Taco Bell 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Taco Bell annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 220

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220

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

Table of contents

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

  • Page 2
    Financial Highlights (In millions, except for per share amounts) Year-end 2009 2008 % B/(W) change Company sales Franchise and license fees and income Total revenues Operating profit Net income - Yum! Brands, Inc. Diluted earnings per common share Cash flows provided by operating activities $ 9,...

  • Page 3
    ... opened more than 1,000 new units. We also improved our worldwide restaurant margins by 1.7 percentage points, and operating profits grew by 9% prior to foreign currency translation and special items. For the first time we generated over $1 billion in net income and we generated $1.4 billion of cash...

  • Page 4
    2

  • Page 5
    ... two of the most loved brands in the fast food and casual dining category and we are now successfully developing Pizza Hut Home Service, making pizza available with very efficient, low investment pizza carryout units. We are even creating our own Chinese quick service restaurant chain, East Dawning...

  • Page 6
    4

  • Page 7
    ... 60% of our operating profits compared to just 20% when we started our company. According to Business Week, we are one of only five companies in the world to have two of the top global brands with KFC and Pizza Hut. With the benefit of increasing global prosperity, the development of massive, under...

  • Page 8
    6

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

  • Page 10
    ... this brand forward. Third our customers have asked us to improve our operations particularly around product availability and speed of service. So we have actively raised our game by more aggressively pushing for higher standards by investing in more franchise field support, increasing operational...

  • Page 11
    ...in share repurchases with excess cash flows. You should also know that we have a very strong balance sheet that gives us plenty of insulation from any unforeseen challenge. Bottom line, any way you look at it, Yum! Brands is in strong financial shape. 2009: ROIC 20%, EPS + 13% Yum! Stock Price +17...

  • Page 12
    ...can consistently grow earnings per share 10% per year. For 2010, new unit development outside the United States drives 6 percentage points and we expect the balance of our growth to come from our base business through overall global same store sales growth of 2%, productivity initiatives and expense...

  • Page 13
    ... The Defining Global Company that Feeds the World is an inspiring direction for our company. It's raising our game for both the short and long term. I'd like to thank all our team members, restaurant general managers, franchise partners and outstanding directors who are giving their all to help us...

  • Page 14

  • Page 15

  • Page 16
    ... 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 20, 2010, at 9:00 a.m., local time, in the YUM! Conference Center at 1900 Colonel Sanders Lane in Louisville, Kentucky. This year we...

  • Page 17

  • Page 18
    ... as of the close of business on March 22, 2010. You may also read the Company's Annual Report and this notice and proxy statement on our Web site at www.yum.com/annualreport and www.yum.com/investors/investor_materials.asp. Annual Report: A copy of our 2009 Annual Report on Form 10-K is included...

  • Page 19
    ... Proposal Relating to Right to Call Special Shareowner Meetings ...STOCK OWNERSHIP INFORMATION ...EXECUTIVE COMPENSATION ...Compensation Discussion and Analysis ...Management Planning and Development Committee Report ...Summary Compensation Table ...All Other Compensation Table ...Grants of Plan...

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

  • Page 21
    ... As of March 22, 2010, YUM had 467,283,295 shares of common stock outstanding. How does the Board of Directors recommend that I vote? Our Board of Directors recommends that you vote your shares: • ''FOR'' each of the nominees named in this proxy statement for election to the Board, • ''FOR'' the...

  • Page 22
    ...received by 11:59 p.m., Eastern Daylight Saving Time, on May 19, 2010. Can I vote at the meeting? Shares registered directly in your name as the shareholder of record may be voted in person at the Annual Meeting. Shares held in street name may be voted in person only if you obtain a legal proxy from...

  • Page 23
    many accounts as possible under the same name and address. Our transfer agent is American Stock Transfer and Trust Company, which may be reached at 1(888) 439-4986. Will my shares be voted if I do not provide my proxy? Your shares may be voted if they are held in the name of a brokerage firm, even ...

  • Page 24
    ... the director nominees named in this proxy statement. In an uncontested election, a nominee will be elected as a director if the number of ''FOR'' votes exceeds the number of ''AGAINST'' votes. Abstentions will be counted as present but not voted. Full details of the Company's majority voting policy...

  • Page 25
    ... they can make to the Board and management. The Committee's assessment of a proposed candidate will include a review of the person's judgment, experience, independence, understanding of the Company's business or other related industries and such other factors as the Nominating and Governance...

  • Page 26
    ..., employees, customers, franchisees and business partners with a unified voice. Combining the chairman and CEO roles fosters clear accountability, effective decision-making, and alignment on corporate strategy. The Nominating and Governance Committee reviews the Board's leadership structure annually...

  • Page 27
    ... on a calendar year basis. In 2009, Robert Walter served as the presiding director. For 2009, the primary responsibilities of the presiding director were to preside over executive sessions of the Board and facilitate communications between the Chairman and CEO and the non-management directors as...

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

  • Page 29
    • The annual incentive target setting process is closely linked to the annual financial planning process and supports the Company's overall strategic plan. • Compensation is primarily determined by results of the business. • Financial performance which determines employee rewards is closely ...

