Yum! Brands Reports Core Operating Profit Growth of 21% in First Quarter 2016

Raises Full-Year Core Operating Profit Growth Guidance to 12%

LOUISVILLE, Ky. - April 20, 2016 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 19, 2016, including EPS of $0.95 excluding Special Items. On a reported basis, EPS was $0.93 and operating profit growth was 12%.

Core operating profit growth and core operating margin growth figures exclude foreign currency translation and Special Items.

First-Quarter Highlights

  • Worldwide system sales increased 5%.
  • Worldwide same-store sales increased 2%.
  • Worldwide core operating profit increased 21%.
  • EPS excluding Special Items increased 19% to $0.95. Reported EPS increased 14% to $0.93.
  • Foreign currency translation negatively impacted operating profit by $28 million.
  • Opened 295 new restaurants worldwide; 72% of international development occurred in emerging markets.
  • On track with China separation to be complete by year end.
             
          % Change  
          System Sales        

Same-Store
Sales

        Units        

Core
Operating
Profit

       

Core
Operating
Margin (ppts)

 
  China Division       +11         +6         +5         +42         +4.6  
  KFC Division       +5         +1         +2         +4         +0.3  
  Pizza Hut Division       +4         +3         +1         +9         +2.6  
  Taco Bell Division       +3         +1         +3         +4         +1.5  
  Worldwide       +5         +2         +2         +21         +2.9  
                                                     

 

             
         

First Quarter

 
         

2016

       

2015

       

% Change

 
  EPS Excluding Special Items       $0.95         $0.80         19%  
  Special Items Gain/(Loss)1      

$(0.02)

       

$0.01

       

NM

 
  EPS       $0.93         $0.81         14%  

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2016 primarily relate to charges associated with the agreement reached in 2015 with KFC U.S. franchisees and costs associated with the planned separation of our China business.

Effective January 2016, the Company’s India business integrated its three restaurant brands into our global KFC, Pizza Hut and Taco Bell Divisions. Prior year figures have been restated to present comparable results.

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

Greg Creed Comments

Greg Creed, CEO, said “I’m very pleased with our results in the first quarter, including better-than-expected core operating profit growth of 21%, driven by 42% growth in our China business. KFC China had an outstanding Chinese New Year bucket promotion leading to 12% same-store sales growth for the quarter, underscoring the power of delivering insight-driven marketing that resonates with our customers. Companywide, all four of our Divisions posted positive same-store sales and core operating profit growth. I’m especially encouraged by the continued turnaround of our Pizza Hut U.S. business, which delivered 5% same-store sales growth.

While it’s early in the year and there may be bumps in the road, we’re confident in raising core operating profit growth guidance to 12%, from 10% previously. This is a transformational year for our company as we remain on track to finalize the separation of our China business by year end. We look forward to establishing two powerful, independent, focused growth companies dedicated to building on our brand strengths and rewarding our shareholders.”

CHINA DIVISION

             
         

First Quarter

 
                    %/ppts Change  
       

2016

       

2015

       

Reported

       

Ex F/X

 
  System Sales Growth                           +6         +11  
  Same-Store Sales Growth (%)       +6         (12)         NM         NM  
  Franchise & License Fees ($MM)       25         21         +19         +25  
  Restaurant Margin (%)       22.4         18.9         3.5         3.4  
  Operating Profit ($MM)       256         190         +35         +42  
  Operating Margin (%)       19.7         15.1         4.6         4.6  
                                           
  • China Division system sales increased 11%, excluding foreign currency translation.
    • Same-store sales increased 6%, with an increase of 12% at KFC, partially offset by a decline of 12% at Pizza Hut Casual Dining.
  • China Division opened 68 new units during the quarter.
                         
