business through improved value, increasing weekday business and improvements in home delivery execution...

  • Page 62
    ...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 63
    ...75th percentile for target total cash. The Committee continues to believe this compensation structure is in line with YUM's pay for performance philosophy. In January 2010, the Committee approved the grant of a long-term incentive award to Mr. Novak having a grant date fair value of $6,272,000. This...

  • Page 64
    ...employee) for employees with 20 years of service who retire after age 62. The annual change in pension value for each NEO is set forth on page 52, in the Summary Compensation Table, and the actual projected benefit at termination is set forth on page 59, in the Pension Benefits Table. For executives...

  • Page 65
    ... insurance premiums, the value of these benefits is not included in the Summary Compensation Table since they are made available on a Company-wide basis to all U.S. based salaried employees. In 2010, our broad based employee disability plan was changed to limit the annual benefit coverage to $300...

  • Page 66
    ... salary, 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...

  • Page 67
    ... aspects of the Company's change in control program. The Company's change 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...

  • Page 68
    ... and benefits for terminated employees • access to equity components of total compensation after a change in control Future Severance Agreement Policy As recommended by shareholders in 2007, the Committee approved a new policy in 2007 to limit future severance agreements with our executives. The...

  • Page 69
    ...Revenue Code Section 162(m). Payments made under these plans qualify as performance-based compensation. For 2010, 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 70
    ... 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 71
    ... Officer and President Richard T. Carucci Chief Financial Officer Jing-Shyh S. Su Vice Chairman, Yum! Brands, Inc. Chairman and Chief Executive Officer, YUM's China Division Graham D. Allan Chief Executive Officer, Yum! Restaurants International Year (b) Salary ($)(1) (c) Bonus Stock Awards...

  • Page 72
    ... pension plans during the 2010 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 59 for a detailed discussion of the Company's pension benefits. The Company does not pay ''above market...

  • Page 73
    ... payment for foreign service, club dues, tax preparation assistance, Company provided parking, personal use of Company aircraft and annual physical. For Mr. Bergren, this column also includes Company annual contributions of $336,700 to an unfunded, unsecured account based retirement plan called...

  • Page 74
    GRANTS OF PLAN-BASED AWARDS The following table provides information on stock options, SARs, RSUs and PSUs granted for 2010 to each of the Company's NEOs. The amount of these awards that were expensed is shown in the Summary Compensation Table at page 52. Name (a) Grant Date (b) Estimated ...

  • Page 75
    ... 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 2010 Annual Report in Notes to Consolidated Financial Statements at Note 15, ''Share-based and Deferred Compensation Plans.'' There can...

  • Page 76
    ... AWARDS AT FISCAL YEAR-END The following table shows the number of shares covered by exercisable and unexercisable stock options, SARs, and unvested RSUs and PSUs held by the Company's NEOs on December 31, 2010. Option/SAR Awards(1) Stock Awards Equity incentive plan awards: market or payout value...

  • Page 77
    ... 5 years. (3) The market value of these awards are calculated by multiplying the number of shares covered by the award by $49.05, the closing price of YUM stock on the NYSE on December 31, 2010. (4) The awards reflected in this column are unvested performance-based PSUs that are scheduled to be paid...

  • Page 78
    ... 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. 2010 Fiscal Year Pension Benefits Table Number of Present Value of Years of Accumulated Credited Service Benefit...

  • Page 79
    ... rate changes from year to year which are used to determine benefits under the plan. (1) YUM! Brands Retirement Plan The Retirement Plan and the Pension Equalization Plan (discussed below) provide an integrated program of retirement benefits for salaried employees who were hired by the Company...

  • Page 80
    ... 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 81
    ... by the Company. 9MAR201101440694 Proxy Statement Benefits are payable under the same terms and conditions as the Retirement Plan without regard to Internal Revenue Service limitations on amounts of includible compensation and maximum benefits. (4) Present Value of Accumulated Benefits For all...

  • Page 82
    ... 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 83
    ... Table filed last year or would have been reported as compensation in our Summary Compensation Table last year if the executive were a NEO. (2) Amounts in this column reflect earnings during the last fiscal year on deferred amounts. All earnings are based on the investment alternatives offered...

  • Page 84
    ..., below is the portion of the year-end balance for each executive which has previously been reported as compensation to the executive in the Company's Summary Compensation Table for 2010 and prior years or would have been reported as compensation if the executive had been a NEO in those previous...

  • Page 85
    ... if the NEO's employment had terminated on December 31, 2010, given the NEO's compensation and service levels as of such date and, if applicable, based on the Company's closing stock price on that date. These benefits are in addition to benefits available generally to salaried employees, such as...

