UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

July 14, 2015

Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

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
 
 
 
Former name or former address, if changed since last report:   N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Section 2 – Financial Information

Item 2.02      Results of Operations and Financial Condition

On July 14, 2015, YUM! Brands, Inc. ("YUM") issued a press release announcing financial results for the quarter ended June 13, 2015.  The Company also reaffirmed its full-year 2015 EPS expectations. A copy of the press release is attached hereto as Exhibit 99.1.

    



Section 9 – Financial Statements and Exhibits

Item 9.01      Financial Statements and Exhibits

 
(c)
Exhibits
 
99.1
Press Release dated July 14, 2015 from YUM! Brands, Inc.






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
YUM! BRANDS, INC.
 
 
 
 
(Registrant)
 



Date:
July 14, 2015
 
/s/        David E. Russell
 
 
 
 
Vice President, Finance and
Corporate Controller
 
 
 
 
(Principal Accounting Officer)
 







NEWS
Steve Schmitt
Vice President, Investor Relations & Corporate Strategy



Yum! Brands Reports Second-Quarter EPS of $0.69, a Decline of 5%, Excluding Special Items;
Expects Strong Second Half in China; Reconfirms 2015 Full-Year EPS Growth of at least 10%


Louisville, KY (July 14, 2015) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 13, 2015, including EPS of $0.69, excluding Special Items. Reported EPS was $0.53.


SECOND-QUARTER HIGHLIGHTS
Worldwide system sales grew 3%. Worldwide restaurant margin was even at 15.5%, and worldwide operating profit decreased 1%.
 
 
 
Total international development was 291 new restaurants; 75% of this development occurred in emerging markets.
 
 
China Division system sales declined 4%, as 7% unit growth was offset by a 10% same-store sales decline. Restaurant margin decreased 2.2 percentage points to 14.6%. Operating profit decreased 25%.
 
 
KFC Division system sales increased 6%, driven by 2% unit growth and 3% same-store sales growth. Operating margin increased 1.3 percentage points to 21.9%. Operating profit increased 10%.
 
 
Pizza Hut Division system sales increased 1%, driven by 2% unit growth. Same-store sales were even. Operating margin decreased 0.9 percentage points to 22.6%. Operating profit decreased 1%.
 
 
Taco Bell Division system sales increased 9%, driven by 3% unit growth and 6% same-store sales growth. Operating margin increased 4.7 percentage points to 29.5%. Operating profit increased 29%.
 
 
India Division system sales were even, as 16% unit growth was offset by an 11% same-store sales decline.
 
 
Worldwide effective tax rate increased to 25.6% from 24.9%.
 
 
Foreign currency translation negatively impacted operating profit by $22 million.
 
 
 



 
Second Quarter
Year-to-Date
 
2015
2014
% Change
2015
2014
% Change
EPS Excluding Special Items
$0.69
$0.73
(5)%
$1.50
$1.60
(7)%
Special Items Gain/(Loss)1
$(0.16)
$0.00
NM
$(0.16)
$0.01
NM
EPS
$0.53
$0.73
(28)%
$1.34
$1.61
(17)%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2015 are primarily related to a non-cash charge associated with refranchising our Mexico business.



Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted. System sales and operating profit figures on this page exclude foreign currency translation; restaurant margin and operating margin figures are as reported.

Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213
Tel 502 874-8006 • Web Site www.yum.com/investors




GREG CREED COMMENTS
Greg Creed, CEO, said “EPS exceeded our original expectations in the second quarter and I'm pleased with the continued progress we are making in China, as well as the performance from our Taco Bell and KFC Divisions. I’m confident we will deliver full-year EPS growth of at least 10%, driven by a strong second half in China and solid brand-building initiatives underway at each of our divisions.

China Division restaurant margin in the second quarter was an encouraging 14.6%, even though same-store sales declined 10%, reinforcing our belief in significant profit leverage as sales recover. We expect substantial same-store sales and profit growth in the second half given overall trends in sales and brand perceptions. Furthermore, the China Division remains on track to open at least 700 new restaurants this year, laying the groundwork for future growth.

Outside of China, Taco Bell is firing on all cylinders driven by industry-leading innovation and a solid breakfast platform. KFC continues to produce consistently positive results in both emerging and developed markets, including our U.S. business. At Pizza Hut, results continue to be soft, but we are taking clear steps to get the business back on track.
 
Internationally, we’re on pace to set a new record this year by opening 2,100 new restaurants, extending our lead in emerging markets. All of this should help us to achieve double-digit earnings growth this year, despite ongoing headwinds from foreign currency translation.

