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Yum! Brands Inc. Announces Full-Year EPS Growth of 14%, or $2.87 Per Share, Excluding Special Items

By: Yum! Brands |  1 Shares     104 Reads

Marks 10th Consecutive Year of at least 13% EPS Growth; China Opens a Record 656 New Units

LOUISVILLE, Ky.--(BUSINESS WIRE)--Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2011 including EPS of $0.75. Reported EPS for the full year was $2.74. Full year and fourth quarter results for Yum! Restaurants International (YRI) and the U.S. reflect the benefit of an additional week. This 53rd week did not impact China Division results.

FULL YEAR HIGHLIGHTS

• Worldwide system sales grew 7%, prior to foreign currency translation, including 29% in China and 8% at YRI. System sales in the U.S. were even.
• Same-store sales grew 19% in China, 3% at YRI and declined 1% in the U.S.
• Record international development with 1,561 new restaurants, including 656 in China and 905 at YRI.
• Worldwide operating profit grew 8%, including a positive impact from foreign currency translation of $77 million. Prior to foreign currency translation, operating profit grew 4%, including 15% in China and 9% at YRI, offsetting a 12% decline in the U.S.
• Worldwide restaurant margin declined 0.9 points to 16.0%.
• Increased annual dividend rate to $1.14 per share. This marked the seventh consecutive year we increased our dividend at a double-digit rate since initiating a dividend in 2004.
• Repurchased 14.3 million shares totaling $733 million at an average price of $51.
• Remained an industry leader with return on invested capital of over 22%.

FOURTH QUARTER HIGHLIGHTS

• Worldwide system sales grew 11%, prior to foreign currency translation, including 33% in China, 10% at YRI and 6% in the U.S.
• Same-store sales grew 21% in China, 3% at YRI and 1% in the U.S.
• Operating profit grew 15% in China and 12% at YRI, prior to foreign currency translation. Operating profit grew 10% in the U.S.
• Worldwide restaurant margin declined 1.1 percentage points to 14.3%

		Fourth Quarter									Full Year
		2011			2010			% Change			2011			2010			% Change
EPS Excluding Special Items		$0.75			$0.63			20	%		$2.87			$2.53			14	%
Special Items Gain/(Loss)1		($0.00	)		($0.07	)		NM			($0.13	)		($0.15	)		NM
EPS		$0.75			$0.56			33	%		$2.74			$2.38			15	%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for 2011 are primarily related to Pizza Hut UK impairment and the divestitures of Long John Silver's and A&W All-American Restaurants brands.
Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

David C. Novak, Chairman and CEO said, "I'm pleased to report full-year EPS growth of 14%, making 2011 the tenth consecutive year we exceeded our annual target of at least 10%.

The highlight of 2011 was again the exceptional performance of our China business, which grew system sales by 29% and operating profit by 15%, prior to foreign currency translation. We opened a record 656 new restaurants and delivered extraordinary same-store sales growth of 19%. Clearly, our KFC and Pizza Hut brands in China continued to strengthen their category-leading positions. At the same time, Yum! Restaurants International opened 905 new units, including 622 in high-growth emerging markets. We are on the ground floor of growth in India, Russia and Africa, where system sales grew at strong double-digit rates. For the year, our emerging market businesses at Yum! Restaurants International grew system sales 13%, prior to foreign currency translation, including new-unit growth of 7%. Emerging markets contributed nearly 50% of operating profit at Yum! Restaurants International. The Yum! growth story is clearly about China and a whole lot more.

We continue to focus on three key elements that drive the value of our company: new-unit development, same-store sales growth, and high returns. Our new-unit potential in emerging markets is arguably the best in the restaurant industry. To put this in perspective, today we have fewer than two restaurants per million people in the top 10 emerging markets compared to nearly 60 restaurants per million people in the U.S. Clearly, we have a very long runway for growth. To fully maximize the value of our existing asset base of 37,000 restaurants, we are introducing sales layers like breakfast, expanded beverages and new product platforms. Finally, we continue to be disciplined with capital as we invest in high-return growth opportunities around the world, along with paying a meaningful dividend and making significant share repurchases. Our return on invested capital of over 22% is among industry leaders and has improved for eight consecutive years.