  • Page 30
    ... 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 31
    ... the cost and scope of audit and non-audit services provided by the independent auditors • Reviews the independence, qualification and performance of the independent auditors • Reviews the adequacy of the Company's internal systems of accounting and financial control • Reviews the annual...

  • Page 32
    ... of corporate goals set by the Committee • Reviews and approves the compensation of the chief executive officer and other senior executive officers • Reviews management succession planning 4 The Board has determined that all of the members of the Management Planning and Development Committee...

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

  • Page 34
    ...director of AT&T Corp. from 2002 to 2006. Specific qualifications, experience, skills and expertise: • Operating and management experience, including as chief executive officer of global telecommunications-related businesses • Expertise in finance, strategic planning and public company executive...

  • Page 35
    ... Corporation from 1997 to 2005. Specific qualifications, experience, skills and expertise: • Operating and management experience, including as chairman of private investment firms and chief executive officer of a financial institution • Expertise in finance, accounting and public company...

  • Page 36
    ...Lines Limited. Specific qualifications, experience, skills and expertise: • Operating and management experience, including as a managing director of a consulting firm and chief executive officer of a consumer, branded business • Expertise in finance, marketing, business development and corporate...

  • Page 37
    ...: • Operating and management experience, including as president and chief executive officer of a global travel-related services company • Expertise in finance, marketing and international business development • Public company directorship and committee experience • Independent of Company...

  • Page 38
    ...: • Operating and management experience, including as president of the Company's China division • Expertise in marketing and brand development • Expertise in strategic planning and international business development Robert D. Walter Age 64 Director since 2008 Founder and Retired Chairman/ CEO...

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

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

  • Page 41
    ... 2009 and 2008 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 42
    ... to shareowners but not to management and/or the board. Supporting Statement Special meetings allow shareowners to vote on important matters, such as electing new directors, that can arise between annual meetings. If shareowners cannot call special meetings investor returns may suffer. Shareowners...

  • Page 43
    ... their service as a Board member for at least one year following their departure from the Board. • Communication with the Board. Shareholders may communicate with our Board of Directors, individually or as a group, by contacting the Company's corporate secretary. In addition, our senior executives...

  • Page 44
    ... officers named in the Summary Compensation Table on page 46, and • all directors, director nominees and executive officers as a group. Unless we note otherwise, each of the following persons and their family members has sole voting and investment power with respect to the shares of common stock...

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

  • Page 46
    ...a margin account. (7) This amount includes 6,000 shares held in a trust. (8) All 353,094 of Mr. Allan's shares are pledged. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons...

  • Page 47
    ...growth, marking the eighth consecutive year that we exceeded our annual target of at least 10% and achieved at least 13%. We grew worldwide system sales and once again strengthened our claim as the number one retail developer of units outside the United States as we opened over 1,400 new restaurants...

  • Page 48
    ...accumulate retirement benefits Cash Cash Long-term incentive compensation ... Stock Appreciation Rights/Stock Options and Performance Share Units Defined Benefit Plan, Defined Contribution Plan Retirement benefits ... We determine all elements of compensation annually at the same time, currently...

  • Page 49
    ... Are Made In January of each year, the Committee reviews the performance and total compensation of our CEO and the other executive officers. The total compensation review includes base salary, target bonus award opportunities, and target annual long-term incentive award values. The Committee...

  • Page 50
    ... on information that is derived from comparable businesses. This data is used as a frame of reference (a ''benchmark'') for establishing compensation targets for base salary, annual incentives and long-term incentives for executive officers below our CEO. The Committee uses a benchmark as a point of...

  • Page 51
    ... products group used for the benchmarking done at the end of 2008 were: 2007 Sales/ Revenues ($billions) 2007 Sales/ Revenues ($billions) Company Name Company Name 21MAR201012032309 Proxy Statement Lowe's Companies, Inc...Walgreen Co...PepsiCo, Inc...Kraft Foods, Inc...The Coca-Cola Company...

  • Page 52
    ...experience, individual performance and future potential. Specific salary increases take into account these factors and the current market for management talent. The Committee reviews each executive officer's salary and performance annually. While the Committee's use of market data for the peer group...

  • Page 53
    ... factors that 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 divisions' current year objectives to grow earnings and sales, develop new restaurants, improve...

  • Page 54
    ... Target TP based on leverage TP Actual formula TP Weight Novak and Carucci Operating Profit Growth (Before Tax) System Sales Growth System Net Builds System Customer Satisfaction Total Weighted TP Factor-Yum Su Operating Profit Growth (Before Tax) System Sales Growth System Gross New Builds System...

  • Page 55
    ...target based upon Taco Bell US exceeding its profit plan, restaurant margin and customer service targets as well as Mr. Creed's strong leadership in driving product development. Based on this performance, the Committee approved a 135 Individual Performance Factor for Mr. Creed. Application of Annual...

