Pizza Hut 2008 Annual Report Download

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Table of contents

  • Page 1

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

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

  • Page 4
    ...% of total revenue and 20% of operating profit when we started our company in 1997. When we combine this with the inarguable fact that we operate in more than 110 countries, have over one million team members and have such recognized brands, we believe we are in the scalable and enviable position to...

  • Page 5
    ...the current state of the financial markets and economy, 2009 represents our most challenging year yet. In the response to the financial uncertainties posed by declining investment values and rising unemployment, consumers have trimmed their discretionary spending to conserve cash and rebuild savings...

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

  • Page 7
    ... best long range forecast is over 20,000 restaurants. The way we look at it, KFC can be every bit as big as McDonald's is in the U.S., ultimately reaching 15,000+ units; Pizza Hut Casual Dining can equal the casual dining leader in the U.S., Applebee's, achieving 2,000+ units; Pizza Hut Home Service...

  • Page 8
    ... the eighth straight year we've opened more than 700 new restaurants at YRI, a big number in relation to any international business. Our ever increasing scale fuels growth as more restaurants and more sales lead to more marketing and an even stronger organization. This global infrastructure, coupled...

  • Page 9
    ...Our customers love it and it is becoming a sustainable sales layer to build on in more countries. Pizza Home Delivery (PHD), our new delivery focused brand, is operating in 11 countries with 64 restaurants and we are seeing encouraging results as we test and prove out this new pizza delivery concept...

  • Page 10
    ... the year to help drive trial and build awareness. In 2008, we launched the hugely successful Frutista Freeze at Taco Bell and enhanced the brand's Why Pay More value menu. Consider this: Taco Bell's 89-cent Cheesy Double Beef burrito has 38% more food and 30% more beef than McDonald's value-priced...

  • Page 11
    ...great value for individuals. It weighs in at over a pound and sells for $6.99. Pizza Hut is gaining solid momentum, too, with its WingStreet conversions. We're opening approximately 100 new WingStreets a month with national scale within our sights in 2009. This branded line of flavored chicken wings...

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

  • Page 13
    ... going to drive Yum!'s culture even deeper with the cascade of ABR training into all company-owned and franchisee-owned restaurants. That's a huge challenge that will produce BIG results. To close, I would like to thank our more than one million dedicated team members, restaurant managers, franchise...

  • Page 14

  • Page 15
    ..., Kentucky 40213 April 7, 2009 Dear Fellow Shareholders: On behalf of your Board of Directors, we are pleased to invite you to attend the 2009 Annual Meeting of Shareholders of YUM! Brands, Inc. The meeting will be held Thursday, May 21, 2009, at 9:00 a.m., local time, in the YUM! Conference...

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

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

  • Page 18
    ... GENERAL INFORMATION ABOUT THE MEETING ...GOVERNANCE OF THE COMPANY ...MATTERS REQUIRING SHAREHOLDER ACTION ...Item 1: Election of Directors ...Item 2: Ratification of Independent Auditors ...Item 3: A Proposal to Approve the Company's Executive Incentive Compensation Plan . Item 4: Shareholder...

  • Page 19
    ..., 2009 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 Meeting of Shareholders of the Company to be held at 9:00 a.m. (Eastern Daylight Saving Time...

  • Page 20
    ... a shareholder proposal relating to Animal Welfare. We will also consider other business that properly comes before the meeting. Who may vote? Proxy Statement You may vote if you owned YUM common stock as of the close of business on the record date, March 23, 2009. Each share of YUM common stock is...

  • Page 21
    ... Web site (www.proxyvote.com). Votes submitted through the Internet or by telephone through the Broadridge program must be received by 11:59 p.m., Eastern Daylight Saving Time, on May 20, 2009. Can I vote at the meeting? Proxy Statement Shares registered directly in your name as the shareholder...

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

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

  • Page 24
    ... attended the Company's 2008 Annual Meeting of Shareholders. Proxy Statement What are the committees of the Board? The Board of Directors has standing Audit, Compensation, Nominating and Governance and Executive/Finance Committees. Name of Committee and Members Functions of the Committee Number of...

  • Page 25
    ... other senior executives in light of corporate goals set by the Committee • Reviews and approves the compensation of the chief executive officer and other senior executive officers • Reviews management succession planning 4 Proxy Statement The Board has determined that all of the members of...

  • Page 26
    ... on the Company's Web site (www.yum.com/governance/principles.asp). A copy may also be obtained upon request from the Company's Corporate Secretary. Pursuant to the Principles, the Board undertook its annual review of director independence in January 2009. During this review, the Board considered...

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

  • Page 28
    ... she deems appropriate. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Written correspondence from shareholders relating to accounting, internal controls or auditing matters...

  • Page 29
    ... standards for their industry. Our Supplier Code of Conduct is described on the Company's Web site at www.yum.com/responsibility/suppliercode.asp. What other Significant Board Practices does the Company have? • Private Executive Sessions. Our non-management directors meet at regularly scheduled...

  • Page 30
    ... to Management and Employees. Directors have full and unrestricted access to the management and employees of the Company. Additionally, key members of management attend Board meetings to present information about the results, plans and operations of the business within their areas of responsibility...

