|
UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
Washington, D. C. 20549
|
[ü]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
|
||
EXCHANGE ACT OF 1934 for
the quarterly period ended September 6, 2008
|
|||
OR
|
|||
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
North Carolina
|
13-3951308
|
||
(State or other jurisdiction of
|
(I.R.S. Employer
|
||
incorporation or organization)
|
Identification No.)
|
||
1441 Gardiner Lane, Louisville, Kentucky
|
40213
|
||
(Address of principal executive offices)
|
(Zip Code)
|
||
Registrant’s telephone number, including area code: (502) 874-8300
|
Page
|
||||||
No.
|
||||||
Part I.
|
Financial Information
|
|||||
Item 1 - Financial Statements
|
||||||
Condensed
Consolidated Statements of Income - Quarters and Years to date
ended
September
6, 2008 and September 8, 2007
|
3
|
|||||
Condensed
Consolidated Statements of Cash Flows – Years to date ended
September
6, 2008 and September 8, 2007
|
4
|
|||||
Condensed
Consolidated Balance Sheets – September 6, 2008
and
December 29, 2007
|
5
|
|||||
Notes to Condensed Consolidated Financial Statements
|
6
|
|||||
Item 2 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
21
|
|||||
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
|
37
|
|||||
Item 4 - Controls and Procedures
|
37
|
|||||
Report of Independent Registered Public Accounting Firm
|
39
|
|||||
Part II.
|
Other Information and Signatures
|
40
|
||||
Item 1 – Legal Proceedings
|
40
|
|||||
Item 1A – Risk Factors
|
40
|
|||||
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
|
41
|
|||||
Item 6 – Exhibits
|
41
|
|||||
Signatures
|
42
|
Item
1.
|
Financial
Statements
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Revenues
|
|||||||||||||||||||
Company
sales
|
$
|
2,482
|
$
|
2,243
|
$
|
6,899
|
$
|
6,258
|
|||||||||||
Franchise
and license fees
|
353
|
321
|
997
|
896
|
|||||||||||||||
Total
revenues
|
2,835
|
2,564
|
7,896
|
7,154
|
|||||||||||||||
Costs
and Expenses, Net
|
|||||||||||||||||||
Company
restaurants
|
|||||||||||||||||||
Food
and paper
|
830
|
700
|
2,265
|
1,924
|
|||||||||||||||
Payroll
and employee benefits
|
575
|
544
|
1,682
|
1,585
|
|||||||||||||||
Occupancy
and other operating expenses
|
719
|
646
|
1,975
|
1,798
|
|||||||||||||||
Company
restaurant expenses
|
2,124
|
1,890
|
5,922
|
5,307
|
|||||||||||||||
General
and administrative expenses
|
305
|
281
|
898
|
830
|
|||||||||||||||
Franchise
and license expenses
|
18
|
12
|
45
|
30
|
|||||||||||||||
Closures
and impairment (income) expenses
|
3
|
(1
|
)
|
9
|
12
|
||||||||||||||
Refranchising
(gain) loss
|
(8
|
)
|
—
|
16
|
(5
|
)
|
|||||||||||||
Other
(income) expense
|
(14
|
)
|
(19
|
)
|
(140
|
)
|
(47
|
)
|
|||||||||||
Total
costs and expenses, net
|
2,428
|
2,163
|
6,750
|
6,127
|
|||||||||||||||
Operating
Profit
|
407
|
401
|
1,146
|
1,027
|
|||||||||||||||
Interest
expense, net
|
47
|
38
|
152
|
112
|
|||||||||||||||
Income
Before Income Taxes
|
360
|
363
|
994
|
915
|
|||||||||||||||
Income
tax provision
|
78
|
93
|
234
|
237
|
|||||||||||||||
Net
Income
|
$
|
282
|
$
|
270
|
$
|
760
|
$
|
678
|
|||||||||||
Basic
Earnings Per Common Share
|
$
|
0.60
|
$
|
0.52
|
$
|
1.59
|
$
|
1.28
|
|||||||||||
Diluted
Earnings Per Common Share
|
$
|
0.58
|
$
|
0.50
|
$
|
1.53
|
$
|
1.24
|
|||||||||||
Dividends
Declared Per Common Share
|
$
|
—
|
$
|
—
|
$
|
0.34
|
$
|
0.15
|
|||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
|
Year
to date
|
|||||||||
9/6/08
|
9/8/07
|
||||||||
Cash
Flows – Operating Activities
|
|||||||||
Net
Income
|
$
|
760
|
$
|
678
|
|||||
Depreciation
and amortization
|
389
|
362
|
|||||||
Closures
and impairment expenses
|
9
|
12
|
|||||||
Refranchising
(gain) loss
|
16
|
(5
|
)
|
||||||
Gain
on sale of interest in Japan unconsolidated affiliate
|
(100
|
)
|
—
|
||||||
Deferred
income taxes
|
(13
|
)
|
(32
|
)
|
|||||
Equity
income from investments in unconsolidated affiliates
|
(33
|
)
|
(40
|
)
|
|||||
Distributions
of income received from unconsolidated affiliates
|
40
|
28
|
|||||||
Excess
tax benefits from share-based compensation
|
(32
|
)
|
(44
|
)
|
|||||
Share-based
compensation expense
|
44
|
43
|
|||||||
Changes
in accounts and notes receivable
|
(18
|
)
|
(19
|
)
|
|||||
Changes
in inventories
|
(16
|
)
|
(1
|
)
|
|||||
Changes
in prepaid expenses and other current assets
|
(27
|
)
|
4
|
||||||
Changes
in accounts payable and other current liabilities
|
11
|
39
|
|||||||
Changes
in income taxes payable
|
24
|
82
|
|||||||
Other
non-cash charges and credits, net
|
81
|
58
|
|||||||
Net
Cash Provided by Operating Activities
|
1,135
|
1,165
|
|||||||
Cash
Flows – Investing Activities
|
|||||||||
Capital
spending
|
(571
|
)
|
(391
|
)
|
|||||
Proceeds
from refranchising of restaurants
|
142
|
83
|
|||||||
Acquisition