  • Page 86
    ... goals under the bonus plan or, if higher, assuming continued achievement of actual Company performance until date of termination, • a severance payment equal to two times the sum of the executive's base salary and the target bonus or, if higher, the actual bonus for the year preceding the change...

  • Page 87
    ...year term. An executive whose employment is not terminated within two years of a change in control will not be entitled to receive any severance payments under the change in control severance agreements. Generally, pursuant to the agreements, a change in control is deemed to occur: (i) if any person...

  • Page 88
    ... assumptions used to value the awards, see the discussion of stock awards and option awards contained in Part II, Item 8, ''Financial Statements and Supplementary Data'' of the 2010 Annual Report in Notes to Consolidated Financial Statements at Note 15, ''Share-based and Deferred Compensation Plans...

  • Page 89
    ... Company's common stock received as compensation for service on the Board until the director has ceased being a member of the Board for one year (sales are permitted to cover income taxes attributable to any stock retainer payment or exercise of a stock option or SAR). Matching Gifts. To further YUM...

  • Page 90
    ...the equity compensation plans under which we may issue shares of stock to our directors, officers and employees under the 1999 Long Term Incentive Plan (''1999 Plan''), the 1997 Long Term Incentive Plan (the ''1997 Plan''), SharePower Plan and Restaurant General Manager Stock Option Plan (''RGM Plan...

  • Page 91
    ... Management Planning and Development Committee of the Board of Directors. The exercise price of a stock option or SAR grant under the SharePower Plan may not be less than the closing price of our stock on the date of the grant and no option or SAR may have a term of more than ten years. The options...

  • Page 92
    ... that arise throughout the year. Management is responsible for the Company's financial reporting process, including its system of internal control over financial reporting, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the...

  • Page 93
    ..., 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 25, 2010 for filing with the SEC. Who prepared this report? This report has been furnished by the members...

  • Page 94
    ... to serve as directors? Under the rules of the SEC, if a shareholder wants us to include a proposal in our proxy statement and proxy card for presentation at our 2012 Annual Meeting of Shareholders, the proposal must be received by us at our principal executive offices at YUM! Brands, Inc., 1441...

  • Page 95
    ... our proxy statement. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an Annual Meeting of Shareholders must be submitted in writing to our Corporate Secretary at our principal executive offices and you must include information set forth...

  • Page 96
    ... authority to direct management of the business and affairs of the Corporation and shall exercise all corporate powers, and possess all authority, necessary or appropriate to carry out the intent of this provision, and which are customarily exercised by the board of directors of a public company. In...

  • Page 97
    (This page has been left blank intentionally.)

  • Page 98
    ... solely of shares of Common Stock) held by non-affiliates of the registrant as of June 12, 2010 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 $19,523,128,212. All executive officers and directors of the...

  • Page 99
    ...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 statements, we are not undertaking to address or update any risk factor set forth...

  • Page 100
    ...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 101
    ... revenues of $4.1 billion and Operating Profit of $755 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 Hut offers a drive-thru option...

  • Page 102
    ... Pizza Huts offer chicken wings, including over 3,000 stores offering wings under the brand WingStreet, primarily in the U.S. • • • Taco Bell • The first Taco Bell restaurant was opened in 1962 by Glen Bell in Downey, California, and in 1964, the first Taco Bell franchise was sold. Taco...

  • Page 103
    ... the location and sales volume of the restaurant. Most of the employees work on a part-time basis. Each Concept issues detailed manuals, which may then be customized to meet local regulations and customs, covering all aspects of restaurant operations, including food handling and product preparation...

  • Page 104
    ... along with the representatives of the Company's KFC, Pizza Hut, Taco Bell, LJS and A&W franchisee groups, are members in the Unified FoodService Purchasing Co-op, LLC (the "Unified Co-op") which was created for the purpose of purchasing certain restaurant products and equipment in the U.S. The core...

  • Page 105
    ... 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 106
    ... 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. The Company expensed $33 million, $31 million and...

  • Page 107
    ... Consolidated Financial Statements and footnotes in Part II, Item 8, pages 61 through 124. (e) Available Information The Company makes available through the Investor Relations section of its internet website at www.yum.com its annual report on Form 10-K, quarterly reports on Form 10-Q, current...

  • Page 108
    ...of operations, financial condition or cash flows. We may not attain our target development goals and aggressive development could cannibalize existing sales. Our growth strategy depends in large part on our ability to increase our net restaurant count in markets outside the United States, especially...

  • Page 109
    ... 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 110
    ...the percentage of Company ownership of KFCs, Pizza Huts, and Taco Bells in the U.S. from approximately 15% at the end of 2010 to approximately 12% by the end of 2011. Our ability to execute this plan will depend on, among other things, whether we receive fair offers for these restaurants, whether we...

