Taco Bell 2008 Annual Report Download

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Table of contents

  • Page 1

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

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

  • Page 4
    ... claim as the number one retail developer of new units outside the United States by opening a record 1,495 units, the eighth straight year we've opened more than 1,000 new units. With this quality growth, we generated cash from operations of over $1.5 billion and returned an all time high of nearly...

  • Page 5
    ... and retain the best talent and make Customer Mania come alive in every person and in every store as we go for operational excellence. As it stands today, this culture is well established at our restaurant support centers and above store but is inconsistently executed at our restaurants where it...

  • Page 6
    ... primarily company owned and operated. As we have built the business, we've put in place a world class infrastructure to give us a long-term competitive advantage. We uniquely own our own food distribution system that has allowed us to expand KFC into more than 500 cities in China and make Pizza Hut...

  • Page 7
    ... short term impact. In each case we bounced back stronger than before, and in fact, have generated 23% compounded annual profit growth rate in the China Division over the past five years. Now we have a slowing 6% GDP growth rate that still makes China the fastest growing major economy in the world...

  • 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
    ... global sales growth initiatives that will take our brands to even higher sales levels. Successful examples include the KFC breakfast menus in Asia and the United Kingdom; fish at KFC restaurants in the Middle East and Caribbean, Pizza Hut Tea Time in Indonesia, marketing the Pizza Hut enhanced dine...

  • Page 10
    ... leader in the industry through the use of a multi-layer marketing approach throughout 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...

  • Page 11
    ... 100 new WingStreets a month with national scale within our sights in 2009. This branded line of flavored chicken wings will be in a position to advertise on national television by the end of 2009. KFC, our only major soft spot, had a challenging year. President Gregg Dedrick retired and...

  • 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
    ... dedicated team members, restaurant managers, franchise partners and outstanding directors who are committed to our culture and to winning big in everything they do. I would also like to congratulate Sam Su, President of Yum! Restaurants China, for being appointed to the Yum! Board of Directors as...

  • Page 14

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

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

  • Page 17
    ... 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 www.yum.com/investors...

  • Page 18
    ... in Control ...DIRECTOR COMPENSATION ...EQUITY COMPENSATION PLAN INFORMATION ...AUDIT COMMITTEE REPORT ...ADDITIONAL INFORMATION ...EXECUTIVE INCENTIVE COMPENSATION PLAN AUDIT COMMITTEE CHARTER AUDIT COMMITTEE PRE-APPROVAL POLICY Appendices 1 through 4-Companies included in consultant survey data...

  • Page 19
    ..., Kentucky 40213 PROXY STATEMENT For Annual Meeting of Shareholders To Be Held On May 21, 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...

  • Page 20
    ... that you vote your shares: • ''FOR'' each of the nominees named in this proxy statement for election to the Board, • ''FOR'' the ratification of the selection of KPMG LLP as our independent auditors, • ''FOR'' the proposal to approve the Company's Executive Incentive Compensation Plan, and...

  • Page 21
    ... 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 of record may be voted in person at the Annual Meeting. Shares held in street name may be voted in person only if you obtain a legal...

  • Page 22
    ...of the thirteen (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...

  • 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
    ... executive officer and other senior executive officers • Reviews management succession planning 4 Proxy Statement The Board has determined that all of the members of the Compensation Committee are independent within the meaning of the listing standards of the NYSE and are non-employee directors...

  • Page 26
    ..., Chief Executive Officer and President of CVS. In 2007, YUM entered into a transaction with CVS to sublease a long range aircraft through the Fall of 2010. At that time, YUM will have an option to purchase the aircraft from CVS. After reviewing the terms of the transaction, including the lease...

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

  • Page 28
    ... other parties interested in communicating directly with individual directors, the non-management directors as a group or the entire Board may do so by writing to the Nominating and Governance Committee, c/o Corporate Secretary, YUM! Brands, Inc., 1441 Gardiner Lane, Louisville, Kentucky 40213. The...

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

  • Page 30
    ... number of shares of Company common stock and expects non-management directors to retain shares acquired as compensation as a director until at least 12 months following their departure from the Board. YUM directors receive a significant portion of their annual compensation in stock. The Company...

  • Page 31
    ... Blue, Inc., a brand marketing company. She served as President and Chief Executive Officer of Times Mirror Foundation, a charitable foundation affiliated with the Tribune Company from 1997 to 2001 and Senior Vice President, Communications and Public Affairs, of the Los Angeles Times from 1998 to...