We are proud of our consistent track record of growth and are well-positioned to meet or exceed our annual target of at least 10% EPS growth in 2012."

CHINA DIVISION

		Fourth Quarter										Full Year
						% Change										% Change
		2011		2010		Reported			Ex F/X			2011		2010		Reported			Ex F/X
System Sales Growth						+40			+33							+35			+29
Same-Store Sales Growth (%)		+21		+8		NM			NM			+19		+6		NM			NM
Restaurant Margin (%)		15.8		18.2		(2.4	)		(2.4	)		19.7		22.1		(2.4	)		(2.4	)
Operating Profit ($MM)		210		173		+21			+15			908		755		+20			+15

• China Division system sales increased 29% for the year and 33% in the fourth quarter, prior to foreign currency
• translation, driven by same-store sales growth and new-unit development.
• KFC same-store sales grew 19% for the year and 22% in the fourth quarter.
• Pizza Hut Casual Dining same-store sales grew 17% for the year and 15% in the fourth quarter.
• Pizza Hut Home Service same-store sales grew 19% for the year and 25% in the fourth quarter.
• China division same-store sales growth was driven by a 21% increase in same-store transactions for the year, including 20% in the fourth quarter.
• China opened a record 656 new units during the year, including 327 in the fourth quarter.

China Units		Q4 2011		% Change1
Traditional Restaurants		4,493		+15
KFC		3,701		+14
Pizza Hut Casual Dining		626		+20
Pizza Hut Home Service		135		+13
1 Annual Rate of Change

• Total revenues for the year surpassed the $5 billion mark, at $5.6 billion.
• Restaurant margin decreased 2.4 percentage points to 19.7% for the year, driven by commodity inflation of 8% and wage rate inflation of 20%. Consistent with expectations, restaurant margin decreased 2.4 percentage points to 15.8% in the fourth quarter. This decline was driven by 11% commodity inflation and 18% wage rate inflation.
• Foreign currency translation positively impacted operating profit by $43 million for the year and $11 million in the fourth quarter.

Our China Division reports on a calendar year basis and was not impacted by the 53rd week.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

		Fourth Quarter								Full Year
						% Change								% Change
		2011		2010		Reported		Ex F/X		2011		2010		Reported		Ex F/X
Traditional Restaurants¹		14,453		13,934		+4		NA		14,453		13,934		+4		NA
System Sales Growth						+11		+10						+13		+8
Franchise & License Fees ($MM)		275		242		+13		+13		868		741		+17		+12
Operating Profit ($MM)		207		184		+13		+12		673		589		+14		+9
Operating Margin (%)		19.7		18.6		1.1		1.3		20.6		19.1		1.5		1.4
¹ During the fourth quarter of 2011, we sold the Long John Silver's and A&W All-American Restaurants brands. The LJS and A&W international restaurants as of 2010 year-end have been removed from the 2010 balance to enhance comparability.

• YRI Divisionsystem sales increased 8% for the year and 10% in the fourth quarter, prior to foreign currency translation. The system sales increases were driven by new-unit development and by same-store sales growth of 3% for both the quarter and the year.
  • Emerging markets system sales grew 13% for the year, prior to foreign currency translation.
  • Developed markets system sales grew 4% for the year, prior to foreign currency translation.
• YRI opened 905 new units in 81 countries for the year. This included 452 new units in the fourth quarter.
  • For the year, 622 new units were opened in emerging markets.
  • Our franchise partners opened 91% of all new units for the year.
• Restaurant margin increased 0.6 percentage points to 12.3% for the full year. In the fourth quarter, restaurant margin declined 0.6 percentage points to 11.6%.
• Foreign currency translation positively impacted operating profit by $34 million for the year and $2 million in the fourth quarter.
• Beginning in the first quarter of 2012, India will be reported as a separate business segment not included in YRI results. Yum! Restaurants India will also include franchise businesses in the neighboring countries of Bangladesh, Mauritius, Nepal and Sri Lanka.

