Kentucky Fried Chicken 2011 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    Financial Highlights (In millions, except for per share amounts) Year-end 2011 2010 % 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 ...

  • Page 3
    ... position our company for future growth. 14% EPS Growth* +7% System Sales Growth** +1,561 New Units Opened $1.3 billion Net Income +14% Increased Dividend $1.14 Annual Dividend Per Share Rate David C. Novak Chairman & Chief Executive Officer, Yum! Brands, Inc. * ** Excluding special...

  • Page 4
    2

  • Page 5
    ... Little Sheep's operational model and increasing its market leadership position. We're very excited about the long-term potential of this brand and will make the necessary investments required to ensure its success. 135 Pizza Hut Home Service stores in China. We're building East Dawning to...

  • Page 6
    ... impact on Yum!'s profit growth in the future. We also made stellar progress in Russia, where we're in the process of re-branding Rostiks-KFC restaurants to stand-alone KFCs...and same store sales growth in Russia is the best in our business. We know our primary competitor makes over $300 million in...

  • Page 7
    ...in China leveraging our assets throughout the day with breakfast, 24-hour service, delivery and innovative beverages. We're making progress in several other countries as well. In Yum! Restaurants International, we have over 4,000 KFC restaurants with ovens, which enable innovative non-fried products...

  • Page 8
    We're making progress reinvigorating our U.S. business which clearly under-performed in 2011, with same store sales down 1% and profit down 12%. The good news is we are poised to achieve significantly better results. In fact, we had positive net unit growth at Taco Bell and Pizza Hut in 2011, and we...

  • Page 9
    ...of a great year in 2010. The combination of everyday value, innovative new products and unique bundles has performed well and we'll continue to leverage these strategies going forward. In the U.S., I'm pleased KFC has formed a united front with its franchisees, investing in operations and galvanized...

  • Page 10
    ... aggressive International expansion and build strong brands everywhere. 3 Dramatically improve U.S. brand positions, consistency and returns. 4 Drive industry-leading, long-term Shareholder & Franchisee value. Our success in executing these strategies has driven our return on invested capital over...

  • Page 11
    ... started the sale process and our intention is to sell this business in 2012. At the same time, we are aggressively growing emerging and under-penetrated markets. While our franchise partners fuel the majority of our new unit growth outside China, we will also build company units in international...

  • Page 12
    ..., dedication and commitment to help build Yum! Brands and for Serving the World. After reading this Annual Report, I hope you will agree we are on the ground floor of global growth...China and a whole lot more. Yum! To You! David C. Novak Chairman & Chief Executive Officer, Yum! Brands, Inc. 10

  • Page 13
    ... every day! Make it a magnet for the best talent Be an "ABR black belt"...Be a "Know How junkie" dynamhc, vhbrant brands everywxere whtx one system operathonal excellence as our foundathon Make Customer Mania come alive for every customer in every restaurant Build dynasties in every country Always...

  • Page 14
    ... how we grow Build leading brands in China in every significant category Drive aggressive, International expansion and build strong brands everywhere Dramatically improve U.S. brand positions, consistency and returns Drive industryleading, long-term shareholder and franchisee value how we win...

  • Page 15
    ... 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 17, 2012-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 16

  • Page 17
    ...: You can vote if you were a shareholder of record as of the close of business on March 19, 2012. Proxy Statement Annual Report: A copy of our 2011 Annual Report on Form 10-K is included with this proxy statement. Web site: You may also read the Company's Annual Report and this Notice and proxy...

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

  • Page 19
    ..., Kentucky 40213 PROXY STATEMENT For Annual Meeting of Shareholders To Be Held On May 17, 2012 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 the Annual...

  • Page 20
    ...on Executive Compensation; and • Two (2) shareholder proposals. We will also consider other business that properly comes before the meeting. How does the Board of Directors recommend that I vote? Our Board of Directors recommends that you vote your shares: • ''FOR'' each of the nominees named in...

  • Page 21
    ... still vote your shares in person at the meeting even if you have previously voted by proxy. Can I change my mind after I vote? You may change your vote at any time before the polls close at the Annual Meeting. You may do this by: • Signing another proxy card with a later date and returning it to...

  • Page 22
    ... at the Annual Meeting if you attend the Annual Meeting in person or if you properly return a proxy by Internet, telephone or mail. In order for us to conduct our Annual Meeting, a majority of the outstanding shares of YUM common stock, as of March 19, 2012, must be present in person or represented...

  • Page 23
    ... results? The Company will announce the voting results of the Annual Meeting on a Current Report on Form 8-K within four business days of the Annual Meeting. What if other matters are presented for consideration at the Annual Meeting? As of the date of this proxy statement, our management knows of...

  • Page 24
    ... OF THE COMPANY The business and affairs of YUM are managed under the direction of the Board of Directors. The Board believes that good corporate governance is a critical factor in achieving business success and in fulfilling the Board's responsibilities to shareholders. The Board believes that...

  • Page 25
    ... make a director nomination at the 2013 Annual Meeting, a shareholder must notify YUM's Secretary no later than February 18, 2013. Notices should be sent to: Corporate Secretary, YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213. The nomination must contain the information described...

  • Page 26
    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, the principal financial...

  • Page 27
    ... and shareholder return, emphasize long-term incentives and require executives to personally invest in Company stock. In 2012, 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 28
    ... employees is associated with the long term performance of the Company. • The annual incentive target setting process is closely linked to the annual financial planning process and supports the Company's overall strategic plan. • Compensation is primarily determined by results of the business...

  • Page 29
    ... 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 accounting...

  • Page 30
    ...• Reviews 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...

