EX-99.1 2 a8kex9912_3x16.htm EXHIBIT 99.1 Exhibit
NEWS
Steve Schmitt
Vice President, Investor Relations & Corporate Strategy


Yum! Brands Reports Fourth-Quarter EPS Growth of 11%, or $0.68 Per Share, Excluding Special Items &
Full-Year EPS Growth of 3%, or $3.18 Per Share, Excluding Special Items;
Reiterates Guidance for Full-Year 2016 Operating Profit Growth in Constant Currency of 10%

Louisville, KY (February 3, 2016) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 26, 2015. Fourth-quarter EPS excluding Special Items was $0.68, an increase of 11%. Reported EPS was $0.63 for the quarter and $2.92 for the year.
  
FOURTH-QUARTER HIGHLIGHTS
●
Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.4 percentage points to 13.6%. Worldwide operating profit increased 17%.
●
New global restaurants totaled 1,160, including 384 in China, 374 at KFC, 270 at Pizza Hut, 109 at Taco Bell and 23 in India; 83% of international development occurred in emerging markets.
●
China Division system sales increased 7%, driven by 7% unit growth and 2% same-store sales growth. Restaurant margin increased 4.3 percentage points to 11.4%. Operating profit increased 207%.
●
KFC Division system sales increased 6%, driven by 3% unit growth and 3% same-store sales growth. Operating margin increased 0.4 percentage points to 22.4%. Operating profit increased 7%.
●
Pizza Hut Division system sales increased 2%, driven by 1% unit growth and 1% same-store sales growth. Operating margin increased 1.0 percentage point to 23.4%. Operating profit increased 6%.
●
Taco Bell Division system sales increased 7%, driven by 3% unit growth and 4% same-store sales growth. Operating margin decreased 2.7 percentage points to 25.0%. Operating profit decreased 7%.
●
India Division system sales decreased 9%, driven by a 13% same-store sales decline.
●
Worldwide effective tax rate decreased to 29.4% from 30.0%.
●
Foreign currency translation negatively impacted operating profit by $37 million.




FULL-YEAR HIGHLIGHTS
●
Worldwide system sales grew 5%. Worldwide restaurant margin increased 1.5 percentage points to 16.0%. Worldwide operating profit increased 7%.
●
New global restaurants totaled 2,365, including 743 in China, 715 at KFC, 577 at Pizza Hut, 276 at Taco Bell and 54 in India; 80% of international development occurred in emerging markets.
●
China Division system sales increased 2%, driven by 7% unit growth and partially offset by a 4% same-store sales decline. Restaurant margin increased 1.1 percentage points to 15.9%. Operating profit increased 8%.
●
KFC Division system sales increased 7%, driven by 3% unit growth and 3% same-store sales growth. Operating margin increased 0.8 percentage points to 23.0%. Operating profit increased 8%.
●
Pizza Hut Division system sales increased 2%, driven by 1% unit growth and 1% same-store sales growth. Operating margin decreased 0.4 percentage points to 25.2%. Operating profit increased 1%.
●
Taco Bell Division system sales increased 8%, driven by 3% unit growth and 5% same-store sales growth. Operating margin increased 1.3 percentage points to 27.1%. Operating profit increased 12%.
●
India Division system sales decreased 5%, driven by a 13% same-store sales decline.
●
Worldwide effective tax rate increased to 25.6% from 25.5%.
●
Foreign currency translation negatively impacted operating profit by $107 million.

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 502 874-8300 • Website www.yum.com/investors



SUMMARY FINANCIAL TABLE
 
Fourth Quarter
Full Year
 
2015
2014
% Change
2015
2014
% Change
EPS Excluding Special Items
$0.68
$0.61
11%
$3.18
$3.09
3%
Special Items Gain/(Loss)1
$(0.05)
$(0.81)
NM
$(0.26)
$(0.77)
NM
EPS
$0.63
$(0.20)
NM
$2.92
$2.32
26%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items for 2015 are primarily related to charges for the refranchising of certain international markets, U.S. refranchising gains and charges associated with the agreement reached with KFC U.S. franchisees. Special Items for 2014 are primarily related to the impairment of Little Sheep and U.S. refranchising gains.