  • Page 56
    ... our long term incentive compensation for our CEO, Chief Financial Officer and our division presidents by adding a Performance Share Plan and discontinuing the executives' participation in the matching restricted stock unit program under the Executive Income Deferral Plan. The Performance Share Plan...

  • Page 57
    ... (top 50%) and operating income growth (top 50%). Based on this sustained strong performance, the Committee determined that Mr. Novak's target total compensation for 2009 should be set near or at the 75th percentile as compared to the compensation of chief executives in the peer group. Based on this...

  • Page 58
    ... which substantiates on a comparative basis this difference in target compensation for the CEO role relative to other executive roles. This comparative market data analyzed over several years supports the differences in salary, annual incentive payment and long term incentives. 21MAR201012 39

  • Page 59
    ...the Pension Benefits Table on page 53. This benefit is designed to provide income replacement of approximately 40% of salary and annual incentive compensation (less the company's contribution to social security on behalf of the employee) for employees with 20 years of service who retire after age 62...

  • Page 60
    ...to review total compensation at least once a year. YUM's Executive Stock Ownership Guidelines The Committee has established stock ownership guidelines for our top 600 employees. Our Chief Executive Officer is required to own 336,000 shares of YUM stock or stock equivalents (approximately eight times...

  • Page 61
    ... 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 any excise tax. In addition, unvested stock...

  • Page 62
    ...approved a new policy in 2007 to limit future severance agreements with our executives. The Committee adopted a policy under which the Company will seek shareholder approval for future severance payments to a NEO if such payments would exceed 2.99 times the sum of (a) the NEO's annual base salary as...

  • Page 63
    ...(m) of the Internal Revenue Code limits the tax deduction for compensation in excess of one million dollars paid to certain executive officers. However, performancebased compensation is excluded from the limit so long as it meets certain requirements. The Committee believes that the annual incentive...

  • Page 64
    ... 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 in this proxy statement. THE MANAGEMENT PLANNING AND DEVELOPMENT COMMITTEE...

  • Page 65
    ... and stock based awards paid, earned or awarded for 2009, 2008 and 2007 by YUM to our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers for our 2009 fiscal year in accordance with the rules of the SEC. SUMMARY COMPENSATION TABLE Change...

  • Page 66
    ... pension plans during the 2009 fiscal year (using interest rate and mortality assumptions consistent with those used in the Company's financial statements). See the Pension Benefits Table at page 53 for a detailed discussion of the Company's pension benefits. The Company does not pay ''above market...

  • Page 67
    ... 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) Except in the case of Mr. Creed, this column reports the total amount of other benefits...

  • Page 68
    ... based on the Company's performance and on each executive's individual performance during 2009. The actual amount of annual incentive compensation awarded for 2009 is shown in column (f) of the Summary Compensation Table on page 46. The performance measurements, performance targets, and target bonus...

  • Page 69
    ...subject to performance-based vesting conditions under the Long Term Incentive Plan in 2009. The PSUs vest on March 27, 2012, subject to the Company's achievement of specified earnings per share (''EPS'') growth during the performance period ending on December 31, 2011. The performance target for all...

  • Page 70
    ...Company's NEOs on December 31, 2009. Option Awards(1) Stock Awards Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(3) (i) Name and Principal Position (a) Number...,630 546,581 1/27/2010 1/25/2011 12/31/2011 1/24/2012 9/30/2012...

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

  • Page 72
    ... Retirement Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements. 2008 Fiscal Year Pension Benefits Table Number of Present Value of Years of Accumulated Credited Service Benefit(4) (#) ($) (c) (d) Proxy Statement Name...

  • Page 73
    ... (subject 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. 1% of...

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

  • Page 75
    ... are derived from a plan maintained or contributed to by the Company or one or more of the group of corporations that is controlled by the Company. Benefits are payable under the same terms and conditions as the Retirement Plan without regard to Internal Revenue Service limitations on amounts of...

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

  • Page 77
    ... 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! Matching...

  • Page 78
    ... either be made in a specific year- whether or not employment has 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...

  • Page 79
    ... and credited to their deferral account under the program in 2009 as a result of their election to defer their 2008 annual incentive award into RSUs. As noted above, the NEOs are no longer eligible to participate in the Matching Stock Fund and, therefore, in future years will not receive Company...

  • Page 80
    ... if the NEO's employment had terminated on December 31, 2009, given the NEO's compensation and service levels as of such date and, if applicable, based on the Company's closing stock price on that date. These benefits are in addition to benefits available generally to salaried employees, such as...

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

  • Page 82
    ... the portion of the performance period after the change in control. The change in control severance agreements have a three-year term and are automatically renewable each January 1 for another three-year term. An executive whose employment is not terminated within two years of a change of control...

  • Page 83
    ... Statements and Supplementary Data'' of the 2009 Annual Report in Notes to Consolidated Financial Statements at Note 16, ''Stock Options and Stock Appreciation Rights.'' (2) At December 31, 2009, the aggregate number of options and SARs awards outstanding for non-management directors was: Name...

  • Page 84
    ... Company of members of the Board. Board member compensation was scheduled for review in 2008; however, the Management Planning and Development Committee and the full Board determined that Board compensation increases would not be considered. Employee Directors. Board of Directors. Employee directors...