  • Page 31
    ... 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 32
    ... total revenues and the related person is not an executive officer of the other company. Proxy Statement Does the Company require stock ownership by directors? Yes, the Company requires stock ownership by directors. The Board of Directors expects nonmanagement directors to hold a meaningful number...

  • Page 33
    ... demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to YUM and our Board. Finally, we value their significant experience on other public company boards of directors and board committees. Information about the number of shares of common stock...

  • Page 34
    ... international sales and distribution business • Expertise in branding, marketing, sales and international business development • Public company directorship and committee experience • Independent of Company Proxy Statement Mirian M. Graddick-Weir Age 57 Director since January 2012 Executive...

  • Page 35
    ..., skills and expertise: • Operating and management experience, including as chairman of private investment firms and chief executive officer of a financial institution • Expertise in finance, accounting and public company leadership • Public company directorship and committee experience...

  • Page 36
    ... and chief executive officer of global travel-related services company • Expertise in finance, marketing and international business development • Public company directorship and committee experience • Independent of Company 16MAR201218540977 Proxy Statement Thomas C. Nelson Age 49 Director...

  • Page 37
    ... of World Food Program. Specific qualifications, experience, skills and expertise: • Operating and management experience, including as chairman and chief executive officer of the Company • Expertise in strategic planning, global branding, franchising, and corporate leadership • Public company...

  • Page 38
    ... and expertise: • Operating and management experience, including as chief executive officer, of global healthcare and service provider business • Expertise in finance, business development, business integrations, financial reporting, compliance and controls • Public company directorship and...

  • Page 39
    ... financial reporting, statutory audits and services rendered in connection with the Company's securities offerings. (2) Audit-related fees for 2011 and 2010 included audits of financial statements of certain employee benefit plans, agreed upon procedures and other attestations. (3) Tax fees for 2011...

  • Page 40
    ...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. The complete policy is available on the Company's Web site at www.yum.com/investors/governance/ media/gov_auditpolicy.pdf. Proxy Statement...

  • Page 41
    ...• Performance-Based Compensation Elements • Annual Bonus. The annual bonus program is tied to key financial metrics that are long-term drivers of shareholder value-growth in EPS, operating profit at the business unit level, same store sales and new store growth. • Long Term Incentives. In 2011...

  • Page 42
    .... Our named executive officers do not have employment agreements or guaranteed bonuses. • Clawbacks. Our compensation recovery (''clawback'') policy gives our Board discretion to recover incentive compensation paid to senior management in the event of a restatement of our financial statements due...

  • Page 43
    ... of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. While this vote is advisory and non-binding on the Company, the Board of Directors and the Management Planning and Development Committee will review the voting results and consider shareholder concerns...

  • Page 44
    ... can best provide the necessary oversight of management. Thus, the California Public Employees' Retirement System's Global Principles of Accountable Corporate Governance recommends that a Company's board should generally be chaired by an independent director, as does the Council of Institutional...

  • Page 45
    ...an independent director who has not previously served as an executive officer of the Company. The Company does not support the proposal. Our Board approaches its work with the belief that good corporate governance and accountability to shareholders are not only marks of good management, but critical...

  • Page 46
    We encourage shareholders to learn more about our Company's governance practices at our website, www.yum.com, and at page 6 of the...affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. 16MAR201218540977 Proxy Statement 28

  • Page 47
    ... Asset Management has advised us that it intends to present the following shareholder proposal at the Annual Meeting. We will furnish the address and share ownership of the proponent upon request. Whereas: The environmental and social impacts of palm oil, an ingredient in our Company's supply chain...

  • Page 48
    MANAGEMENT STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL The Board of Directors recommends that shareholders vote AGAINST this proposal. What is the Company's position regarding this proposal? The Company opposes the proposal. As a global citizen, the Company recognizes its responsibility to use ...

  • Page 49
    ... named executive officers call for them to own 50,000 shares of YUM common stock or stock equivalents within five years following their appointment to their current position. The table shows the number of shares of common stock and common stock equivalents beneficially owned as of December 31, 2011...

  • Page 50
    ...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 51
    ... 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 52
    ...set the challenging performance goals for our annual bonuses. We believe that our compensation program in 2011 and in prior years shows that we have closely linked pay to performance. Executive Summary Overview of 2011 Performance As we stated last year, the power of YUM is in our ability to deliver...

  • Page 53
    ... cash bonuses, and • Long-term equity compensation consisting of stock options or 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...

  • Page 54
    ... Build Strong Brands Everywhere • Dramatically Improve U.S. Brand Positions, Consistency and Returns • Drive Industry-Leading 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 55
    ... as those excluded in the Company's annual earning releases. Annual Total Shareholder Return Through 12/31/11 86th percentile 86th percentile 23% 92nd percentile 16% 14% 10% 17% 26% 16MAR201218 Proxy Statement 4% 2% -0.2% 1-Year 3-Year 5-Year YUM Compensation Peer Group Average S&P 500 Index...

  • Page 56
    ... 2011 compensation actions: • Adjustments to Base Salary: Provided merit-based salary increases to each of our NEOs; • Pay-for-Performance Annual Bonus: Based on our strong 2011 performance, we paid bonuses for 2011 recognizing our strong system sales growth, continued operating profit growth...

  • Page 57
    ... Executive Officer-Yum Restaurants International Division (''YRI'')* • Micky Pant, Chief Executive Officer-YRI * 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 58
    ... 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 59
    ...may elect not to use the comparative compensation information at all in the course of making specific compensation decisions. For our NEOs, other than our CEO, the Committee has set separate target percentiles for base salary, performance-based annual bonuses and long-term incentives as discussed at...