of restaurants from franchisees
|
(9
|
)
|
—
|
||||||
Sales
of property, plant and equipment
|
58
|
42
|
|||||||
Other,
net
|
(8
|
)
|
10
|
||||||
Net
Cash Used in Investing Activities
|
(388
|
)
|
(256
|
)
|
|||||
Cash
Flows – Financing Activities
|
|||||||||
Proceeds
from long-term debt
|
375
|
—
|
|||||||
Repayments
of long-term debt
|
(260
|
)
|
(11
|
)
|
|||||
Revolving
credit facilities, three months or less, net
|
305
|
315
|
|||||||
Short-term
borrowings by original maturity
|
|||||||||
More
than three months - proceeds
|
—
|
1
|
|||||||
More
than three months - payments
|
—
|
(184
|
)
|
||||||
Three
months or less, net
|
(15
|
)
|
(3
|
)
|
|||||
Repurchase
shares of Common Stock
|
(1,513
|
)
|
(774
|
)
|
|||||
Excess
tax benefits from share-based compensation
|
32
|
44
|
|||||||
Employee
stock option proceeds
|
51
|
78
|
|||||||
Dividends
paid on Common Stock
|
(234
|
)
|
(196
|
)
|
|||||
Net
Cash Used in Financing Activities
|
(1,259
|
)
|
(730
|
)
|
|||||
Effect
of Exchange Rates on Cash and Cash Equivalents
|
—
|
9
|
|||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(512
|
)
|
188
|
||||||
Change
in Cash and Cash Equivalents due to consolidation of an entity in
China
|
17
|
—
|
|||||||
Cash
and Cash Equivalents - Beginning of Period
|
789
|
319
|
|||||||
Cash
and Cash Equivalents - End of Period
|
$
|
294
|
$
|
507
|
|||||
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
(Unaudited)
|
|||||||||
9/6/08
|
12/29/07
|
||||||||
ASSETS
|
|||||||||
Current
Assets
|
|||||||||
Cash
and cash equivalents
|
$
|
294
|
$
|
789
|
|||||
Accounts
and notes receivable, less allowance: $24 in 2008 and $21 in
2007
|
251
|
225
|
|||||||
Inventories
|
157
|
128
|
|||||||
Prepaid
expenses and other current assets
|
180
|
142
|
|||||||
Deferred
income taxes
|
153
|
125
|
|||||||
Advertising
cooperative assets, restricted
|
103
|
72
|
|||||||
Total
Current Assets
|
1,138
|
1,481
|
|||||||
Property,
plant and equipment, net of accumulated depreciation and
amortization
of
$3,418 in 2008 and $3,283 in 2007
|
3,884
|
3,849
|
|||||||
Goodwill
|
656
|
672
|
|||||||
Intangible
assets, net
|
322
|
333
|
|||||||
Investments
in unconsolidated affiliates
|
57
|
153
|
|||||||
Other
assets
|
572
|
464
|
|||||||
Deferred
income taxes
|
191
|
290
|
|||||||
Total
Assets
|
$
|
6,820
|
$
|
7,242
|
|||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||||
Current
Liabilities
|
|||||||||
Accounts
payable and other current liabilities
|
$
|
1,476
|
$
|
1,650
|
|||||
Income
taxes payable
|
101
|
52
|
|||||||
Short-term
borrowings
|
23
|
288
|
|||||||
Advertising
cooperative liabilities
|
103
|
72
|
|||||||
Total
Current Liabilities
|
1,703
|
2,062
|
|||||||
Long-term
debt
|
3,596
|
2,924
|
|||||||
Other
liabilities and deferred credits
|
1,155
|
1,117
|
|||||||
Total
Liabilities
|
6,454
|
6,103
|
|||||||
Shareholders’
Equity
|
|||||||||
Common Stock, no par value, 750 shares authorized;
462 shares and 499 shares
issued in 2008 and 2007, respectively
|
9
|
—
|
|||||||
Retained
earnings
|
349
|
1,119
|
|||||||
Accumulated
other comprehensive income
|
8
|
20
|
|||||||
Total
Shareholders’ Equity
|
366
|
1,139
|
|||||||
Total
Liabilities and Shareholders’ Equity
|
$
|
6,820
|
$
|
7,242
|
|||||
See accompanying Notes to Condensed Consolidated Financial Statements.
|
Financial
Statement Presentation
|
2.
|
Consolidation
of a Former Unconsolidated Affiliate in
China
|
Increase
(Decrease)
|
||||||||
Quarter
|
Year
to Date
|
|||||||
Company sales
|
$
|
86
|
$
|
200
|
||||
Company restaurant expenses
|
65
|
155
|
||||||
Franchise and license fees
|
(6
|
)
|
(13
|
)
|
||||
General and administrative expenses
|
1
|
4
|
||||||
Other (income) expense
|
(11
|
)
|
(23
|
)
|
||||
Operating Profit
|
3
|
5
|
3.
|
Sale
of Our Interest in Our Japan Unconsolidated
Affiliate
|
Earnings
Per Common Share (“EPS”)
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Net
Income
|
$
|
282
|
$
|
270
|
$
|
760
|
$
|
678
|
|||||||||||
Weighted-average
common shares outstanding (for basic calculation)
|
470
|
523
|
479
|
528
|
|||||||||||||||
Effect
of dilutive share-based employee compensation
|
17
|
18
|
17
|
18
|
|||||||||||||||
Weighted-average
common and dilutive potential common shares outstanding (for diluted
calculation)
|
487
|
541
|
496
|
546
|
|||||||||||||||
Basic
EPS
|
$
|
0.60
|
$
|
0.52
|
$
|
1.59
|
$
|
1.28
|
|||||||||||
Diluted
EPS
|
$
|
0.58
|
$
|
0.50
|
$
|
1.53
|
$
|
1.24
|
|||||||||||
Unexercised
employee stock options and stock appreciation rights (in millions)
excluded from the diluted EPS computation(a)
|
6.5
|
7.1
|
5.8
|
8.1
|
(a)
|
These
unexercised employee stock options and stock appreciation rights were not
included in the computation of diluted EPS because to do so would have
been antidilutive for the periods
presented.
|
5.