  China Units         Q1 2016         % Change2  
  Restaurants1         7,205         +5  
  KFC         5,019         +3  
  Pizza Hut                      
  Casual Dining         1,596         +17  
  Home Service         330         +22  
 

1 Total includes East Dawning and Little Sheep units.

 
 

2 Represents year-over-year change.

 
     
  • Restaurant margin was 22.4%, an increase of 3.5 percentage points driven by sales leverage at KFC, productivity initiatives and commodity deflation, partially offset by labor inflation.
  • Foreign currency translation negatively impacted operating profit by $13 million.
  • Consistent with prior years, China Division’s first quarter includes January and February results only. The first quarter includes Chinese New Year, which is peak season for the China Division.
  • Leap year added an extra day in the quarter, resulting in an additional $6 million of operating profit.

KFC DIVISION

             
         

First Quarter

 
                              %/ppts Change  
         

2016

       

2015

       

Reported

       

Ex F/X

 
  Restaurants       14,941         14,584         +2         NA  
  System Sales Growth                           (2)         +5  
  Same-Store Sales Growth (%)       +1         +4         NM         NM  
  Franchise & License Fees ($MM)       195         198         (1)         +6  
  Restaurant Margin (%)       14.9         14.5         0.4         0.3  
  Operating Profit ($MM)       160         166         (4)         +4  
  Operating Margin (%)       25.5         25.0         0.5         0.3  
                                           
  • KFC Division system sales increased 5%, excluding foreign currency translation.
               
            First Quarter (% Change)  
           

Int’l Emerging Markets

       

Intl Developed Markets

        U.S.  
  System Sales Growth (Ex F/X)         +8         +5         Even  
  Same-Store Sales Growth         +1         +1         +1  
                                   
  • KFC Division opened 79 new international restaurants in 32 countries, including 56 units in emerging markets. 77% of these new units were opened by franchisees.
  • Operating margin increased 0.5 percentage points driven by new-unit development.
  • Core operating profit grew 7% in the quarter excluding the incremental advertising expense associated with the 2015 agreement reached with KFC U.S. franchisees.
  • Foreign currency translation negatively impacted operating profit by $13 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  
                  First Quarter (%)  
  Emerging Markets                      
  Asia (e.g. Malaysia, Indonesia, Philippines)         7%         +9  
  Africa         6%         +7  
  Latin America (e.g. Mexico, Peru)         6%         +6  
  Middle East / North Africa         6%         +3  
  Russia         5%         +27  
  Thailand         3%         +5  
  Continental Europe (e.g. Poland)         3%         +17  
  India         1%         (1)  
                         
  Developed Markets                      
  U.S.         24%         Even  
  Australia         10%         +5  
  Asia (e.g. Japan, Korea, Taiwan)         9%         +6  
  U.K.         9%         Even  
  Continental Europe (e.g. France, Germany)         7%         +9  
  Canada         3%         +5  
  Latin America (e.g. Puerto Rico)         1%         (3)  
 

1 See website www.yum.com/investors for a list of the countries within each of the markets.

 
 

2 Reflects Full Year 2015.

 
     

PIZZA HUT DIVISION

             
         

First Quarter

 
                              %/ppts Change  
         

2016

       

2015

       

Reported

       

Ex F/X

 
  Restaurants       14,142         14,026         +1         NA  
  System Sales Growth                           +1         +4  
  Same-Store Sales Growth (%)       +3         Even         NM         NM  
  Franchise & License Fees ($MM)       133         128         +3         +6  
  Restaurant Margin (%)       11.1         11.6         (0.5)         (0.8)  
  Operating Profit ($MM)       87         81         +7         +9  
  Operating Margin (%)       32.9         29.8         3.1         2.6  
                                           
  • Pizza Hut Division system sales increased 4%, excluding foreign currency translation.
               
            First Quarter (% Change)  
           

Int’l Emerging Markets

       

Int’l Developed Markets

        U.S.  
  System Sales Growth (Ex F/X)         +6         +1         +4  
  Same-Store Sales Growth         Even         (1)         +5  
                                   
  • Pizza Hut Division opened 63 new international restaurants in 27 countries, including 30 units in emerging markets. 87% of these new units were opened by franchisees.
  • Operating margin increased 3.1 percentage points, driven by same-store sales growth and reduced G&A.
  • Foreign currency translation negatively impacted operating profit by $1 million.
                         