  • Page 32
    ... Group President and Chief Executive Officer, KFC and Pizza Hut from August 1996 to July 1997, at which time he became acting Vice Chairman of YUM. He is also a director of JPMorgan Chase & Co. and Friends of World Food Program. Kenneth G. Langone Age 73 Director since 1997 Founder, Chairman, Chief...

  • Page 33
    ...the Board of Cardinal Health. From 1979 to April 2006, he served as Chairman and Chief Executive Officer of Cardinal Health. Mr. Walter also serves as a director of American Express Company, Nordstrom, Inc. and Battelle Memorial Institute and is a member of The Business Council. Proxy Statement If...

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

  • Page 35
    ... 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 non-audit services...

  • 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
    ... 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 proposal...

  • Page 39
    ... be a useful tool in some circumstances to protect the best interest of its shareholders. At other companies, potential purchasers have made offers in the face of such plans but the existence of the plans allows boards to protect strategies for realizing long-term value and to maximize the value of...

  • 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
    ... Vote establishes an annual referendum process for shareholders about senior executive compensation. We believe the results of this vote would provide the board and management useful information about shareholder views on the company's senior executive compensation. In its 2008 proxy Aflac submitted...

  • Page 42
    ... links pay to performance, and communicates effectively to investors would find a management sponsored Advisory Vote a helpful tool. We urge our board to allow shareholders to express their opinion about senior executive compensation through an Advisory Vote. MANAGEMENT STATEMENT IN OPPOSITION...

  • Page 43
    ... Compound annual growth rate of stock price adjusted for stock splits and dividends. For the ''Nondurable Consumer Products Group'' and ''Global Consumer Group,'' the total investor return was calculated by taking the average of the total investor returns for all of the individual companies included...

  • Page 44
    ... on executive compensation is simply not in the best interests of YUM's shareholders. The Board is not aware of any competitor who has adopted the advisory vote, and we understand that similar proposals were defeated at the vast majority of companies where they were proposed last year. Implementing...

  • Page 45
    ...ew executives are confident that their companies can manage these risks successfully and businesses are making surprisingly little use of some well-known analytical tools and simple best practices that could help. The McKinsey Quarterly 2007 Number 1, pages 10-12. The global food production system...

  • Page 46
    ... that the Board of Directors report to shareholders by December, 2009 on measures taken to ensure the long-term sustainability and security of our company's product supply chain, including: • Strategies to significantly reduce waste, energy and water use throughout the supply chain; • Resource...

  • Page 47
    We seek to build a globally consistent and rigorous program that will reflect our rapid international growth, with a keen eye to emerging markets. We work collaboratively with our suppliers, business partners and local stakeholders to ensure that we adapt our business and social requirements to ...

  • Page 48
    ... which we operate. We believe that creating the report required by the proposal would not be productive because our own business interests require that our food chain be both safe and sustainable, and we have available the expertise to make those determinations internally. We are working to leverage...

  • Page 49
    ...effective, efficient, safe, timely, patient-centered, and equitable. Polls (NBC News/Wall Street Journal, USA Today/Gallup and The New York Times/CBS News) consistently show that access to affordable, comprehensive health care insurance is one of the most significant social policy issues in America...

  • Page 50
    .... 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 RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL. What is the Company's position regarding this proposal? Health...

  • 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
    ... YOU VOTE AGAINST THIS PROPOSAL. What vote is required to approve this proposal? Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. 23MAR200920 Proxy Statement 35

  • Page 54
    ...This information is presented as of December 31, 2008, and is based on stock ownership reports on Schedule 13G filed by each of these shareholders with the SEC and provided to us. Name and Address of Beneficial Owner Number of Shares Beneficially Owned Percent of Class Southeastern Asset Management...

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

  • Page 56
    ... 1934, as amended, requires 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...

  • Page 57
    ...store-sales growth of 3%, which marks our 8th straight year of worldwide system same-store-sales growth. Second, we opened a record 1,495 units internationally, remaining the leading developer of new units outside the U.S. Third, we reinforced our position as an industry leader in return on invested...

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

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

  • Page 61
    ..., Su, 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...

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

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

  • Page 64
    ...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 of Divisions Performance...