  • Page 85
    ...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 86
    ... RGMs. In addition, the Plan provides incentives to Area Coaches, Franchise Business Leaders and other supervisory field operation positions that support RGMs and have profit and loss responsibilities within a defined region or area. While all non-executive officer employees are eligible to receive...

  • Page 87
    ... its Chair from time to time, as senior management deems advisable or appropriate, in connection with issues or concerns 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...

  • Page 88
    ... recommended to the Board of Directors that it include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2009 for filing with the SEC. Who prepared this report? This report has been furnished by the members of the Audit...

  • Page 89
    ...? 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 90
    ... must be submitted in writing to our Corporate Secretary at our principal executive offices. We must receive the notice of your intention to introduce a nomination or to propose an item of business at our 2011 Annual Meeting no later than 90 days in advance of the 2011 Annual Meeting if it is...

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

  • Page 92
    ... solely of shares of Common Stock) held by nonaffiliates of the registrant as of June 13, 2009 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 $16,255,525,133. All executive officers and directors of the...

  • Page 93
    ... included in Part I, Item 1A 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...

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

  • Page 95
    ... achieved revenues of $3.7 billion and Operating Profit of $602 million. Restaurant Concepts Most restaurants in each Concept offer consumers the ability to dine in and/or carry out food. In addition, Taco Bell, KFC, LJS and A&W offer a drive-thru option in many stores. Pizza Hut offers a drive-thru...

  • Page 96
    ...opened. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. Pizza Hut is based in Dallas, Texas.  x As of year end 2009, Pizza Hut was the leader in the U.S. pizza QSR segment, with a 14 percent market share (Source: The NPD Group...

  • Page 97
    ... the location and sales volume of the restaurant. Most of the employees work on a part-time basis. Each Concept issues detailed manuals, which may then be customized to meet local regulations and customs, covering all aspects of restaurant operations, including food handling and product preparation...

  • Page 98
    ... along with the representatives of the Company's KFC, Pizza Hut, Taco Bell, LJS and A&W franchisee groups, are members in the Unified FoodService Purchasing Co-op, LLC (the "Unified Co-op") which was created for the purpose of purchasing certain restaurant products and equipment in the U.S. The core...

  • Page 99
    ... registered trademarks and service marks. The Company believes that many of these marks, including its Kentucky Fried Chicken®, KFC®, Pizza Hut®, Taco Bell® and Long John Silver's® marks, have significant value and are materially important to its business. The Company's policy is to pursue...

  • Page 100
    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 outside the U.S., including Shanghai, China (China). The Company expensed $31 million, $34 ...

  • Page 101
    ... Financial Statements and footnotes in Part II, Item 8, pages 59 through 116. (e) Available Information The Company makes available through the Investor Relations section of its internet website at www.yum.com its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form...

  • Page 102
    ... 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. Changes in commodity and other operating costs could adversely affect our results of operations. Any increase in certain commodity prices, such...

  • Page 103
    ...credit, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond our control. A shortage or interruption in the availability of certain food products or supplies could increase costs and limit the availability of products critical to restaurant operations...

  • Page 104
    ... content of food products, as well as claims that the menus and practices of restaurant chains have led to the obesity of some customers. We may also be subject to this type of claim in the future and, even if we are not, publicity about these matters (particularly directed at the quick service and...

  • Page 105
    ... target development goals. Our growth strategy depends in large part on our ability to increase our net restaurant count in markets outside the United States. The successful development of new units will depend in large part on our ability and the ability of our franchisees to open new restaurants...

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

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

  • Page 108
    ... 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 109
    ... U.S. Brand Building, a position he held from December 2006 to June 2008. Prior to that, he served as President and Chief Concept Officer of Taco Bell, a position he held from July 2000 to November 2006. Prior to joining Taco Bell, Mr. Brolick served as Senior Vice President of New Product Marketing...

  • Page 110
    ... 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, 54, is the President of YRI. He has served in this position...

  • Page 111
    ... Securities. The Company's Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange ("NYSE"). The following sets forth the high and low NYSE composite closing sale prices by quarter for the Company's Common Stock and dividends per common share. 2009 Quarter First Second...

  • Page 112
    ...the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Stock Index and the S&P 500 Consumer Discretionary Sector, a peer group that includes YUM, for the period from December 23, 2004 to December 25, 2009, the last trading day of our 2009 fiscal year. The graph...

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

  • Page 114
    ... $12 million to write-off goodwill related to our LJS/A&W U.S. and Pizza Hut South Korea businesses, respectively. See Note 5 to the Consolidated Financial Statements for a description of our store closures, store impairment expenses and Refranchising Gain (Loss) in 2009, 2008 and 2007. Additionally...

  • Page 115
    ... 3). Description of Business YUM is the world's largest restaurant company in terms of system restaurants with over 37,000 restaurants in more than 110 countries and territories operating under the KFC, Pizza Hut, Taco Bell, Long John Silver's or A&W All-American Food Restaurants brands. Four of the...