  PIZZA HUT MARKETS1        

Percent of Pizza
Hut System Sales2

        SYSTEM Sales Growth Ex F/X  
                  First Quarter (%)  
  Emerging Markets                      
  Latin America (e.g. Mexico, Peru)         7%         +10  
  Asia (e.g. Malaysia, Indonesia, Philippines)         5%         +1  
  Middle East / North Africa         5%         +4  
  Continental Europe (e.g. Poland)         1%         +14  
  India         1%         (6)  
                         
  Developed Markets                      
  U.S.         55%         +4  
  Asia (e.g. Japan, Korea, Taiwan)         8%         (8)  
  U.K.         7%         +5  
  Continental Europe (e.g. France, Germany)         5%         +6  
  Canada         3%         +10  
  Australia         2%         (10)  
  Latin America (e.g. Puerto Rico)         1%         (5)  
 

1 See website www.yum.com/investors for a list of the countries within each of the markets.

 
 

2 Reflects Full Year 2015.

 
     

TACO BELL DIVISION

             
         

First Quarter

 
                              %/ppts Change  
         

2016

       

2015

       

Reported

       

Ex F/X

 
  Restaurants       6,437         6,235         +3         NA  
  System Sales Growth                           +3         +3  
  Same-Store Sales Growth (%)       +1         +6         NM         NM  
  Franchise & License Fees ($MM)       101         96         +6         +6  
  Restaurant Margin (%)       21.0         19.5         1.5         1.5  
  Operating Profit ($MM)       119         114         +4         +4  
  Operating Margin (%)       28.0         26.5         1.5         1.5  
                                           
  • Taco Bell Division system sales increased 3%, driven by 1% same-store sales growth and 3% unit growth.
  • Taco Bell Division opened 49 new restaurants; 90% of these new units were opened by franchisees.
  • Restaurant margin was 21.0%, an increase of 1.5 percentage points driven by favorable U.S. commodities and prior-year pricing actions, partially offset by labor inflation.
  • Operating margin increased 1.5 percentage points driven by new-unit development and same-store sales growth, partially offset by increased G&A primarily related to higher legal costs.

Special Items / Share Repurchase Update

  • During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control, as well as an accelerated path to expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $9 million during the quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.
  • During the quarter, we incurred a Special Items charge of $9 million for costs related to the planned separation of our China business.
  • Year-to-date through April 19, 2016, we repurchased 13.3 million shares totaling $925 million at an average price of $70. Since we announced our intention to separate the China business, we have repurchased 24.7 million shares totaling $1.8 billion at an average price of $71. This is part of our previously announced plan to return $6.2 billion of capital to shareholders prior to the separation of our China business.

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 Thursday, April 21, 2016. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 67267109.

The call will be available for playback beginning at 12:30 p.m. Eastern Time Thursday, April 21, 2016 through midnight Wednesday, May 18, 2016. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 67267109.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, www.yum.com/investors and selecting “Q1 2016 Earnings Conference Call” under “Events & Presentations.”

Additional Information Online

Quarter end dates for each division, restaurant-count details and definitions of terms are available online atwww.yum.com/investors.

This announcement 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 generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding the intended capital return to shareholders as well as the related borrowing required to fund such capital return, the planned separation of the Yum! Brands and Yum! China businesses, the timing of any such separation, the future earnings and performance as well as capital structure of Yum! Brands, Inc. or any of its businesses, including the Yum! Brands and Yum! China businesses on a standalone basis if the separation is completed. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to return capital to shareholders at the times and in the amounts currently anticipated, if at all, as well as the corresponding costs of borrowing to fund such capital return as well as other costs; whether the separation of the Yum! Brands and Yum! China businesses is completed, as expected or at all, and the timing of any such separation; whether the operational and strategic benefits of the separation can be achieved; whether the costs and expenses of the separation can be controlled within expectations, including potential tax costs; as well as other risks. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 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 or Form 10-K) for additional detail about factors that could affect our financial and other results. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

Yum! Brands, Inc., based in Louisville, Kentucky, has nearly 43,000 restaurants in more than 130 countries and territories. Yum! is ranked #228 on the Fortune 500 List with revenues of over $13 billion in 2015 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. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development.