  • Page 60
    ... Data Revenue size often correlates to some degree with the market value of compensation for senior executive positions. For companies with significant franchise operations, measuring size is a more complex undertaking. This is because there are added complexities and responsibilities for managing...

  • Page 61
    ...-based annual bonus-75th percentile to emphasize superior pay for superior performance • Long-term incentives-50th percentile For the CEO, the Committee targets 75th percentile for salary and target total cash compensation as well as 75th percentile for target total compensation. 2011 Executive...

  • Page 62
    ...-based, pay-for-performance plan that applies to all above-restaurant leaders in the Company. The principal purpose of the YUM Leaders' Bonus Program is to encourage and reward strong individual and team performance that drives shareholder value. Annual bonus payments are based on the achievement of...

  • Page 63
    ... 2011 and reviewed actual performance against these measures and targets as set forth in the chart below for the NEOs. The targets were developed through the Company's annual financial planning process, in which we assessed historical performance, the future operating environment and profit growth...

  • Page 64
    ...) System Gross New Builds System Customer Satisfaction Total Weighted TP Factor-China Division 75% Division/25% Yum TP Factor Allan and Pant Operating Profit Growth (Before Tax; Excluding Forex) System Sales Growth (Excluding Forex) System Net Builds System Customer Satisfaction Total Weighted TP...

  • Page 65
    ... NEOs and other executives to help us achieve our long-range performance goals that will enhance our value and, as a result, enhance our shareholders' returns on their investments. Proxy Statement Under our LTI Plan, our NEOs are awarded long-term incentives primarily in the form of non-qualified...

  • Page 66
    ...a grant date fair value of approximately $1.2 million. Mr. Carucci's award was based on the Committee's subjective assessment of the consistently superior financial performance of the Company in the areas of total shareholder return, return on net assets, EPS growth and operating income growth under...

  • Page 67
    ... period. The data revealed that the Company had on average performed very strongly compared to the nondurable consumer products peer group in terms of total shareholder return (top quartile for the three and five-year periods), return on net assets (top quartile for each period), EPS growth (top 50...

  • Page 68
    ...CEO role relative to other executive roles. This comparative market data analyzed over several years supports the differences in salary, annual bonus and long-term incentives. Other Benefits Retirement Benefits We offer competitive retirement benefits through the YUM! Brands Retirement Plan. This is...

  • Page 69
    ... for 2011. These elements included salary, annual bonuses, 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...

  • Page 70
    ... NEO and vested RSUs acquired under the Company's executive income deferral program. (2) Based on YUM closing stock price of $59.01 as of December 31, 2011. Proxy Statement Under our Code of Conduct, speculative trading in YUM stock, including trading in puts, calls or other hedging or monetization...

  • Page 71
    ... Over the last four years, we have averaged six Chairman's Award grants per year outside of the January time frame. In 2011, we made three Chairman's Awards on Board of Director meeting dates other than the January meeting. Payments upon Termination of Employment The Company does not have agreements...

  • Page 72
    ...Revenue Code Section 162(m). Payments made under these plans qualify as performance-based compensation. For 2011, 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 73
    ... under the annual bonus plan. By setting a high amount which can then be reduced at the Committee's discretion, our annual bonus plan meets the requirements of Section 162(m) of the Internal Revenue Code. In 2011, the Committee, after certifying that EPS had exceeded the 10% growth target which...

  • Page 74
    MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE REPORT The Management Planning and Development Committee of the Board of Directors reports that it has reviewed and discussed with management the section of this proxy statement headed ''Compensation Discussion and Analysis,'' and, on the basis of that ...

  • Page 75
    ... date fair values for performance share units (PSUs) granted in 2011, 2010, and 2009 and restricted stock units (RSUs) granted in 2010 under our Long Term Incentive Plan. Further information regarding the 2011 awards is included in the ''Grants of Plan-Based Awards'' and ''Outstanding Equity Awards...

  • Page 76
    ... the aggregate increase in actuarial present value of age 62 accrued benefits under all actuarial pension plans during the 2011 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). The change in pension value for 2011 is mainly...

  • Page 77
    ... other benefits include: home security expense, relocation expenses, tax preparation assistance and Company provided parking. For Mr. Pant, this column also includes Company annual allocations of $300,000 to an unfunded, unsecured account based retirement plan called the Leadership Retirement Plan...

  • Page 78
    ... amount and maximum amounts payable as annual incentive compensation under the YUM Leaders' Bonus Program based on the Company's performance and on each executive's individual performance during 2011. The actual amount of annual incentive compensation awarded for 2011 is shown in column (f) of the...

  • Page 79
    ... vesting conditions under the Long Term Incentive Plan in 2011. The PSUs vest on December 28, 2013, subject to the Company's achievement of specified earnings per share (''EPS'') growth during the performance period ending on December 28, 2013. The performance target for all the PSU awards granted...

  • Page 80
    ... 31, 2011. Option/SAR 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 (a) Novak Grant Date 1/27/2004 1/28/2005 1/26/2006 1/19/2007 1/24/2008 2/5/2009 2/5/2010 2/4/2011 Number of Securities...

  • Page 81
    ... 5 years. The market value of these awards are calculated by multiplying the number of shares covered by the award by $59.01, the closing price of YUM stock on the NYSE on December 30, 2011. The awards reflected in this column are unvested performance-based PSUs with three-year performance periods...

  • Page 82
    ... 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. 2011 Fiscal Year Pension Benefits Table Number of Present Value of Years of Accumulated Credited Service Benefit...

  • Page 83
    account based retirement plan called the Leadership Retirement Plan to which the Company made allocations in 2011. (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 ...

  • Page 84
    ... 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 85
    ...group of corporations that is controlled by the Company. 16MAR201218 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...