GREG CREED COMMENTS
Greg Creed, CEO, said “I’m pleased with the positive sales momentum we generated across the majority of Yum! in the fourth quarter. KFC China, for example, grew same-store sales 6% in the last quarter of 2015. Outside of China, each of our brand divisions grew same-store sales on a one-year and a two-year basis. Our U.S. results were particularly strong on a two-year basis, with growth of 2% at Pizza Hut, 8% at KFC and 10% at Taco Bell.

Fourth-quarter EPS grew 11%, with full-year EPS growth of 3% despite a 7% decline in the first half and six percentage points of foreign currency headwinds. For the full year, our brand divisions collectively grew operating profit 8% in constant currency, led by 12% operating profit growth at Taco Bell. Operating profit grew 8% in constant currency in China with impressive cost management partially offsetting weaker than originally anticipated sales results.

New-unit development continues to be a bright spot for our company. We added more than 2,300 new units globally in 2015. This year we expect to open nearly 2,400 new restaurants, which means we’re opening over six new restaurants a day, laying the groundwork for future growth. With all of this in mind, we are reiterating the guidance we initially gave in December. Given the results we have seen year-to-date and the plans we have laid out for each of the brands, we're confident in our ability to deliver 10% operating profit growth in constant currency in 2016.

2016 will be a transformational year for Yum! as we are on track to complete the spin-off of our China Division, ultimately creating two powerful, independent, focused growth companies. The fundamental goal of Yum!, however, is unchanged. We are 100% dedicated to building and strengthening KFC, Pizza Hut and Taco Bell all around the world, as strong brands are critical to delivering sustained growth and creating shareholder value over the long term." 









2

CHINA DIVISION
 
Fourth Quarter
Full Year
 
 
% Change
 
 
% Change
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
System Sales Growth
 
 
+3
+7
 
 
Even
+2
Same-Store Sales Growth (%)
+2
(16)
NM
NM
(4)
(5)
NM
NM
Franchise & License Fees ($MM)
37
33
+12
+16
120
113
+7
+9
Restaurant Margin (%)
11.4
7.1
4.3
4.3
15.9
14.8
1.1
1.0
Operating Profit ($MM)
96
32
+195
+207
757
713
+6
+8

 
●
China Division system sales increased 7% for the quarter and 2% for the year, excluding foreign currency translation.
○
KFC same-store sales increased 6% for the quarter and declined 4% for the year.
○
Pizza Hut Casual Dining same-store sales declined 8% for the quarter and 5% for the year.
●
China Division opened 384 new restaurants in the quarter. For the year, China Division opened 743 new restaurants, including 351 at KFC, 280 at Pizza Hut Casual Dining and 75 at Pizza Hut Home Service.
China Units
Q4 2015
% Change2
Restaurants1
7,176
+7
KFC
5,003
+4
Pizza Hut
 
 
Casual Dining
1,572
+20
Home Service
331
+28
1 Total includes East Dawning and Little Sheep units.
2 Represents year-over-year change.
    
●
Restaurant margin increased 4.3 percentage points to 11.4% for the quarter driven by productivity initiatives and KFC sales leverage.  Restaurant margin increased 1.1 percentage points to 15.9% for the year driven by productivity initiatives, partially offset by sales deleverage.
●
Foreign currency translation negatively impacted operating profit by $4 million for the quarter and $15 million for the year.




3

KFC DIVISION
 
Fourth Quarter
Full Year
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
14,577
14,197
+3
NA
14,577
14,197
+3
NA
System Sales Growth
 
 
(5)
+6
 
 
(4)
+7
Same-Store Sales Growth (%)
+3
+4
NM
NM
+3
+3
NM
NM
Franchise & License Fees ($MM)
263
277
(5)
+7
842
873
(4)
+7
Restaurant Margin (%)
14.7
13.8
0.9
0.8
14.8
13.3
1.5
1.4
Operating Profit ($MM)
206
221
(7)
+7
677
708
(4)
+8
Operating Margin (%)
22.4
22.0
0.4
0.3
23.0
22.2
0.8
0.4
●
KFC Division system sales increased 6% for the quarter and 7% for the year, excluding foreign currency translation.
 