Our goal remains building three iconic, global brands people trust and champion, while delivering shareholder value through our three key drivers: same-store sales growth, new-unit development and high returns on invested capital. As we continue to strengthen our business around the world, I'm confident that this formula will produce consistent double-digit EPS growth over the long term.”





2






CHINA DIVISION
 
Second Quarter
Year-to-Date
 
 
% Change
 
% Change
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
System Sales Growth
 
 
(4)
(4)
 
 
(6)
(5)
Same-Store Sales Growth (%)
(10)
+15
NM
NM
(11)
+12
NM
NM
Franchise & License Fees ($MM)
28
26
+2
+2
49
49
(1)
Even
Restaurant Margin (%)
14.6
16.8
(2.2)
(2.2)
16.4
19.8
(3.4)
(3.3)
Operating Profit ($MM)
144
194
(26)
(25)
334
479
(30)
(29)
 

China Division system sales decreased 4%, prior to foreign currency translation.
Same-store sales declined 10%, including declines of 12% at KFC and 4% at Pizza Hut Casual Dining, reflecting continued recovery from adverse supplier publicity in July 2014.
China Division opened 80 new units during the quarter.
China Units
Q2 2015
% Change2
Restaurants1
6,853
+7
KFC
4,889
+5
Pizza Hut
 
 
Casual Dining
1,388
+22
Home Service
276
+28
1 Total includes East Dawning and Little Sheep units.
2 Represents year-over-year change.

Restaurant margin was 14.6% in a seasonally low period, a decrease of 2.2 percentage points, driven by sales deleverage.
Foreign currency translation negatively impacted operating profit by $1 million.



3


KFC DIVISION
 
Second Quarter
Year-to-Date
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
14,234
13,906
+2
NA
14,234
13,906
+2
NA
System Sales Growth
 
 
(4)
+6
 
 
(2)
+7
Same-Store Sales Growth (%)
+3
+2
NM
NM
+4
+2
NM
NM
Franchise & License Fees ($MM)
189
196
(3)
+7
386
391
(1)
+7
Restaurant Margin (%)
15.3
12.9
2.4
2.2
15.3
12.9
2.4
2.2
Operating Profit ($MM)
152
155
(2)
+10
321
318
+1
+11
Operating Margin (%)
21.9
20.6
1.3
0.8
24.0
22.4
1.6
1.0
KFC Division system sales increased 6%, excluding foreign currency translation.
 
Second Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+12%
+5%
+1%
Same-Store Sales Growth
+3%
+2%
+3%
KFC Division opened 122 new international restaurants in 39 countries, including 89 units in emerging markets. 85% of these new units were opened by franchisees.
Operating margin increased 1.3 percentage points, driven by same-store sales growth and new-unit development.
Foreign currency translation negatively impacted operating profit by $19 million, as approximately 90% of division profits are generated outside the U.S.
KFC MARKETS1
Percent of KFC System Sales 2
SYSTEM Sales Growth Ex F/X
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
Asia (e.g. Malaysia, Indonesia, Philippines)
8%
+6
+5
Africa
7%
+13
+14
Latin America (e.g. Mexico, Peru)
6%
+7
+8
Middle East / North Africa
6%
+2
+3
Russia
4%
+44
+45
Thailand
3%
+6
+8
Continental Europe (e.g. Poland)
2%
+12
+13
 
 
 
 
 
 
 
 
Developed Markets
 
 
 
U.S.
24%
+1
+3
Asia (e.g. Japan, Korea, Taiwan)
10%
(1)
Even
Australia
10%
+11
+10
U.K.
9%
+6
+6
Continental Europe (e.g. France, Germany)
7%
+8
+8
Canada
3%
Even
+1
Latin America (e.g. Puerto Rico)
1%
+6
+6
 
 
 
 
1 See website www.yum.com under tab "Investors" for a list of the countries within each of the markets.
2 Reflects Full Year 2014.
     

4


PIZZA HUT DIVISION
 
Second Quarter
Year-to-Date
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
13,579
13,338
+2
NA
13,579
13,338
+2
NA
System Sales Growth
 
 
(3)
+1
 
 
(2)
+2
Same-Store Sales Growth (%)
Even
(3)
NM
NM
Even
(2)
NM
NM
Franchise & License Fees ($MM)
119
123
(3)
+2
246
250
(1)
+2
Restaurant Margin (%)
9.9
7.2
2.7
2.4
10.8
9.0
1.8
1.4
Operating Profit ($MM)
60
63
(4)
(1)
141
147
(4)
(2)
Operating Margin (%)
22.6
23.5
(0.9)
(1.0)
26.4
27.6
(1.2)
(1.4)

Pizza Hut Division system sales increased 1%, prior to foreign currency translation.
 