|
Shareholders’
Equity
|
Shares
Repurchased
(thousands)
|
Dollar
Value of Shares Repurchased
|
||||||||||||||||
Authorization
Date
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
January
2008
|
19,584
|
—
|
$
|
687
|
$
|
—
|
|||||||||||
October
2007
|
22,875
|
—
|
813
|
—
|
|||||||||||||
March
2007
|
—
|
10,249
|
—
|
335
|
|||||||||||||
September
2006
|
—
|
15,274
|
—
|
469
|
|||||||||||||
Total
|
42,459
|
25,523
|
$
|
1,500
|
(a)
|
$
|
804
|
(b)
|
(a)
|
Amount
excludes the effect of $13 million in share repurchases (0.4 million
shares) with trade dates prior to the 2007 fiscal year end but cash
settlement dates subsequent to the 2007 fiscal year
end.
|
(b)
|
Amount
includes the effect of $47 million in share repurchases (1.5 million
shares) with trade dates prior to September 8, 2007 but settlement dates
subsequent to September 8, 2007. Additionally, amount excludes
the effect of $17 million in share repurchases (0.6 million shares) with
trade dates prior to the 2006 fiscal year end but cash settlement dates
subsequent to the 2006 fiscal year
end.
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Net
Income
|
$
|
282
|
$
|
270
|
$
|
760
|
$
|
678
|
|||||||||||
Foreign
currency translation adjustment arising during the period
|
(18
|
)
|
20
|
10
|
46
|
||||||||||||||
Foreign
currency translation adjustment included in Net Income
|
—
|
—
|
(25
|
)
|
1
|
||||||||||||||
Changes
in fair value of derivatives, net of tax
|
2
|
(24
|
)
|
12
|
(22
|
)
|
|||||||||||||
Reclassification
of derivative (gains) losses to Net Income, net of tax
|
(4
|
)
|
3
|
(13
|
)
|
—
|
|||||||||||||
Reclassification
of pension actuarial losses to Net Income, net of tax
|
1
|
4
|
4
|
12
|
|||||||||||||||
Total
comprehensive income
|
$
|
263
|
$
|
273
|
$
|
748
|
$
|
715
|
6.
|
Recently
Adopted Accounting Pronouncements
|
Fair
Value Measurements
|
||||||||||||||||
Description
|
Total
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
||||||||||||
Foreign
Currency Forwards
|
$
|
14
|
$
|
—
|
$
|
14
|
$
|
—
|
||||||||
Interest
Rate Swaps
|
30
|
—
|
30
|
—
|
||||||||||||
Other
Investments
|
13
|
13
|
—
|
—
|
||||||||||||
Total
|
$
|
57
|
$
|
13
|
$
|
44
|
$
|
—
|
7.
|
New
Accounting Pronouncements Not Yet
Adopted
|
8.
|
Facility
Actions
|
Quarter
ended September 6, 2008
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Refranchising
(gain) loss(a)(b)
|
$
|
(3
|
)
|
$
|
(5
|
)
|
$
|
—
|
$
|
(8
|
)
|
||||||||
Store
closure (income) costs(c)
|
$
|
2
|
$
|
(2
|
)
|
$
|
—
|
$
|
—
|
||||||||||
Store
impairment charges
|
2
|
—
|
1
|
3
|
|||||||||||||||
Closure
and impairment (income) expenses
|
$
|
4
|
$
|
(2
|
)
|
$
|
1
|
$
|
3
|
Quarter
ended September 8, 2007
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Refranchising
(gain) loss(a)
|
$
|
(1
|
)
|
$
|
2
|
$
|
(1
|
)
|
$
|
—
|
|||||||||
Store
closure (income) costs(c)
|
$
|
(4
|
)
|
$
|
(2
|
)
|
$
|
—
|
$
|
(6
|
)
|
||||||||
Store
impairment charges
|
—
|
3
|
2
|
5
|
|||||||||||||||
Closure
and impairment (income) expenses
|
$
|
(4
|
)
|
$
|
1
|
$
|
2
|
$
|
(1
|
)
|
Year
to date ended September 6, 2008
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Refranchising
(gain) loss(a)(b)
|
$
|
22
|
$
|
(5
|
)
|
$
|
(1
|
)
|
$
|
16
|
|||||||||
Store
closure (income) costs(c)
|
$
|
(6
|
)
|
$
|
(5
|
)
|
$
|
(2
|
)
|
$
|
(13
|
)
|
|||||||
Store
impairment charges
|
15
|
2
|
5
|
22
|
|||||||||||||||
Closure
and impairment (income) expenses
|
$
|
9
|
$
|
(3
|
)
|
$
|
3
|
$
|
9
|
Year
to date ended September 8, 2007
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Refranchising
(gain) loss(a)
|
$
|
(3
|
)
|
$
|
—
|
$
|
(2
|
)
|
$
|
(5
|
)
|
||||||||
Store
closure (income) costs(c)
|
$
|
(10
|
)
|
$
|
(2
|
)
|
$
|
—
|
$
|
(12
|
)
|
||||||||
Store
impairment charges
|
10
|
10
|
4
|
24
|
|||||||||||||||
Closure
and impairment (income) expenses
|
$
|
—
|
$
|
8
|
$
|
4
|
$
|
12
|
(a)
|
Refranchising
(gain) loss is not allocated to segments for performance reporting
purposes.
|
(b)
|
As
part of our plan to transform our U.S. business, including the expansion
of our U.S. refranchising potentially reducing our Company ownership in
the U.S. to below 10% by the year end 2010, we recognized significant
refranchising losses during the year to date ended September 6, 2008 as a
result of our refranchising of, or offers to refranchise, stores or groups
of stores in the U.S. at prices less than their recorded carrying
values. These stores primarily consisted of over 300 Long John
Silver’s restaurants, which represents all of our Company owned Long John
Silver’s restaurants in the U.S. During the year to date ended
September 6, 2008, 278 Long John Silver’s restaurants have been
sold.
|
(c)
|
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 adjustments to those reserves and other
facility-related expenses from previously closed
stores.
|
9.