% Change
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
Fourth Quarter
Full Year
Fourth Quarter
Full Year
Fourth Quarter
Full Year
System Sales Growth (Ex F/X)
+10
+11
+6
+6
+1
+2
Same-Store Sales Growth
+2
+3
+3
+3
+3
+4
●
KFC Division opened 370 new international restaurants during the quarter.
 
○
For the year, KFC Division opened 705 new international restaurants in 85 countries, including 524 units in emerging markets. 85% of these new units were opened by franchisees.
●
Operating margin increased 0.4 percentage points for the quarter and 0.8 percentage points for the year driven by same-store sales growth and new-unit development.
●
Foreign currency translation negatively impacted operating profit by $31 million for the quarter and $85 million for the year, 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
Fourth Quarter (%)
Full Year (%)
Emerging Markets
 
 
 
Asia (e.g. Malaysia, Indonesia, Philippines)
8%
+8
+6
Africa
6%
+4
+9
Latin America (e.g. Mexico, Peru)
6%
+7
+8
Middle East / North Africa
6%
+3
+3
Russia
5%
+35
+42
Thailand
3%
+6
+6
Continental Europe (e.g. Poland)
3%
+12
+13
 
 
 
 
Developed Markets
 
 
 
U.S.
24%
+1
+2
Australia
10%
+7
+9
Asia (e.g. Japan, Korea, Taiwan)
9%
+7
+5
U.K.
9%
+2
+3
Continental Europe (e.g. France, Germany)
7%
+11
+9
Canada
3%
+4
+2
Latin America (e.g. Puerto Rico)
1%
+3
+3
1 See website www.yum.com under tab "Investors" for a list of the countries within each of the markets.
2 Reflects Full Year 2015.

4

PIZZA HUT DIVISION
 
Fourth Quarter
Full Year
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
13,728
13,602
+1
NA
13,728
13,602
+1
NA
System Sales Growth
 
 
(2)
+2
 
 
(2)
+2
Same-Store Sales Growth (%)
+1
Even
NM
NM
+1
(1)
NM
NM
Franchise & License Fees ($MM)
169
167
Even
+5
536
541
(1)
+3
Restaurant Margin (%)
9.6
6.4
3.2
2.4
9.7
8.2
1.5
1.0
Operating Profit ($MM)
81
80
+3
+6
289
295
(2)
+1
Operating Margin (%)
23.4
22.4
1.0
0.6
25.2
25.6
(0.4)
(0.6)

●
Pizza Hut Division system sales increased 2% for both the quarter and the year, excluding foreign currency translation.

 
% Change
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
Fourth Quarter
Full Year
Fourth Quarter
Full Year
Fourth Quarter
Full Year
System Sales Growth (Ex F/X)
+7
+7
Even
+1
+2
+1
Same-Store Sales Growth
+3
+3
(1)
(1)
+2
+1
●
Pizza Hut Division opened 223 new international restaurants during the quarter.
 
○
For the year, Pizza Hut Division opened 429 new international restaurants in 64 countries, including 243 units in emerging markets. 92% of these new units were opened by franchisees.
●
Operating margin increased 1.0 percentage point for the quarter led by an increase of 3.2 percentage points in restaurant margin. For the year, operating margin decreased 0.4 percentage points driven by strategic investments in international G&A.
●
Foreign currency translation negatively impacted operating profit by $2 million for the quarter and $8 million for the year.
PIZZA HUT MARKETS1
Percent of Pizza Hut System Sales2
SYSTEM Sales Growth Ex F/X
Fourth Quarter (%)
Full Year (%)
Emerging Markets
 
 
 
Latin America (e.g. Mexico, Peru)
7%
+9
+9
Asia (e.g. Malaysia, Indonesia, Philippines)
5%
+5
+4
Middle East / North Africa
5%
+5
+6
Continental Europe (e.g. Poland)
1%
+14
+11
 
 
 
 
Developed Markets
 
 
 
U.S.
55%
+2
+1
Asia (e.g. Japan, Korea, Taiwan)
9%
(2)
(1)
U.K.
7%
+4
+4
Continental Europe (e.g. France, Germany)
5%
+4
+3
Canada
3%
+7
+5
Australia
2%
(12)
(8)
Latin America (e.g. Puerto Rico)
1%
(12)
(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 2015.