Second Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+6%
Even
+1%
Same-Store Sales Growth
+2%
(2)%
+1%
Pizza Hut Division opened 66 new international restaurants in 33 countries, including 33 units in emerging markets. 92% of these new units were opened by franchisees.
Operating margin declined 0.9 percentage points, driven by strategic investments in international G&A.
Foreign currency translation negatively impacted operating profit by $2 million.

PIZZA HUT MARKETS1
Percent of Pizza Hut System Sales2
SYSTEM Sales Growth Ex F/X
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
Latin America (e.g. Mexico, Peru)
7%
+6
+7
Asia (e.g. Malaysia, Indonesia, Philippines)
5%
+3
+3
Middle East / North Africa
5%
+8
+6
Continental Europe (e.g. Poland)
1%
+8
+7
 
 
 
 
Developed Markets
 
 
 
U.S.
55%
+1
Even
Asia (e.g. Japan, Korea, Taiwan)
9%
(1)
(1)
U.K.
6%
+4
+4
Continental Europe (e.g. France, Germany)
5%
+2
+3
Australia
3%
(6)
(5)
Canada
3%
+2
+4
Latin America (e.g. Puerto Rico)
1%
(1)
+4
 
 
 
 
1 See website www.yum.com under tab "Investors" for a list of the countries within each of the markets.
2 Reflects Full Year 2014.
 


5






TACO BELL DIVISION
 
Second Quarter
Year-to-Date
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
6,257
6,074
+3
NA
6,257
6,074
+3
NA
System Sales Growth
 
 
+9
+9
 
 
+9
+9
Same-Store Sales Growth (%)
+6
+2
NM
NM
+6
+1
NM
NM
Franchise & License Fees ($MM)
106
97
+9
+9
202
182
+11
+11
Restaurant Margin (%)
23.0
17.7
5.3
5.3
21.4
16.7
4.7
4.7
Operating Profit ($MM)
140
109
+29
+29
255
193
+32
+32
Operating Margin (%)
29.5
24.8
4.7
4.7
28.1
23.2
4.9
4.9
Taco Bell Division system sales increased 9%, driven by 6% same-store sales growth and 3% unit growth.
Taco Bell Division opened 58 new restaurants; 88% of these new units were opened by franchisees.
Restaurant margin was 23.0%, an increase of 5.3 percentage points, driven by same-store sales growth.
Operating margin increased 4.7 percentage points, driven by same-store sales growth. 




INDIA DIVISION
India Division system sales were even prior to foreign currency translation, as 16% unit growth was offset by an 11% same-store sales decline.
Operating loss was $3 million, as compared to an operating loss of $1 million in prior year.
India Units
Q2 2015
% Change2
Restaurants1
825
+16%
KFC
385
+13%
Pizza Hut
 
 
    Casual Dining
179
(2)%
    Home Service
255
+37%
1 Total includes 6 Taco Bell units.
2 Represents year-over-year change.



SPECIAL ITEMS / SHARE REPURCHASE UPDATE
In 2010, we refranchised our Mexico equity market but did not sell the underlying real estate.  During the quarter, we initiated plans to sell this real estate, and as a result, we wrote down the carrying value of our Mexico business to its fair value, triggering a $68 million non-cash Special Items charge to Refranchising Loss.  This charge negatively impacted reported EPS by $0.13 for the quarter, while benefiting our ex-Special tax rate by 2 percentage points.
Year-to-date through July 13, 2015, we repurchased 4.4 million shares totaling $363 million at an average price of $82.

6


CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. Eastern Time Wednesday, July 15, 2015. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at 1:00 p.m. Eastern Time Wednesday, July 15, through midnight Saturday, August 15, 2015. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 50758903.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q2 2015 Earnings Conference Call” under “Events & Presentations.” A podcast will be available within 24 hours.

ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com under “Investors.”

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food safety and food borne-illness issues; changes in economic conditions, consumer preferences, tax rates and laws and the regulatory environment, as well as increased competition and other risks in China, where a significant and growing portion of our restaurants are located; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; changes in economic and political conditions in the other countries outside the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our international development strategy; commodity, labor and other operating costs; the continued viability and success of our franchise and license operators; consumer preferences and perceptions of our brands; the impact of social media; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations; tax matters, including disagreements with taxing authorities; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; and competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 41,000 restaurants in more than 125 countries and territories. Yum! is ranked #228 on the Fortune 500 List with revenues of over $13 billion in 2014 and is one of the Aon Hewitt Top Companies for Leaders in North America. The Company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opens over five new restaurants per day on average, making it a leader in international retail development.