|
Other
(Income) Expense
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Equity
income from investments in unconsolidated affiliates
|
$
|
(13
|
)
|
$
|
(19
|
)
|
$
|
(33
|
)
|
$
|
(40
|
)
|
|||||||
Minority
interest (a)
|
4
|
—
|
8
|
—
|
|||||||||||||||
Gain
upon sale of investment in unconsolidated affiliate(b)(c)
|
—
|
(1
|
)
|
(100
|
)
|
(6
|
)
|
||||||||||||
Foreign
exchange net (gain) loss and other
|
(5
|
)
|
1
|
(15
|
)
|
(1
|
)
|
||||||||||||
Other
(income) expense
|
$
|
(14
|
)
|
$
|
(19
|
)
|
$
|
(140
|
)
|
$
|
(47
|
)
|
(a)
|
On
January 1, 2008, the Company began consolidating an entity in China in
which we have a majority ownership interest. See Note
2.
|
(b)
|
Year
to date ended September 6, 2008 reflects the gain recognized on the sale
of our interest in our unconsolidated affiliate in Japan. See Note
3.
|
(c)
|
Year
to date ended September 8, 2007 reflects recognition of income associated
with receipt of payment 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 the Czech Republic to our then partner
in the entity.
|
Reportable
Operating Segments
|
Quarter
|
Year
to date
|
||||||||||||||||||
Revenues
|
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
|||||||||||||||
United
States
|
$
|
1,213
|
$
|
1,224
|
$
|
3,628
|
$
|
3,642
|
|||||||||||
International
Division(a)
|
748
|
740
|
2,171
|
2,117
|
|||||||||||||||
China
Division (b)
|
874
|
600
|
2,097
|
1,395
|
|||||||||||||||
$
|
2,835
|
$
|
2,564
|
$
|
7,896
|
$
|
7,154
|
Quarter
|
Year
to date
|
||||||||||||||||||
Operating Profit
|
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
|||||||||||||||
United
States
|
$
|
158
|
$
|
187
|
$
|
483
|
$
|
543
|
|||||||||||
International
Division
|
138
|
127
|
397
|
347
|
|||||||||||||||
China
Division(c)
|
161
|
135
|
352
|
276
|
|||||||||||||||
Unallocated
and corporate general and administrative expenses(d)(f)
|
(63
|
)
|
(48
|
)
|
(185
|
)
|
(148
|
)
|
|||||||||||
Unallocated
Other income (expense)(e)(f)
|
5
|
—
|
115
|
4
|
|||||||||||||||
Unallocated
Refranchising gain (loss)(f)
|
8
|
—
|
(16
|
)
|
5
|
||||||||||||||
Operating
Profit
|
407
|
401
|
1,146
|
1,027
|
|||||||||||||||
Interest
expense, net
|
(47
|
)
|
(38
|
)
|
(152
|
)
|
(112
|
)
|
|||||||||||
Income
Before Income Taxes
|
$
|
360
|
$
|
363
|
$
|
994
|
$
|
915
|
(a)
|
Includes
revenues of $300 million and $312 million for the quarters ended September
6, 2008 and September 8, 2007, respectively, and $891 million and $900
million for the years to date ended September 6, 2008 and September 8,
2007, respectively, for entities in the United
Kingdom.
|
(b)
|
Includes
revenues of approximately $803 million and $533 million for the quarters
ended September 6, 2008 and September 8, 2007, respectively, and $1.9
billion and $1.2 billion for the years to date ended September 6, 2008 and
September 8, 2007, respectively, in mainland
China.
|
(c)
|
Includes
equity income from investments in unconsolidated affiliates of $13 million
and $19 million for the quarters ended September 6, 2008 and September 8,
2007, respectively, and $32 million and $36 million for the years to date
ended September 6, 2008 and September 8, 2007, respectively, for the China
Division.
|
(d)
|
The
quarter and year to date ended September 6, 2008 includes approximately $3
million and $13 million, respectively, of charges relating to U.S. general
and administrative productivity initiatives and realignment of resources,
as well as investments in our U.S. Brands (unallocated Franchise and
license expenses).
|
(e)
|
The
year to date ended September 6, 2008 includes a $100 million gain
recognized on the sale of our interest in our unconsolidated affiliate in
Japan. See Note 3.
|
(f)
|
Amounts
have not been allocated to the U.S., International Division or China
Division segments for performance reporting
purposes.
|
Pension
Benefits
|
U.S.
Pension Plans
|
International
Pension Plans
|
||||||||||||||||||
Quarter
|
Quarter
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Service
cost
|
$
|
7
|
$
|
8
|
$
|
2
|
$
|
2
|
|||||||||||
Interest
cost
|
13
|
11
|
2
|
2
|
|||||||||||||||
Expected
return on plan assets
|
(12
|
)
|
(12
|
)
|
(2
|
)
|
(2
|
)
|
|||||||||||
Amortization
of prior service cost
|
—
|
1
|
—
|
—
|
|||||||||||||||
Amortization
of net loss
|
1
|
6
|
—
|
—
|
|||||||||||||||
Net
periodic benefit cost
|
$
|
9
|
$
|
14
|
$
|
2
|
$
|
2
|
U.S.
Pension Plans
|
International
Pension Plans
|
||||||||||||||||||
Year
to date
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Service
cost
|
$
|
21
|
$
|
23
|
$
|
6
|
$
|
6
|
|||||||||||
Interest
cost
|
37
|
35
|
6
|
5
|
|||||||||||||||
Expected
return on plan assets
|
(36
|
)
|
(35
|
)
|
(7
|
)
|
(6
|
)
|
|||||||||||
Amortization
of prior service cost
|
—
|
1
|
—
|
—
|
|||||||||||||||
Amortization
of net loss
|
4
|
17
|
—
|
1
|
|||||||||||||||
Net
periodic benefit cost
|
$
|
26
|
$
|
41
|
$
|
5
|
$
|
6
|
12.
|
Long-term
Debt
|
Guarantees,
Commitments and Contingencies
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
•
|
The
company provides the percentage changes excluding the impact of foreign
currency translation. These amounts are derived by translating
current year results at prior year average exchange rates. We
believe the elimination of the foreign currency translation impact
provides better year-to-year comparability without the distortion of
foreign currency fluctuations.
|
•
|
System
sales growth includes the results of all restaurants regardless of
ownership, including Company-owned, franchise, unconsolidated affiliate
and license restaurants. Sales of franchise, unconsolidated
affiliate and license restaurants generate Franchise and license fees for
the Company (typically at a rate of 4% to 6% of
sales). Franchise, unconsolidated affiliate and license
restaurant sales are not included in Company sales on the Condensed
Consolidated Statements of Income; however, the Franchise and license fees
are included in the Company’s revenues. We believe system sales
growth is useful to investors as a significant indicator of the overall
strength of our business as it incorporates all of our revenue drivers,
Company and franchise same store sales as well as net unit
development.
|
•
|
Same
store sales is the estimated growth in sales of all restaurants that have
been open one year or more. U.S. Company same store sales
include only KFC, Pizza Hut and Taco Bell Company owned restaurants that
have been open one year or more. U.S. same store sales for Long
John Silver’s and A&W restaurants are not included given the relative
insignificance of the Company stores for these brands and the limited
impact they currently have, and will have in the future, on our U.S.