5

TACO BELL DIVISION
 
Fourth Quarter
Full Year
 
 
 
% Change
 
 
% Change
 
2015
2014
Reported
Ex F/X
2015
2014
Reported
Ex F/X
Restaurants
6,400
6,199
+3
NA
6,400
6,199
+3
NA
System Sales Growth
 
 
+7
+7
 
 
+8
+8
Same-Store Sales Growth (%)
+4
+6
NM
NM
+5
+3
NM
NM
Franchise & License Fees ($MM)
138
130
+7
+7
447
411
+9
+9
Restaurant Margin (%)
23.7
20.6
3.1
3.1
22.3
18.9
3.4
3.4
Operating Profit ($MM)
152
163
(7)
(7)
539
480
+12
+12
Operating Margin (%)
25.0
27.7
(2.7)
(2.7)
27.1
25.8
1.3
1.3
●
Taco Bell Division system sales increased 7% for the quarter and 8% for the year.
●
Taco Bell Division opened 109 new restaurants in the fourth quarter. For the year, Taco Bell Division opened 276 new restaurants; 87% of these new units were opened by franchisees.
●
Restaurant margin increased 3.1 percentage points to 23.7% for the quarter driven by favorable U.S. commodities and same-store sales growth. Restaurant margin increased 3.4 percentage points to 22.3% for the year driven by same-store sales growth.
●
Operating margin decreased 2.7 percentage points for the quarter driven by an expected increase in G&A related to incentive compensation, investment spending on strategic growth and technology initiatives, legal costs and creation of the Live Más scholarship program. The majority of the increase is either nonrecurring in nature or represents investments to sustain positive brand momentum.  This was partially offset by same-store sales growth. For the year, operating margin increased 1.3 percentage points driven by same-store sales growth, partially offset by an increase in G&A primarily attributable to incentive compensation, pension and previously mentioned investments.

INDIA DIVISION
●
India Division system sales decreased 9% for the quarter and 5% for the year, excluding foreign currency translation.
●
Operating loss was $4 million for the quarter and $19 million for the year.
●
During the quarter, we refranchised 86 KFC units, reducing equity ownership in India from 25% to 15%.
India Units
Q4 2015
% Change2
Restaurants1
811
(3)
KFC
372
(6)
Pizza Hut
 
 
    Casual Dining
170
(8)
    Home Service
262
+7
1 Total includes 7 Taco Bell units.
2 Represents year-over-year change.

SPECIAL ITEMS / SHARE REPURCHASE UPDATE
●
For the fourth quarter in the U.S., we refranchised 36 Taco Bell units and sold real estate related to 19 previously refranchised KFC units, resulting in total proceeds of $75 million. We recorded pre-tax U.S. refranchising gains of $51 million in Special Items. At the end of the fourth quarter, our company ownership in the U.S. across our three branded divisions was 9%.
●
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 expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $41 million during the fourth quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.
●
In the fourth quarter, we repurchased 11.4 million shares totaling $830 million at an average price of $73. For the year, we repurchased 15.9 million shares totaling $1.2 billion at an average price of $75, with 420 million shares outstanding as of year end. During 2015, we reduced our outstanding share count by 14 million. For fiscal year 2016 through February 2, 2016, we repurchased 10.8 million shares totaling $749 million at an average price of $70.

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 Thursday, February 4, 2016. 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 12:30 p.m. Eastern Time Thursday, February 4, through midnight Thursday, March 3, 2016. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback passcode is 19873670.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q4 2015 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 at www.yum.com under “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 on 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 over 42,500 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. 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.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
Year ended
 
% Change
 
12/26/15
 
12/27/14
 
B/(W)
 
12/26/15
 
12/27/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
3,339

 
$
3,383

 
(1)
 
$
11,145

 
$
11,324

 
(2)
Franchise and license fees and income
612

 
614

 
—
 
1,960

 
1,955

 
—
Total revenues
3,951

 
3,997

 
(1)
 