  • Page 31
    ... Holding Corporation, The Home Depot, Inc., and California Water Service Group. She also serves on the boards of many other organizations, including the Financial Industry Regulatory Authority and the Center for International Private Enterprise. Proxy Statement Massimo Ferragamo Age 51 Director...

  • Page 32
    ...Federal Bank, Lexmark International, Inc. and Neptune Orient Lines Limited. Kenneth G. Langone is the founder, and since 1974, has been Chairman of the Board, Chief Executive Officer and President, of Invemed Associates, LLC, a New York Stock Exchange firm engaged in investment banking and brokerage...

  • Page 33
    ... President of YUM's China Division Jackie Trujillo Age 73 Director since 1997 Chairman Emeritus, Harman Management Corporation Robert D. Walter Age 63 Director since 2008 Founder and Retired Chairman/ CEO Cardinal Health, Inc. Thomas M. Ryan is Chairman, Chief Executive Officer and President of CVS...

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

  • Page 35
    (3) Tax fees for 2008 and 2007 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 36
    ...the grant of any Award will be based on any one or more of the following Company, subsidiary, line of business, operating unit, division or franchise system performance measures: cash flow, earnings per share, return on operating assets, return on equity, operating profit, net 23MAR200920294881 18

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

  • Page 38
    ... prior to the date such amendment is adopted by the Board. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE YUM! BRANDS, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN AS AMENDED THROUGH THE SECOND AMENDMENT INCLUDING THE PERFORMANCE GOALS FOR THE PLAN. What vote is required to approve this...

  • Page 39
    ... Company's position regarding this proposal? Adoption of this proposal would require the Board of Directors to submit any shareholder rights plan to a shareholder vote at the earliest next shareholder meeting. Contrary to the shareholder supporting statement to their proposal, the company currently...

  • Page 40
    ... does the Company oppose this proposal? The Board does not believe that requiring shareholder approval of a shareholder rights plan would enhance value for shareholders. Such a requirement would limit the Board's flexibility in responding to a takeover attempt which is not in the best interests of...

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

  • Page 42
    ... opinion about senior executive compensation through an Advisory Vote. MANAGEMENT STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL What is the recommendation of the Board of Directors? THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL. What is the Company's position regarding this...

  • Page 43
    ..., is responsible for designing and administering our executive compensation program. Decisions on how best to carry out these responsibilities are influenced by economic and industry conditions, current and future strategic goals, accounting requirements and tax laws, evolving governance trends, as...

  • Page 44
    ... at this time. We will, however, always seek the ideas and input of our shareholders on this important matter. Above all, the Board, as fiduciaries for the shareholders, believes that an advisory vote on executive compensation is simply not in the best interests of YUM's shareholders. The Board is...

  • Page 45
    ITEM 6: SHAREHOLDER PROPOSAL RELATING TO FOOD SUPPLY CHAIN SECURITY AND SUSTAINABILITY (Item 6 on the Proxy Card) What am I voting on? The Sisters of Charity, the General Board of Pension and Health Benefits of United Methodist Church, the MMA Praxis Growth Index Fund and the Sisters of St. Francis ...

  • Page 46
    ...that all of our facilities and supply chains, whether in the U.S. or any other country, are operated legally, ethically and responsibly and in a manner that benefits the communities in which they are located. Our Worldwide Code of Conduct, summarized on our Web site, under the ''Governance'' section...

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

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

  • Page 49
    ... United States (New York Times, 8/31/07). John Castellani, president of the Business Roundtable, which represents more than 150 of the country's largest companies, states that 52% of the Business Roundtable's members say health costs represent their biggest economic challenge. ''The cost of health...

  • Page 50
    ... if public confidence in our company's commitment to its employees' health care coverage is to be maintained. We ask shareholders to support this resolution. MANAGEMENT STATEMENT IN OPPOSITION TO SHAREHOLDER PROPOSAL What is the recommendation of the Board of Directors? THE BOARD OF DIRECTORS...

  • Page 51
    ... furnish the address and share ownership of the proponent upon request. 2009 Yum! Brands Shareholder Proposal on Animal Welfare RESOLVED that shareholders encourage the Board to implement the March 2005 recommendations made by former members of KFC's animal welfare council. Supporting Statement As...

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

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

  • Page 54
    ...other 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. Other executive officers are required to own 24,000 shares or share equivalents. The table shows the number of shares of...

  • Page 55
    ...under these plans to the named executive officers and other executive officers will be paid in shares of YUM common stock at termination of employment or within 60 days if the executive so elected or in the case of a non-employee director, when the non-employee director leaves the Board. (4) Amounts...

  • Page 56
    ... our knowledge, based solely on a review of the copies of such reports furnished to YUM and representations that no other reports were required, all of our directors and executive officers complied with all Section 16(a) filing requirements during fiscal 2008. 23MAR200920294881 Proxy Statement 38

  • Page 57
    ... developer of new units outside the U.S. Third, we reinforced our position as an industry leader in return on invested capital by increasing our return on invested capital to 20%. As in past years, the compensation of our executives reflects the Company's performance. We designed our executive...

  • Page 58
    ... executives to help us achieve our long-range performance goals that will enhance our value and, as a result, enhance the price of our stock and our shareholders' returns on their investments Provide tax-advantaged means to accumulate retirement benefits Cash Cash Long-term incentive compensation...