Company same store sales as well as our overall U.S.
performance.
|
•
|
Company
restaurant margin as a percentage of sales is defined as Company sales
less expenses incurred directly by our Company restaurants in generating
Company sales, divided by Company
sales.
|
•
|
Operating
margin is defined as Operating Profit divided by Total
revenues.
|
·
|
Worldwide
system sales growth of 10%
|
·
|
Mainland
China unit growth of 21%
|
·
|
Worldwide
same store sales growth of 3%, including 5% in mainland China, 4% in YRI
and 3% in the U.S.
|
·
|
Worldwide
operating profit growth of 2%
|
·
|
Lower
effective tax rate of 21.6% versus 25.5% in the prior
year
|
·
|
10%
reduction in average diluted common shares outstanding versus prior
year
|
·
|
Diluted
earnings per share (“EPS”) of $0.58 or 16%
growth
|
Increase
(Decrease)
|
||||||||
Quarter
|
Year
to Date
|
|||||||
Company sales
|
$
|
86
|
$
|
200
|
||||
Company restaurant expenses
|
65
|
155
|
||||||
Franchise and license fees
|
(6
|
)
|
(13
|
)
|
||||
General and administrative expenses
|
1
|
4
|
||||||
Other (income) expense
|
(11
|
)
|
(23
|
)
|
||||
Operating Profit
|
3
|
5
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Number
of units refranchised
|
255
|
94
|
462
|
285
|
|||||||||||||||
Refranchising
proceeds, pre-tax
|
$
|
76
|
$
|
18
|
$
|
142
|
$
|
83
|
|||||||||||
Refranchising
(gain) loss, pre-tax
|
$
|
(8
|
)
|
$
|
—
|
$
|
16
|
$
|
(5
|
)
|
Quarter
ended 9/6/08
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Decreased Company sales
|
$
|
(71
|
)
|
$
|
(25
|
)
|
$
|
(1
|
)
|
$
|
(97
|
)
|
|||||||
Increased Franchise and license fees
|
4
|
2
|
—
|
6
|
|||||||||||||||
Decrease in Total revenues
|
$
|
(67
|
)
|
$
|
(23
|
)
|
$
|
(1
|
)
|
$
|
(91
|
)
|
Year
to date ended 9/6/08
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Decreased Company sales
|
$
|
(168
|
)
|
$
|
(83
|
)
|
$
|
(3
|
)
|
$
|
(254
|
)
|
|||||||
Increased Franchise and license fees
|
9
|
5
|
—
|
14
|
|||||||||||||||
Decrease in Total revenues
|
$
|
(159
|
)
|
$
|
(78
|
)
|
$
|
(3
|
)
|
$
|
(240
|
)
|
Quarter
ended 9/6/08
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Decreased Restaurant profit
|
$
|
(4
|
)
|
$
|
(3
|
)
|
$
|
(1
|
)
|
$
|
(8
|
)
|
|||||||
Increased Franchise and license fees
|
4
|
2
|
—
|
6
|
|||||||||||||||
Decreased
G&A
|
2
|
—
|
—
|
2
|
|||||||||||||||
Increase
in Operating Profit
|
$
|
2
|
$
|
(1
|
)
|
$
|
(1
|
)
|
$
|
—
|
Year
to date ended 9/6/08
|
|||||||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||||||
Decreased Restaurant profit
|
$
|
(9
|
)
|
$
|
(7
|
)
|
$
|
(1
|
)
|
$
|
(17
|
)
|
|||||||
Increased Franchise and license fees
|
9
|
5
|
—
|
14
|
|||||||||||||||
Decreased
G&A
|
4
|
1
|
—
|
5
|
|||||||||||||||
Increase in Operating Profit
|
$
|
4
|
$
|
(1
|
)
|
$
|
(1
|
)
|
$
|
2
|
Quarter
|
Year
to date
|
||||||||||||||||||||||||||
9/6/08
|
9/8/07
|
%
B/(W)
|
9/6/08
|
9/8/07
|
%
B/(W)
|
||||||||||||||||||||||
Company sales
|
$
|
2,482
|
$
|
2,243
|
11
|
$
|
6,899
|
$
|
6,258
|
10
|
|||||||||||||||||
Franchise and license fees
|
353
|
321
|
10
|
997
|
896
|
11
|
|||||||||||||||||||||
Total revenues
|
$
|
2,835
|
$
|
2,564
|
11
|
$
|
7,896
|
$
|
7,154
|
10
|
|||||||||||||||||
Company restaurant profit
|
$
|
358
|
$
|
353
|
2
|
$
|
977
|
$
|
951
|
3
|
|||||||||||||||||
% of Company sales
|
14.4%
|
15.7%
|
(1.3
|
)
ppts.
|
14.2%
|
15.2%
|
(1.0
|
)
ppts.
|
|||||||||||||||||||
Operating Profit
|
407
|
401
|
2
|
1,146
|
1,027
|
12
|
|||||||||||||||||||||
Interest expense, net
|
47
|
38
|
(28
|
)
|
152
|
112
|
(36
|
)
|
|||||||||||||||||||
Income tax provision
|
78
|
93
|
16
|
234
|
237
|
1
|
|||||||||||||||||||||
Net Income
|
$
|
282
|
$
|
270
|
5
|
$
|
760
|
$
|
678
|
12
|
|||||||||||||||||
Diluted earnings per share (a)
|
$
|
0.58
|
$
|
0.50
|
16
|
$
|
1.53
|
$
|
1.24
|
23
|
See
Note 4 for the number of shares used in this
calculation.