13,105

 
13,279

 
(1)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
1,045

 
1,116

 
6
 
3,507

 
3,678

 
5
   Payroll and employee benefits
797

 
824

 
3
 
2,517

 
2,579

 
2
   Occupancy and other operating expenses
1,043

 
1,099

 
5
 
3,335

 
3,425

 
3
Company restaurant expenses
2,885

 
3,039

 
5
 
9,359

 
9,682

 
3
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
528

 
473

 
(11)
 
1,504

 
1,419

 
(6)
Franchise and license expenses
96

 
51

 
(88)
 
242

 
160

 
(51)
Closures and impairment (income) expenses
49

 
505

 
90
 
79

 
535

 
85
Refranchising (gain) loss
(50
)
 
(6
)
 
NM
 
10

 
(33
)
 
NM
Other (income) expense
2

 
(22
)
 
NM
 
(10
)
 
(41
)
 
(75)
Total costs and expenses, net
3,510

 
4,040

 
13
 
11,184

 
11,722

 
5
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit (loss)
441

 
(43
)
 
NM
 
1,921

 
1,557

 
23
Interest expense, net
35

 
40

 
8
 
134

 
130

 
(4)
Income (loss) before income taxes
406

 
(83
)
 
NM
 
1,787

 
1,427

 
25
Income tax provision
131

 
36

 
NM
 
489

 
406

 
(20)
Net income (loss) - including noncontrolling interests
275

 
(119
)
 
NM
 
1,298

 
1,021

 
27
Net income (loss) - noncontrolling interests
—

 
(33
)
 
(98)
 
5

 
(30
)
 
NM
Net income (loss) - YUM! Brands, Inc.
$
275

 
$
(86
)
 
NM
 
$
1,293

 
$
1,051

 
23
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
32.2
%
 
(44.1
)%
 
NM
 
27.3
%
 
28.5
%
 
1.2 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.64

 
$
(0.20
)
 
NM
 
$
2.97

 
$
2.37

 
25
Weighted average shares used in computation
433

 
441

 
2
 
436

 
444

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.63

 
$
(0.20
)
 
NM
 
$
2.92

 
$
2.32

 
26
Weighted average shares used in computation
439

 
441

 
—
 
443

 
453

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.92

 
$
0.82

 
 
 
$
1.74

 
$
1.56

 
 
 
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 ended
 
% Change
 
12/26/15
 
12/27/14
 
B/(W)
 
12/26/15
 
12/27/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
2,011

 
$
1,973

 
2
 
$
6,789

 
$
6,821

 
—
Franchise and license fees and income
37

 
33

 
12
 
120

 
113

 
7
Total revenues
2,048

 
2,006

 
2
 
6,909

 
6,934

 
—
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
641

 
660

 
3
 
2,159

 
2,207

 
2
Payroll and employee benefits
453

 
463

 
2
 
1,386

 
1,407

 
2
Occupancy and other operating expenses
686

 
710

 
3
 
2,167

 
2,198

 
1
Company restaurant expenses
1,780

 
1,833

 
3
 
5,712

 
5,812

 
2
General and administrative expenses
139

 
132

 
(5)
 
397

 
391

 
(2)
Franchise and license expenses
5

 
5

 
(4)
 
20

 
16

 
(25)
Closures and impairment (income) expenses
42

 
31

 
(37)
 
64

 
54

 
(19)
Other (income) expense
(14
)
 
(27
)
 
(46)
 
(41
)
 
(52
)
 
(22)
Total costs and expenses, net
1,952

 
1,974

 
1
 
6,152

 
6,221

 
1
Operating Profit
$
96

 
$
32

 
NM
 
$
757

 
$
713

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
31.8

 
33.4

 
1.6 ppts.
 
31.8

 
32.4

 
0.6 ppts.
Payroll and employee benefits
22.6

 
23.5

 
0.9 ppts.
 
20.4

 
20.6

 
0.2 ppts.
Occupancy and other operating expenses
34.2

 
36.0

 
1.8 ppts.
 
31.9

 
32.2

 
0.3 ppts.
Restaurant margin
11.4
%
 
7.1
%
 
4.3 ppts.
 
15.9
%
 
14.8
%
 
1.1 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
4.7
%
 
1.6
%
 
3.1 ppts.
 