The 53^rd week had a positive impact on YRI's fourth quarter which included benefits of 3 percentage points to system sales growth, $35 million to total revenue, 0.3 percentage points to restaurant margin, $8 million to operating profit, and 0.1 percentage point to operating margin.

For the full year, the positive impact of the 53^rd week included benefits of 1 percentage point to system sales growth and 0.1 percentage point to restaurant margin.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

	YRI MARKETS		System Sales Ex F/X and Ex 53rd week
			Percent of YRI1		Fourth Quarter Growth (%)		Full Year Growth (%)
	Franchise*
	Asia2		27%		+6		+5
	Latin America		11%		+6		+7
	Middle East		8%		+14		+12
	Continental Europe³		7%		+5		+5
	Canada		6%		(5)		(4)
	Combined Company/Franchise**
	UK4		12%		+3		+3
	Australia/New Zealand		11%		+1		+1
	Thailand		2%		+17		+20
	Korea		1%		(7)		+2
	Key Growth***
	Africa		6%		+21		+15
	France		4%		+13		+20
	Germany/Netherlands		2%		+9		+13
	Russia		2%		+33		+27
	India		1%		+39		+41
*	These markets are 100% franchise owned and operated.
**	YRI owns 38% of these restaurants.
***	YRI owns 19% of these restaurants.
1	Percentage of Total YRI System Sales for Full Year 2011.
2	Excludes China, India, Thailand, and Korea.
3	Excludes "Key Growth Markets" of France, Germany, Netherlands, and Russia.
4	KFC UK system sales grew 6% for the year and in the quarter; Pizza Hut UK system sales declined 3% for the year and 2% in the quarter.

U.S. DIVISION

		Fourth Quarter						Full Year
		2011		2010		% Change		2011		2010		% Change
Same-Store Sales Growth (%)		+1		+5		NM		(1)		+1		NM
Restaurant Margin (%)		13.4		14.1		(0.7)		12.1		14.2		(2.1)
Franchise and License Fees ($MM)		252		233		+9		786		765		+3
Operating Profit ($MM)		191		173		+10		589		668		(12)
Operating Margin (%)		16.1		14.1		2.0		15.5		16.2		(0.7)

• U.S. Division same-store sales declined 1% for the year, including declines of 2% at Taco Bell and 2% at KFC. Pizza Hut was even for the year. In the fourth quarter, same-store sales increased 1%, driven by growth of 6% at Pizza Hut and offset by declines of 2% at Taco Bell and 1% at KFC.
• Restaurant margin declined 2.1 percentage points for the year, driven by commodity inflation of 6% and sales deleverage. In the fourth quarter, restaurant margin decreased 0.7 percentage points, driven by 7% commodity inflation.

The 53 ^rd week had a positive impact on U.S. fourth quarter results which included benefits of 6 percentage points to system sales growth, $56 million to total revenue, 0.5 percentage points to restaurant margin, $18 million to operating profit, and 0.8 percentage points to operating margin.

For the full year, the positive impact of the 53^rd week included benefits of 2 percentage points to system sales growth and 0.2 percentage points to restaurant margin.

OWNERSHIP UPDATE

• On February 1, 2012, we acquired a controlling interest in Little Sheep Group, Ltd., the leading hot-pot concept based in China. This included approximately 450 system units.

• During the fourth quarter, we divested our Long John Silver's and A&W All-American Restaurants brands. LJS was sold on December 16^th and A&W was sold on December 19^th. These divestitures included 349 franchise units at YRI and 1,232 franchise units in the U.S. The U.S. franchise restaurants provided 5 percent of franchise revenue in the U.S. in 2011. We do not expect these divestitures to have a material impact to ongoing earnings.
• Our company ownership in the U.S. dropped to 13% from 15% last year. We refranchised 404 restaurants, including 264 KFCs, 74 Taco Bells and 66 Pizza Huts in 2011. Our target for Pizza Hut and KFC is about 5% company ownership. We also announced in December our decision to reduce company ownership in Taco Bell from 23% to about 16% over the next two years.