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

  • Page 60
    ... Senior Leadership Team below our CEO. This method is often referred to as ''benchmarking.'' On-line benchmarking data from the consulting firms' surveys (''survey data'') reflect compensation practices of general industry companies with annual revenues which are similar to ours for our executives...

  • Page 61
    ..., Allan and Creed 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 more complex. This is because there are added complexities and responsibilities for managing the...

  • Page 62
    ... salary is designed to compensate our executive officers for their primary roles and responsibilities and to provide a stable level of annual compensation. Market data from the survey group was considered in determining base salary targets for named executive officers based on each executive officer...

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

  • Page 64
    ... 23MAR200920294881 Proxy Statement NEO TP Measures TP Target TP based on leverage TP Actual formula TP Weight Novak and Carucci Worldwide Profit Growth (Before Tax) System Sales Growth System Net New Restaurant Builds System Customer Satisfaction Total Weighted TP Factor Weighted Average...

  • Page 65
    ... above target based upon the International Division meeting profit plan, and exceeding system sales growth, development targets and customer service measures, as well as Mr. Allan's strong leadership in developing marketing calendars, tests of new products in key markets and work 23MAR200920...

  • Page 66
    ..., they reward employees only if the stock price goes up and they align Restaurant General Managers and senior management on the same equity incentive program. Long-term incentive award ranges are established based upon the survey data. In general, our stock options and SARs have ten-year terms and...

  • Page 67
    ... we Compensate our Chief Executive Officer Comparative Compensation Data-Mr. Novak In reviewing and setting 2008 compensation for Mr. Novak, the Committee used data from Hewitt Associates for a select group of nondurable consumer products companies as this group represented the best market reference...

  • Page 68
    ... the 75th percentile as compared to the compensation of chief executives in the peer group. Based on this analysis, the Committee approved the following compensation for 2008: Salary Target Bonus Percentage Grant Date Economic Value of 2008 LTI Award: Stock Appreciation Rights RSUs-Deferral of Bonus...

  • Page 69
    ... • Return on Invested Capital • Development of Permanent Sales Layers • International Restaurant Development • Restaurant Operations and Marketing Improvements • Same Store Sales Growth • U.S. Profit Growth • Customer Satisfaction • Diversity and Talent Management The Compensation...

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

  • Page 71
    ...rates between the executive's home country and work country. For Senior Leadership Team members below the CEO, we pay for a country club membership and provide up to $7,500 perquisite allowance annually. If the executive does not elect a country club membership, the perquisite allowance is increased...

  • Page 72
    ... in value to two to three times their current annual base salary depending upon their positions, within five years from the time the established targets become applicable. Each named executive officer's ownership requirement was increased from 24,000 to 50,000 shares for 2008. If an executive does...

  • Page 73
    ...'s change in control program every year. 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 in case of...

  • Page 74
    ... to the new company's future success • supporting the compelling business need to retain key employees during uncertain times • providing a powerful retention device during change in control discussions, especially for more senior executives whose equity awards represents a significant portion...

  • Page 75
    ... by the named executive officer. Recoupment Policy In 2009, the Compensation Committee adopted a Compensation Recovery Policy for stock awards and annual incentives awarded after 2008. Pursuant to this policy, executive officers (including the NEOs) may be required to return compensation paid based...

  • Page 76
    ... of the Board of Directors reports that it has reviewed and discussed with management the section of this proxy statement headed ''Compensation Discussion and Analysis,'' and, on the basis of that review and discussion, recommended that section be included in our Annual Report on Form 10-K and...

  • Page 77
    ..., earned or awarded for 2008, 2007 and 2006 by YUM to our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers as of the end of our 2008 fiscal year in accordance with the rules of the SEC. SUMMARY COMPENSATION TABLE Change in Pension Value...

  • Page 78
    where we used the closing price on the grant date). Units are settled by delivery of shares at the time the executive elects to receive payout. Under the terms of the EID Program, an employee who is age 55 with 10 years of service is fully vested in the amount of the deferral attributable to the ...

  • Page 79
    ... present value of age 62 accrued benefits under all actuarial pension plans during the 2008 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). See the Pension Benefits Table at page 67 for a detailed discussion of the Company...

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

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

  • Page 82
    ... using the Black-Scholes value on the grant date of $11.00. For additional information regarding valuation assumptions of SARs/stock options, see the discussion of stock awards and option awards contained in Part II, Item 8, ''Financial Statements and Supplementary Data'' of the Annual Report...

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

  • Page 84
    ... expiring in 2011 with option exercise prices of $5.70 and $8.62 were granted in 1996 and 1997 with an approximately 14 year term and vested in 2006. They are now fully vested. With respect to other named executive officers, grants with expiration dates in 2009 and 2010 as well as grants expiring on...

  • Page 85
    ... Plan (''Pension Equalization 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. Number of Years of Credited Service (#) (c) Present Value of Accumulated Benefit...

  • Page 86
    ... to the limits under Internal Revenue Code Section 401(a)(17)) and service under the plan. Upon termination of employment, a participant's Normal Retirement Benefit from the plan is equal to A. 3% of Final Average Earnings times Projected Service up to 10 years of service, plus B. C. Proxy Statement...