|
Worldwide
|
Company
|
Unconsolidated
Affiliates
|
Franchisees
|
Total
Excluding
Licensees (a)
|
|||||||||||||
Beginning
of year
|
7,625
|
1,314
|
24,297
|
33,236
|
|||||||||||||
New
Builds
|
329
|
57
|
705
|
1,091
|
|||||||||||||
Acquisitions
|
19
|
—
|
(19
|
)
|
—
|
||||||||||||
Refranchising
|
(462
|
)
|
(1
|
)
|
463
|
—
|
|||||||||||
Closures
|
(89
|
)
|
(7
|
)
|
(536
|
)
|
(632
|
)
|
|||||||||
Other
|
182
|
(749
|
)
|
572
|
5
|
||||||||||||
End
of quarter
|
7,604
|
614
|
25,482
|
33,700
|
|||||||||||||
%
of Total
|
23%
|
2%
|
75%
|
100%
|
United States
|
Company
|
Unconsolidated
Affiliates
|
Franchisees
|
Total
Excluding
Licensees(a)
|
|||||||||||||
Beginning
of year
|
3,896
|
—
|
14,081
|
17,977
|
|||||||||||||
New
Builds
|
49
|
—
|
177
|
226
|
|||||||||||||
Acquisitions
|
8
|
—
|
(8
|
)
|
—
|
||||||||||||
Refranchising
|
(421
|
)
|
—
|
421
|
—
|
||||||||||||
Closures
|
(47
|
)
|
—
|
(334
|
)
|
(381
|
)
|
||||||||||
Other
|
—
|
—
|
3
|
3
|
|||||||||||||
End
of quarter
|
3,485
|
—
|
14,340
|
17,825
|
|||||||||||||
%
of Total
|
20%
|
—
|
80%
|
100%
|
International Division
|
Company
|
Unconsolidated
Affiliates
|
Franchisees
|
Total
Excluding
Licensees(a)
|
|||||||||||||
Beginning
of year
|
1,642
|
568
|
9,963
|
12,173
|
|||||||||||||
New
Builds
|
17
|
—
|
503
|
520
|
|||||||||||||
Acquisitions
|
4
|
—
|
(4
|
)
|
—
|
||||||||||||
Refranchising
|
(39
|
)
|
(1
|
)
|
40
|
—
|
|||||||||||
Closures
|
(15
|
)
|
—
|
(191
|
)
|
(206
|
)
|
||||||||||
Other(b)
|
—
|
(567
|
)
|
569
|
2
|
||||||||||||
End
of quarter
|
1,609
|
—
|
10,880
|
12,489
|
|||||||||||||
%
of Total
|
13%
|
—
|
87%
|
100%
|
China Division
|
Company
|
Unconsolidated
Affiliates
|
Franchisees
|
Total
|
|||||||||||||
Beginning
of year
|
2,087
|
746
|
253
|
3,086
|
|||||||||||||
New
Builds
|
263
|
57
|
25
|
345
|
|||||||||||||
Acquisitions
|
7
|
—
|
(7
|
)
|
—
|
||||||||||||
Refranchising
|
(2
|
)
|
—
|
2
|
—
|
||||||||||||
Closures
|
(27
|
)
|
(7
|
)
|
(11
|
)
|
(45
|
)
|
|||||||||
Other(c)
|
182
|
(182
|
)
|
—
|
—
|
||||||||||||
End
of quarter
|
2,510
|
614
|
262
|
3,386
|
|||||||||||||
%
of Total
|
74%
|
18%
|
8%
|
100%
|
(a)
|
The
Worldwide, U.S. and International Division totals exclude 2,129, 1,955 and
174 licensed units, respectively, at September 6, 2008. There
are no licensed units in the China Division. Licensed units are
generally units that offer limited menus and operate in non-traditional
locations like malls, airports, gasoline service stations, convenience
stores, stadiums and amusement parks where a full scale traditional outlet
would not be practical or efficient. As licensed units have
lower average unit sales volumes than our traditional units and our
current strategy does not place a significant emphasis on expanding our
licensed units, we do not believe that providing further detail of
licensed unit activity provides significant or meaningful
information.
|
(b)
|
In
our fiscal quarter ended March 22, 2008, we sold our interest in our
unconsolidated affiliate in Japan. While we will no longer have
an ownership interest in the entity that operates both KFCs and Pizza Huts
in Japan, it will continue to be a franchisee as it was when it operated
as an unconsolidated affiliate. See Note 3.
|
(c)
|
On
January 1, 2008, we began consolidating an entity in China in which we
have a majority ownership interest. This entity was previously
accounted for as an unconsolidated affiliate and we reclassified the units
accordingly. See Note 2.