OTHER ITEMS UPDATE

• Our fiscal year ends on the last Saturday in December and, as a result, a 53rd week is added every five or six years. In 2011, this 53rd week benefited the U.S. and a portion of YRI markets by providing an additional week in their reporting calendars. This yielded a $26 million benefit to YRI and U.S. operating profit in the fourth quarter. As a result, the operating profit growth rate in the fourth quarter of 2012 will be negatively impacted by this overlap. This benefit was offset throughout 2011 by investments, including franchise development incentives, as well as higher-than-normal spending, such as restaurant closures in the U.S. and YRI.
• Worldwide effective tax rate, prior to Special Items, declined to 24.2% from 25.3% for the year, but increased to 26.7% from 23.8% in the fourth quarter of last year.

CONFERENCE CALL

Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at9:15 a.m. Eastern Time Tuesday, February 7, 2012. 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 noon Eastern TimeTuesday, February 7, through midnight Tuesday, February 21, 2012. To access the playback, dial 855/859-2056 inthe United States and 404/537-3406 internationally. The playback pass code is 42233114.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting "Q4 2011 Earnings Conference Call" under "Investment Events." 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 http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.yum.com&esheet=50157745&lan=en-US&anchor=www.yum.com&index=2&md5=cd71df8dddc2a3fa577cf73b0f216fec 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 borne-illness or food safety issues; economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. 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, is the world's largest restaurant company in terms of system restaurants with over 37,000 restaurants in more than 110 countries and territories. Yum! is ranked #214 on the Fortune 500 List and generated revenues of more than $12 billion in 2011. 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 opened approximately four new restaurants each day of the year, making it a leader in international retail development.

YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	3,557			$	3,071			16			$	10,893			$	9,783			11
Franchise and license fees and income		554				491				13			1,733				1,560				11
Total revenues		4,111				3,562				15			12,626				11,343				11
Company restaurant expenses, net
Food and paper		1,209				979				(23	)		3,633				3,091				(18	)
Payroll and employee benefits		809				692				(17	)		2,418				2,172				(11	)
Occupancy and other operating expenses		1,026				922				(11	)		3,089				2,857				(8	)
Company restaurant expenses		3,044				2,593				(17	)		9,140				8,120				(13	)
General and administrative expenses		499				464				(8	)		1,372				1,277				(7	)
Franchise and license expenses		41				39				(4	)		145				110				(32	)
Closures and impairment (income) expenses		22				26				14			135				47				NM
Refranchising (gain) loss		3				12				73			72				63				(15	)
Other (income) expense		(5		)		(12		)		(54	)		(53		)		(43		)		25
Total costs and expenses, net		3,604				3,122				(15	)		10,811				9,574				(13	)
Operating Profit		507				440				15			1,815				1,769				3
Interest expense, net		46				54				16			156				175				11
Income before income taxes		461				386				20			1,659				1,594				4
Income tax provision		104				109				4			324				416				22
Net income - including noncontrolling interests		357				277				29			1,335				1,178				13
Net income - noncontrolling interests		1				3				45			16				20				18
Net income - YUM! Brands, Inc.		$	356			$	274			30			$	1,319			$	1,158			14
Effective tax rate		22.6		%		28.1		%		5.5 ppts.			19.5		%		26.1		%		6.6 ppts.
Basic EPS Data
EPS		$	0.77			$	0.58			33			$	2.81			$	2.44			15
Average shares outstanding		465				474				2			469				474				1
Diluted EPS Data
EPS		$	0.75			$	0.56			33			$	2.74			$	2.38			15
Average shares outstanding		477				488				2			481				486				1
Dividends declared per common share		$	0.57			$	0.50						$	1.07			$	0.92
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	1,853			$	1,336			39			$	5,487			$	4,081			34
Franchise and license fees and income		27				16				66			79				54				45
Total revenues		1,880				1,352				39			5,566				4,135				35
Company restaurant expenses, net
Food and paper		673				453				(48	)		1,947				1,362				(43	)
Payroll and employee benefits		334				215				(56	)		890				587				(52	)
Occupancy and other operating expenses		553				425				(30	)		1,568				1,231				(27	)
		1,560				1,093				(43	)		4,405				3,180				(38	)
General and administrative expenses		104				80				(31	)		275				216				(27	)
Franchise and license expenses		1				--				NM			4				1				NM
Closures and impairment (income) expenses		9				11				15			12				16				24
Other (income) expense		(4		)		(5		)		--			(38		)		(33		)		16
		1,670				1,179				(42	)		4,658				3,380				(38	)
Operating Profit		$	210			$	173			21			$	908			$	755			20
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		36.3				33.9				(2.4) ppts.			35.5				33.4				(2.1) ppts.
Payroll and employee benefits		18.1				16.1				(2.0) ppts.			16.2				14.4				(1.8) ppts.
Occupancy and other operating expenses		29.8				31.8				2.0 ppts.			28.6				30.1				1.5 ppts.
Restaurant margin		15.8		%		18.2		%		(2.4) ppts.			19.7		%		22.1		%		(2.4) ppts.
Operating margin		11.2		%		12.8		%		(1.6) ppts.			16.3		%		18.3		%		(2.0) ppts.
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	779			$	745			4			$	2,406			$	2,347			2
Franchise and license fees and income		275				242				13			868				741				17
Total revenues		1,054				987				7			3,274				3,088				6
Company restaurant expenses, net
Food and paper		253				237				(6	)		769				753				(2	)
Payroll and employee benefits		198				187				(6	)		616				591				(4	)
Occupancy and other operating expenses		237				229				(3	)		726				727				--
		688				653				(5	)		2,111				2,071				(2	)
General and administrative expenses		145				130				(12	)		422				378				(12	)
Franchise and license expenses		15				12				(7	)		51				36				(41	)
Closures and impairment (income) expenses		4				8				40			22				14				(62	)
Other (income) expense		(5		)		--				NM			(5		)		--				NM
		847				803				(5	)		2,601				2,499				(4	)
Operating Profit		$	207			$	184			13			$	673			$	589			14
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		32.5				31.9				(0.6) ppts.			31.9				32.1				0.2 ppts.
Payroll and employee benefits		25.5				25.1				(0.4) ppts.			25.6				25.2				(0.4) ppts.
Occupancy and other operating expenses		30.4				30.8				0.4 ppts.			30.2				31.0				0.8 ppts.
Restaurant margin		11.6		%		12.2		%		(0.6) ppts.			12.3		%		11.7		%		0.6 ppts.
Operating margin		19.7		%		18.6		%		1.1 ppts.			20.6		%		19.1		%		1.5 ppts.
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	925			$	990			(7	)		$	3,000			$	3,355			(11	)
Franchise and license fees and income		252				233				9			786				765				3
Total revenues		1,177				1,223				(4	)		3,786				4,120				(8	)
Company restaurant expenses, net
Food and paper		283				289				2			917				976				6
Payroll and employee benefits		277				290				5			912				994				8
Occupancy and other operating expenses		242				272				11			809				908				11
		802				851				6			2,638				2,878				8
General and administrative expenses		148				169				12			450				492				8
Franchise and license expenses		26				24				(12	)		92				70				(32	)
Closures and impairment (income) expenses		11				7				(42	)		21				17				(19	)
Other (income) expense		(1		)		(1		)		(48	)		(4		)		(5		)		(29	)
		986				1,050				6			3,197				3,452				7
Operating Profit		$	191			$	173			10			$	589			$	668			(12	)
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		30.5				29.1				(1.4) ppts.			30.5				29.1				(1.4) ppts.
Payroll and employee benefits		29.9				29.4				(0.5) ppts.			30.4				29.6				(0.8) ppts.
Occupancy and other operating expenses		26.2				27.4				1.2 ppts.			27.0				27.1				0.1 ppts.
		13.4		%		14.1		%		(0.7) ppts.			12.1		%		14.2		%		(2.1) ppts.
Operating margin		16.1		%		14.1		%		2.0 ppts.			15.5		%		16.2		%		(0.7) ppts.
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)
		(unaudited)
		12/31/11				12/25/10
ASSETS
Current Assets
Cash and cash equivalents		$	1,198			$	1,426
Accounts and notes receivable, less allowance: $22 in 2011 and $33 in 2010		286				256
Inventories		273				189
Prepaid expenses and other current assets		338				269
Deferred income taxes		112				61
Advertising cooperative assets, restricted		114				112
Total Current Assets		2,321				2,313
Property, plant and equipment, net of accumulated depreciation and amortization of $3,225 in 2011 and $3,273 in 2010		4,042				3,830
Goodwill		681				659
Intangible assets, net		299				475
Investments in unconsolidated affiliates		167				154
Restricted cash		300				--
Other assets		475				519
Deferred income taxes		549				366
Total Assets		$	8,834			$	8,316
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities		$	1,874			$	1,602
Income taxes payable		142				61
Short-term borrowings		320				673
Advertising cooperative liabilities		114				112
Total Current Liabilities		2,450				2,448
Long-term debt		2,997				2,915
Other liabilities and deferred credits		1,471				1,284
Total Liabilities		6,918				6,647
Shareholders' Equity
Common stock, no par value, 750 shares authorized; 460 shares and 469 shares issued in 2011 and 2010, respectively		18				86
Retained earnings		2,052				1,717
Accumulated other comprehensive income (loss)		(247		)		(227		)
Total Shareholders' Equity - YUM! Brands, Inc.		1,823				1,576
Noncontrolling interests		93				93
Total Shareholders' Equity		1,916				1,669
Total Liabilities and Shareholders' Equity		$	8,834			$	8,316