     

YUM! Brands, Inc.

Condensed Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

                 
          Quarter ended     % Change
          3/19/16     3/21/15     B/(W)
                       
Company sales         $ 2,165       $ 2,179       (1)
Franchise and license fees and income         454       443       3
Total revenues         2,619       2,622      
                       
Company restaurant expenses                      
Food and paper         649       688       6
Payroll and employee benefits         486       493       2
Occupancy and other operating expenses         597       616       3
Company restaurant expenses         1,732       1,797       4
                       
General and administrative expenses         286       295       3
Franchise and license expenses         48       34       (36)
Closures and impairment (income) expenses         3       3       3
Refranchising (gain) loss         (7 )     (10 )     (33)
Other (income) expense         (7 )     (3 )     NM
Total costs and expenses, net         2,055       2,116       3
                       
Operating Profit         564       506       12
Interest expense, net         37       34       (9)
Income before income taxes         527       472       12
Income tax provision         132       111       (19)
Net income - including noncontrolling interests         395       361       9
Net income (loss) - noncontrolling interests         4       (1 )     NM
Net income - YUM! Brands, Inc.         $ 391       $ 362       8
                       

Effective tax rate

        25.0 %     23.4 %     (1.6 ppts.)
                       

Basic EPS Data

                     
EPS         $ 0.94       $ 0.83       14
Average shares outstanding         416       438       5
                       

Diluted EPS Data

                     
EPS         $ 0.93       $ 0.81       14
Average shares outstanding         422       446       5
                       
Dividends declared per common share         $ 0.46       $        
                               

See accompanying notes.

Percentages may not recompute due to rounding.

                 

YUM! Brands, Inc.

CHINA DIVISION Operating Results

(amounts in millions)

(unaudited)

                 
          Quarter ended     % Change
          3/19/16     3/21/15     B/(W)
                       
Company sales         $ 1,278       $ 1,235       3
Franchise and license fees and income         25       21       19
Total revenues         1,303       1,256       4
                       
Company restaurant expenses                      
Food and paper         385       392       2
Payroll and employee benefits         245       244       (1)
Occupancy and other operating expenses         362       366       1
Company restaurant expenses         992       1,002       1
General and administrative expenses         66       68       3
Franchise and license expenses         4       4       6
Closures and impairment (income) expenses               2       80
Other (income) expense         (15 )     (10 )     62

Total costs and expenses, net

        1,047       1,066       2
Operating Profit         $ 256       $ 190       35
                       
Company sales         100.0 %     100.0 %      
Food and paper         30.1       31.8       1.7 ppts.
Payroll and employee benefits         19.2       19.7       0.5 ppts.
Occupancy and other operating expenses         28.3       29.6       1.3 ppts.
Restaurant margin         22.4 %     18.9 %     3.5 ppts.
                       
Operating margin         19.7 %     15.1 %     4.6 ppts.
                           

See accompanying notes.

Percentages may not recompute due to rounding.

                 

YUM! Brands, Inc.

KFC DIVISION Operating Results

(amounts in millions)

(unaudited)

                 
          Quarter ended     % Change
          3/19/16     3/21/15     B/(W)
                       
Company sales         $ 430       $ 464       (7)
Franchise and license fees and income         195       198       (1)
Total revenues         625       662       (5)
                       
Company restaurant expenses                      
Food and paper         145       161       10
Payroll and employee benefits         103       107       4
Occupancy and other operating expenses         118       129       8
Company restaurant expenses         366       397       8
General and administrative expenses         76       82       6
Franchise and license expenses         21       17       (23)
Closures and impairment (income) expenses         2             NM
Other (income) expense                     (80)

Total costs and expenses, net

        465       496       6
Operating Profit         $ 160       $ 166       (4)
                       
Company sales         100.0 %     100.0 %      
Food and paper         33.7       34.6       0.9 ppts.
Payroll and employee benefits         23.9       23.1       (0.8 ppts.)
Occupancy and other operating expenses         27.5       27.8       0.3 ppts.
Restaurant margin         14.9 %     14.5 %     0.4 ppts.
                       