  • Page 87
    ... Retirement must take their benefits in the form of a monthly annuity and no lump sum is available. When a lump sum is paid from the plan, it is calculated based on actuarial assumptions for lump sums required by Internal Revenue Code Section 417(e)(3) (currently this is the annual 30-year Treasury...

  • Page 88
    ...of corporations that is controlled by the Company. 23MAR200920294881 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 89
    ... that is, they 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! Discount...

  • Page 90
    ... then ended-or at a time that begins at or after the executive's retirement or separation or termination of employment. Distributions can be made in a lump sum or up to 20 annual installments. Initial deferrals are subject to a minimum two year deferral. In general, with respect to amounts deferred...

  • Page 91
    ... under existing plans and arrangements if the named executive's employment had terminated on December 31, 2008, given the named executive's compensation and service levels as of such date and, if applicable, based on the Company's closing stock price on that date. These benefits are in addition...

  • Page 92
    ... may be different. Factors that could affect these amounts include the timing during the year of any such event, the Company's stock price and the executive's age. Stock Options and SAR Awards. If one or more named executive officers terminated employment for any reason other than retirement, death...

  • Page 93
    ... of duties and responsibilities or benefits), the executive will be entitled to receive the following: • a proportionate annual incentive assuming achievement of target performance goals under the bonus plan or, if higher, assuming continued achievement of actual Company performance until date of...

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

  • Page 95
    ... and the Chairperson of the Compensation Committee (Mr. Ryan in 2008) receives an additional $5,000 stock retainer annually. Initial Stock Grant upon Joining Board. 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...

  • Page 96
    ...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''). Number...

  • Page 97
    ...reward 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...

  • Page 98
    ... 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 99
    ...'s role and responsibilities referred to above and in the Audit Committee Charter, the Committee recommended to the Board of Directors that it include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2008 for filing with...

  • Page 100
    ... shareholders with shares registered directly in their name who received shareholder materials in the mail may elect to receive future annual reports and proxy statements from us and to vote their shares through the Internet instead of receiving copies through the mail. We are offering this service...

  • Page 101
    ... at that meeting by February 22, 2010. The nomination must contain the following information about the nominee: • name; • age; • business and residence addresses; • principal occupation or employment; Proxy Statement • the number of shares of common stock beneficially owned by the nominee...

  • Page 102
    The Board is not aware of any matters that are expected to come before the 2009 Annual Meeting other than those referred to in this proxy statement. If any other matter should come before the Annual Meeting, the individuals named on the form of proxy intend to vote the proxies in accordance with ...

  • Page 103
    ... measures: cash flow, earnings per share, return on operating assets, return on equity, operating profit, net income, revenue growth, Company or system sales, shareholder return, gross margin management, market share improvement, market value added, restaurant development, customer satisfaction or...

  • Page 104
    ...the discretion to adjust performance goals and the methodology used to measure the determination of the degree of attainment of such goals; provided, however, that, to the extent required by the requirements applicable to PerformanceBased Compensation, any Award designated as intended to satisfy the...

  • Page 105
    ... (as defined in the Yum! Brands, Inc. Long Term Incentive Plan) and within one year preceding the occurrence of a Change in Control shall likewise be paid the amount of such annual incentive award as if Yum had fully achieved the applicable performance target(s) for the Performance Period in which...

  • Page 106
    ... the Board from adopting, continuing, amending or terminating such additional compensation arrangements as it deems desirable for Participants under this Plan, including, without limitation, any thrift, savings, investment, stock purchase, stock option, profit sharing, pension, retirement, insurance...

  • Page 107
    ... ''Affiliate'' means any corporation or other entity which is not a Subsidiary but as to which the Company possesses a direct or indirect ownership interest and has power to exercise management control. Proxy Statement (b) ''Award'' with respect to a Performance Period means a right to receive cash...

  • Page 108
    ... Act of 1934, as amended, as modified and used in Section 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an...

  • Page 109
    ...expertise/literacy requirements of the New York Stock Exchange (''NYSE'') and Section 10A of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder. The Board shall appoint the members of the Committee annually, and shall designate the...

  • Page 110
    ...shall prepare the report required by the rules of the Securities and Exchange Commission (''SEC'') to be included in the Company's annual proxy statement. The Committee shall ensure inclusion of its then current charter in its annual proxy statement at least once every three years in accordance with...

  • Page 111
    ... on access to requested information and management's response thereto; and (ix) the effect of evolving 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...

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

  • Page 113
    ...policies and any material reports or inquiries relating to financial, accounting or other matters received from regulators or governmental agencies. Review with the Company's Vice President, Audit, on an annual basis, the Company's officers' travel and entertainment spending and use of the corporate...

  • Page 114
    ... operations and the cash flows of the Company, in compliance with GAAP. This is the responsibility of management and/or the independent auditors. In carrying out these oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company's financial statements...

  • Page 115
    ...'s procedures and conditions for pre-approving: (1) audit and non-audit services performed by a public accounting firm that acts as the registered public accounting firm (the ''Auditor'') responsible for auditing the consolidated financial statements of YUM Brands, Inc. (the ''Company''), or...

  • Page 116
    ... will require specific pre-approval by the Audit Committee. Each year the Company will provide the Audit Committee with a report of the known or anticipated audit, audit-related, tax and other non-audit services together with an estimate of the fees for such services. The Audit Committee will review...