  • Page 86
    ... 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 tracks the investment return of...

  • Page 87
    ... table. Since these earnings are market based returns, they are not reported in the Summary Compensation Table. (3) All amounts shown were distributed in accordance with the executive's deferral election, except in the case of the following amount distributed to pay payroll taxes due upon vesting of...

  • Page 88
    ... 31, 2011, 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 distributions under the Company's 401(k) Plan, retiree...

  • Page 89
    ... 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 90
    ...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 91
    ... of stock awards and option awards contained in Part II, Item 8, ''Financial Statements and Supplementary Data'' of the 2011 Annual Report in Notes to Consolidated Financial Statements at Note 15, ''Share-based and Deferred Compensation Plans.'' (3) At December 31, 2011, the aggregate number of...

  • Page 92
    ... Non-employee directors also receive a one-time stock grant with a fair market value of $25,000 on the date of grant upon joining the Board, distribution of which is deferred until termination from the Board. Proxy Statement Stock Ownership Requirements. Similar to executive officers, directors are...

  • Page 93
    ... 31, 2011, 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 94
    ... the performance of RGMs. In addition, the Plan provides incentives 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...

  • Page 95
    ... 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 96
    ... both management and the Company's independent auditors all annual and quarterly financial statements prior to their issuance. During 2011, management advised the Committee that each set of financial statements reviewed had been prepared in accordance with accounting principles generally accepted...

  • Page 97
    ...materials? The Company has adopted a procedure called ''householding'' which has been approved by the SEC. The Company and some brokers household proxy materials, delivering a single Notice and, if applicable, this proxy statement and Annual Report, to multiple shareholders sharing an address unless...

  • Page 98
    ... 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 99
    ... may receive any compensation from the Company other than Director's fees, which may be received in cash, stock options or other in-kind consideration. Proxy Statement 2. 16MAR201218 3. IV. Meetings of Committee 1. The Committee shall meet at least four (4) times each fiscal year, and at such...

  • Page 100
    ...financial statements, including analyses of the effects of alternative accounting treatments of financial information within accounting principles generally accepted in the United States of America (''GAAP''); (vi) any management letter provided by the independent auditors and the Company's response...

  • Page 101
    ... regulatory and accounting issues, as well as off-balance sheet arrangements, on the financial statements of the Company. B. C. Discuss generally with management earnings press releases, as well as the types of financial information and earnings guidance provided to analysts and rating agencies...

  • Page 102
    ... carrying out its oversight responsibility with respect to the independent auditors: A. Review the scope, plan and procedures to be used on the annual audit, as recommended by the independent auditors. Proxy Statement 2. 3. B. 16MAR201218540977 C. Prior to filing the Company's Form 10-K, review...

  • Page 103
    ... in carrying out this oversight responsibility: 1. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Worldwide Code of Conduct and Policy on Conflict of Interest. Proxy Statement 2. Obtain reports...

  • Page 104
    ... to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate, and present fairly the financial position, the results of operations and the cash flows of the Company, in compliance with GAAP. This is the responsibility of management and...

  • Page 105
    ...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 of...

  • Page 106
    ... factors described in 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 statements, we are not...

  • Page 107
    ... YUM is the world's largest quick service restaurant ("QSR") company based on number of system units, with approximately 37,000 units in more than 120 countries and territories. Primarily through the three concepts of KFC, Pizza Hut and Taco Bell (the "Concepts"), the Company develops, operates...

  • Page 108
    ... the restaurant franchise concept. The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. KFC operates in 115 countries and territories throughout the world. As of year end 2011, KFC had 3,701 units in China, 8,920...

  • Page 109
    ... signage. 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 Bell operates in 27 countries and territories throughout the world. As of year end 2011, there were 5,670 Taco Bell units in...

  • Page 110
    ... own numerous registered trademarks and service marks. The Company believes that many of these marks, including its Kentucky Fried Chicken®, KFC®, Pizza Hut® and Taco Bell® marks, have significant value and are materially important to its business. The Company's policy is to pursue registration...

  • Page 111
    ... system units or system sales, either on a worldwide or individual country basis. Research and Development ("R&D") The Company's subsidiaries operate R&D facilities in Shanghai, China (China Division); Dallas, Texas (Pizza Hut U.S. and YRI); Irvine, California (Taco Bell); Louisville, Kentucky (KFC...

  • Page 112
    ...end 2011, the Company and its Concepts employed approximately 466,000 persons, approximately 87 percent of whom were part-time. The Company believes that it provides working conditions and compensation that compare favorably with those of its principal competitors. The majority of employees are paid...

  • Page 113
    ..., 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 China and...

  • Page 114
    ... reduce the percentage of Company ownership of KFCs, Pizza Huts, and Taco Bells in the U.S. from approximately 13% at the end of 2011 to approximately 8%. Our ability to execute this plan will depend on, among other things, whether we receive fair offers for these restaurants, whether we can find...

  • Page 115
    ... supply chain which could adversely impact our sales, cost of sales and financial condition. Changes in governmental regulations may adversely affect our business operations. Our Concepts and their franchisees are subject to numerous laws and regulations around the world. Our restaurants are subject...

  • Page 116
    ... they were permanently invested outside the U.S. This could cause our worldwide effective tax rate to increase materially. We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property, withholding and franchise taxes in both the...

  • Page 117
    ... by Pizza Hut. Taco Bell leases its corporate headquarters and research facility in Irvine, California. The KFC U.S. and YUM corporate headquarters and a research facility in Louisville, Kentucky are owned by the Company. In addition, YUM leases office facilities for the U.S. Division shared service...