Operating margin         25.5 %     25.0 %     0.5 ppts.
                           

See accompanying notes.

Percentages may not recompute due to rounding.

                 

 

YUM! Brands, Inc.

PIZZA HUT DIVISION Operating Results

(amounts in millions)

(unaudited)

                 
          Quarter ended     % Change
          3/19/16     3/21/15     B/(W)
                       
Company sales         $ 132       $ 144       (8)
Franchise and license fees and income         133       128       3
Total revenues         265       272       (3)
                       
Company restaurant expenses                      
Food and paper         36       40       9
Payroll and employee benefits         41       44       7
Occupancy and other operating expenses         40       43       6
Company restaurant expenses         117       127       7
General and administrative expenses         50       57       14
Franchise and license expenses         10       9       (13)
Closures and impairment (income) expenses         1             NM
Other (income) expense               (2 )     NM

Total costs and expenses, net

        178       191       7
Operating Profit         $ 87       $ 81       7
                       
Company sales         100.0 %     100.0 %      
Food and paper         27.4       27.8       0.4 ppts.
Payroll and employee benefits         31.1       30.8       (0.3 ppts.)
Occupancy and other operating expenses         30.4       29.8       (0.6 ppts.)
Restaurant margin         11.1 %     11.6 %     (0.5 ppts.)
                       
Operating margin         32.9 %     29.8 %     3.1 ppts.
                           

See accompanying notes.

Percentages may not recompute due to rounding.

                 

 

YUM! Brands, Inc.

TACO BELL DIVISION Operating Results

(amounts in millions)

(unaudited)

                 
          Quarter ended     % Change
          3/19/16     3/21/15     B/(W)
                       
Company sales         $ 325       $ 336       (3)
Franchise and license fees and income         101       96       6
Total revenues         426       432       (1)
                       
Company restaurant expenses                      
Food and paper         83       95       12
Payroll and employee benefits         97       98       1
Occupancy and other operating expenses         77       78       1
Company restaurant expenses         257       271       5
General and administrative expenses         46       44       (6)
Franchise and license expenses         4       2       (24)
Closures and impairment (income) expenses               1       99
Other (income) expense                     (25)

Total costs and expenses, net

        307       318       3
Operating Profit         $ 119       $ 114       4
                       
Company sales         100.0 %     100.0 %      
Food and paper         25.5       28.2       2.7 ppts.
Payroll and employee benefits         29.7       29.1       (0.6 ppts.)
Occupancy and other operating expenses         23.8       23.2       (0.6 ppts.)
Restaurant margin         21.0 %     19.5 %     1.5 ppts.
                       
Operating margin         28.0 %     26.5 %     1.5 ppts.
                           

See accompanying notes.

Percentages may not recompute due to rounding.

                 

 

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

                 
          (unaudited)      
          3/19/16     12/26/15
ASSETS                
Current Assets                
Cash and cash equivalents         $ 934       $     737  
Accounts and notes receivable, less allowance: $20 in 2016 and $16 in 2015         418       377  
Inventories         210       229  
Prepaid expenses and other current assets         279      

241

 
Advertising cooperative assets, restricted         122       103  
Total Current Assets         1,963      

1,687

 
                 

Property, plant and equipment, net of accumulated depreciation and amortization of $3,682 in 2016 and $3,643 in 2015

        4,111       4,189  
Goodwill         644       656  
Intangible assets, net         265       271  
Investments in unconsolidated affiliates         36       61  
Other assets         500      

521

 
Deferred income taxes         702       676  
Total Assets         $ 8,221       $    