  • Page 117
    .... XI. PROCEDURES Requests or applications to provide services that require specific approval of the Audit Committee will be submitted to the Audit Committee by both the Auditor and the Controller or other designated representative of the Company. The Audit Committee (or the member of the...

  • Page 118
    ... Company ConAgra Foods, Inc. Constellation Energy Cox Enterprises, Inc. Cummins, Inc. Deere & Company Delta Air Lines, Inc. Duke Energy Corporation Eastman Kodak Company Eaton Corporation Edison International Eli Lilly and Company Emerson Electric Co. Entergy Corporation General Dynamics Corporation...

  • Page 119
    ... Darden Restaurants, Inc. Dollar General Corporation Dover Corporation DTE Energy Company Eastman Chemical Company Federal-Mogul Corporation Fortune Brands, Inc. Goodrich Corporation H. J. Heinz Company Hallmark Cards, Inc. Harley-Davidson Motor Company Inc. Hilton Hotels Corporation Hormel Foods...

  • Page 120
    ... Ford Motor Company Fortune Brands, Inc. General Dynamics Corporation H. J. Heinz Company Hallmark Cards, Inc. Harris Teeter, Inc. Hilton Hotels Corporation Honeywell International Inc. Hormel Foods Corporation Illinois Tool Works Inc. Ingersoll-Rand Company ITT Corporation Johns Manville...

  • Page 121
    ...Scripts Fluor Fortune Brands Gap Genentech General Mills Goodyear Tire & Rubber Henkel* Ingersoll Rand International Paper J.C. Penney Company JM Family Kellogg Kimberly-Clark Kohl's L-3 Communications Lafarge North America* Lorillard* Marriott International Masco McDonald's Medtronic Merck National...

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

  • Page 124
    ... of this Form 10-K and (ii) the factors described in the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. In...

  • Page 125
    ... Food Restaurants ("A&W"). On May 16, 2002, following receipt of 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...

  • Page 126
    ... and open relationships with its franchisees and their representatives. To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on all aspects of the business, including products, equipment, operational improvements...

  • Page 127
    ... was opened. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. Pizza Hut is based in Dallas, Texas. As of year end 2008, Pizza Hut was the leader in the U.S. pizza QSR segment, with a 15 percent market share (Source: The NPD Group...

  • Page 128
    ... the location and sales volume of the restaurant. Most of the employees work on a part-time basis. We issue 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 procedures...

  • Page 129
    ..., Pizza Hut, Taco Bell, LJS and A&W franchise and license agreements. Under current law and with proper use, the Company's rights in its marks can generally last indefinitely. The Company also has certain patents on restaurant equipment which, while valuable, are not material to its business. Form...

  • Page 130
    ...the type, number and location of competing food retailers and products; and disposable purchasing power. Each of the Concepts compete with international, national and regional restaurant chains as well as locally-owned restaurants, not only for customers, but also for management and hourly personnel...

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

  • Page 132
    ... the future force the use of alternative sources at increased costs and lower margins for us and our franchisees. Our China operations subject us to risks that could negatively affect our business. A significant and growing portion of our restaurants are located in China. As a result, our financial...

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

  • Page 134
    ... 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 135
    ...our future revenue and cash flows could be adversely impacted. Our business may be adversely impacted by economic conditions. Our results of operations are dependent upon discretionary spending by consumers, which may be affected by general economic conditions and the current global financial crisis...

  • Page 136
    ... quality of food products, new product development, price, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. If consumer preferences change, or our restaurants are unable to compete successfully with...

  • Page 137
    ... in more than 1,100 units. The China Division leased land, building or both in more than 2,600 units. Company restaurants in the U.S. which are not owned are generally leased for initial terms of 15 or 20 years and generally have renewal options; however, Pizza Hut delivery/carryout units in the...

  • Page 138
    ... 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. In addition, each year...

  • Page 139
    ..., Mr. Brolick served as Senior Vice President of New Product Marketing, Research & Strategic Planning for Wendy's International, Inc. from August 1995 to July 2000. Scott O. Bergren, 62, is President and Chief Concept Officer of Pizza Hut. He has served in this position since November 2006. Prior to...

  • Page 140
    ... January 2008 until April 2008, he served as Chief Operating and Development Officer - Designate. From 2000 until January 2008, he was Senior Vice President/Managing Director of YUM! Restaurants International South Pacific. Graham D. Allan, 53, is the President of YRI. He has served in this position...

  • Page 141
    .... The Company's Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange ("NYSE"). The following sets forth the high and low NYSE composite closing sale prices by quarter for the Company's Common Stock and dividends per common share. All per share and share amounts...

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

  • Page 143
    ...a peer group that includes YUM, for the period from December 26, 2003 to December 26, 2008, the last trading day of our 2008 fiscal year. The graph assumes that the value of the investment in our Common Stock and each... $ 179 137 128 12/28/07 $ $ $ 239 145 111 12/27/08 $ $ $ 191 88 70 Form 10-K 21

  • Page 144
    ...restaurants Repurchase shares of Common Stock Dividends paid on Common Stock Balance Sheet Total assets Long-term debt Total debt Other Data Number of stores at year end Company Unconsolidated Affiliates Franchisees Licensees System U.S. same store sales growth(d) YRI system sales growth(d) Reported...