Analysts are invited to contact
 
Steve Schmitt, Vice President Investor Relations & Corporate Strategy, at 888/298-6986
 
Elizabeth Grenfell, Director Investor Relations, at 888/298-6986
Members of the media are invited to contact
 
Virginia Ferguson, Director Public Relations, at 502/874-8200

7


YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/13/15
 
6/14/14
 
B/(W)
 
6/13/15
 
6/14/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
2,659

 
$
2,758

 
(4)
 
$
4,838

 
$
5,050

 
(4)
Franchise and license fees and income
446

 
446

 
 
889

 
878

 
1
Total revenues
3,105

 
3,204

 
(3)
 
5,727

 
5,928

 
(3)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
841

 
886

 
5
 
1,529

 
1,611

 
5
   Payroll and employee benefits
602

 
620

 
3
 
1,095

 
1,113

 
2
   Occupancy and other operating expenses
805

 
824

 
2
 
1,421

 
1,457

 
3
Company restaurant expenses
2,248

 
2,330

 
4
 
4,045

 
4,181

 
3
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
353

 
352

 
(1)
 
648

 
623

 
(4)
Franchise and license expenses
47

 
34

 
(36)
 
81

 
67

 
(22)
Closures and impairment (income) expenses
24

 
21

 
(8)
 
27

 
24

 
(10)
Refranchising (gain) loss
68

 
(4
)
 
NM
 
58

 
(7
)
 
NM
Other (income) expense
(6
)
 
(8
)
 
(30)
 
(9
)
 
(10
)
 
(12)
Total costs and expenses, net
2,734

 
2,725

 
 
4,850

 
4,878

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
371

 
479

 
(22)
 
877

 
1,050

 
(16)
Interest expense, net
33

 
29

 
(15)
 
67

 
62

 
(9)
Income before income taxes
338

 
450

 
(25)
 
810

 
988

 
(18)
Income tax provision
102

 
112

 
8
 
213

 
251

 
15
Net income - including noncontrolling interests
236

 
338

 
(30)
 
597

 
737

 
(19)
Net income (loss) - noncontrolling interests
1

 
4

 
86
 

 
4

 
96
Net income - YUM! Brands, Inc.
$
235

 
$
334

 
(30)
 
$
597

 
$
733

 
(19)
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
30.4
%
 
24.9
%
 
(5.5 ppts.)
 
26.3
%
 
25.4
%
 
(0.9 ppts.)
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.54

 
$
0.75

 
(28)
 
$
1.36

 
$
1.64

 
(17)
Average shares outstanding
437

 
446

 
2
 
437

 
446

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.53

 
$
0.73

 
(28)
 
$
1.34

 
$
1.61

 
(17)
Average shares outstanding
445

 
455

 
2
 
446

 
456

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.82

 
$
0.37

 
 
 
$
0.82

 
$
0.74

 
 
 
See accompanying notes.

 Percentages may not recompute due to rounding.


8


YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/13/15
 
6/14/14
 
B/(W)
 
6/13/15
 
6/14/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
1,608

 
$
1,683

 
(4)
 
$
2,843

 
$
3,039

 
(6)
Franchise and license fees and income
28

 
26

 
2
 
49

 
49

 
(1)
Total revenues
1,636

 
1,709

 
(4)
 
2,892

 
3,088

 
(6)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
515

 
531

 
3
 
907

 
949

 
4
Payroll and employee benefits
333

 
337

 
1
 
577

 
578

 
Occupancy and other operating expenses
526

 
532

 
1
 
892

 
912

 
2
Company restaurant expenses
1,374

 
1,400

 
2
 
2,376

 
2,439

 
3
General and administrative expenses
100

 
102

 
2
 
168

 
164

 
(2)
Franchise and license expenses
5

 
3

 
(38)
 
9

 
6

 
(44)
Closures and impairment (income) expenses
17

 
17

 
3
 
19

 
19

 
2
Other (income) expense
(4
)
 
(7
)
 
(34)
 
(14
)
 
(19
)
 
(25)
 
1,492

 
1,515

 
2
 
2,558

 
2,609

 
2
Operating Profit
$
144

 
$
194

 
(26)
 
$
334

 
$
479

 
(30)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
32.0

 
31.5

 
(0.5 ppts.)
 
31.9

 
31.2

 
(0.7 ppts.)
Payroll and employee benefits
20.7

 
20.0

 
(0.7 ppts.)
 
20.3

 
19.0

 
(1.3 ppts.)
Occupancy and other operating expenses
32.7

 
31.7

 
(1.0 ppts.)
 