|
Company
|
Franchisees
|
Total
|
|||||||||||
United
States
|
1,712
|
2,551
|
4,263
|
||||||||||
International
Division
|
—
|
322
|
322
|
||||||||||
Worldwide
|
1,712
|
2,873
|
4,585
|
Quarter
|
Increase/(Decrease)
|
Increase excluding foreign
currency translation
|
|||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||
United
States
|
4%
|
2%
|
N/A
|
N/A
|
|||||||||||||
International
Division
|
12%
|
16%
|
7%
|
11%
|
|||||||||||||
China
Division
|
30%
|
31%
|
18%
|
23%
|
|||||||||||||
Worldwide
|
10%
|
9%
|
6%
|
7%
|
Year
to date
|
Increase/(Decrease)
|
Increase excluding foreign
currency translation
|
|||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||
United
States
|
3%
|
—%
|
N/A
|
N/A
|
|||||||||||||
International
Division
|
14%
|
15%
|
8%
|
10%
|
|||||||||||||
China
Division
|
35%
|
27%
|
24%
|
21%
|
|||||||||||||
Worldwide
|
10%
|
7%
|
7%
|
5%
|
Quarter
|
Amount
|
%
Increase/(Decrease)
|
% Increase/(Decrease)
excluding foreign currency translation
|
||||||||||||||
9/6/08
|
9/8/07
|
||||||||||||||||
Company
sales
|
|||||||||||||||||
United
States
|
$
|
1,040
|
$
|
1,059
|
(2
|
)
|
N/A
|
||||||||||
International
Division
|
588
|
603
|
(2
|
)
|
(5
|
)
|
|||||||||||
China
Division
|
854
|
581
|
47
|
34
|
|||||||||||||
Worldwide
|
2,482
|
2,243
|
11
|
7
|
|||||||||||||
Franchise
and license fees
|
|||||||||||||||||
United
States
|
173
|
165
|
5
|
N/A
|
|||||||||||||
International
Division
|
160
|
137
|
17
|
12
|
|||||||||||||
China
Division
|
20
|
19
|
3
|
(6
|
)
|
||||||||||||
Worldwide
|
353
|
321
|
10
|
7
|
|||||||||||||
Total
revenues
|
|||||||||||||||||
United
States
|
1,213
|
1,224
|
(1
|
)
|
N/A
|
||||||||||||
International
Division
|
748
|
740
|
1
|
(1
|
)
|
||||||||||||
China
Division
|
874
|
600
|
46
|
33
|
|||||||||||||
Worldwide
|
$
|
2,835
|
$
|
2,564
|
11
|
7
|
Year
to date
|
Amount
|
%
Increase/(Decrease)
|
% Increase/(Decrease)
excluding foreign currency translation
|
||||||||||||||
9/6/08
|
9/8/07
|
||||||||||||||||
Company
sales
|
|||||||||||||||||
United
States
|
$
|
3,133
|
$
|
3,170
|
(1
|
)
|
N/A
|
||||||||||
International
Division
|
1,717
|
1,737
|
(1
|
)
|
(4
|
)
|
|||||||||||
China
Division
|
2,049
|
1,351
|
52
|
39
|
|||||||||||||
Worldwide
|
6,899
|
6,258
|
10
|
7
|
|||||||||||||
Franchise
and license fees
|
|||||||||||||||||
United
States
|
495
|
472
|
5
|
N/A
|
|||||||||||||
International
Division
|
454
|
380
|
20
|
13
|
|||||||||||||
China
Division
|
48
|
44
|
8
|
(1
|
)
|
||||||||||||
Worldwide
|
997
|
896
|
11
|
8
|
|||||||||||||
Total
revenues
|
|||||||||||||||||
United
States
|
3,628
|
3,642
|
—
|
N/A
|
|||||||||||||
International
Division
|
2,171
|
2,117
|
3
|
(1
|
)
|
||||||||||||
China
Division
|
2,097
|
1,395
|
50
|
38
|
|||||||||||||
Worldwide
|
$
|
7,896
|
$
|
7,154
|
10
|
7
|
Quarter
ended 9/6/08
|
|||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||
Company
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||||
Food
and paper
|
31.1
|
31.8
|
37.4
|
33.4
|
|||||||||||
Payroll
and employee benefits
|
30.2
|
26.1
|
12.6
|
23.2
|
|||||||||||
Occupancy
and other operating expenses
|
27.9
|
30.7
|
29.1
|
29.0
|
|||||||||||
Company
restaurant margin
|
10.8
|
%
|
11.4
|
%
|
20.9
|
%
|
14.4
|
%
|
Quarter
ended 9/8/07
|
|||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||
Company
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||||
Food
and paper
|
29.4
|
29.9
|
36.0
|
31.2
|
|||||||||||
Payroll
and employee benefits
|
30.4
|
25.7
|
11.7
|
24.3
|
|||||||||||
Occupancy
and other operating expenses
|
27.2
|
31.2
|
29.1
|
28.8
|
|||||||||||
Company
restaurant margin
|
13.0
|
%
|
13.2
|
%
|
23.2
|
%
|
15.7
|
%
|
Year
to date ended 9/6/08
|
|||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||
Company
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||||
Food
and paper
|
30.5
|
31.5
|
37.5
|
32.8
|
|||||||||||
Payroll
and employee benefits
|
30.6
|
26.1
|
13.5
|
24.4
|
|||||||||||
Occupancy
and other operating expenses
|
27.0
|
30.8
|
29.3
|
28.6
|
|||||||||||
Company
restaurant margin
|
11.9
|
%
|
11.6
|
%
|
19.7
|
%
|
14.2
|
%
|
Year
to date ended 9/8/07
|
|||||||||||||||
U.S.
|
International
Division
|
China
Division
|
Worldwide
|
||||||||||||
Company
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||||
Food
and paper
|
29.0
|
29.8
|
35.9
|
30.8
|
|||||||||||
Payroll
and employee benefits
|
30.3
|
26.0
|
12.7
|
25.3
|
|||||||||||
Occupancy
and other operating expenses
|
26.8
|
31.5
|
29.9
|
28.7
|
|||||||||||
Company
restaurant margin
|
13.9
|
%
|
12.7
|
%
|
21.5
|
%
|
15.2
|
%
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Equity
income from investments in unconsolidated affiliates
|
$
|
(13
|
)
|
$
|
(19
|
)
|
$
|
(33
|
)
|
$
|
(40
|
)
|
|||||||
Minority
interest (a)
|
4
|
—
|
8
|
—
|
|||||||||||||||
Gain
upon sale of investment in unconsolidated affiliate(b)(c)
|
—
|
(1
|
)
|
(100
|
)
|
(6
|
)
|
||||||||||||
Foreign
exchange net (gain) loss and other
|
(5
|
)
|
1
|
(15
|
)
|
(1
|
)
|
||||||||||||
Other
(income) expense
|
$
|
(14
|
)
|
$
|
(19
|
)
|
$
|
(140
|
)
|
$
|
(47
|
)
|
(a)
|
On
January 1, 2008, the Company began consolidating an entity in China in
which we have a majority ownership interest. See Note
2.
|
(b)
|
Year
to date ended September 6, 2008 reflects the gain recognized on the sale
of our interest in our unconsolidated affiliate in Japan. See Note
3.
|
(c)
|
Year
to date ended September 8, 2007 reflects recognition of income associated
with receipt of payment 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 the Czech Republic to our then partner
in the entity.