  • Page 116
    ... by new unit development each year and modest same store sales growth, which we expect to drive annual Operating Profit growth of 15%. Drive Aggressive International Expansion and Build Strong Brands Everywhere - The Company and its franchisees opened approximately 900 new restaurants in 2009 in...

  • Page 117
    ...own philosophy on Company owned restaurants. Our ongoing earnings growth model calls for annual Operating Profit growth of 5% in the U.S. with same store sales growth of 2%, modest restaurant margin improvement and leverage of our G&A infrastructure. Drive Industry-Leading, Long-Term Shareholder and...

  • Page 118
    ... Special Items. Worldwide system sales growth of 1% prior to foreign currency translation. Worldwide revenue declined 4% driven by foreign currency translation and refranchising. International development of 1,467 new restaurants including 509 in mainland China and 898 in YRI. Worldwide Operating...

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

  • Page 120
    ... 2009 and 2008 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. Year 12/26/09 Detail of Special Items U.S. Refranchising gain (loss) Long John Silver's/A&W U.S. Goodwill impairment charge Charges relating to U.S. G&A productivity initiatives...

  • Page 121
    ... non-cash charge of $26 million, which resulted in no related income tax benefit, in the fourth quarter of 2009 to write-off goodwill associated with these businesses. In connection with our G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs) we...

  • Page 122
    ... China Division's Company sales by approximately $100 million, decrease Franchise and license fees and income by approximately $6 million and provide a modest increase to Operating Profit during the first half of 2010. Refranchising of an International Equity Market In the third quarter of 2009 we...

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

  • Page 124
    ...our Pizza Hut South Korea market we recorded a goodwill impairment charge of $12 million for this market during 2009. This charge was recorded in Closure and impairment (income) expenses in our Consolidated Statement of Income and was allocated to our International Division for performance reporting...

  • Page 125
    ...304 Company restaurants in the U.S. were sold to franchisees in the years ended December 26, 2009, December 27, 2008 and December 29, 2007, respectively. Refranchisings reduce our reported revenues and restaurant profits and increase the importance of system sales growth as a key performance measure...

  • Page 126
    ...impacts on Total revenues and on Operating Profit from stores that were operated by us for all or some portion of the respective previous year and were no longer operated by us as of the last day of the respective current year. In these tables, Decreased Company sales and Decreased Restaurant profit...

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

  • Page 128
    ...(a) 3,086 571 - - (75) - 3,582 569 China Division Balance at end of 2007 New Builds Acquisitions Refranchising Closures Other(c) Balance at end of 2008 New Builds Acquisitions Refranchising Closures Other(d) Balance at end of 2009 % of Total (a) Company 2,087 447 7 (4) (54) 182 2,665 476 15 (11...

  • Page 129
    ... The following tables detail the key drivers of system sales growth for each reportable segment by year. Net unit growth represents the net impact of actual system sales growth due to new unit openings and historical system sales lost due to closures as well as any necessary rounding. 2009 vs. 2008...

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

  • Page 131
    ... other factors impacting Company Sales and/or Restaurant Profit were Company same store sales growth of 1% due to higher average guest check, commodity inflation, higher labor costs (primarily wage rate and salary increases) and higher occupancy costs. In 2008, the decrease in YRI Company Sales and...

  • Page 132
    ... 20.1 % Store Portfolio Actions $ 588 (220) (88) (196) 84 $ Company Sales Cost of Sales Cost of Labor Occupancy and Other Restaurant Profit Restaurant Margin Other 150 (84) (29) (21) 16 $ $ FX 245 (92) (33) (73) 47 $ $ 2008 $ 3,058 (1,152) (423) (919) $ 564 18.4% In 2009, the increase in China...

  • Page 133
    ... to KFC franchisees for installation costs for the national launch of Kentucky Grilled Chicken that has not been allocated to the U.S. segment for performance reporting purposes. U.S. Franchise and license fees and income for 2009 and 2008 was positively impacted by 5% and 2%, respectively, due...

  • Page 134
    ...) and higher international franchise convention costs. Franchise and license expenses increased 67% in 2008. The increase was driven by higher marketing funding on behalf of franchisees, investments in our U.S. brands related to the U.S. business transformation measures and increased provision for...

  • Page 135
    ... in the entity. Fiscal year 2007 reflects financial recoveries from settlements with insurance carriers related to a lawsuit settled by Taco Bell Corporation in 2004. (c) (d) Worldwide Closure and Impairment Expenses and Refranchising (Gain) Loss See the Store Portfolio Strategy section for more...

  • Page 136
    ... United States operating margin International Division operating margin 14.5% 18.1% U.S. Operating Profit increased 1% in 2009. The increase was driven by the G&A savings from the actions taken as part of our U.S. business transformation measures and improved restaurant operating costs, primarily...

  • Page 137
    ... and corporate expenses increased 26% in 2008 due to costs associated with the U.S. business transformation measures, partially offset by lower annual incentive compensation expenses. Unallocated impairment expense in 2009 includes a $26 million charge related to a goodwill impairment charge related...