11.0
%
 
10.3
%
 
0.7 ppts.
 
See accompanying notes.
  
Percentages may not recompute due to rounding.



9

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

 
Quarter ended
 
% Change
 
Year ended
 
% Change
 
12/26/15
 
12/27/14
 
B/(W)
 
12/26/15
 
12/27/14
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
655

 
$
727

 
(10)
 
$
2,106

 
$
2,320

 
(9)
Franchise and license fees and income
263

 
277

 
(5)
 
842

 
873

 
(4)
Total revenues
918

 
1,004

 
(9)
 
2,948

 
3,193

 
(8)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
222

 
254

 
12
 
717

 
809

 
11
Payroll and employee benefits
155

 
168

 
8
 
497

 
552

 
10
Occupancy and other operating expenses
182

 
206

 
12
 
580

 
651

 
11
Company restaurant expenses
559

 
628

 
11
 
1,794

 
2,012

 
11
General and administrative expenses
122

 
122

 
—
 
386

 
383

 
(1)
Franchise and license expenses
26

 
26

 
(3)
 
85

 
80

 
(7)
Closures and impairment (income) expenses
6

 
7

 
18
 
8

 
9

 
15
Other (income) expense
(1
)
 
—

 
NM
 
(2
)
 
1

 
NM
Total costs and expenses, net
712

 
783

 
9
 
2,271

 
2,485

 
9
Operating Profit
$
206

 
$
221

 
(7)
 
$
677

 
$
708

 
(4)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
33.8

 
34.8

 
1.0 ppts.
 
34.0

 
34.8

 
0.8 ppts.
Payroll and employee benefits
23.7

 
23.0

 
(0.7 ppts.)
 
23.6

 
23.8

 
0.2 ppts.
Occupancy and other operating expenses
27.8

 
28.4

 
0.6 ppts.
 
27.6

 
28.1

 
0.5 ppts.
Restaurant margin
14.7
%
 
13.8
%
 
0.9 ppts.
 
14.8
%
 
13.3
%
 
1.5 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
22.4
%
 
22.0
%
 
0.4 ppts.
 
23.0
%
 
22.2
%
 
0.8 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 ended
 
% Change
 
12/26/15

 
12/27/14

 
B/(W)
 
12/26/15

 
12/27/14

 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
179

 
$
185

 
(3)
 
$
609

 
$
607

 
—
Franchise and license fees and income
169

 
167

 
—
 
536

 
541

 
(1)
Total revenues
348

 
352

 
(1)
 
1,145

 
1,148

 
—
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
49

 
54

 
9
 
169

 
180

 
6
Payroll and employee benefits
57

 
59

 
4
 
190

 
188

 
(1)
Occupancy and other operating expenses
56

 
60

 
7
 
191

 
189

 
(1)
Company restaurant expenses
162

 
173

 
6
 
550

 
557

 
1
General and administrative expenses
90

 
81

 
(9)
 
266

 
246

 
(8)
Franchise and license expenses
14

 
15

 
15
 
39

 
44

 
14
Closures and impairment (income) expenses
1

 
3

 
48
 
3

 
5

 
29
Other (income) expense
—

 
—

 
17
 
(2
)
 
1

 
NM
Total costs and expenses, net
267

 
272

 
3
 
856

 
853

 
—
Operating Profit
$
81

 
$
80

 
3
 
$
289

 
$
295

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
27.9

 
29.6

 
1.7 ppts.
 
27.8

 
29.7

 
1.9 ppts.
Payroll and employee benefits
31.3

 
31.6

 
0.3 ppts.
 
31.1

 
30.9

 
(0.2 ppts.)
Occupancy and other operating expenses
31.2

 
32.4

 
1.2 ppts.
 
31.4

 
31.2

 
(0.2 ppts.)
 
9.6
%
 
6.4
%
 
3.2 ppts.
 
9.7
%
 
8.2
%
 
1.5 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
23.4
%
 
22.4
%
 
1.0 ppts.
 