  • Page 65
    ... individual performance for 2008 was above target based upon strong earnings per share growth, system sales growth and net new restaurants. In addition, the Committee considered that, while the U.S. business missed its profit targets, under Mr. Carucci's leadership the Company refranchised 700 units...

  • Page 66
    ...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. The long-term incentive philosophy is to target the 50th percentile of the companies in the survey data for executives (other than our CEO...

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

  • Page 68
    ... products peer group in terms of total shareholder return (top quartile), return on net assets (top quartile), earnings per share growth (top 50%) and operating income growth (top 50%). Based on this sustained strong performance, the Committee determined that Mr. Novak's target total compensation...

  • Page 69
    ...Compensation Committee noted that that the Company's EPS growth exceeded its target of 10% for seven straight years, that the Company's total shareholder return ranked in the top quartile of its peer group for 2 of the last 3 years, and that the new sales layers at the Pizza Hut and Taco Bell brands...

  • Page 70
    ...For these executives, the Committee approved a Performance Share 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...

  • Page 71
    ... is provided to equalize different tax 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...

  • Page 72
    ... Team members (other than Mr. Novak) are expected to attain their ownership targets, equivalent 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...

  • Page 73
    ... Committee gives significant weight to management recommendations concerning grants to Senior Leadership Team members (other than the CEO), the Compensation Committee makes the determination whether and to whom to issue grants and determines the amount of the grant. The Board of Directors has...

  • Page 74
    ... exceed 2.99 times the sum of (a) the named executive officer's annual base salary as in effect immediately prior to termination of employment; and (b) the highest annual bonus awarded to the named executive officer by the Company in any of the Company's three full fiscal years immediately preceding...

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

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

  • Page 77
    ...Amounts shown are not reduced to reflect named executive officers' elections, if any, to defer receipt of salary into the Executive Income Deferral (''EID'') Program or into the Company's 401(k) Plan. The annualized rates of base salary in effect as of December 31, 2008 for the NEOs were as follows...

  • 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
    ... the aggregate increase in actuarial 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...

  • 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
    GRANTS OF PLAN-BASED AWARDS The following table provides information on stock appreciation rights and restricted stock units granted for 2008 to each of the Company's named executive officers. The amount of these awards that were expensed is shown in the Summary Compensation Table at page 59. Name...

  • Page 82
    ... accounting expense and do not correspond to the actual value that will be recognized by the named executives. The full grant date fair value is the amount that the Company is expensing in its financial statements over the award's vesting schedule. For RSUs, fair value is equal to the closing price...

  • 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
    ...the case of Mr. Novak, options 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...

  • 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
    ... 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 1% of...

  • Page 87
    ...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 rate for the...

  • Page 88
    ... or contributed to by the Company or one or more of the group 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...

  • 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
    ... that would become payable 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...

  • Page 92
    ... Table on page 67 describes the general terms of each pension plan in which the named executives participate, the years of credited service and the present value of the annuity payable to each named executive assuming termination of employment as of December 31, 2008. The table on page 69 provides...

  • Page 93
    ... of target performance 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...

  • Page 94
    ... 8, ''Financial Statements and Supplementary Data'' of the Annual Report in Notes to Consolidated Financial Statements at Note 16, ''Stock Options and Stock Appreciation Rights.'' (2) At December 31, 2008, the aggregate number of options and SARs awards outstanding for non-management directors was...

  • Page 95
    ... of his service on the Board for 2009. The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time that directors expend in...

  • Page 96
    ... 31, 2008, the equity compensation plans under which we may issue shares of stock to our directors, officers and employees under the 1999 Long Term Incentive Plan (''1999 Plan''), the 1997 Long Term Incentive Plan (the ''1997 Plan''), SharePower Plan and Restaurant General Manager Stock Option Plan...

  • Page 97
    ...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
    ...with the Company's internal auditors, in each case without the presence of the Company's management, as well as executive sessions consisting of only Committee members. The Committee also meets with senior management from time to time. In addition to the scheduled meetings, senior management confers...

  • Page 99
    ... both management and the Company's independent auditors all annual and quarterly financial statements prior to their issuance. During 2008, management advised the Committee that each set of financial statements reviewed had been prepared in accordance with accounting principles generally accepted...

  • Page 100
    ...? 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 contrary...

  • 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
    ... 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 their best judgment. The chairman of the...