  • Page 138
    ...income being earned outside the U.S. These 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...

  • Page 139
    ...lag period, the 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...

  • Page 140
    ... 20, 2009 our Board of Directors approved cash dividends of $0.21 per share of Common Stock to be distributed on February 5, 2010 to shareholders of record at the close of business on January 15, 2010. The Company is targeting an ongoing annual dividend payout ratio of 35% - 40% of net income. The...

  • Page 141
    ... the Company's balance sheet and cash flows we were able to comply with all debt covenant requirements at December 26, 2009 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 through...

  • Page 142
    ... time there will be no net cash outflow. We sponsor noncontributory defined benefit pension plans covering certain salaried and hourly employees, the most significant of which are in the U.S. and U.K. The most significant of these plans, the YUM Retirement Plan (the "Plan"), is funded while benefits...

  • Page 143
    ... 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 26, 2009. We have also provided two letters of credit totaling approximately $23 million in support of the...

  • Page 144
    ... affect our results of operations, financial condition and cash flows in future years. A description of what we consider to be our most significant critical accounting policies follows. Impairment or Disposal of Long-Lived Assets We review our long-lived assets of restaurants (primarily PP&E and...

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

  • Page 146
    ... of 1) assigning our interest in obligations under operating leases, primarily as a condition to the refranchising of certain Company restaurants, 2) facilitating franchisee development and 3) equipment financing arrangements to facilitate the launch of new sales layers by franchisees. We recognize...

  • Page 147
    ...2009. For purposes of determining 2009 expense, our funded status was such that we recognized $13 million of net loss in net periodic benefit cost. We will recognize approximately $23 million of such loss in 2010. Form 10-K See Note 15 for further discussion of our pension and post-retirement plans...

  • Page 148
    ... and approximately 25% of all awards granted to above-store executives will be forfeited. Income Taxes At December 26, 2009, we had a valuation allowance of $187 million primarily to reduce our net operating loss and tax credit carryforward benefits of $230 million, as well as our other deferred...

  • Page 149
    ... costs as a result of market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We manage our exposure to this risk primarily through pricing agreements with our vendors. Form...

  • Page 150
    ...Data. INDEX TO FINANCIAL INFORMATION Page Reference Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Statements of Income for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007 Consolidated Statements of Cash Flows...

  • Page 151
    ... balance sheets of YUM! Brands, Inc. and Subsidiaries (YUM) as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, cash flows, and shareholders' equity (deficit) and comprehensive income (loss) for each of the fiscal years in the three-year period...

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

  • Page 153
    ... of restaurants from franchisees Acquisitions and disposals of investments Sales of property, plant and equipment Other, net Net Cash Used in Investing Activities Cash Flows - Financing Activities Proceeds from long-term debt Repayments of long-term debt Revolving credit facilities, three months or...

  • Page 154
    Consolidated Balance Sheets YUM! Brands, Inc. and Subsidiaries December 26, 2009 and December 27, 2008 (in millions) 2009 ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Deferred income taxes Advertising ...

  • Page 155
    ... shares of Common Stock Employee stock option and SARs exercises (includes tax impact of $40 million) Compensation-related events (includes tax impact of $6 million) Balance at December 27, 2008 Net Income Foreign currency translation adjustment Pension and post-retirement benefit plans (net of tax...

  • Page 156
    ..., 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 37,000 units of which approximately 47% are located outside...

  • Page 157
    ... one period or one month earlier to facilitate consolidated reporting. Foreign Currency. The functional currency determination for operations outside the U.S. is based upon a number of economic factors, including but not limited to cash flows and financing transactions. Income and expense accounts...

  • Page 158
    ... in 2009, 2008 and 2007, respectively. Revenue Recognition. Revenues from Company operated restaurants are recognized when payment is tendered at the time of sale. The Company presents sales net of sales tax and other sales related taxes. Income from our franchisees and licensees includes initial...

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

  • Page 160
    ...-related expenses from previously closed stores are generally expensed as incurred. Additionally, at the date we cease using a property under an operating lease, we record a liability for the net present value of any remaining lease obligations, net of estimated sublease income, if any. Any costs...

  • Page 161
    ... between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which...

  • Page 162
    ... for machinery and equipment and 3 to 7 years for capitalized software costs. As discussed above, we suspend depreciation and amortization on assets related to restaurants that are held for sale. Leases and Leasehold Improvements. The Company leases land, buildings or both for nearly 6,200 of its...

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

  • Page 164
    ...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 165
    ...as a long-term growth strategy; G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs); and investments in our U.S. Brands made on behalf of our franchisees such as equipment purchases. In the years ended December 26, 2009 and December 27, 2008, we...

  • Page 166
    ... shares of Little Sheep Group Limited ("Little Sheep") and obtain Board of Directors representation. We began reporting our investment in Little Sheep using the equity method of accounting and this investment is included in Investments in unconsolidated affiliates on our Consolidated Balance Sheet...