See accompanying notes.

YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
		Year
		12/31/11				12/25/10
Cash Flows - Operating Activities
Net income - including noncontrolling interests		$	1,335			$	1,178
Depreciation and amortization		628				589
Closures and impairment (income) expenses		135				47
Refranchising (gain) loss		72				63
Contributions to defined benefit pension plans		(63		)		(52		)
Deferred income taxes		(137		)		(110		)
Equity income from investments in unconsolidated affiliates		(47		)		(42		)
Distributions of income received from unconsolidated affiliates		39				34
Excess tax benefit from share-based compensation		(66		)		(69		)
Share-based compensation expense		59				47
Changes in accounts and notes receivable		(39		)		(12		)
Changes in inventories		(75		)		(68		)
Changes in prepaid expenses and other current assets		(25		)		61
Changes in accounts payable and other current liabilities		144				61
Changes in income taxes payable		109				104
Other, net		101				137
Net Cash Provided by Operating Activities		2,170				1,968
Cash Flows - Investing Activities
Capital spending		(940		)		(796		)
Proceeds from refranchising of restaurants		246				265
Acquisitions and investments		(81		)		(62		)
Sales of property, plant and equipment		30				33
Increase in restricted cash		(300		)		--
Other, net		39				(19		)
Net Cash Used in Investing Activities		(1,006		)		(579		)
Cash Flows - Financing Activities
Proceeds from long-term debt		404				350
Repayments of long-term debt		(666		)		(29		)
Revolving credit facilities, three months or less, net		--				(5		)
Short-term borrowings by original maturity
More than three months - proceeds		--				--
More than three months - payments		--				--
Three months or less, net		--				(3		)
Repurchase shares of Common Stock		(752		)		(371		)
Excess tax benefit from share-based compensation		66				69
Employee stock option proceeds		59				102
Dividends paid on Common Stock		(481		)		(412		)
Other, net		(43		)		(38		)
Net Cash Used in Financing Activities		(1,413		)		(337		)
Effect of Exchange Rate on Cash and Cash Equivalents		21				21
Net Increase (Decrease) in Cash and Cash Equivalents		(228		)		1,073
Cash and Cash Equivalents - Beginning of Year		$	1,426			$	353
Cash and Cash Equivalents - End of Year		$	1,198			$	1,426

See accompanying notes.