  • 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 Committee may make such adjustments as it deems appropriate in the case of any Participant whose position with the Company has changed during the applicable Performance Period. (ii) The Committee shall have the discretion to adjust performance goals and the methodology used to measure 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 the...

  • Page 106
    ... of the Plan, the Committee will have the authority and discretion to select from among the Eligible Employees those persons who shall receive Awards, to determine the time or times of payment with respect to the Awards, to establish the terms, conditions, performance goals, restrictions, and...

  • Page 107
    ... incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan. SECTION 6 AMENDMENT AND TERMINATION The Board may, at any time, amend or terminate the...

  • Page 108
    ... satisfying the applicable requirements imposed by section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, with respect to that term. (k) ''Performance Period'' with respect to any Award means the period over which achievement of performance goals is to...

  • Page 109
    ... public companies unless the Board determines that such simultaneous service would not impair his or her ability to effectively serve on the Committee, and discloses this determination in the Company's annual proxy statement. No member of the Committee may receive any compensation from the Company...

  • Page 110
    ... of the 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...

  • Page 111
    ... 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 112
    ... 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 and discuss with the independent auditors and management the Company's annual audited financial...

  • Page 113
    ...'s financial statements, compliance programs and 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...

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

  • Page 115
    ...'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
    ... a confidential transaction or that is an aggressive tax position transaction (both as defined by the Public Company Accounting Oversight Board's rules). The Audit Committee has pre-approved the tax services listed in Appendix C. All tax services not pre-approved through their inclusion in Appendix...

  • Page 117
    ... to Section II of this Policy) will approve or disapprove the request or may request additional information from the Auditor and management prior to rendering its decision. This Policy was last amended by the Audit Committee of YUM Brands, Inc. on March 14, 2008 23MAR200920 Proxy Statement C-3

  • Page 118
    ... Proxy Statement Appendix 1 3M Abbott Laboratories Amazon.com American Electric Power American Standard Companies Inc. AMR Corporation Anheuser-Busch Companies, Inc. ARAMARK Corporation Arrow Electronics, Inc. Bristol-Myers Squibb Company CHS Inc. Colgate-Palmolive Company ConAgra Foods, Inc...

  • Page 119
    ... Temple-Inland Inc. Tenet Healthcare Corporation Tennessee Valley Authority The Thomson Corporation Tribune Company Unisys Corporation USG Corporation W.W. Grainger, Inc. Yum! Brands, Inc. Hewitt Associates Data- Companies Reporting Group Revenues of $5 to $10 Billion 23MAR200920 Proxy Statement

  • 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 Kellogg...

  • Page 121
    ...4 3M Abbott Laboratories Accenture ACH Food* Air Products and Chemicals Alstom Power* American Standard Amgen Anheuser-Busch Apple Computer ARAMARK Corporation ArvinMeritor Automatic Data Processing Baxter International Boehringer Ingelheim* Bovis Lend Lease* Bristol-Myers Squibb Burlington Northern...

  • Page 122
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  • Page 123
    ...is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អ No ፼ The aggregate market value of the voting stock (which consists 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...

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

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

  • Page 126
    ... for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. KFC is based in Louisville, Kentucky. As of year end 2008, KFC was the leader in the U.S. chicken QSR segment among companies featuring chicken-onthe-bone as their primary product offering, with a 44 percent market share...

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

  • Page 128
    ...and customs, covering all aspects of restaurant operations, including food handling and product preparation procedures, safety and quality issues, equipment maintenance, facility standards and accounting control procedures. The restaurant management teams are responsible for the day-to-day operation...

  • 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
    ...currently no way to reasonably estimate the size of the competitive market outside the U.S. Research and Development ("R&D") The Company's subsidiaries operate R&D facilities in Louisville, Kentucky (KFC); Dallas, Texas (Pizza Hut and YRI); and Irvine, California (Taco Bell) and in several locations...

  • Page 131
    ...and equipment and laws regulating foreign investment. International compliance with environmental requirements has not had a material adverse effect on the Company's results of operations, capital expenditures or competitive position. Employees As of year end 2008, the Company employed approximately...

  • Page 132
    ... and the value of our Chinese assets are affected by fluctuations in currency exchange rates, which may favorably or adversely affect reported earnings. There can be no assurance as to the future effect of any such changes on our results of operations, financial condition or cash flows. Form 10...