8,061

 
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               
Current Liabilities                
Accounts payable and other current liabilities         $ 2,055       $     1,985  
Income taxes payable         150       77  
Short-term borrowings         2,321      

922

 
Advertising cooperative liabilities         122       103  
Total Current Liabilities         4,648      

3,087

 
                 
Long-term debt         2,510       3,040  
Other liabilities and deferred credits         846      

959

 
Total Liabilities         8,004       7,086  
                 
Redeemable noncontrolling interest         7       6  
                 

Shareholders’ Equity

               
Common stock, no par value, 750 shares authorized; 407 shares and 420 shares issued in 2016 and 2015, respectively         2        
Retained earnings         454       1,150  
Accumulated other comprehensive income (loss)         (300 )     (239 )

Total Shareholders’ Equity - YUM! Brands, Inc.

        156       911  
Noncontrolling interests         54       58  

Total Shareholders’ Equity

        210       969  

Total Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity

        $ 8,221       $     8,061  
                             

See accompanying notes.

           

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

           
         

Quarter ended

          3/19/16     3/21/15
Cash Flows - Operating Activities                
Net income - including noncontrolling interests         $ 395       $ 361  
Depreciation and amortization         136       139  
Closures and impairment (income) expenses         3       3  
Refranchising (gain) loss         (7 )     (10 )
Contributions to defined benefit pension plans         (2 )     (76 )
Deferred income taxes         (25 )     (29 )
Equity income from investments in unconsolidated affiliates         (16 )     (9 )
Excess tax benefit from share-based compensation         (11 )     (19 )
Share-based compensation expense         13       15  
Changes in accounts and notes receivable         33       3  
Changes in inventories         17       21  
Changes in prepaid expenses and other current assets        

      (27 )
Changes in accounts payable and other current liabilities         66       113  
Changes in income taxes payable         95       51  
Other, net        

(38

)     (20 )
Net Cash Provided by Operating Activities         659       516  
                 
Cash Flows - Investing Activities                
Capital spending         (160 )     (227 )
Changes in short-term investments, net         (51 )     (24 )
Proceeds from refranchising of restaurants         9       22  
Other, net         1       33  
Net Cash Used in Investing Activities         (201 )     (196 )
                 
Cash Flows - Financing Activities                
Repayments of long-term debt         (2 )     (3 )
Short-term borrowings by original maturity                
More than three months - proceeds         1,400        
More than three months - payments        

       
Three months or less, net                
Revolving credit facilities, three months or less, net         (524 )     53  
Repurchase shares of Common Stock         (925 )     (124 )
Excess tax benefit from share-based compensation         11       19  
Employee stock option proceeds         1       10  
Dividends paid on Common Stock         (192 )     (178 )
Other, net         (12 )     (23 )
Net Cash Used in Financing Activities         (243 )     (246 )
Effect of Exchange Rate on Cash and Cash Equivalents         (18 )     23  
Net Increase in Cash and Cash Equivalents         197       97  
Cash and Cash Equivalents - Beginning of Period         737       578  
Cash and Cash Equivalents - End of Period         $ 934       $ 675  
                         

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 2016 and 2015 on a basis before Special Items. Included in Special Items are gains/(losses) associated with the costs associated with the planned spin-off of the China business and YUM recapitalization, costs associated with the KFC U.S. Acceleration Agreement and certain refranchising initiatives. 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 March 19, 2016 and March 21, 2015 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

           
          Quarter ended
          3/19/16     3/21/15
Detail of Special Items                
Costs associated with the planned spin-off of the China business and YUM recapitalization(c)         $ (9 )     $    
Costs associated with KFC U.S. Acceleration Agreement(d)         (9 )     (2 )
Refranchising initiatives(e)         3       7  
Total Special Items Income (Expense)         (15 )     5  
Tax Benefit (Expense) on Special Items         4       (2 )
Special Items Income (Expense), net of tax         $ (11 )     $   3  
Average diluted shares outstanding         422       446  
Special Items diluted EPS         $ (0.02 )     $   0.01  
                 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit                
Operating Profit Before Special Items         $ 579       $   501  
Special Items Income (Expense)         (15 )     5  
Reported Operating Profit         $ 564       $   506  
                 