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 2011 and 2010 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the depreciation reduction from the KFC restaurants impaired upon our offer to refranchise in 2010 that remained Company stores for some or all of the quarter or year presented, charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources, the losses and other costs relating to the sales of Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") brands, the losses associated with refranchising equity markets outside the U.S. and the depreciation reduction from the Pizza Hut UK restaurants impaired upon our decision to refranchise these restaurants which remain company-owned as of December 31, 2011. These amounts are described in (b), (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. 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 2011 and 2010 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

TD>

		Quarter								Year
		12/31/11				12/25/10				12/31/11				12/25/10
Detail of Special Items
U.S. Refranchising gain (loss)		$	(14	)		$	33			$	(17	)		$	(18	)
Depreciation reduction from KFC restaurants impaired upon offer to sell		2				4				10				9
Charges relating to U.S. G&A productivity initiatives and realignment of resources		(19		)		(4		)		(21		)		(9		)
Losses and other costs relating to the sales of LJS and A&W		--				--				(86		)		--
Loss associated with refranchising equity markets outside the U.S.		--				(52		)		(76		)		(59		)
Depreciation reduction from Pizza Hut UK restaurants impaired upon decision to sell		3				--				3				--
Total Special Items Income (Expense)		(28		)		(19		)		(187		)		(77		)
Tax Benefit (Expense) on Special Items		27				(12		)		123				7
Special Items Income (Expense), net of tax		$	(1	)		$	(31	)		$	(64	)		$	(70	)
Average diluted shares outstanding		477				488				481				486
Special Items diluted EPS		$	--			$	(0.07	)		$	(0.13	)		$	(0.15	)
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
OPERATING PROFIT BEFORE SPECIAL ITEMS		$	535			$	459			$	2,002			$	1,846
Special Items Income (Expense)		(28		)		(19		)		(187		)		(77		)
Reported Operating Profit		$	507			$	440			$	1,815			$	1,769
Reconciliation of EPS Before Special Items to Reported EPS
DILUTED EPS BEFORE SPECIAL ITEMS		$	0.75			$	0.63			$	2.87			$	2.53
Special Items EPS		--				(0.07		)		(0.13		)		(0.15		)
Reported EPS	$	0.75			$	0.56			$	2.74			$	2.38
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
EFFECTIVE TAX RATE BEFORE SPECIAL ITEMS		26.7		%		23.8		%		24.2		%		25.3		%
Impact on Tax Rate as a result of Special Items		(4.1		)%		4.3		%		(4.7		)%		0.8		%
Reported Effective Tax Rate		22.6		%		28.1		%		19.5		%		26.1		%

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
										United				Corporate and
Quarter Ended 12/31/11		China				YRI				States				Unallocated				Consolidated
Total revenues		$	1,880			$	1,054			$	1,177			$	--			$	4,111
Company restaurant expenses		1,560				688				802				(6		)		3,044
General and administrative expenses		104				145				148				102				499
Franchise and license expenses		1				15				26				(1		)		41
Closures and impairment (income) expenses		9				4				11				(2		)		22
Refranchising (gain) loss		--				--				--				3				3
Other (income) expense		(4		)		(5		)		(1		)		5				(5		)
		1,670				847				986				101				3,604
Operating Profit (loss)		$	210			$	207			$	191			$	(101	)		$	507

										United				Corporate and
Quarter Ended 12/25/10		China				YRI				States				Unallocated				Consolidated
Total revenues		$	1,352			$	987			$	1,223			$	--			$	3,562
Company restaurant expenses		1,093				653				851				(4		)		2,593
General and administrative expenses		80				130				169				85				464
Franchise and license expenses		--				12				24				3				39
Closures and impairment (income) expenses		11				8				7				--				26
Refranchising (gain) loss		--				--				--				12				12
Other (income) expense		(5		)		--				(1		)		(6		)		(12		)
		1,179				803				1,050				90				3,122
Operating Profit (loss)		$	173			$	184			$	173			$	(90	)		$	440

The above tables reconcile segment information, which is based on management responsibility, with our 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.