31.4

 
30.0

 
(1.4 ppts.)
Restaurant margin
14.6
%
 
16.8
%
 
(2.2 ppts.)
 
16.4
%
 
19.8
%
 
(3.4 ppts.)
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
8.8
%
 
11.4
%
 
(2.6 ppts.)
 
11.6
%
 
15.5
%
 
(3.9 ppts.)
 
See accompanying notes.
  
Percentages may not recompute due to rounding.



9


YUM! Brands, Inc.
KFC DIVISON Operating Results
(amounts in millions)
(unaudited)

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/13/15
 
6/14/14
 
B/(W)
 
6/13/15
 
6/14/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
505

 
$
558

 
(9)
 
$
950

 
$
1,027

 
(7)
Franchise and license fees and income
189

 
196

 
(3)
 
386

 
391

 
(1)
Total revenues
694

 
754

 
(8)
 
1,336

 
1,418

 
(6)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
171

 
194

 
12
 
324

 
358

 
10
Payroll and employee benefits
118

 
135

 
13
 
222

 
249

 
11
Occupancy and other operating expenses
138

 
157

 
11
 
258

 
287

 
10
Company restaurant expenses
427

 
486

 
12
 
804

 
894

 
10
General and administrative expenses
93

 
94

 
 
172

 
170

 
(1)
Franchise and license expenses
21

 
17

 
(23)
 
38

 
34

 
(11)
Closures and impairment (income) expenses
2

 
1

 
(6)
 
2

 
1

 
(128)
Other (income) expense
(1
)
 
1

 
NM
 
(1
)
 
1

 
NM
 
542

 
599

 
9
 
1,015

 
1,100

 
8
Operating Profit
$
152

 
$
155

 
(2)
 
$
321

 
$
318

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
34.0

 
34.9

 
0.9 ppts.
 
34.1

 
34.9

 
0.8 ppts.
Payroll and employee benefits
23.3

 
24.2

 
0.9 ppts.
 
23.4

 
24.3

 
0.9 ppts.
Occupancy and other operating expenses
27.4

 
28.0

 
0.6 ppts.
 
27.2

 
27.9

 
0.7 ppts.
Restaurant margin
15.3
%
 
12.9
%
 
2.4 ppts.
 
15.3
%
 
12.9
%
 
2.4 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
21.9
%
 
20.6
%
 
1.3 ppts.
 
24.0
%
 
22.4
%
 
1.6 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



10


YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/13/15
 
6/14/14
 
B/(W)
 
6/13/15
 
6/14/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
145

 
$
142

 
2
 
$
289

 
$
282

 
2
Franchise and license fees and income
119

 
123

 
(3)
 
246

 
250

 
(1)
Total revenues
264

 
265

 
 
535

 
532

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
40

 
43

 
8
 
80

 
85

 
6
Payroll and employee benefits
45

 
44

 
(2)
 
89

 
87

 
(3)
Occupancy and other operating expenses
46

 
45

 
(3)
 
89

 
85

 
(5)
Company restaurant expenses
131

 
132

 
1
 
258

 
257

 
General and administrative expenses
61

 
58

 
(6)
 
118

 
107

 
(10)
Franchise and license expenses
9

 
10

 
11
 
17

 
18

 
5
Closures and impairment (income) expenses
3

 
1

 
NM
 
3

 
2

 
(77)
Other (income) expense

 
1

 
NM
 
(2
)
 
1

 
NM
 
204

 
202

 
(1)
 
394

 
385

 
(2)
Operating Profit
$
60

 
$
63

 
(4)
 
$
141

 
$
147

 
(4)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
27.5

 
30.5

 
3.0 ppts.
 
27.7

 
30.1

 
2.4 ppts.
Payroll and employee benefits
30.9

 
31.0

 
0.1 ppts.
 
30.8

 
30.8

 
Occupancy and other operating expenses
31.7

 
31.3

 
(0.4 ppts.)
 
30.7

 
30.1

 
(0.6 ppts.)
Restaurant margin
9.9
%
 
7.2
%
 
2.7 ppts.
 
10.8
%
 
9.0
%
 
1.8 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
22.6
%
 
23.5
%
 
(0.9 ppts.)
 
26.4
%
 
27.6
%
 
(1.2 ppts.)
 
See accompanying notes.

Percentages may not recompute due to rounding.