  • Page 145
    ... at a rate of 4% to 6% of sales). Franchise, unconsolidated affiliate and license restaurant sales are not included in Company sales we present on the Consolidated Statements of Income; however, the fees are included in the Company's revenues. We believe system sales growth is useful to investors...

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

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

  • Page 148
    ...driven by improved loss trends. We anticipate that the U.S. restaurant margin as a percentage of sales will improve approximately 1% for the full year 2009 as a result of pricing actions we have taken and the moderation of commodity inflation. China Restaurant Profit China Division restaurant margin...

  • Page 149
    ... (30) 7 Company sales Company restaurant expenses Franchise and license fees General and administrative expenses Other (income) expense Operating Profit The impact on Other (income) expense includes both the current year minority interest in pre-tax earnings of the unconsolidated affiliate as well...

  • Page 150
    ...line items of our Consolidated Statement of Income. We no longer record franchise fee income for the restaurants previously owned by the unconsolidated affiliate, nor do we report other income under the equity method of accounting. As a result of this acquisition, Company sales and restaurant profit...

  • Page 151
    ... in the current year during periods in which the restaurants were Company stores in the prior year. The following table summarizes the impact of refranchising as described above: Form 10-K Decreased Company sales Increased Franchise and license fees Decrease in Total revenues $ $ U.S. (300) 16...

  • Page 152
    ... fees Decreased G&A Increase (decrease) in Operating Profit Results of Operations $ $ $ $ 2008 Company sales Franchise and license fees Total revenues Company restaurant profit % of Company sales Operating profit Interest expense, net Income tax provision Net income Diluted earnings per share...

  • Page 153
    ...2006 New Builds Acquisitions Refranchising Closures Other Balance at end of 2007 New Builds Acquisitions Refranchising Closures Other(b)(c) Balance at end of 2008 % of Total Company 7,736 505 9 (420) (204) (1) 7,625 596 106 (775) (166) 182 7,568 22% - (1) (8) (749) 645 2% Unconsolidated Affiliates...

  • Page 154
    ...U.S. and YRI totals exclude 2,168, 1,994 and 174 licensed units, respectively, at December 27, 2008. There are no licensed units in the China Division. Licensed units are generally units that offer limited menus and operate in non-traditional locations like malls, airports, gasoline service stations...

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

  • Page 156
    ..., including Company-owned, franchise, unconsolidated affiliate and license restaurants. The following tables detail the key drivers of system sales growth for each reportable segment by year. Same store sales growth is the estimated growth in sales of all restaurants that have been open one year or...

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

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

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

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

  • Page 161
    ... by the impact of same store sales growth on restaurant profit (primarily due to higher average guest check) and Franchise and license fees. The increase in restaurant operating costs was primarily driven by higher commodity costs. Form 10-K U.S. Operating Profit decreased 3% in 2007. The decrease...

  • Page 162
    ... profit and franchise and license fees. The increase was partially offset by higher G&A expenses (including expenses which were previously netted within equity income prior to our acquisition of the remaining fifty percent of the Pizza Hut U.K. business) and higher restaurant operating costs. China...

  • Page 163
    ... benefits were partially offset in 2008 by the gain on the sale of our interest in our unconsolidated affiliate in Japan and expense associated with our plan to distribute certain foreign earnings. We also recognized deferred tax assets for the net operating losses generated by certain tax planning...

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

  • Page 165
    ...help ensure that we do not need to access the credit markets while continuing to build our liquidity and maintaining our financial flexibility, we do not currently plan to repurchase shares in 2009. Additionally, we are managing our cash and debt positions in order to maintain our current investment...

  • Page 166
    ...Given the Company's strong balance sheet and cash flows we were able to comply with all debt covenant requirements at December 27, 2008 with a considerable amount of cushion. The majority of our remaining long-term debt primarily comprises Senior Unsecured Notes with varying maturity dates from 2011...

  • Page 167
    ... 2009. Contributions beyond 2009 will depend upon the timing and amount of our asset returns as well as changes in applicable discount rates. At our 2008 measurement date, our pension plans in the U.S., which include the U.S. Plan and an unfunded supplemental executive plan, had a projected benefit...

  • Page 168
    ... are currently under review to determine if additional discretionary pension funding payments will be committed to in 2009. Our postretirement plan in the U.S. is not required to be funded in advance, but is pay as you go. We made postretirement benefit payments of $5 million in 2008 and no future...

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

  • Page 170
    ... as company sales, franchise and license fees and restaurant profit and are consistent with our internal operating plans. The discount rate is our estimate of the required rate of return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting...

  • Page 171
    ... and a fair value of plan assets of $513 million at December 27, 2008. The PBO reflects the actuarial present value of all benefits earned to date by employees and incorporates assumptions as to future compensation levels. Due to the relatively long time frame over which benefits earned to date are...

  • Page 172
    ... term and pre-vesting forfeitures. These groups consist of grants made primarily to restaurant-level employees under our Restaurant General Manager Stock Option Plan (the "RGM Plan") and grants made to executives under our other stock award plans. Historically, approximately 15% - 20% of total...

  • Page 173
    ... Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" an interpretation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FIN 48"). FIN 48 requires that a position taken or expected to be taken in a tax return...