|
Quarter
|
Year
to date
|
||||||||||||||||||||||||||
9/6/08
|
9/8/07
|
%
B/(W)
|
9/6/08
|
9/8/07
|
%
B/(W)
|
||||||||||||||||||||||
United
States
|
$
|
158
|
$
|
187
|
(16
|
)
|
$
|
483
|
$
|
543
|
(11
|
)
|
|||||||||||||||
International
Division
|
138
|
127
|
9
|
397
|
347
|
14
|
|||||||||||||||||||||
China
Division
|
161
|
135
|
19
|
352
|
276
|
27
|
|||||||||||||||||||||
Unallocated
and corporate expenses
|
(63
|
)
|
(48
|
)
|
(24
|
)
|
(185
|
)
|
(148
|
)
|
(25
|
)
|
|||||||||||||||
Unallocated
Other income (expense)
|
5
|
—
|
NM
|
115
|
4
|
NM
|
|||||||||||||||||||||
Unallocated
Refranchising gain (loss)
|
8
|
—
|
NM
|
(16
|
)
|
5
|
NM
|
||||||||||||||||||||
Operating
Profit
|
$
|
407
|
$
|
401
|
2
|
$
|
1,146
|
$
|
1,027
|
12
|
|||||||||||||||||
United
States operating margin
|
13.0%
|
15.2%
|
(2.2
|
)
ppts.
|
13.3%
|
14.9%
|
(1.6
|
)
ppts.
|
|||||||||||||||||||
International
Division operating margin
|
18.4%
|
17.2%
|
1.2
|
ppts.
|
18.3%
|
16.4%
|
1.9
|
ppts.
|
Quarter
|
Year
to date
|
||||||||||||||||||||||||||
9/6/08
|
9/8/07
|
%
B/(W)
|
9/6/08
|
9/8/07
|
%
B/(W)
|
||||||||||||||||||||||
Interest
expense
|
$
|
53
|
$
|
44
|
(22
|
)
|
$
|
171
|
$
|
130
|
(31
|
)
|
|||||||||||||||
Interest
income
|
(6
|
)
|
(6
|
)
|
(12
|
)
|
(19
|
)
|
(18
|
)
|
2
|
||||||||||||||||
Interest
expense, net
|
$
|
47
|
$
|
38
|
(28
|
)
|
$
|
152
|
$
|
112
|
(36
|
)
|
Quarter
|
Year
to date
|
||||||||||||||||||
9/6/08
|
9/8/07
|
9/6/08
|
9/8/07
|
||||||||||||||||
Income
taxes
|
$
|
78
|
$
|
93
|
$
|
234
|
$
|
237
|
|||||||||||
Effective
tax rate
|
21.6%
|
25.5%
|
23.5%
|
25.9%
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Item
4.
|
Controls
and Procedures
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
·
|
Food-borne
illness (such as E. coli, hepatitis A., trichinosis or salmonella)
concerns, food safety issues and health concerns arising from outbreaks of
Avian Flu, may have an adverse effect on our business;
|
·
|
A
significant and growing number of our restaurants are located in China,
and our business is increasingly exposed to risk there. These
risks include changes in economic conditions, tax rates, exchange rates,
laws and consumer preferences, as well as changes in the regulatory
environment;
|
·
|
Our
other foreign operations, which are significant and increasing, subject us
to risks that could negatively affect our business such as fluctuations in
foreign currency exchange rates and changes in economic conditions, tax
systems, consumer preferences, social conditions and political
conditions;
|
·
|
Changes
in commodity and other operating costs or supply chain and business
disruptions could adversely affect our results of
operations;
|
·
|
Our
operating results are closely tied to the success of our franchisees, and
any significant inability of our franchisees to operate successfully could
adversely affect our operating results;
|
·
|
Our
results and financial condition could be affected by the success of our
refranchising program;
|
·
|
We
could be party to litigation that could adversely affect us by increasing
our expenses or subjecting us to material money damages and other
remedies;
|
·
|
Changes
in governmental regulations may adversely affect our business
operations;
|
·
|
We
may not attain our target development goals which are dependent upon our
ability and the ability of our franchisees to upgrade existing restaurants
and open new restaurants and to operate these restaurants on a profitable
basis; and
|
·
|
The
retail food industry in which we operate is highly
competitive.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Fiscal
Periods
|
Total
number of shares purchased
|
Average
price paid per share
|
Total
number of shares purchased as part of publicly announced plans or
programs
|
Approximate
dollar value of shares that may yet be purchased under the plans or
programs
|
|||
Period
7
|
|||||||
6/15/08
– 7/12/08
|
9,118,600
|
$
|
35.51
|
9,118,600
|
$
|
747,446,788
|
|
Period
8
|
|||||||
7/13/08
– 8/9/08
|
5,324,800
|
$
|
34.57
|
5,324,800
|
$
|
563,376,204
|
|
Period
9
|
|||||||
8/10/08
– 9/6/08
|
—
|
$
|
—
|
—
|
$
|
563,376,204
|
|
Total
|
14,443,400
|
$
|
35.17
|
14,443,400
|
$
|
563,376,204
|
Item
6.
|
Exhibits
|
(a)
|
Exhibit
Index
|
||
EXHIBITS
|
|||
Exhibit
10.34
|
Credit
Agreement, dated July 11, 2008, among YUM, and the lenders party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan Securities
Inc. as Lead Arranger and Sole Bookrunner and Bank of America, N.A., as
Syndication Agent, which is incorporated by reference from Exhibit 10.34
to Yum’s Quarterly Report on Form 10-Q for the quarter ended June 14,
2008.
|
||
Exhibit
15
|
Letter
from KPMG LLP regarding Unaudited Interim Financial Information
(Acknowledgement of Independent Registered Public Accounting
Firm).
|
||
Exhibit
31.1
|
Certification
of the Chairman, Chief Executive Officer and President pursuant to Rule
13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
Exhibit
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
||
Exhibit
32.1
|
Certification
of the Chairman, Chief Executive Officer and President pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
||
Exhibit
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
YUM!
BRANDS, INC.
|
||||
(Registrant)
|
Date:
|
October
14, 2008
|
/s/ Ted
F. Knopf
|
||
Senior
Vice President of Finance
|
||||
and
Corporate Controller
|
||||
(Principal
Accounting Officer)
|