  • Page 118
    Intellectual Property The Company has registered trademarks and service marks, many of which are of material importance to the Company's business. From time to time, the Company may become involved in litigation to defend and protect its use and ownership of its registered marks. Form 10-K 14

  • Page 119
    .../Managing Director of YUM Restaurants International South Pacific. Muktesh Pant, 57, is Chief Executive Officer of YRI. He has served in this position since December 2011. Prior to this position he served as President of YRI from May 2010 to December 2011 and as President of Global Brand Building...

  • Page 120
    ...which was paid in 2011. The Company is targeting an annual dividend payout ratio of 35% to 40% of net income. As of February 14, 2012, there were 67,435 registered holders of record of the Company's Common Stock. The Company had no sales of unregistered securities during 2011, 2010 or 2009. Form 10...

  • Page 121
    ... 51.62 Total number of shares purchased as part of publicly announced plans or programs (thousands) 647 1,794 753 435 3,629 Approximate dollar value of shares that may yet be purchased under the plans or programs (millions) $ 343 $ $ $ $ 253 963 938 938 On January 27, 2011, our Board of Directors...

  • Page 122
    ... our Common Stock to the cumulative total return of the S&P 500 Stock Index and the S&P 500 Consumer Discretionary Sector, a peer group that includes YUM, for the period from December 29, 2006 to December 30, 2011, the last trading day of our 2011 fiscal year. The graph assumes that the value of the...

  • Page 123
    ... of 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(d) Licensees System(d) China Division system sales growth(e) Reported Local...

  • Page 124
    ... incorporates all our revenue drivers, Company and franchise same-store sales as well as net unit development. Same-store sales growth includes the estimated growth in sales of all restaurants that have been open one year or more. Local currency represents the percentage change excluding the impact...

  • Page 125
    .... Description of Business YUM is the world's largest restaurant company in terms of system restaurants with approximately 37,000 restaurants in more than 120 countries and territories operating under the KFC, Pizza Hut or Taco Bell brands. In December of 2011 we sold our Long John Silver's ("LJS...

  • Page 126
    ..., operating profit grew 4%, including 15% in China and 9% at YRI, offsetting a 12% decline in the U.S. Worldwide restaurant margin declined 0.9 points to 16.0%. Increased annual dividend rate to $1.14 per share and repurchased 14.3 million shares totaling $733 million at an average price of...

  • Page 127
    ....1% 2011 11 11 11 6 (0.9) ppts. 3 11 22 13 18 14 15 14 2010 4 10 5 12 1.3 ppts. 11 9 (33) 9 (60) 8 7 17 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...

  • Page 128
    ... early retirement costs); a reduced emphasis on multi-branding as a long-term growth strategy; and investments in our U.S. Brands made on behalf of our franchisees such as equipment purchases. In the years ended December 31, 2011 and December 25, 2010, we recorded pre-tax losses of $17 million and...

  • Page 129
    ... the fourth quarter of 2011 we sold the Long John Silver's and A&W All American Food Restaurants brands to key franchise leaders and strategic investors in separate transactions. We recognized $86 million of pre-tax losses and other costs primarily in Closures and impairment (income) expenses during...

  • Page 130
    ... reporting unit included an insignificant amount of goodwill. This loss did not result in a related income tax benefit. 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...

  • Page 131
    ... leveraged to improve our overall operating performance, while retaining Company ownership of strategic U.S. and international markets in which we choose to continue investing capital. In the U.S., we are targeting Company ownership of KFC, Pizza Hut and Taco Bell restaurants of about 8%, down from...

  • Page 132
    ...: 2011 Number of units refranchised Refranchising proceeds, pre-tax Refranchising (gain) loss, pre-tax $ $ 529 246 72 $ $ 2010 949 265 63 $ $ 2009 613 194 (26) Refranchisings reduce our reported revenues and restaurant profits and increase the importance of system sales growth as a key performance...

  • Page 133
    ...China Decreased Restaurant profit Increased Franchise and license fees and income Increased Franchise and license expenses Decreased G&A Increase (decrease) in Operating Profit Internal Revenue Service Proposed Adjustment On June 23, 2010 the Company received a Revenue Agent Report from the Internal...

  • Page 134
    ...507 - - (54) - 3,906 656 - - (69) - 4,493 100% China Balance at end of 2009 New Builds Acquisitions Refranchising Closures Other Balance at end of 2010 New Builds Acquisitions Refranchising Closures Other Balance at end of 2011 % of Total Form 10-K Franchisees 118 3 - 33 (1) - 153 4 - 47 (3) - 201...

  • Page 135
    ...respectively, at December 31, 2011. While there are no licensed units in China, we have excluded from the Worldwide and China totals 7 Companyowned units that are similar to licensed units. The units excluded offer limited menus and operate in non-traditional locations like malls, airports, gasoline...

  • Page 136
    ... actual Company sales or Restaurant profit for the periods in the prior year while the Company operated the restaurants but did not operate them in the current year. The dollar changes in Company Restaurant profit by year were as follows: China Form 10-K 2011 vs. 2010 Income / (Expense) 2010 4,081...

  • Page 137
    ... and a new business tax that took effect December 2010, wage rate inflation of 20% as well as commodity inflation of $90 million, or 8%. In 2010, the increase in China Company sales and Restaurant profit associated with store portfolio actions was primarily driven by the development of new units and...

  • Page 138
    ... were Company same-store sales growth of 3% offset by commodity inflation and higher labor costs. In 2010, the decrease in YRI Company sales associated with store portfolio actions was driven by refranchising, primarily KFC Taiwan, partially offset by new unit development. The increase in Restaurant...