  • Page 174
    ... present value of expected future cash flows considering the risks involved and using discount rates appropriate for the duration. Foreign Currency Exchange Rate Risk The combined International Division and China Division Operating Profits constitute approximately 60% of our Operating Profit in 2008...

  • Page 175
    Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL INFORMATION Page Reference Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Statements of Income for the fiscal years ended December 27, 2008, December 29, 2007 and ...

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

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

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

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

  • Page 180
    ... Accounts payable and other current liabilities Income taxes payable Short-term borrowings Advertising cooperative liabilities Total Current Liabilities Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders' Equity (Deficit) Common Stock, no par value, 750 shares...

  • Page 181
    ... Income (Loss) YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006 (in millions, except per share data) Issued Common Stock Shares Amount 556 $ - Retained Earnings $ 1,631 100 Accumulated Other Comprehensive Income(Loss) $ (170) Balance...

  • Page 182
    ... share data) Note 1 - Description of Business YUM! Brands, Inc. and Subsidiaries (collectively referred to as "YUM" or the "Company") comprises the worldwide operations of KFC, Pizza Hut, Taco Bell, Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") (collectively the "Concepts...

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

  • Page 184
    .... We evaluate restaurants using a "two-year history of operating losses" as our primary indicator of potential impairment. Based on the best information available, we write down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. Fair value is determined by...

  • Page 185
    ... its current fair market value. This value becomes the store's new cost basis. We record any resulting difference between the store's carrying amount and its new cost basis to Refranchising (gain) loss. Considerable management judgment is necessary to estimate future cash flows, including cash flows...

  • Page 186
    ... annual effective rate. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as components of its income tax provision. See Note 19 for a further discussion of our income taxes. Fair Value Measurements. In September 2006, the Financial Accounting Standards Board...

  • Page 187
    ... 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 either discounted expected future cash flows from operations or the present value of the estimated future franchise royalty stream...

  • Page 188
    ...Common Stock account. In such instances, on a period basis, we record the cost of any further share repurchases as a reduction in retained earnings. Due to the large number of share repurchases and the increase in our Common Stock market value over the past several years, our Common Stock balance is...

  • Page 189
    ... non-GAAP conventions to account for capitalized interest on restaurant construction projects, the leases of our then Pizza Hut United Kingdom ("U.K.") unconsolidated affiliate and certain state tax benefits. The net income statement impact on any given year from the use of these nonGAAP conventions...

  • Page 190
    ... Assets," which expands the disclosure requirements about plan assets for defined benefit pension plans and postretirement plans. FSP FAS 132(R)-1 is effective for financial statements issued for fiscal years ending after December 15, 2009, the year ending December 26, 2009 for the Company. Form...

  • Page 191
    ... affiliates, the accounting for this entity prior to 2008 resulted in royalties being reflected as Franchise and license fees and our share of the entity's net income being reflected in Other (income) expense. The impact on our Consolidated Statement of Income for the year ended December 27, 2008...

  • Page 192
    Company sales Company restaurant expenses Franchise and license fees General and administrative expenses Other (income) expense Operating Profit Increase (Decrease) $ 299 237 (19) 6 (30) 7 The impact on Other (income) expense includes both the current year minority interest in pre-tax earnings of ...

  • Page 193
    ...line items of our Consolidated Statements of Income. We no longer record franchise fee income for the restaurants previously owned by the unconsolidated affiliate nor do we report other income under the equity method of accounting. As a result of this acquisition, Company sales and restaurant profit...

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

  • Page 195
    ...expenses and other current assets on our Consolidated Balance Sheets. Note 6 - Supplemental Cash Flow Data 2008 Cash Paid For: Interest Income taxes Significant Non-Cash Investing and Financing Activities: Capital lease obligations incurred to acquire assets Net investment in direct financing leases...

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

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

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

  • Page 199
    ... 12 - Short-term Borrowings and Long-term Debt 2008 Short-term Borrowings Current maturities of long-term debt Other $ $ Long-term Debt Unsecured International Revolving Credit Facility, expires November 2012 Unsecured Revolving Credit Facility, expires November 2012 Senior, Unsecured Term Loan, due...

  • Page 200
    ...Given the Company's strong balance sheet and cash flows we were able to comply with all debt covenant requirements at December 27, 2008 with a considerable amount of cushion. The majority of our remaining long-term debt primarily comprises Senior Unsecured Notes with varying maturity dates from 2011...

  • Page 201
    ... certain office and restaurant equipment. We do not consider any of these individual leases material to our operations. Most leases require us to pay related executory costs, which include property taxes, maintenance and insurance. In 2007, we entered into an agreement to lease a corporate aircraft...

  • Page 202
    ... into earnings through 2037 to interest expense. As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could negatively...

  • Page 203
    ... loan program used primarily to assist franchisees in the development of new restaurants and, to a lesser extent, in connection with the Company's historical refranchising programs at December 27, 2008. We have also provided two letters of credit totaling approximately $23 million in support of the...

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

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

  • Page 206
    ... assets at beginning of year Actual 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 Form 10-K International Pension Plans 2008...

  • Page 207
    ... net loss Prior service cost The accumulated benefit obligation for the U.S. and International pension plans was $970 million and $900 million at December 27, 2008 and December 29, 2007, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets...