  • Page 111
    .... New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our cost of labor. In addition, we are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection...

  • Page 112
    ... 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 113
    ...by Pizza Hut. Taco Bell leases its corporate headquarters and research facility in Irvine, California. The KFC, LJS, A&W and YUM corporate headquarters and a research facility in Louisville, Kentucky are owned by YRI. In addition, YUM leases office facilities for certain support groups in Louisville...

  • Page 114
    ... 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 115
    ... and Chief Concept Officer of Pizza Hut, a position he held beginning in November 2006. Mr. Bergren served as Chief Marketing Officer of KFC and YUM from August 2003 to November 2006. Greg Creed, 53, is Chief Executive Officer Taco Bell. He has served in this position since February 2011. Prior...

  • Page 116
    ... 2006 to January 2008 he was the Chief Concept Officer of Taco Bell International. Prior to joining YUM, Mr. Pant was the owner and operator of Patanjali Corp., from March 2004 to February 2005. Executive officers are elected by and serve at the discretion of the Board of Directors. Form 10-K 19

  • Page 117
    ... 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. 2010...

  • Page 118
    ... to $300 million (excluding applicable transaction fees) of our outstanding Common Stock. For the quarter ended December 25, 2010, all share repurchases were made pursuant to this authorization. In January 2011, our Board of Directors authorized additional share repurchases through July 2012, of up...

  • Page 119
    ... 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 30, 2005 to December 23, 2010, the last trading day of our 2010 fiscal year. The graph assumes that the value of the investment...

  • Page 120
    ... 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 China Division system sales growth(f) Reported Local currency(g) YRI system sales growth...

  • Page 121
    ... at a rate of 4% to 6% of sales). Franchise, unconsolidated affiliate and license restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees are included in the Company's revenues. We believe system sales growth is useful to...

  • Page 122
    ... 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 of the Company's restaurant brands - KFC, Pizza Hut, Taco Bell and Long John Silver's - are the global leaders in the chicken, pizza, Mexican-style...

  • Page 123
    ... new product innovation which adds sales layers and expands day parts. We continue to evaluate our returns and ownership positions with an earn the right to own philosophy on Company owned restaurants. Our ongoing earnings growth model calls for Operating Profit growth of 5% in the U.S. As we near...

  • Page 124
    ...-Leading, Long-Term Shareholder and Franchisee Value - The Company is focused on delivering high returns and returning substantial cash flows to its shareholders via dividends and share repurchases. The Company has one of the highest returns on invested capital in the Quick Service Restaurants ("QSR...

  • Page 125
    ... in China, YRI, and the U.S. Worldwide operating profit grew 15%, prior to foreign currency translation, including 26% in China, 11% in YRI, and 3% in the U.S. Increased the quarterly dividend by 19% in the third quarter and repurchased 9.8 million shares totaling $390 million at an average price of...

  • Page 126
    ... Amount 2010 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 127
    ... (loss) Long John Silver's/A&W U.S. Goodwill impairment charge Charges relating to U.S. G&A productivity initiatives and realignment of resources Investments in our U.S. Brands Gain upon consolidation of a former unconsolidated affiliate in China Losses as a result of refranchising equity markets...

  • Page 128
    ... 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 ovens for the national launch of Kentucky Grilled Chicken. The...

  • Page 129
    ... related income tax benefit and was not allocated to any segment for performance reporting purposes. During the year ended December 26, 2009 we recognized a non-cash $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the year ended...

  • Page 130
    ... the year ended December 26, 2009 the consolidation of the existing restaurants upon acquisition increased Company sales by $192 million; decreased Franchise and license fees and income by $12 million and positively impacted Operating Profit by $4 million. The impact on Net Income - YUM! Brands, Inc...

  • Page 131
    ... 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 132
    ...(604) 37 $ (567) Decreased Company sales Increased Franchise and license fees and income Decrease in Total revenues $ $ $ $ Worldwide (722) $ 41 $ (681) The following table summarizes the impact of refranchising on Operating Profit as described above: 2010 China Division YRI U.S. (44) Decreased...

  • Page 133
    ... impact on our 2011 Revenues and Operating Profit given the recent nature of the adverse publicity. Sale of Long John Silver's and A&W Subsequent to the end of our fourth quarter, we decided to place our Long John Silver's and A&W All-American Food Restaurants brands for sale and began the...