  • Page 139
    ... and income for 2011 was positively impacted by 3% due to the effects of refranchising. Excluding the effects of refranchising, 53rd week and foreign currency translation, the increase was driven by net new unit development and same-store sales. YRI Franchise and license fees and income for 2010 was...

  • Page 140
    ... (primarily at KFC and Pizza Hut) and lapping 2009 international franchise convention costs. Worldwide Other (Income) Expense Equity income from investments in unconsolidated affiliates Gain upon consolidation of a former unconsolidated affiliate in China Foreign exchange net (gain) loss and other...

  • Page 141
    ...impact of same-store sales growth and net unit development, partially offset by higher restaurant operating costs, higher G&A expenses and lapping the effect of our brands' participation in the World Expo in 2010. China Division Operating Profit increased 27% in 2010, including a 1% favorable impact...

  • Page 142
    ... 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. In 2011 and 2010, the benefit was positively...

  • Page 143
    ... KFC in Shanghai, China. This was partially offset by a pre-tax U.S. goodwill impairment charge of approximately $26 million, with no related income tax benefit. Consolidated Cash Flows Net cash provided by operating activities was $2,170 million compared to $1,968 million in 2010. The increase...

  • Page 144
    ... 31, 2011, we paid cash dividends of $481 million. Additionally, on November 18, 2011 our Board of Directors approved cash dividends of $0.285 per share of Common Stock to be distributed on February 3, 2012 to shareholders of record at the close of business on January 13, 2012. The Company is...

  • Page 145
    ... make, our significant contractual obligations and payments as of December 31, 2011 included: Less than 1 Year $ 414 65 612 695 37 $ 1,823 More than 5 Years $ 3,207 267 2,653 9 12 $ 6,148 Long-term debt obligations(a) Capital leases (b) $ Operating leases(b) Purchase obligations(c) Other(d) Total...

  • Page 146
    ... $30 million to the Plan in 2012. No required contributions to the UK pension plans are expected in 2012. Investment performance and corporate bond rates have a significant effect on our net funding position as they drive our asset balances and discount rate assumption. Future changes in investment...

  • Page 147
    ... 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 long-lived assets of restaurants (primarily PP&E and...

  • Page 148
    ... YRI business units (typically individual 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...

  • Page 149
    ... of net loss due to a decrease in the discount rate. A 50 basis-point change in our discount rate assumption at our measurement date would impact our 2012 U.S. pension expense by approximately $17 million. The assumption we make regarding our expected long-term rates of return on plan assets also...

  • Page 150
    ...expected long-term rate of return on plan assets assumption would impact our 2012 U.S. pension expense by approximately $10 million. A decrease in discount rates over time along with actual asset returns below expected returns have largely contributed to an unrecognized pre-tax actuarial net loss of...

  • Page 151
    ... our Operating Profit in 2011, excluding unallocated income (expenses). In addition, the Company's foreign currency net asset exposure (defined as foreign currency assets less foreign currency liabilities) totaled approximately $3.0 billion as of December 31, 2011. Operating in international markets...

  • Page 152
    ... Balance Sheets as of December 31, 2011 and December 25, 2010 Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) for the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009 Notes to Consolidated Financial Statements Management...

  • Page 153
    ...Registered Public Accounting Firm The Board of Directors and Shareholders YUM! Brands, Inc. We have audited the accompanying consolidated balance sheets of YUM! Brands, Inc. and Subsidiaries (YUM) as of December 31, 2011 and December 25, 2010, and the related consolidated statements of income, cash...

  • Page 154
    ... Statements of Income YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009 (in millions, except per share data) 2011 Revenues Company sales $ 10,893 $ Franchise and license fees and income 1,733 Total revenues 12,626 Costs and Expenses, Net...

  • Page 155
    ... 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 156
    ... Balance Sheets YUM! Brands, Inc. and Subsidiaries December 31, 2011 and December 25, 2010 (in millions) 2011 ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Deferred income taxes Advertising cooperative assets...

  • Page 157
    ... shares of Common Stock Employee stock option and SARs exercises (includes tax impact of $73 million) Compensation-related events (includes tax impact of $7 million) Balance at December 25, 2010 Net Income Foreign currency translation adjustment Pension and post-retirement benefit plans (net of tax...

  • Page 158
    ... 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 and Taco Bell (collectively the "Concepts"). YUM is the world's largest quick service restaurant...

  • Page 159
    ...of our YRI business. The 53rd week added $91 million to total revenues, $15 million to Restaurant profit and $25 million to Operating Profit in our 2011 Consolidated Statement of Income. The $25 million benefit was offset throughout 2011 by investments, including franchise development incentives, as...

  • Page 160
    ... the Consolidated Financial Statements for prior periods to be comparable with the classification for the fiscal year ended December 31, 2011. These reclassifications had no effect on previously reported Net Income - YUM! Brands, Inc. Franchise and License Operations. We execute franchise or license...

  • Page 161
    ... future after-tax cash flows of the restaurant, which include a deduction for the royalty the franchisee would pay us. The after-tax cash flows incorporate reasonable assumptions we believe a franchisee would make such as sales growth and margin improvement. The discount rate used in the fair value...

  • Page 162
    ... 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 163
    ... minimum lease payments and are included in rent expense when attainment of the contingency is considered probable (e.g. when Company sales occur). Internal Development Costs and Abandoned Site Costs. We capitalize direct costs associated with the site acquisition and construction of a Company unit...

  • Page 164
    ... of each reporting unit's fair 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...

  • Page 165
    ... shares of our Common Stock repurchased during 2009. See Note 16 for additional information. Pension and Post-retirement Medical Benefits. We measure and recognize the overfunded or underfunded status of our pension and post-retirement plans as an asset or liability in our Consolidated Balance Sheet...