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
										United				Corporate and
Year Ended 12/31/11		China				YRI				States				Unallocated				Consolidated
Total revenues		$	5,566			$	3,274			$	3,786			$	--			$	12,626
Company restaurant expenses		4,405				2,111				2,638				(14		)		9,140
General and administrative expenses		275				422				450				225				1,372
Franchise and license expenses		4				51				92				(2		)		145
Closures and impairment (income) expenses		12				22				21				80				135
Refranchising (gain) loss		--				--				--				72				72
Other (income) expense		(38		)		(5		)		(4		)		(6		)		(53		)
		4,658				2,601				3,197				355				10,811
Operating Profit (loss)		$	908			$	673			$	589			$	(355	)		$	1,815

										United				Corporate and
Year Ended 12/25/10		China				YRI				States				Unallocated				Consolidated
Total revenues		$	4,135			$	3,088			$	4,120			$	--			$	11,343
Company restaurant expenses		3,180				2,071				2,878				(9		)		8,120
General and administrative expenses		216				378				492				191				1,277
Franchise and license expenses		1				36				70				3				110
Closures and impairment (income) expenses		16				14				17				--				47
Refranchising (gain) loss		--				--				--				63				63
Other (income) expense		(33		)		--				(5		)		(5		)		(43		)
		3,380				2,499				3,452				243				9,574
Operating Profit (loss)		$	755			$	589			$	668			$	(243	)		$	1,769

The above tables reconcile segment information, which is based on management responsibility, with our 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.

Notes to the Consolidated Summary of Results, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)
(a)		Amounts presented as of and for the quarter and year ended December 31, 2011 are preliminary.
(b)		As part of our plan to transform our U.S. business we took several measures ("the U.S. business transformation measures") in 2011 and 2010 including: continuation of our U.S. refranchising, potentially reducing our Company ownership in the U.S. to about 8%, including a reduction of Taco Bell Company ownership from 23% to 16%; and G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs). We have traditionally not allocated refranchising (gains) losses for segment reporting purposes and also have not allocated the costs associated with the productivity initiatives and realignment of resources to the U.S. segment. Additionally, these items have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results). We recorded non-cash impairment charges, primarily in the first quarter of 2010, related to our offers to refranchise a substantial portion of our KFC restaurants in the U.S. We have recorded the depreciation reduction resulting from the non-cash impairment charges related to these KFCs that remained Company stores for some or all of the periods presented as a Special Item, resulting in depreciation expense in the U.S. segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded for these KFCs while we continue to own the restaurants.
(c)		During the quarter ended December 31, 2011, we sold the LJS and A&W brands to key franchise leaders and strategic investors in separate transactions. During 2011, as a result of our decision to sell these brands, we recognized $86 million of net pre-tax losses and other costs, primarily in Closures and impairment (income) expenses. Additionally, we recognized $104 million of tax benefits primarily related to tax losses associated with the sales. These items were recorded as Special Items and have not been allocated to any segment for performance reporting purposes (see accompanying reconciliation to reported results).
(d)		During the quarter ended September 3, 2011, we recognized a pre-tax $76 million refranchising loss ($63 million net of tax) as a result of our decision to offer to refranchise all remaining company-owned Pizza Hut restaurants in the UK. This item was recorded as a Special Item and has not been allocated to any segment for performance reporting purposes (see accompanying reconciliation to reported results). During the quarter and year ended December 31, 2011, we recorded the depreciation reduction resulting from this non-cash impairment charge as a Special Item, resulting in depreciation expense in the YRI segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded while we continue to own these restaurants.
(e)		During the quarter ended March 20, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs. We included in our March 20, 2010 financial statements a non-cash write off of $7 million of goodwill in determining the loss on refranchising of Taiwan. This loss did not result in a related income tax benefit, was not allocated to any segment for performance reporting purposes and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results).
(f)		Other (income) expense for the China Division primarily consists of equity income from investments in unconsolidated affiliates.
(g)		Subsequent to year end on February 1, 2012, we completed our acquisition of an additional 66% of Little Sheep Group Limited ("Little Sheep") for $584 million. We owned 27% of the outstanding shares as of December 31, 2011, and had $300 million in an escrow account to demonstrate availability of funds to acquire additional shares in this business. The funds placed in escrow were restricted to the acquisition of Little Sheep and are included in Restricted cash in our Consolidated Balance Sheet as of December 31, 2011.

Source: Yum! Brands Inc.

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