  • Page 134
    ... Licensees(a) 3,013 509 - - (70) 1 3,453 507 - - China Division (c) Balance at end of 2008 New Builds Acquisitions Refranchising Closures Other (b) Balance at end of 2009 New Builds Acquisitions Refranchising Closures Other Balance at end of 2010 % of Total Company 2,272 427 - (11) (59) 237 2,866...

  • Page 135
    ... provides significant or meaningful information. During the second quarter of 2009 we acquired additional ownership in and began consolidating an entity that operates the KFC business in Shanghai, China and have reclassified the units accordingly. This entity was previously accounted for as an...

  • Page 136
    ... year. Net unit growth represents the net impact of actual system sales growth due to new unit openings and historical system sales lost due to closures as well as any necessary rounding. 2010 vs. 2009 China Division 6% 11 1 18% 17% YRI -% U.S. 1% 1 N/A 2% N/A Same store sales growth (decline) Net...

  • Page 137
    ... benefited $16 million from our brands' participation in the World Expo during 2010. This benefit will not occur in 2011. Form 10-K In 2009, the increase in China Division Company sales and Restaurant profit associated with store portfolio actions was primarily driven by the development of new...

  • Page 138
    ... 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 of...

  • Page 139
    ... actions was primarily driven by refranchising. Significant other factors impacting Company sales and/or Restaurant profit were Company same store sales decline of 4%, commodity deflation of $28 million (primarily cheese), and cost savings associated with productivity initiatives. Form 10-K 42

  • Page 140
    ... and consolidation of, an entity that operated the KFCs in Shanghai, China during 2009. See Note 4. U.S. Franchise and license fees and income for 2010 and 2009 was positively impacted by 3% and 5%, respectively, due to the impact of refranchising. Worldwide Franchise and license fees and income for...

  • Page 141
    ..., was driven by increased investment in strategic growth markets. The increase in U.S. G&A expenses for 2010 was driven by increased litigation and incentive compensation costs, partially offset by G&A savings from the actions taken as part of our U.S. business transformation measures and lower...

  • Page 142
    Worldwide Other (Income) Expense Equity income from investments in unconsolidated affiliates Gain upon consolidation of a former unconsolidated affiliate in China(a) Gain upon sale of investment in unconsolidated affiliate(b) Foreign exchange net (gain) loss and other Other (income) expense (a) (b)...

  • Page 143
    ... was driven by the impact of same store sales growth and new unit development, partially offset by higher G&A costs. Operating profit benefited $16 million from our brands' participation in the World Expo during 2010. China Division Operating Profit increased 26% in 2009, including a 2%, or $10...

  • Page 144
    ... portion of our Company operated KFC restaurants in the U.S. and a non-cash loss of $52 million related to the sale of our Mexico equity business, offset by U.S. gains for restaurants sold at Pizza Hut and Taco Bell. See Note 4 for further discussion. Interest Expense, Net 2010 195 (20) 175...

  • Page 145
    ... tax assets for net operating losses generated by tax planning actions as we did not believe it was more likely than not that they would be realized in the future. This increase was partially offset by $30 million of benefits primarily resulting from a change in judgment regarding the future use...

  • Page 146
    ... year earnings and U.S. tax credits. In 2009, this item was positively impacted by a one-time pre-tax gain of approximately $68 million, with no related income tax expense, recognized on our acquisition of additional interest in, and consolidation of, the entity that operates KFC in Shanghai, China...

  • Page 147
    ... April 2011. Our China Division and YRI represented more than 65% of the Company's operating profit in 2010 (excluding Corporate and unallocated income and expenses) and both generate a significant amount of positive cash flows that we have historically used to fund our international development. To...

  • Page 148
    ...December 25, 2010, we paid cash dividends of $412 million. Additionally, on November 19, 2010 our Board of Directors approved cash dividends of $0.25 per share of Common Stock to be distributed on February 4, 2011 to shareholders of record at the close of business on January 14, 2011. The Company is...

  • Page 149
    ... agreements. Other consists of 2011 pension plan funding obligations and projected payments for deferred compensation. (b) (c) (d) We have not included in the contractual obligations table approximately $322 million for long-term liabilities for unrecognized tax benefits for various tax positions...

  • Page 150
    ... million. The U.K. pension plans are in a net underfunded position of $23 million at our 2010 measurement date. Based on the current funding status of the Plan and our UK pension plans, we will not be required to make significant contributions in 2011. Investment performance and corporate bond rates...

  • Page 151
    ... 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 152
    ... countries) and our China Division brands. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted expected future after-tax cash flows from company operations and franchise royalties. Future cash flow estimates and the discount rate...

  • Page 153
    ...obligations under operating leases, primarily as a condition to the refranchising of certain Company restaurants, 2) facilitating franchisee development and 3) equipment financing arrangements to facilitate the launch of new sales layers by franchisees. We recognize a liability for the fair value of...