11


YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/13/15
 
6/14/14
 
B/(W)
 
6/13/15
 
6/14/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
370

 
$
342

 
8
 
$
705

 
$
648

 
9
Franchise and license fees and income
106

 
97

 
9
 
202

 
182

 
11
Total revenues
476

 
439

 
9
 
907

 
830

 
9
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
103

 
104

 
1
 
197

 
196

 
Payroll and employee benefits
101

 
100

 
(2)
 
199

 
192

 
(4)
Occupancy and other operating expenses
81

 
77

 
(4)
 
159

 
151

 
(5)
Company restaurant expenses
285

 
281

 
(2)
 
555

 
539

 
(3)
General and administrative expenses
47

 
43

 
(7)
 
90

 
88

 
(3)
Franchise and license expenses
4

 
5

 
32
 
6

 
9

 
27
Closures and impairment (income) expenses
1

 
1

 
(18)
 
2

 
1

 
(36)
Other (income) expense
(1
)
 

 
NM
 
(1
)
 

 
NM
 
336

 
330

 
(2)
 
652

 
637

 
(2)
Operating Profit
$
140

 
$
109

 
29
 
$
255

 
$
193

 
32
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
27.8

 
30.5

 
2.7 ppts.
 
27.9

 
30.3

 
2.4 ppts.
Payroll and employee benefits
27.4

 
29.0

 
1.6 ppts.
 
28.2

 
29.6

 
1.4 ppts.
Occupancy and other operating expenses
21.8

 
22.8

 
1.0 ppts.
 
22.5

 
23.4

 
0.9 ppts.
Restaurant margin
23.0
%
 
17.7
%
 
5.3 ppts.
 
21.4
%
 
16.7
%
 
4.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
29.5
%
 
24.8
%
 
4.7 ppts.
 
28.1
%
 
23.2
%
 
4.9 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



12


YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
 
(unaudited)
 
 
 
6/13/15
 
12/27/14
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
636

 
$
578

Accounts and notes receivable, less allowance: $16 in 2015 and $12 in 2014
350

 
325

Inventories
279

 
301

Prepaid expenses and other current assets
276

 
254

Deferred income taxes
104

 
93

Advertising cooperative assets, restricted
84

 
95

Total Current Assets
1,729

 
1,646

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $3,704 in
 
 
 
2015 and $3,584 in 2014
4,372

 
4,498

Goodwill
684

 
700

Intangible assets, net
294

 
318

Investments in unconsolidated affiliates
39

 
52

Other assets
554

 
560

Deferred income taxes
622

 
571

Total Assets
$
8,294

 
$
8,345

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
1,881

 
$
1,972

Income taxes payable
156

 
77

Short-term borrowings
568

 
267

Advertising cooperative liabilities
84

 
95

Total Current Liabilities
2,689

 
2,411

 
 
 
 
Long-term debt
2,831

 
3,077

Other liabilities and deferred credits
1,141

 
1,244

Total Liabilities
6,661

 
6,732

 
 
 
 
Redeemable noncontrolling interest
8

 
9

 
 
 
 
Shareholders' Equity
 
 
 
Common stock, no par value, 750 shares authorized; 432 shares and 434 shares issued in 2015 and 2014, respectively

 

Retained earnings
1,726

 
1,737

Accumulated other comprehensive income (loss)
(157
)
 
(190
)
Total Shareholders' Equity - YUM! Brands, Inc.
1,569

 
1,547

Noncontrolling interests
56

 
57

Total Shareholders' Equity
1,625

 
1,604

Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity
$
8,294

 
$
8,345

 See accompanying notes.



13


YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year to date ended
 
6/13/15

6/14/14
Cash Flows - Operating Activities
 
 
 
Net income - including noncontrolling interests
$
597

 
$
737

Depreciation and amortization
326

 
320

Closures and impairment (income) expenses
27

 
24

Refranchising (gain) loss
58

 
(7
)
Contributions to defined benefit pension plans
(78
)
 
(14
)
Deferred income taxes
(77
)
 
(10
)
Equity income from investments in unconsolidated affiliates
(16
)
 
(22
)
Distributions of income received from unconsolidated affiliates
4

 
7

Excess tax benefit from share-based compensation
(40
)
 
(25
)
Share-based compensation expense
28

 
25

Changes in accounts and notes receivable
16

 
12

Changes in inventories
21

 
5

Changes in prepaid expenses and other current assets
(27
)
 
(11
)
Changes in accounts payable and other current liabilities
11

 
(27
)
Changes in income taxes payable
91

 
96

Other, net
6

 
(26
)
Net Cash Provided by Operating Activities
947

 
1,084

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(404
)
 
(408
)
Changes in short-term investments, net
(16
)
 
(227
)
Proceeds from refranchising of restaurants
29

 
17

Other, net
39

 
4

Net Cash Used in Investing Activities
(352
)
 
(614
)
 
 
 
 
Cash Flows - Financing Activities
 
 
 