25.2
%
 
25.6
%
 
(0.4 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 ended
 
% Change
 
12/26/15

 
12/27/14

 
B/(W)
 
12/26/15

 
12/27/14

 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
470

 
$
460

 
2
 
$
1,541

 
$
1,452

 
6
Franchise and license fees and income
138

 
130

 
7
 
447

 
411

 
9
Total revenues
608

 
590

 
3
 
1,988

 
1,863

 
7
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
124

 
134

 
8
 
421

 
431

 
2
Payroll and employee benefits
128

 
127

 
—
 
427

 
414

 
(3)
Occupancy and other operating expenses
107

 
104

 
(3)
 
350

 
333

 
(5)
Company restaurant expenses
359

 
365

 
2
 
1,198

 
1,178

 
(2)
General and administrative expenses
88

 
57

 
(56)
 
228

 
185

 
(23)
Franchise and license expenses
10

 
5

 
NM
 
22

 
18

 
(24)
Closures and impairment (income) expenses
—

 
1

 
NM
 
3

 
3

 
(35)
Other (income) expense
(1
)
 
(1
)
 
(11)
 
(2
)
 
(1
)
 
NM
Total costs and expenses, net
456

 
427

 
(7)
 
1,449

 
1,383

 
(5)
Operating Profit
$
152

 
$
163

 
(7)
 
$
539

 
$
480

 
12
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
26.4

 
29.2

 
2.8 ppts.
 
27.3

 
29.7

 
2.4 ppts.
Payroll and employee benefits
27.2

 
27.7

 
0.5 ppts.
 
27.7

 
28.5

 
0.8 ppts.
Occupancy and other operating expenses
22.7

 
22.5

 
(0.2 ppts.)
 
22.7

 
22.9

 
0.2 ppts.
 
23.7
%
 
20.6
%
 
3.1 ppts.
 
22.3
%
 
18.9
%
 
3.4 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
25.0
%
 
27.7
%
 
(2.7 ppts.)
 
27.1
%
 
25.8
%
 
1.3 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



12

YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)

 
(unaudited)
 
 
 
12/26/2015
 
12/27/2014
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
737

 
$
578

Accounts and notes receivable, less allowance: $16 in 2015 and $12 in 2014
377

 
325

Inventories
229

 
301

Prepaid expenses and other current assets
242

 
254

Advertising cooperative assets, restricted
103

 
95

Total Current Assets
1,688

 
1,553

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $3,643 in
4,189

 
4,498

2015 and $3,584 in 2014
 
 
 
Goodwill
656

 
700

Intangible assets, net
271

 
318

Investments in unconsolidated affiliates
61

 
52

Other assets
534

 
560

Deferred income taxes
676

 
653

Total Assets
$
8,075

 
$
8,334

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
1,985

 
$
1,970

Income taxes payable
77

 
77

Short-term borrowings
923

 
267

Advertising cooperative liabilities
103

 
95

Total Current Liabilities
3,088

 
2,409

 
 
 
 
Long-term debt
3,054

 
3,077

Other liabilities and deferred credits
958

 
1,235

Total Liabilities
7,100

 
6,721

 
 
 
 
Redeemable noncontrolling interest
6

 
9

 
 
 
 
Shareholders' Equity
 
 
 
Common stock, no par value, 750 shares authorized; 420 shares and 434 shares issued in 2015 and 2014, respectively
—

 
—

Retained earnings
1,150

 
1,737

Accumulated other comprehensive income (loss)
(239
)
 
(190
)
Total Shareholders' Equity - YUM! Brands, Inc.
911

 
1,547

Noncontrolling interests
58

 
57

Total Shareholders' Equity
969

 
1,604

Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity
$
8,075

 
$
8,334

 See accompanying notes.



13

YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
 
Year ended
 
(unaudited)
 
 
 
12/26/15
 
12/27/14
Cash Flows - Operating Activities
 
 
 
Net income - including noncontrolling interests
$
1,298

 
$
1,021

Depreciation and amortization
747

 
739

Closures and impairment (income) expenses
79

 
535

Refranchising (gain) loss
10

 
(33
)
Contributions to defined benefit pension plans
(98
)
 
(18
)
Losses and other costs related to the extinguishment of debt
—

 
—

Deferred income taxes
(89
)
 
(172
)
Equity income from investments in unconsolidated affiliates
(41
)
 