  • Page 166
    ... the fourth quarter of 2011 we sold the Long John Silver's and A&W All American Food Restaurants brands to key franchise leaders and strategic investors in separate transactions. We recognized $86 million of pre-tax losses and other costs primarily in Closures and impairment (income) expenses during...

  • Page 167
    ... (26) China YRI (a)(b)(c) U.S. (d) Worldwide (a) During the year ended December 31, 2011 we decided to refranchise or close all of our remaining Company-operated Pizza Hut restaurants in the UK market. While an asset group comprising approximately 350 dine-in restaurants did not meet the criteria...

  • Page 168
    ... had 102 KFC and 53 Pizza Hut franchise restaurants at the time of the transaction. The write-off of goodwill included in this loss was minimal as our Mexico reporting unit included an insignificant amount of goodwill. This loss did not result in any related income tax benefit. During the year ended...

  • Page 169
    ... for our Pizza Hut South Korea market. (b) The following table summarizes the 2011 and 2010 activity related to reserves for remaining lease obligations for closed stores. Estimate/ Decision Changes 2 - 2011 Activity 2010 Activity Beginning Balance $ 28 $ 27 Amounts Used New Decisions (12...

  • Page 170
    ...affiliate in Shanghai, China. Note 8 - Supplemental Balance Sheet Information Prepaid Expenses and Other Current Assets Income tax receivable Assets held for sale Other prepaid expenses and current assets 2011 150 24 164 $ 338 $ 2011 527 3,856 316 2,568 7,267 2010 115 23 131 $ 269 2010 542 3,709 274...

  • Page 171
    ... compensation and benefits Dividends payable Accrued taxes, other than income taxes Other current liabilities 2011 712 229 440 131 112 250 $ 1,874 $ 2010 540 174 357 118 95 318 $ 1,602 $ Note 9 - Goodwill and Intangible Assets The changes in the carrying amount of goodwill are as follows: China...

  • Page 172
    ... future amortization expense by approximately $8 million annually. Note 10 - Short-term Borrowings and Long-term Debt 2011 Short-term Borrowings Current maturities of long-term debt Current portion of fair value hedge accounting adjustment (See Note 12) Unsecured International Revolving Credit...

  • Page 173
    ...at December 31, 2011 with a considerable amount of cushion. We are in the process of renewing the Credit Facility and ICF. The majority of our remaining long-term debt primarily comprises Senior Unsecured Notes with varying maturity dates from 2012 through 2037 and stated interest rates ranging from...

  • Page 174
    ...30 days after notice. The annual maturities of short-term borrowings and long-term debt as of December 31, 2011, excluding capital lease obligations of $279 million and fair value hedge accounting adjustments of $26 million, are as follows: Year ended: 2012 2013 2014 2015 2016 Thereafter Total $ 263...

  • Page 175
    ... 2011 and December 25, 2010 were: Fair Value 2011 2010 $ 10 $ 8 22 33 3 7 (1) (3) $ 34 $ 45 Consolidated Balance Sheet Location Prepaid expenses and other current assets Other assets Prepaid expenses and other current assets Accounts payable and other current liabilities Interest Rate Swaps - Asset...

  • Page 176
    ... Value 2011 $ 2 32 15 $ 49 Level Foreign Currency Forwards, net Interest Rate Swaps, net Other Investments Total 2 2 1 2010 $ 4 41 14 59 $ The fair value of the Company's foreign currency forwards and interest rate swaps were determined based on the present value of expected future cash flows...

  • Page 177
    ... estimated the fair value of debt using market quotes and calculations based on market rates. Note 14 - Pension, Retiree Medical and Retiree Savings Plans Pension Benefits We sponsor noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most...

  • Page 178
    ... return on plan assets Employer contributions Participant contributions Settlement payments Benefits paid Exchange rate changes Administrative expenses Fair value of plan assets at end of year Funded status at end of year Amounts recognized in the Consolidated Balance Sheet: U.S. Pension Plans 2011...

  • Page 179
    ... discount rates, performance of plan assets, local laws and regulations. We do not believe we will be required to make significant contributions to any pension plan outside of the U.S. in 2012. We do not anticipate any plan assets being returned to the Company during 2012 for any plans. Form 10...

  • Page 180
    ... loss into net periodic pension cost in 2012 is $1 million. Form 10-K Weighted-average assumptions used to determine benefit obligations at the measurement dates: U.S. Pension Plans 2011 2010 4.90% 5.90% 3.75% 3.75% International Pension Plans 2011 2010 4.75% 5.40% 3.85% 4.42% Discount rate Rate...

  • Page 181
    ... regarding the investment strategy for the Plan's assets, which make up 85% of total pension plan assets at the 2011 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...

  • Page 182
    ... held as an investment by the Plan includes shares of YUM common stock valued at $0.7 million at December 31, 2011 and $0.6 million at December 25, 2010 (less than 1% of total plan assets in each instance). Benefit Payments The benefits expected to be paid in each of the next five years and in the...

  • Page 183
    ... - Share-based and Deferred Compensation Plans Overview At year end 2011, we had four stock award plans in effect: the YUM! Brands, Inc. Long-Term Incentive Plan and the 1997 LongTerm Incentive Plan (collectively the "LTIPs"), the YUM! Brands, Inc. Restaurant General Manager Stock Option Plan ("RGM...

  • Page 184
    ... 2.5 years. The total fair value at grant date of awards vested during 2011, 2010 and 2009 was $43 million, $47 million and $52 million, respectively. RSUs and PSUs As of December 31, 2011, there was $10 million of unrecognized compensation cost related to 1.0 million unvested RSUs and PSUs. Form 10...