  • Page 133
    ... no assurance as to the future effect of any such changes on our results of operations, financial condition or cash flows. Changes in commodity and other operating costs could adversely affect our results of operations. Any increase in certain commodity prices, such as food, energy and supply costs...

  • 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
    ... in credit markets may make financing more difficult or expensive to obtain. If it becomes more difficult or expensive for our franchisees to obtain financing to develop new restaurants, our planned growth could slow and our future revenue and cash flows could be adversely impacted. Our business may...

  • Page 136
    ...industry in which we operate is highly competitive. The retail food industry in which we operate is highly competitive with respect to price and quality of food products, new product development, price, advertising levels and promotional initiatives, customer service, reputation, restaurant location...

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

  • Page 138
    ... 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
    ... 2006. Prior to joining Taco Bell, Mr. Brolick served as Senior Vice President of New Product Marketing, Research & Strategic Planning for Wendy's International, Inc. from August 1995 to July 2000. Scott O. Bergren, 62, is President and Chief Concept Officer of Pizza Hut. He has served in this...

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

  • Page 141
    ... in 2008. In 2008, the Company declared one cash dividend of $0.15 per share of Common Stock and three cash dividends of $0.19 per share of Common Stock, one of which had a distribution date of February 6, 2009. The Company is targeting an annual dividend payout ratio of 35% to 40% of net income. As...

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

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

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

  • Page 147
    ... 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
    .... These decreases were partially offset by Company same store sales growth of 3% resulting from pricing actions we have taken. In 2007, restaurant profit was negatively impacted versus 2006 by Company same store sales declines of 3% (primarily due to Taco Bell) and $44 million of commodity inflation...

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

  • Page 151
    ... international markets. In the U.S., we are targeting Company ownership of restaurants potentially below 10% by year end 2010, down from its current level of 19%. Consistent with this strategy, 700 Company restaurants in the U.S. were sold to franchisees in 2008. We recorded net refranchising losses...

  • Page 152
    ... (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 (a) (a) % B/(W) vs. 2007...

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

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

  • Page 155
    ... brand added to a restaurant but do not result in an additional 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...

  • Page 156
    ..., 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 more. Net unit growth and...

  • Page 157
    ... 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 net impact of actual sales or fee additions due to new unit openings and...

  • Page 158
    ...$ 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(a) Foreign currency...

  • Page 159
    ...benefits Occupancy and other operating expenses Company restaurant margin In 2008, the decrease in U.S. restaurant margin as a percentage of sales was driven by the impact of higher commodity costs (primarily cheese, meat, chicken and wheat costs), higher labor costs (primarily wage rate and salary...

  • Page 160
    ... costs (primarily chicken products), the impact of lower margins associated with new units during the initial periods of operation and higher labor costs. The decrease was partially offset by the impact of same store sales growth on restaurant margin. Worldwide General and Administrative Expenses...

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

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

  • Page 163
    ... rate to our effective tax rate is set forth below: 2008 U.S. federal statutory rate State income tax, net of federal tax benefit Foreign and U.S. tax effects attributable to foreign operations Adjustments to reserves and prior years Repatriation of foreign earnings Non-recurring foreign tax credit...

  • Page 164
    ... pre-tax gain on the sale of this investment of $100 million was recorded in the first quarter of 2008. However, the cash proceeds from this transaction were transferred from our international subsidiary to the U.S. in December 2007 and were thus reported on our Consolidated Statement of Cash Flows...

  • Page 165
    ... 21, 2008 our Board of Directors approved cash dividends of $.19 per share of Common Stock to be distributed on February 6, 2009 to shareholders of record at the close of business on January 16, 2009. The Company is targeting an ongoing annual dividend payout ratio of 35% - 40% of net income. 43

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

  • Page 167
    ... 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 obligation of $923 million and plan assets of $513 million. Form 10...

  • Page 168
    ...quarterly or annual results of operations or financial condition. Changes in the estimates and judgments could significantly 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...

  • Page 169
    ... Our reporting units are our operating segments in the U.S. and our 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...

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

  • Page 171
    ... in amortization of net loss. A 50 basis point change in our discount rate assumption at our measurement date would impact our 2009 U.S. pension expense by approximately $12 million. The assumption we make regarding our expected long-term rates of return on plan assets also impacts our pension...