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

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

  • Page 210
    ... 37 43 243 International Pension Plans $ 1 1 2 2 2 7 Year ended: 2009 2010 2011 2012 2013 2014 - 2018 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...

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

  • Page 212
    .... While historically the Company has repurchased shares on the open market to satisfy award exercises, it does not currently plan to repurchase shares during 2009. In January 2008, we granted an award of 187,398 restricted stock units to our Chief Executive Officer ("CEO"). The award was made under...

  • Page 213
    ...(k) Plan We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for eligible U.S. salaried and hourly employees. Participants are able to elect to contribute up to 75% of eligible compensation on a pre-tax...

  • Page 214
    ... directly to shareholders' equity. Amounts included in other accumulated comprehensive loss for the Company's derivative instruments and unrecognized pension and post retirement losses are recorded net of the related income tax effects. Refer to Note 15 for additional information about our pension...

  • Page 215
    ...120 million of benefit in 2008 and 2007, respectively, and $4 million of expense in 2006 for changes in valuation allowances due to changes in determinations regarding the likelihood of the use of certain deferred tax assets that existed at the beginning of the year. The deferred tax provisions also...

  • Page 216
    ... benefits were partially offset in 2008 by the gain on the sale of our interest in our unconsolidated affiliate in Japan and expense associated with our plan to distribute certain foreign earnings. We also recognized deferred tax assets for the net operating losses generated by certain tax planning...

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    ...) (58) (255) 303 Net operating loss and tax credit carryforwards Employee benefits, including share-based compensation Self-insured casualty claims Lease related liabilities Various liabilities Deferred income and other Gross deferred tax assets Deferred tax asset valuation allowances Net deferred...

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

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    ... Our five largest international markets based on operating profit in 2008 are China, Asia Franchise, Australia, United Kingdom, and Europe Franchise. At the end of fiscal year 2008, we had investments in 4 unconsolidated affiliates in China which operate KFC restaurants. During 2008 the Company sold...

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    .... Includes equity income of unconsolidated affiliates of $40 million, $47 million and $41 million in 2008, 2007 and 2006, respectively, for the China Division. 2008 includes approximately $56 million of charges relating to U.S. general and administrative productivity initiatives and realignment of...

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    ...) costs and the carrying amount of assets held for sale. Note 21 - Contingencies Insurance Programs We are self-insured for a substantial portion of our current and prior years' coverage including workers' compensation, employment practices liability, general liability, automobile liability, product...

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    ... will not result in losses in excess of those currently provided for in our Consolidated Financial Statements. On September 2, 2005, a collective action lawsuit against the Company and KFC Corporation, originally styled Parler v. Yum Brands, Inc., d/b/a KFC, and KFC Corporation, was filed in the...

  • Page 223
    ...behalf of all hourly employees who have worked for the defendants within the last four years and alleges numerous violations of California labor laws including unpaid overtime, failure to pay wages on termination, denial of meal and rest breaks, improper wage statements, unpaid business expenses and...

  • Page 224
    ... 14, 2008, a putative class action styled Kenny Archila v. KFC U.S. Properties, Inc., was filed in California state court on behalf of all California hourly employees alleging various California Labor Code violations, including rest and meal break violations, overtime violations, wage statement...

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    ... Bell customer became ill after ingesting contaminated food in late November or early December 2006 from Taco Bell restaurants located in the northeast states implicated in the outbreak. The majority of the implicated restaurants are owned and operated by Taco Bell franchisees. The Company believes...

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

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

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

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    ... is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and...

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

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    ... the information required is included in the financial statements or the related notes thereto filed as a part of this Form 10-K. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this Form 10-K. The Index to Exhibits specifically identifies each management...

  • Page 232
    ...has duly caused this Form 10-K annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 23, 2009 YUM! BRANDS, INC. By: /s/ David C. Novak Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the...

  • Page 233
    ... Report on Form 10-K for the fiscal year ended December 27, 1997. YUM Executive Incentive Compensation Plan, which is incorporated herein by reference from Exhibit A of YUM's Definitive Proxy Statement on Form DEF 14A for the Annual Meeting of Shareholders held on May 20, 2004. YUM Executive Income...

  • Page 234
    ... the quarter ended March 24, 2007. 1999 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...

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    Supplement to Yum! Brands, Inc. Annual Report to Shareholders On May 5, 2008, David Novak, Yum! Brands, Inc. Chairman and Chief Executive Officer submitted a certification to the New York Stock Exchange (the "NYSE") as required by Section 303A.12(a) of the NYSE Listed Company Manual. This ...

  • Page 237
    ... (298-6986) INTERNATIONAL FRANCHISING INQUIRY PHONE LINE (972) 338-8100 ext. 4480 ONLINE FRANCHISE INFORMATION http://www.yum.com/franchising/default.asp Yum! Brands' Annual Report contains many of the valuable trademarks owned and used by Yum! Brands and subsidiaries and affiliates in the United...

  • Page 238
    ... Graham D. Allan 53 President, Yum! Restaurants International Scott O. Bergren 62 President and Chief Concept Officer, Pizza Hut Jonathan D. Blum 50 Senior Vice President, Public Affairs, Yum! Brands, Inc. Emil J. Brolick 61 Chief Operating Officer, Yum! Brands, Inc. Ben Butler 47 President, Long...

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