  • Page 154
    ... by an increase in amortization of net loss. A 50 basis point change in our discount rate assumption at our measurement date would impact our 2011 U.S. pension expense by approximately $15 million. The assumption we make regarding our expected long-term rates of return on plan assets also impacts...

  • Page 155
    ...determining 2010 expense, our funded status was such that we recognized $23 million of net loss in net periodic benefit cost. We will recognize approximately $31 million of such loss in 2011. See Note 14 for further discussion of our pension plans. Stock Options and Stock Appreciation Rights Expense...

  • Page 156
    Income Taxes At December 25, 2010, we had a valuation allowance of $191 million primarily to reduce our net operating loss and tax credit carryforward benefits of $220 million, as well as our other deferred tax assets, to amounts that will more likely than not be realized. The net operating loss and...

  • Page 157
    ... and using discount rates appropriate for the duration. Foreign Currency Exchange Rate Risk The combined International Division and China Division Operating Profits constitute more than 65% of our Operating Profit in 2010, excluding unallocated income (expenses). In addition, the Company's net asset...

  • Page 158
    ... 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 25, 2010, December 26, 2009 and December 27, 2008 Consolidated Statements of Cash...

  • Page 159
    ... these consolidated financial statements and an opinion on YUM's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 160
    Consolidated Statements of Income YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 25, 2010, December 26, 2009 and December 27, 2008 (in millions, except per share data) 2010 2009 Revenues Company sales $ 9,783 $ 9,413 Franchise and license fees and income 1,560 1,423 Total revenues 11...

  • Page 161
    ... 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 (Decrease) in Cash and Cash Equivalents Change in Cash and Cash...

  • Page 162
    ...Total Current Liabilities Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders' Equity Common Stock, no par value, 750 shares authorized; 469 shares issued in 2010 and 2009 Retained earnings Accumulated other comprehensive loss Total Shareholders' Equity - YUM! Brands...

  • Page 163
    Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 25, 2010, December 26, 2009 and December 27, 2008 (in millions) Yum! Brands, Inc. Issued Common Stock Shares Amount 499 $ - Retained Earnings 1,119...

  • Page 164
    ... to Consolidated Financial Statements (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...

  • Page 165
    ..., China, which was previously accounted for using the equity method. The increases in cash related to the consolidation of these entities' cash balances ($17 million in both instances) are presented as a single line item on our Consolidated Statements of Cash Flows. We report Net income attributable...

  • Page 166
    ... Consolidated Financial Statements and Notes thereto for prior periods to be comparable with the classification for the fiscal year ended December 25, 2010. These reclassifications had no effect on previously reported Net Income - YUM! Brands, Inc. Franchise and License Operations. We execute...

  • Page 167
    ...31 million and $34 million in 2010, 2009 and 2008, respectively. Share-Based Employee Compensation. We recognize all share-based payments to employees, including grants of employee stock options and stock appreciation rights ("SARs"), in the financial statements as compensation cost over the service...

  • Page 168
    ...make such as sales growth and margin improvement. The discount rate used in the fair value calculation is our estimate of the required rate of return that a franchisee would expect to receive when purchasing a similar restaurant and the related long-lived assets. The discount rate incorporates rates...

  • Page 169
    ... between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as 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...

  • Page 170
    ...unable to make their required payments. Balances of notes receivable and direct financing leases due within one year are included in Accounts and Notes Receivable while amounts due beyond one year are included in Other assets. Amounts included in Other assets totaled $57 million (net of an allowance...

  • Page 171
    ... 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 172
    ... not be at prevailing market rates. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements. As such, the fair value of the reporting unit retained can include expected cash flows from future...

  • Page 173
    ... large number of share repurchases and the increase in the market value of our stock over the past several years, our Common Stock balance is frequently zero at the end of any period. Our Common Stock balance was such that no share repurchases impacted Retained Earnings in 2010, while $1,434 million...

  • Page 174
    ... $34 million in the U.S. The loss recorded in the year ended December 25, 2010 is the net result of gains from 404 restaurants sold and non-cash impairment charges related to our offers to refranchise restaurants in the U.S., principally a substantial portion of our Company operated KFC restaurants...

  • Page 175
    ... States. As a result, we acquired company ownership of 50 restaurants and gained full rights and responsibilities as franchisor of 81 restaurants, which our partner previously managed as master franchisee. Upon exercise of our option, we paid cash of $56 million, net of settlement of a long-term...

  • Page 176
    ... fees and income by $6 million and $12 million, respectively. For the years ended December 25, 2010 and December 26, 2009, the consolidation of the existing restaurants upon acquisition increased Operating Profit by $3 million and $4 million, respectively. The impact on Net Income - YUM! Brands...