Repayments of long-term debt
(7
)
 
(5
)
Short-term borrowings by original maturity
 
 
 
More than three months - proceeds

 

More than three months - payments

 

Three months or less, net

 

Revolving credit facilities, three months or less, net
65

 
178

Repurchase shares of Common Stock
(287
)
 
(300
)
Excess tax benefit from share-based compensation
40

 
25

Employee stock option proceeds
11

 
16

Dividends paid on Common Stock
(355
)
 
(327
)
Other, net
(43
)
 
(20
)
Net Cash Used in Financing Activities
(576
)
 
(433
)
Effect of Exchange Rate on Cash and Cash Equivalents
39

 
(13
)
Net Increase in Cash and Cash Equivalents
58

 
24

Cash and Cash Equivalents - Beginning of Period
578

 
573

Cash and Cash Equivalents - End of Period
$
636

 
$
597

See accompanying notes.



14


Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
 
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present operating results in 2015 and 2014 on a basis before Special Items. Included in Special Items are losses associated with the refranchising of equity markets outside the U.S., costs associated with the KFC U.S. Acceleration Agreement and U.S. refranchising gain. These amounts are described in (c), (d) and (e) in the accompanying notes.   

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results.  This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP.  Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters ended June 13, 2015 and June 14, 2014 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. 
 
 
Quarter ended
 
Year to date
 
 
6/13/15
 
6/14/14
 
6/13/15
 
6/14/14
Detail of Special Items
 
 
 
 
 
 
 
 
Losses associated with the refranchising of equity markets outside the U.S.(c)
 
$
(73
)
 
$

 
$
(73
)
 
$

Costs associated with KFC U.S. Acceleration Agreement(d)
 
(8
)
 

 
(10
)
 

U.S. Refranchising gain(e)
 
1

 
1

 
8

 
3

Other Special Items Income (Expense)
 
2

 

 
2

 

Total Special Items Income (Expense)
 
(78
)
 
1

 
(73
)
 
3

Tax Benefit (Expense) on Special Items
 
3

 

 
1

 
(1
)
Special Items Income (Expense), net of tax
 
$
(75
)
 
$
1

 
$
(72
)
 
$
2

Average diluted shares outstanding
 
445

 
455

 
446

 
456

Special Items diluted EPS
 
$
(0.16
)
 
$

 
$
(0.16
)
 
$
0.01

 
 
 
 
 
 
 
 
 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
 
 
 
 
 
 
 
 
Operating Profit Before Special Items
 
$
449

 
$
478

 
$
950

 
$
1,047

Special Items Income (Expense)
 
(78
)
 
1

 
(73
)
 
3

Reported Operating Profit
 
$
371

 
$
479

 
$
877

 
$
1,050

 
 
 
 
 
 
 
 
 
Reconciliation of EPS Before Special Items to Reported EPS
 
 
 
 
 
 
 
 
Diluted EPS Before Special Items
 
$
0.69

 
$
0.73

 
$
1.50

 
$
1.60

Special Items EPS
 
(0.16
)
 

 
(0.16
)
 
0.01

Reported EPS
 
$
0.53

 
$
0.73

 
$
1.34

 
$
1.61

 
 
 
 
 
 
 
 
 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
 
 
 
 
 
 
 
 
Effective Tax Rate Before Special Items
 
25.6
%
 
24.9
%
 
24.4
%
 
25.4
%
Impact on Tax Rate as a result of Special Items
 
4.8
%
 
%
 
1.9
%
 
%
Reported Effective Tax Rate
 
30.4
%
 
24.9
%
 
26.3
%
 
25.4
%


15


YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Quarter Ended 6/13/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,636

 
$
694

 
$
264

 
$
476

 
$
35

 
$

 
$
3,105

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,374

 
427

 
131

 
285

 
31

 

 
2,248

General and administrative expenses
100

 
93

 
61

 
47

 
6

 
46

 
353

Franchise and license expenses
5

 
21

 
9

 
4

 

 
8

 
47

Closures and impairment (income) expenses
17

 
2

 
3

 
1

 
1

 

 
24

Refranchising (gain) loss

 

 

 

 

 
68

 
68

Other (income) expense
(4
)
 
(1
)
 

 
(1
)
 

 

 
(6
)
 
1,492

 
542

 
204

 
336

 
38

 
122

 
2,734

Operating Profit (loss)
$
144

 
$
152

 
$
60

 
$
140

 
$
(3
)
 
$
(122
)
 
$
371



Quarter Ended 6/14/14
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,709

 
$
754

 
$
265

 
$
439

 
$
37

 
$

 
$
3,204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,400

 
486

 
132

 
281

 
31

 