  • Page 185
    ... Restricted Stock Units Performance Share Units Total Share-based Compensation Expense Deferred Tax Benefit recognized EID compensation expense not share-based $ 49 5 5 59 18 2 $ 2010 40 5 2 47 13 4 $ 2009 48 7 1 56 17 4 $ $ $ $ $ $ $ $ $ Cash received from stock option exercises for 2011, 2010...

  • Page 186
    ... 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 2011 and 2010, the benefit was positively impacted...

  • Page 187
    ... 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 188
    ... Balance Sheets as: Deferred income taxes - current Deferred income taxes - long-term Accounts payable and other current liabilities Other liabilities and deferred credits $ $ 112 $ 549 (16) (45) 600 $ 61 366 (20) (51) 356 We have investments in foreign subsidiaries where the carrying values...

  • Page 189
    ..., a net benefit of $2 million, expense of $13 million and expense of $6 million, respectively, for interest and penalties was recognized in our Consolidated Statements of Income as components of its income tax provision. On June 23, 2010, the Company received a Revenue Agent Report from the Internal...

  • Page 190
    ...in developing, operating, franchising and licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza Hut and Taco Bell operate in 115, 97, and 27 countries and territories, respectively. Our five largest international markets based on operating profit in 2011 are China, Asia Franchise...

  • Page 191
    ... performance reporting purposes. Includes equity income from investments in unconsolidated affiliates of $47 million, $42 million and $36 million in 2011, 2010 and 2009, respectively, for China. 2011 and 2010 include depreciation reductions arising from the impairment of KFC restaurants we offered...

  • Page 192
    ... cash, deferred tax assets and property, plant and equipment, net, related to our office facilities. Includes property, plant and equipment, net, goodwill, and intangible assets, net. See Note 4 for additional operating segment disclosures related to impairment and store closure (income) costs...

  • Page 193
    ..., environmental and other matters arising in the normal course of business. 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 alleging violation...

  • Page 194
    ... for in our Consolidated Financial Statements. Taco Bell was named as a defendant in a number of putative class action suits filed in 2007, 2008, 2009 and 2010 alleging violations of California labor laws including unpaid overtime, failure to pay wages on termination, failure to pay accrued vacation...

  • Page 195
    ... Taco Bell's motions to decertify both the injunctive and damages class. In a separate order, the court vacated the December 12, 2011 date previously set for an exemplar trial for damages on the single restaurant. On June 20, 2011, the United States Supreme Court issued its ruling in Wal-Mart Stores...

  • Page 196
    ...and Taco Bell Corp. was filed in the United States District Court for the District of Colorado. The plaintiff seeks to represent a nationwide class, with the exception of California, of salaried assistant managers who were allegedly misclassified and did not receive compensation for all hours worked...

  • Page 197
    ... Data (Unaudited) 2011 Third Quarter $ 2,854 420 3,274 494 488 383 0.82 0.80 - 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...

  • Page 198
    ... Our Shareholders: We are responsible for the preparation, integrity and fair presentation of the Consolidated Financial Statements, related notes and other information included in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted...

  • Page 199
    ...- Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011. 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 200
    ... 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 31, 2011...

  • Page 201
    ... in the Consolidated Financial Statements thereto filed as a part of this Form 10-K. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this Form 10-K. The Index to Exhibits specifically identifies each management contract or compensatory plan required to...

  • Page 202
    ... Title Chairman of the Board, Chief Executive Officer and President (principal executive officer) Chief Financial Officer (principal accounting officer) Vice President and Corporate Controller (principal accounting officer) Director Date February 20, 2012 /s/ Richard T. Carucci Richard T. Carucci...

  • Page 203
    ...Shyh S. Su Jing-Shyh S. Su /s/ Robert D. Walter Robert D. Walter Director February 20, 2012 Director February 20, 2012 Director February 20, 2012 Director February 20, 2012 Director February 20, 2012 Vice-Chairman of the Board February 20, 2012 Director February 20, 2012 Form 10-K 99

  • Page 204
    ...Brands, Inc. Exhibit Index (Item 15) Exhibit Number 3.1 3.2 4.1 Description of Exhibits Restated Articles of Incorporation of YUM, effective May 26, 2011, which is incorporated herein by reference from Exhibit 3.1 to YUM's Report on Form 8-K filed on May 31, 2011. Amended and restated Bylaws of YUM...

  • Page 205
    ... 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 206
    ...Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company and David C. Novak, dated as of January 24, 2008, which is incorporated herein by reference from Exhibit 10.33 to YUM's Annual Report on Form 10-K for the fiscal year ended December 29, 2007. YUM! Performance...

  • Page 207
    ...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, which is incorporated by reference from Exhibit 10.27 to YUM's Annual Report on Form...

  • Page 208
    ... statement available when calling. Press 0#0# for a customer service representative and give the representative the name of the plan. Shareholder Services DIRECT STOCK PURCHASE PLAN A prospectus and a brochure explaining this convenient plan are available from our transfer agent: American Stock...

  • Page 209
    ... (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 valuable trademarks owned and used by Yum! Brands and its subsidiaries and affiliates in the United States and worldwide.

  • Page 210
    26MAR201222253896 YUM! BRANDS, INC. 2011 ANNUAL CUSTOMER MANIA REPORT

  • Page 211
    ...49 President, Yum! Restaurants India Greg Creed 54 Chief Executive Officer, Taco Bell Kenneth Langone 76 Founder, Chairman, Chief Executive Officer and President, Invemed Associates, LLC John Cywinski 49 President, KFC U.S. Roger Eaton 51 Yum! Chief Operations Officer, Yum! Brands, Inc. Jonathan...

  • Page 212