  • Page 177
    ... 13 33 46 $ $ $ Worldwide (26) 9 68 77 Refranchising (gain) loss(a) Store closure (income) costs(d) Store impairment charges Closure and impairment (income) expenses China Division $ (1) $ $ (3) 7 4 $ $ $ YRI (9) (5) 14 9 $ $ $ U.S. 5 (4) 34 30 $ $ $ Worldwide (5) (12) 55 43 Form 10-K 80

  • Page 178
    ...considered current market conditions, real-estate values, trends in the KFC-U.S. business, prices for similar transactions in the restaurant industry and preliminary offers for the restaurant group to date. We continued to depreciate the pre-impairment charges carrying value of these restaurants for...

  • Page 179
    ... related income tax benefit and was not allocated to any segment for performance reporting purposes. During the year ended December 26, 2009 we recognized a non-cash $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the year ended...

  • Page 180
    ... Data 2010 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 Increase (decrease) in accrued capital expenditures Note 6 - Franchise and License Fees and Income...

  • Page 181
    ... and equipment was $565 million, $553 million and $542 million in 2010, 2009 and 2008, respectively. Accounts Payable and Other Current Liabilities Accounts payable Accrued capital expenditures Accrued compensation and benefits Dividends payable Accrued taxes, other than income taxes Other current...

  • Page 182
    ... in our Consolidated Statement of Income and was not allocated to the U.S. segment for performance reporting purposes. See Note 4. We recorded a non-cash goodwill impairment charge of $12 million for our Pizza Hut South Korea reporting unit in the fourth quarter of 2009 as the carrying value of this...

  • Page 183
    ... of Independent States. See Note 4. (d) Intangible assets, net for the years ended 2010 and 2009 are as follows: 2010 Gross Carrying Amount Definite-lived intangible assets Franchise contract rights Trademarks/brands Lease tenancy rights Favorable operating leases Reacquired franchise rights Other...

  • Page 184
    ...- Short-term Borrowings and Long-term Debt 2010 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 Notes Capital lease...

  • Page 185
    ... quarter of 2010, we issued $350 million aggregate principal amount of 3.88% 10 year Senior Unsecured Notes due to the favorable credit markets. As a result of issuing the Senior Unsecured Notes as well as our continued strong cash flows from operating activities, we have cash and cash equivalents...

  • Page 186
    ...follows: Year ended: 2011 2012 2013 2014 2015 Thereafter Total $ $ 653 268 5 6 257 2,138 3,327 Interest expense on short-term borrowings and long-term debt was $195 million, $212 million and $253 million in 2010, 2009 and 2008, respectively. Note 11 - Leases At December 25, 2010 we operated more...

  • Page 187
    ... Operating 49 42 38 37 34 151 $ 351 $ 2011 2012 2013 2014 2015 Thereafter At December 25, 2010 and December 26, 2009, the present value of minimum payments under capital leases was $236 million and $249 million, respectively. At December 25, 2010 and December 26, 2009, unearned income associated...

  • Page 188
    ... Company is exposed to certain market risks relating to its ongoing business operations. The primary market risks managed by using derivative instruments are interest rate risk and cash flow volatility arising from foreign currency fluctuations. We enter into interest rate swaps with the objective...

  • Page 189
    ... 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 190
    ... the Consolidated Statements of Income. At December 25, 2010 the carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values because of the short-term nature of these instruments. The fair value of notes receivable net of allowances and lease...

  • Page 191
    ... dates coinciding with our fiscal year ends. U.S. Pension Plans 2010 2009 Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Participant contributions Plan amendments Curtailment gain Settlement loss Special termination benefits Exchange rate changes...

  • Page 192
    ... net loss Prior service cost The accumulated benefit obligation for the U.S. and International pension plans was $1,212 million and $1,105 million at December 25, 2010 and December 26, 2009, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets...

  • Page 193
    ... cost (1) - - Exchange rate changes End of year $ 363 $ 346 (a) International Pension Plans 2010 2009 $ 48 $ 41 2 5 (2) (2 2) 4 $ 46 $ 48 Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. Settlement loss...

  • Page 194
    ...75% International Pension Plans 2010 2009 5.40% 5.50% 4.42% 4.42% 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 195
    ... the investment strategy for the Plan's assets, which make up 85% of total pension plan assets at the 2010 measurement date, are to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future payment requirements. To achieve these objectives, we are using...