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

  • 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
    ... exchange rates would impact the translation of our investments in foreign operations, the fair value of our foreign currency denominated financial instruments and our reported foreign currency denominated earnings and cash flows. For the fiscal year ended December 27, 2008, Operating Profit would...

  • Page 175
    ... 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 December 30, 2006 Consolidated Statements of Cash Flows for...

  • Page 176
    ...the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year, in 2006. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), YUM's internal control over financial reporting as of December 27, 2008, based...

  • Page 177
    ... statements of income, cash flows, and shareholders' equity (deficit) and comprehensive income (loss) for each of the years in the three-year period ended December 27, 2008, and our report dated February 23, 2009 expressed an unqualified opinion on those consolidated financial statements. Form...

  • 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
    ... of restaurants from franchisees (35) Sales of property, plant and equipment 72 Other, net (9) (641) Net Cash Used in Investing Activities Cash Flows - Financing Activities Proceeds from issuance of long-term debt Repayments of long-term debt Revolving credit facilities, three months or less, net...

  • Page 180
    ... Income taxes payable Short-term borrowings Advertising cooperative liabilities Total Current Liabilities Long-term debt Other liabilities and deferred credits Total Liabilities Shareholders' Equity (Deficit) Common Stock, no par value, 750 shares authorized; 459 shares and 499 shares issued in 2008...

  • Page 181
    ... 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 at December 31, 2005 Adjustment to initially apply SAB No. 108 $ Total 1,461 100 Net income Foreign currency translation...

  • Page 182
    ..., Pizza Hut, Taco Bell, Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") (collectively the "Concepts"). YUM is the world's largest quick service restaurant company based on the number of system units, with more than 36,000 units of which approximately 45% are located outside...

  • Page 183
    ...long-term Deferred income tax assets to Other liabilities and deferred credits to present deferred tax assets associated with foreign tax credit carryforwards and unrecognized tax benefits on a net basis where appropriate. We have reduced Capital spending on our Consolidated Statements of Cash Flows...

  • Page 184
    ... 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 discounting the forecasted after tax cash flows...

  • Page 185
    ... held for sale or (b) 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...

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

  • Page 188
    ... the cash flows that were initially used to value the definite-lived intangible asset to reflect our current estimates and assumptions over the asset's future remaining life. Derivative Financial Instruments. Historically, our use of derivative instruments has primarily been to hedge interest rates...

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

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

  • Page 192
    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
    ...equipment and are included in prepaid expenses and other current assets on our Consolidated Balance Sheets. Note 6 - Supplemental Cash Flow Data 2008 Cash Paid For: Interest Income taxes Significant Non-Cash Investing and Financing Activities: Capital lease obligations incurred to acquire assets Net...

  • Page 196
    ... in our unconsolidated affiliate in Japan. See Note 5. Fiscal years 2007 and 2006 reflect recognition of income associated with receipt of payments for a note receivable arising from the 2005 sale of our fifty percent interest in the entity that operated almost all KFCs and Pizza Huts in Poland and...

  • Page 197
    ...$ 605 $ Disposals and other, net for YRI primarily reflects adjustments to the Pizza Hut U.K. goodwill allocation and the impact of foreign currency translation on existing balances. Disposals and other, net for the U.S. Division, primarily reflects goodwill write-offs associated with refranchising...

  • Page 198
    Intangible assets, net for the years ended 2008 and 2007 are as follows: 2008 Gross Carrying Amount Definite-lived intangible assets Franchise contract rights Trademarks/brands Lease tenancy rights Favorable/unfavorable operating leases Reacquired franchise rights Other $ 147 221 31 12 11 6 428 ...

  • Page 199
    ...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 July 2011 Senior, Unsecured...

  • Page 200
    ...14. The annual maturities of short-term borrowings and long-term debt as of December 27, 2008, excluding capital lease obligations of $234 million and derivative instrument adjustments of $59 million, are as follows: Form 10-K Year ended: 2009 2010 2011 2012 2013 Thereafter Total $ $ 12 3 1,029...

  • Page 201
    ...years from the inception of the lease. Our longest lease expires in 2151. We also lease office space for headquarters and support functions, as well as certain office and restaurant equipment. We do not consider any of these individual leases material to our operations. Most leases require us to pay...

  • Page 202
    ... forwards had investment grade ratings. To date, all couterparties have performed in accordance with their contractual obligations. Lease Guarantees As a result of (a) assigning our interest in obligations under real estate leases as a condition to the refranchising of certain Company restaurants...