  • Page 167
    ... sale of this investment of $100 million was recorded in the quarter ended March 22, 2008. However, the cash proceeds from this transaction were transferred from our international subsidiary to the U.S. in December 2007 and thus were reported on our Consolidated Statement of Cash Flows for the year...

  • Page 168
    ... million in 2008. The positive impact on Operating Profit was offset by Net Income - noncontrolling interest of $8 million and a higher Income tax provision such that there was no impact on Net Income - YUM! Brands, Inc. for the year ended December 27, 2008. The Consolidated Statement of Income was...

  • Page 169
    ... our KFC Taiwan equity market. The sale of the market was consummated in the first quarter of 2010. Form 10-K (b) Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company restaurant that was closed, lease reserves established when we...

  • Page 170
    ... in our Consolidated Balance Sheet. Note 6 - Supplemental Cash Flow Data 2009 Cash Paid For: Interest Income taxes Significant Non-Cash Investing and Financing Activities: Capital lease obligations incurred to acquire assets Net investment in direct financing leases $ 209 308 2008 $ 248 260 $ 2007...

  • Page 171
    ... the entity that operated almost all KFCs and Pizza Huts in Poland and the Czech Republic to our then partner in the entity. Fiscal year 2007 reflects financial recoveries from settlements with insurance carriers related to a lawsuit settled by Taco Bell Corporation in 2004. (c) (d) Form 10-K 80

  • Page 172
    ... for doubtful accounts Accounts and notes receivable, net Prepaid Expenses and Other Current Assets Income tax receivable Other prepaid expenses and current assets $ $ $ $ $ $ $ $ Property, Plant and Equipment Land Buildings and improvements Capital leases, primarily buildings Machinery and...

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

  • Page 174
    ... upon the value derived from the royalty we avoid, in the case of Company stores, or receive, in the case of franchise and licensee stores, for the use of the trademark/brand. We have determined that our KFC trademark/brand intangible asset has an indefinite life and therefore is not amortized. We...

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

  • Page 176
    ... the Company's balance sheet and cash flows we were able to comply with all debt covenant requirements at December 26, 2009 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 through...

  • Page 177
    ...office space for headquarters and support functions, as well as certain office and restaurant equipment. We do not consider any of these individual leases material to our operations. Most leases require us to pay related executory costs, which include property taxes, maintenance and insurance. Form...

  • Page 178
    ... $ 67 26 25 24 24 243 $ 409 Operating $ 535 492 446 409 369 2,424 $ 4,675 Lease Receivables Direct Financing Operating $ 13 $ 50 13 41 13 35 17 31 16 28 72 118 $ 144 $ 303 2010 2011 2012 2013 2014 Thereafter At December 26, 2009 and December 27, 2008, the present value of minimum payments under...

  • Page 179
    Note 13 - Derivative Instruments The Company is exposed to certain market risks relating to its ongoing business operations. The primary market risks managed by using derivative instruments are interest rate risk and cash flow volatility arising from foreign currency fluctuations. We enter into ...

  • Page 180
    ... employees have chosen to invest in phantom shares of a Stock Index Fund or Bond Index Fund. The other investments are classified as trading securities and their fair value is determined based on the closing market prices of the respective mutual funds as of December 26, 2009 and December 27, 2008...

  • Page 181
    ... our Pizza Hut South Korea and LJS/A&W-U.S. reporting units, which are discussed in Note 10. These impairment charges were recorded in Closures and impairment (income) expenses in the Consolidated Statements of Income. At December 26, 2009 the carrying values of cash and cash equivalents, accounts...

  • Page 182
    ...U.S. Pension Plans 2009 2008 Change in benefit obligation Benefit obligation at beginning of year Measurement date adjustment Service cost Interest cost Participant contributions Plan amendments Acquisitions Curtailment gain Settlement loss Special termination benefits Exchange rate changes Benefits...

  • Page 183
    ...in Accumulated Other Comprehensive Income: U.S. Pension Plans 2009 2008 $ 342 $ 371 4 3 $ 346 $ 374 International Pension Plans 2009 2008 $ 48 $ 41 - - $ 48 $ 41 Actuarial net loss Prior service cost The accumulated benefit obligation for the U.S. and International pension plans was $1,099 million...

  • Page 184
    ...End of year $ 346 $ 374 International Pension Plans 2009 2008 $ 41 $ 13 5 40 (2 4 (12) $ 48 $ 41 (a) Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. (b) Settlement loss results from benefit payments...

  • Page 185
    ... Pension Plans 2009 2008 6.30% 6.50% 3.75% 3.75% International Pension Plans 2009 2008 5.50% 5.50% 4.41% 4.10% Discount rate Rate of compensation increase Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years: U.S. Pension Plans Discount rate Long-term rate...

  • Page 186
    ... Government Agencies(c) Fixed Income Securities - Non-U.S. Government(b)(c) Total fair value of plan assets (a) (b) (c) Short-term investments in money market funds Securities held in common trusts Investments held by the U.S. Plan are directly held International Pension Plans $ 7 $ 4 $ 39 271...