Reconciliation of EPS Before Special Items to Reported EPS                
Diluted EPS Before Special Items         $ 0.95       $   0.80  
Special Items EPS         (0.02 )     0.01  
Reported EPS         $ 0.93       $   0.81  
                 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate                
Effective Tax Rate Before Special Items         25.0 %     23.3 %
Impact on Tax Rate as a result of Special Items         %     0.1 %
Reported Effective Tax Rate         25.0 %     23.4 %
                     

 

                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Quarter Ended 3/19/16         China   KFC   Pizza Hut   Taco Bell  

Corporate

and

Unallocated

  Consolidated
Total revenues         $ 1,303     $ 625     $ 265     $ 426     $     $ 2,619  
                               
Company restaurant expenses         992     366     117     257         1,732  
General and administrative expenses         66     76     50     46     48     286  
Franchise and license expenses         4     21     10     4     9     48  
Closures and impairment (income) expenses             2     1             3  
Refranchising (gain) loss                         (7 )   (7 )
Other (income) expense         (15 )               8     (7 )
          1,047     465     178     307     58     2,055  
Operating Profit (loss)         $ 256     $ 160     $ 87     $ 119     $ (58 )   $ 564  
                                                       
                                                       

Quarter Ended 3/21/15

        China   KFC   Pizza Hut   Taco Bell  

Corporate

and

Unallocated

  Consolidated
Total revenues         $ 1,256     $ 662     $ 272     $ 432     $     $ 2,622  
                               
Company restaurant expenses         1,002     397     127     271         1,797  
General and administrative expenses         68     82     57     44     44     295  
Franchise and license expenses         4     17     9     2     2     34  
Closures and impairment (income) expenses         2             1         3  
Refranchising (gain) loss                         (10 )   (10 )
Other (income) expense         (10 )       (2 )       9     (3 )
          1,066     496     191     318     45     2,116  
Operating Profit (loss)         $ 190     $ 166     $ 81     $ 114     $ (45 )   $ 506  
                                                       

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.

 

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 ended March 19, 2016 are preliminary.

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

(c)In October, 2015 we announced our intent to separate YUM’s China business from YUM into an independent, publicly-traded company by the end of 2016.  This transaction, which is expected to be a tax-free spin-off of our China business, will create two powerful, independent, focused growth companies with distinct strategies, financial profiles and investment characteristics.  Additionally, we plan to optimize the capital structure of YUM! Brands through the issuance of new debt that will allow us to return significant capital to shareholders. During the quarter ended March 19, 2016 we incurred costs of $9 million related to these initiatives.

(d)During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement we recognized Special Item charges for the quarter ended March 19, 2016 of $9 million, primarily related to the funding of investments for new back-of-house equipment for franchisees.

(e)We have historically recorded refranchising gains and losses in the U.S. as Special Items due to the scope of our refranchising program and the volatility in associated gains and losses.  Beginning in 2016, we are also including all international refranchising gains and losses, excluding China, in Special Items.  The inclusion in Special Items of these additional international refranchising gains and losses is the result of the anticipated size and volatility of refranchising initiatives outside the U.S. that will take place in connection with our previously announced plans to have 96% franchise ownership by the end of 2017.  During the quarters ended March 19, 2016 and March 21, 2015 we recorded refranchising gains of $3 million and $7 million, respectively, that have been reflected as Special Items.
 
SOURCE Yum! Brands, Inc.

Contacts:

Steve Schmitt
Yum! Brands, Inc.
Analysts Relations
888-298-6986
Vice President, Investor Relations & Corporate Strategy

Elizabeth Grenfell
Yum! Brands, Inc.
888-298-6986
Director, Investor Relations

Virginia Ferguson
Yum! Brands, Inc.
Media Relations
502-874-8200
Director, Public Relations

###

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