  • 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...

  • Page 204
    ... as of December 27, 2008: Fair Value Measurements Quoted Prices in Active Markets for Identical Assets (Level 1) $ - - 10 $ 10 Significant Unobservable Inputs (Level 3 Form 10-K Description Foreign Currency Forwards, net Interest Rate Swaps, net Other Investments Total $ $ Total 12 62 10 84...

  • Page 205
    ... and earnings or stated amounts for each year of service. We also sponsor various defined benefit pension plans covering certain of our non-U.S. employees, the most significant of which are in the U.K. (including a plan for Pizza Hut U.K. employees that was sponsored by our unconsolidated affiliate...

  • 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
    ... obligation in excess of plan assets: U.S. Pension Plans 2008 2007 $ 923 $ 842 867 770 513 732 International Pension Plans 2008 2007 $ 126 $ 80 103 74 83 53 Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Form 10-K Our funding policy with respect to the...

  • Page 208
    ... benefits primarily related to the U.S. business transformation measures taken in 2008. Excludes pension expense for the Pizza Hut U.K. pension plan of $4 million in 2006 related to periods prior to our acquisition of the remaining fifty percent interest in the unconsolidated affiliate. (b) Form...

  • Page 209
    ...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 increase 2008 6.50% 8.00% 3.75% 2007 5.95...

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

  • 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
    ...respectively. 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...

  • Page 213
    ... Programs Executive Income Deferral Program (the "EID Plan") The EID Plan allows participants to defer receipt of a portion of their annual salary and all or a portion of their incentive compensation. As defined by the EID Plan, we credit the amounts deferred with earnings based on the investment...

  • Page 214
    ...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 accounting and Note 14 for additional information about our derivative instruments. The following table gives further detail regarding the...

  • 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
    ... tax benefit Foreign and U.S. tax effects attributable to foreign operations Adjustments to reserves and prior years Repatriation of foreign earnings Non-recurring foreign tax credit adjustments Valuation allowance additions (reversals) Other, net Effective income tax rate Our 2008 effective income...

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

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    ... from netting, where appropriate, 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...

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

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    ...million for 2008, 2007 and 2006, respectively, for the China Division. Primarily includes deferred tax assets, property, plant and equipment, net, related to our office facilities and cash. Includes property, plant and equipment, net, goodwill, and intangible assets, net. (b) (c) (d) (e) Form 10...

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    ... segment disclosures related to impairment, store closure (income) 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...

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    ...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 United States...

  • Page 223
    ... loss cannot be reasonably estimated. On June 16, 2008, a putative class action lawsuit against Taco Bell Corp. and the Company styled Miriam Leyva vs. Taco Bell Corp., et al., was filed in Los Angeles Superior Court. The case was filed on behalf of Leyva and purportedly all other California hourly...

  • Page 224
    ... California employees and alleges failure to pay overtime, failure to reimburse for business related expenses, improper wage statements, failure to pay accrued vacation wages, failure to pay minimum wage and unfair business practices. Taco Bell removed the case to federal court on December 5, 2008...

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    ... he became ill after consuming food purchased from a Taco Bell restaurant in Riverhead, New York, which was allegedly contaminated with E. coli 0157:H7. Subsequently, thirty-five other cases have been filed naming the Company, Taco Bell Corp., Taco Bell of America, and/or other subsidiaries of...

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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...

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    ... 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...

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    ...is supported by formal policies and procedures, including an active Code of Conduct program intended to ensure employees adhere to the highest standards of personal and professional integrity. We have conducted an evaluation of the effectiveness of our internal control over financial reporting based...

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    ... financial reporting was effective as of December 27, 2008. 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 effectiveness of our internal control over financial reporting and has issued...

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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...

  • Page 231
    ...(a) (1) Exhibits and Financial Statement Schedules. Financial Statements: Consolidated financial statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. Financial Statement Schedules: No schedules are required because either the required information is not present...

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

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

  • Page 234
    ... Brands Leadership Retirement Plan, as in effect January 1, 2005, which is incorporated herein by reference from Exhibit 10.32 to YUM's Quarterly Report on Form 10-Q for the quarter ended March 24, 2007. 1999 Long Term Incentive Plan Award (Restricted Stock Unit Agreement) by and between the Company...

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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
    ...-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 States...

  • Page 238
    ... 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 John Silver...

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