 
2,330

General and administrative expenses
102

 
94

 
58

 
43

 
7

 
48

 
352

Franchise and license expenses
3

 
17

 
10

 
5

 
(1
)
 

 
34

Closures and impairment (income) expenses
17

 
1

 
1

 
1

 
1

 

 
21

Refranchising (gain) loss

 

 

 

 

 
(4
)
 
(4
)
Other (income) expense
(7
)
 
1

 
1

 

 

 
(3
)
 
(8
)
 
1,515

 
599

 
202

 
330

 
38

 
41

 
2,725

Operating Profit (loss)
$
194

 
$
155

 
$
63

 
$
109

 
$
(1
)
 
$
(41
)
 
$
479



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

16



YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Year to Date 6/13/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
2,892

 
$
1,336

 
$
535

 
$
907

 
$
57

 
$

 
$
5,727

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
2,376

 
804

 
258

 
555

 
52

 

 
4,045

General and administrative expenses
168

 
172

 
118

 
90

 
10

 
90

 
648

Franchise and license expenses
9

 
38

 
17

 
6

 
1

 
10

 
81

Closures and impairment (income) expenses
19

 
2

 
3

 
2

 
1

 

 
27

Refranchising (gain) loss

 

 

 

 

 
58

 
58

Other (income) expense
(14
)
 
(1
)
 
(2
)
 
(1
)
 

 
9

 
(9
)
 
2,558

 
1,015

 
394

 
652

 
64

 
167

 
4,850

Operating Profit (loss)
$
334

 
$
321

 
$
141

 
$
255

 
$
(7
)
 
$
(167
)
 
$
877



Year to Date 6/14/14
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
3,088

 
$
1,418

 
$
532

 
$
830

 
$
60

 
$

 
$
5,928

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
2,439

 
894

 
257

 
539

 
52

 

 
4,181

General and administrative expenses
164

 
170

 
107

 
88

 
11

 
83

 
623

Franchise and license expenses
6

 
34

 
18

 
9

 

 

 
67

Closures and impairment (income) expenses
19

 
1

 
2

 
1

 
1

 

 
24

Refranchising (gain) loss

 

 

 

 

 
(7
)
 
(7
)
Other (income) expense
(19
)
 
1

 
1

 

 

 
7

 
(10
)
 
2,609

 
1,100

 
385

 
637

 
64

 
83

 
4,878

Operating Profit (loss)
$
479

 
$
318

 
$
147

 
$
193

 
$
(4
)
 
$
(83
)
 
$
1,050



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.



17


Notes to the Condensed Consolidated Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)


(a)
Amounts presented as of and for the quarter and year to date ended June 13, 2015 are preliminary.

(b)
Other (income) expense for the China Division primarily consists of equity (income) loss from investments in unconsolidated affiliates.

(c)
In 2010 we refranchised our then remaining Company-operated restaurants in Mexico. To the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. During the quarter ended June 13, 2015 we initiated plans to sell this real estate and determined it was held for sale in accordance with GAAP. The sales price we expect to receive for this real estate exceeds its book value. However, the sale of the real estate will represent a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we are required to include accumulated translation losses associated with our Mexican business within our held for sale impairment evaluations. As such, we recorded a $68 million non-cash Special Items charge to Refranchising Loss, consistent with the classification of the original market refranchising transaction, representing the excess of the sum of the book value of the real estate and our accumulated translation losses over the expected sales price for the real estate. Our current expectation is that the real estate sale will close late in 2015 with limited, if any, additional pre-tax gain or loss. The refranchising is ultimately expected to result in a taxable gain as the anticipated proceeds will exceed the tax basis in the real estate, though the related tax expense will not be recognized until the sale closes.

Additionally, during the quarter ended June 13, 2015 we recognized a Special Items charge of $5 million associated with the decision to offer to refranchise our Pizza Hut Korea restaurants. None of these restaurants have yet to meet the criteria to be classified as held for sale and additional charges may occur as the refranchising plans move forward. Such charges are not expected to be material at this time.

(d)
During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that will give us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement we recognized a Special Items charge of $8 million for the quarter ended June 13, 2015, primarily related to the funding of investments for new back-of-house equipment for franchisees. We continue to expect a total charge of approximately $90 million in 2015 for these and other investments we agreed to fund.

(e)
During both the quarters ended June 13, 2015 and June 14, 2014, we recorded Special Items gains of $1 million related to refranchising in the U.S. During the years to date ended June 13, 2015 and June 14, 2014, we recorded Special Items gains of $8 million and $3 million, respectively, related to refranchising in the U.S.


18
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