  • Page 196
    ... International Pension Plans $ 2 2 2 2 2 11 Year ended: 2011 2012 2013 2014 2015 2016 - 2020 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 197
    ... - Share-based and Deferred Compensation Plans Overview At year end 2010, 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 Plan ("RGM...

  • Page 198
    ... stock options and SARs under this plan. These awards generally vest over a period of four years and expire no longer than ten years after grant. At year end 2010, approximately 21 million shares were available for future share-based compensation grants under the above plans. Our Executive Income...

  • Page 199
    ... volatility of our stock as well as implied volatility associated with our traded options. The expected dividend yield is based on the annual dividend yield at the time of grant. The fair values of RSU and PSU awards are based on the closing price of our stock on the date of grant. Form 10-K 102

  • Page 200
    ... compensation cost related to stock options and SARs, which will be reduced by any forfeitures that occur, related to unvested awards that is expected to be recognized over a remaining weighted-average period of approximately 2 years. The total fair value at grant date of awards vested during 2010...

  • Page 201
    ... Performance Share Units Total Share-based Compensation Expense Deferred Tax Benefit recognized EID compensation expense not share-based Cash received from stock option exercises for 2010, 2009 and 2008, was $102 million, $113 million and $72 million, respectively. Tax benefits realized on our tax...

  • Page 202
    ... 2010 share repurchase authorization. Additionally, on January 27, 2011, our Board of Directors authorized share repurchases through July 2012 of up to $750 million (excluding applicable transaction fees) of our outstanding Common Stock. Accumulated Other Comprehensive Income (Loss) - Comprehensive...

  • Page 203
    ... local taxes, withholding taxes, and shareholder-level taxes, net of foreign tax credits. The favorable impact is primarily attributable to a majority of our income being earned outside of the U.S. where tax rates are generally lower than the U.S. rate. Form 10-K In 2010, the benefit was positively...

  • Page 204
    ... tax assets for net operating losses generated by tax planning actions as we did not believe it was more likely than not that they would be realized in the future. This increase was partially offset by $30 million of benefits primarily resulting from a change in judgment regarding the future use...

  • Page 205
    ... year earnings and U.S. tax credits. In 2009, this item was positively impacted by a one-time pre-tax gain of approximately $68 million, with no related income tax expense, recognized on our acquisition of additional interest in, and consolidation of, the entity that operates KFC in Shanghai, China...

  • Page 206
    ... to use tax losses from prior periods to reduce future taxable income and will expire as follows: Year of Expiration 2012-2015 2016-2030 $ 65 $ 142 88 1,590 $ 153 $ 1,732 2011 Foreign U.S. state $ $ 4 12 16 Indefinitely $ 421 $ 421 Total 632 1,690 $ 2,322 $ In addition, tax credits of $5 million...

  • Page 207
    ... Company received a Revenue Agent Report ("RAR") from the Internal Revenue Service (the "IRS") relating to its examination of our U.S. federal income tax returns for fiscal years 2004 through 2006. The IRS has proposed an adjustment to increase the taxable value of rights to intangibles used outside...

  • Page 208
    ...We consider our KFC, Pizza Hut, Taco Bell and LJS/A&W operating segments in the U.S. to be similar and therefore have aggregated them into a single reportable operating segment. Revenues 2009 $ 3,407 2,988 4,473 (32) $ 10,836 China Division YRI U.S. Unallocated Franchise and license fees and income...

  • Page 209
    ... costs of ovens for the national launch of Kentucky Grilled Chicken. See Note 4. Amounts have not been allocated to the U.S., YRI or China Division segments for performance reporting purposes. Includes equity income from investments in unconsolidated affiliates of $42 million, $36 million...

  • Page 210
    ...property, plant and equipment, net, goodwill, and intangible assets, net. (f) (g) (h) (i) (j) See Note 4 for additional operating segment disclosures related to impairment, store closure (income) costs and the carrying amount of assets held for sale. Note 19 - Contingencies Lease Guarantees As...

  • Page 211
    ...purchase of ovens by KFC franchisees for the launch of Kentucky Grilled Chicken. The total loans outstanding under these equipment financing programs were approximately $25 million at December 25, 2010. Unconsolidated Affiliates Guarantees From time to time we have guaranteed certain lines of credit...

  • Page 212
    ...changes in estimated losses which could be material to our growth in quarterly and annual Net income. We believe that we have recorded reserves for property and casualty losses at a level which has substantially mitigated the potential negative impact of adverse developments and/or volatility. Form...

  • Page 213
    ... 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 for the Middle District of Tennessee...

  • Page 214
    ... currently provided for in our Consolidated Financial Statements. On September 10, 2007, a putative class action against Taco Bell Corp., the Company and other related entities styled Sandrika Medlock v. Taco Bell Corp., was filed in United States District Court, Eastern District, Fresno, California...