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

  • Page 188
    ...earnings in 2008 related to changing the measurement date for our post-retirement plan to our fiscal year end. The weightedaverage assumptions used to determine benefit obligations and net periodic benefit cost for the post-retirement medical plan are identical to those as shown for the U.S. pension...

  • Page 189
    ... term. These groups consist of grants made primarily to restaurant-level employees under the RGM Plan, which cliff vest after four years and expire ten years after grant, and grants made to executives under our other stock award plans, which typically have a graded vesting schedule of 25% per year...

  • Page 190
    ...of expense in both 2009 and 2008. In 2009 we modified our long-term incentive compensation program for certain executives, including our CEO, Chief Financial Officer and our operating segment Presidents. As part of these changes we granted 78,499 performance share units, with a total grant date fair...

  • Page 191
    ...(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 192
    ... 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 accounting and Note 13 for additional information about our derivative instruments. The following table gives further detail...

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

  • Page 194
    ...income being earned outside the U.S. These 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...

  • Page 195
    ... 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 payable and other current liabilities Other liabilities and deferred credits...

  • Page 196
    ...in our Consolidated Statement of Income. At December 27, 2008, long-term liabilities of $229 million, including $32 million for the payment of accrued interest and penalties, were included in Other liabilities and deferred credits as reported on the Consolidated Balance Sheet. Total accrued interest...

  • Page 197
    ..., Pizza Hut, Taco Bell and LJS/A&W operating segments in the U.S. to be similar and therefore have aggregated them into a single reportable operating segment. Reported segment results for 2008 and 2007 have been restated to be consistent with current period presentation (See Note 2). Revenues 2008...

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

  • Page 199
    ...equipment, net, related to our office facilities and cash. Includes property, plant and equipment, net, goodwill, and intangible assets, net. Includes long-lived assets of $660 million, $602 million and $843 million for entities in the United Kingdom for 2009, 2008 and 2007, respectively. The yearly...

  • Page 200
    ... 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 26, 2009. We have also provided two letters of credit totaling approximately $23 million in support of the...

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

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

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

  • Page 204
    ... of this case cannot be predicted at this time. Likewise, the amount of any potential loss cannot be reasonably estimated. On December 17, 2002, Taco Bell was named as the defendant in a class action lawsuit filed in the United States District Court for the Northern District of California styled...

  • Page 205
    ... 9, 2009, a putative class action styled Mark Smith v. Pizza Hut, Inc. was filed in the United States District Court for the District of Colorado. The complaint alleges that Pizza Hut did not properly reimburse its delivery drivers for various automobile costs, uniforms costs, and other job-related...

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

  • Page 207
    ... with accounting principles generally accepted in the United States of America and include certain amounts based upon our estimates and assumptions, as required. Other financial information presented in the annual report is derived from the financial statements. We maintain a system of internal...

  • Page 208
    ..., Chief Executive Officer and President (the "CEO") and the Chief Financial Officer (the "CFO"), the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. Management's Report...

  • Page 209
    ... proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 26, 2009. Information regarding executive officers of the Company is included in Part I. Item 11. Executive Compensation. Information regarding executive and director compensation...

  • Page 210
    ...(a) (1) Exhibits and Financial Statement Schedules. Financial Statements: Consolidated financial statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K. Financial Statement Schedules: No schedules are required because either the required information is not present...

  • Page 211
    ... Chief Financial Officer (principal financial officer) February 17, 2010 Senior Vice President Finance and Corporate Controller (principal accounting officer) February 17, 2010 /s/ David W. Dorman David W. Dorman /s/ Massimo Ferragamo Massimo Ferragamo Form 10-K Director February 17, 2010...

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

  • Page 213
    ... Amended and Restated Sales and Distribution Agreement between AmeriServe Food Distribution, Inc., YUM, Pizza Hut, Taco Bell and KFC, effective as of November 1, 1998, which is incorporated herein by reference from Exhibit 10 to YUM's Annual Report on Form 10-K for the fiscal year ended December 26...

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

  • Page 215
    ... filed herewith). 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 ended December 29...

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

  • Page 217
    Supplement to Yum! Brands, Inc. Annual Report to Shareholders On May 21, 2009, 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 218
    ... listing requirements of the NYSE, the world's leading equities market. Franchise Inquiries DOMESTIC FRANCHISING INQUIRY PHONE LINE (866) 2YUMYUM (298-6986) INTERNATIONAL FRANCHISING INQUIRY PHONE LINE (972) 338-8164 ONLINE FRANCHISE INFORMATION http://www.yum.com/franchising/default.asp Yum! Brands...

  • Page 219
    ...Jr. 69 Managing Director and Advisory Board Member, Essex Lake Group, P.C. Kenneth Langone 74 Founder, Chairman, Chief Executive Officer and President, Invemed Associates, LLC Jonathan S. Linen 66 Advisor to Chairman, American Express Company Thomas C. Nelson 47 Chairman, Chief Executive Officer and...

  • Page 220
    Alone we're delicious. Together we're Yum!® www.yum.com/annualreport Yum! Brands, Inc., trades under the symbol YUM and is proud to meet the listing requirements of the NYSE, the world's leading equities market.