  • Page 215
    ... Taco Bell of America, Inc. was filed in the United States District Court for the Eastern District of California, Fresno division. The plaintiff seeks to represent a California state-wide class of hourly employees who were allegedly not timely paid all earned vacation at the end of their employment...

  • Page 216
    ...., and KFC Corporation, was filed in California state court on behalf of all former California hourly employees alleging various California Labor Code violations, including failure to pay all vacation pay, failure to reimburse business expenses (mileage and uniforms), and waiting time penalties, as...

  • Page 217
    ...al. v. Taco Bell Corp. On August 4, 2003, plaintiffs filed an amended complaint that alleges, among other things, that Taco Bell has discriminated against the class of people who use wheelchairs or scooters for mobility by failing to make its approximately 220 company-owned restaurants in California...

  • Page 218
    ... assistant managers under Colorado state law, which provides for daily overtime after 12 hours in a day. Yum has been dismissed from the case. Defendants filed their answer on September 20, 2010, and the parties commenced class discovery, which is currently on-going. Taco Bell and the Company deny...

  • Page 219
    ... Selected Quarterly Financial Data (Unaudited) 2010 Third Quarter $ 2,496 366 2,862 479 544 357 0.76 0.74 - 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 common share...

  • Page 220
    ...end of our fourth quarter, we decided to place our Long John Silver's and A&W All-American Food Restaurants brands for sale and began the process to identify a buyer. In the first quarter of 2011, we anticipate that we will recognize a non-cash pre-tax impairment loss in Special Items as a result of...

  • Page 221
    ... 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...

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    ... the consolidated financial statements included in this Annual Report on Form 10-K and the effectiveness of our internal control over financial reporting and has issued their report, included herein. Changes in Internal Control There were no changes with respect to the Company's internal control...

  • Page 223
    ... proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 25, 2010. Information regarding executive officers of the Company is included in Part I. Item 11. Executive Compensation. Information regarding executive and director compensation...

  • Page 224
    ...(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 225
    ...of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 14, 2011 YUM! BRANDS, INC. By: /s/ David C. Novak Pursuant to the requirements of the Securities Exchange Act...

  • Page 226
    ... S. Su Jing-Shyh S. Su /s/ Robert D. Walter Robert D. Walter Director February 14, 2011 Director February 14, 2011 Director February 14, 2011 Director February 14, 2011 Director February 14, 2011 Vice-Chairman of the Board February 14, 2011 Director February 14, 2011 Form 10-K 129

  • Page 227
    YUM! Brands, Inc. Exhibit Index (Item 15) Exhibit Number 3.1 Description of Exhibits Restated Articles of Incorporation of YUM, which is incorporated herein by reference from Exhibit 3.1 to YUM's Annual Report on Form 10-K for the fiscal year ended December 27, 2008. Amended and restated Bylaws of ...

  • Page 228
    ... 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 229
    ... 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 230
    ... 10.26 to YUM's Annual Report on Form 10-K for the fiscal year ended December 26, 2009. 1999 Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company and Jing-Shyh S. Su, dated as of May 20, 2010, as filed herewith. Computation of ratio of earnings to fixed charges...

  • Page 231
    ... Taxonomy Extension Definition Linkbase Document In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on this Form 10-K shall be deemed to be "furnished" and not "filed." Confidential treatment has been granted for certain portions which are omitted in...

  • Page 232
    ... hold YUM shares in the name of a bank or broker) should direct communications about all administrative matters related to their accounts to their stockbroker. LONG TERM INCENTIVE PLAN (LTIP) AND YUMBUCKS PARTICIPANTS (employees with rights to LTIP and YUMBUCKS options and stock appreciation rights...

  • Page 233
    ... the NYSE, the world's leading equities market. Franchise Inquiries DOMESTIC FRANCHISING INQUIRY PHONE LINE (866) 2YUMYUM (298-6986) INTERNATIONAL FRANCHISING INQUIRY PHONE LINE (972) 338-7780 ONLINE FRANCHISE INFORMATION http://www.yumfranchises.com/ Yum! Brands' Annual Report contains many of the...

  • Page 234
    Yum! brands, Inc. 2010 annual customer manIa report

  • Page 235
    ... Counsel, Secretary and Chief Franchise Policy Officer, Yum! Brands, Inc. Richard T. Carucci 53 Chief Financial Officer, Yum! Brands, Inc. Greg Creed 53 Chief Executive Officer, Taco Bell Roger Eaton 50 Chief Executive Officer, KFC U.S. and Yum! Operational Excellence, Yum! Brands, Inc. W. Lawrence...

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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.