(30
)
Distribution of income received from unconsolidated affiliates
21

 
28

Excess tax benefit from share-based compensation
(50
)
 
(42
)
Share-based compensation expense
57

 
55

Changes in accounts and notes receivable
(54
)
 
(21
)
Changes in inventories
58

 
(22
)
Changes in prepaid expenses and other current assets
(22
)
 
12

Changes in accounts payable and other current liabilities
128

 
60

Changes in income taxes payable
20

 
(143
)
Other, net
75

 
80

Net Cash Provided by Operating Activities
2,139

 
2,049

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(973
)
 
(1,033
)
Proceeds from refranchising of restaurants
246

 
114

Acquisitions
(9
)
 
(28
)
Other, net
54

 
11

Net Cash Used in Investing Activities
(682
)
 
(936
)
 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt
—

 
—

Repayments of long-term debt
(263
)
 
(66
)
Revolving credit facilities, three months or less, net
285

 
416

Short-term borrowings, by original maturity
 
 
 
     More than three months - proceeds
609

 
2

     More than three months - payments
—

 
(2
)
     Three months or less, net
—

 
—

Repurchase shares of Common Stock
(1,200
)
 
(820
)
Excess tax benefit from share-based compensation
50

 
42

Employee stock option proceeds
12

 
29

Dividends paid on Common Stock
(730
)
 
(669
)
Other, net
(55
)
 
(46
)
Net Cash Used in Financing Activities
(1,292
)
 
(1,114
)
Effect of Exchange Rate on Cash and Cash Equivalents
(6
)
 
6

Net Increase in Cash and Cash Equivalents
159

 
5

Cash and Cash Equivalents - Beginning of Period
578

 
573

Cash and Cash Equivalents - End of Period
$
737

 
$
578

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 gains/(losses) associated with the refranchising of equity markets outside the U.S., costs associated with the KFC U.S. Acceleration Agreement, a loss associated with the planned sale of an aircraft in China, costs associated with the planned spin-off of the China business and YUM! recapitalization, U.S. refranchising gains and the impairment of certain Little Sheep assets in 2014. These amounts are described in (c), (d), (e), (f), (g) and (h) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of the 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 and years to date ended December 26, 2015 and December 27, 2014 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. 
 
Quarter ended
 
Year ended
 
12/26/15
 
12/27/14
 
12/26/15

 
12/27/14
Detail of Special Items
 
 
 
 
 
 
 
Gains (Losses) associated with the refranchising of equity markets outside the U.S.(c)
$
(3
)
 
$
—

 
$
(96
)
 
$
7

Costs associated with KFC U.S. Acceleration Agreement(d)
(41
)
 
—

 
(72
)
 
—

Loss associated with planned sale of China aircraft(e)
(15
)
 
—

 
(15
)
 
—

Costs associated with the planned spin-off of the China business and YUM recapitalization(f)
(9
)
 
—

 
(9
)
 
—

U.S. Refranchising gain (loss)(g)
51

 
(5
)
 
75

 
6

Little Sheep impairment(h)
—

 
(463
)
 
—

 
(463
)
Other Special Items Income (Expense)
—

 
3

 
1

 
3

Special Items Income (Expense) before income taxes
(17
)
 
(465
)
 
(116
)
 
(447
)
Tax Benefit (Expense) on Special Items
(6
)
 
78

 
(1
)
 
72

Special Items Income (Expense), net of tax - including noncontrollng interests
(23
)
 
(387
)
 
(117
)
 
(375
)
Special Items Income (Expense), net of tax - noncontrolling interests
—

 
26

 
—

 
26

Special Items Income (Expense), net of tax - Yum Brands, Inc.
$
(23
)
 
$
(361
)
 
$
(117
)
 
$
(349
)
Weighted average shares used in computation
439

 
441

 
443

 
453

Special Items diluted EPS
$
(0.05
)
 
$
(0.81
)
 
$
(0.26
)
 
$
(0.77
)
 
 
 
 
 
 
 
 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
 
 
 
 
 
 
 
Operating Profit Before Special Items
$
458

 
$
422

 
$
2,037

 
$
2,004

Special Items Income (Expense) - Operating Profit
(17
)
 
(465
)
 
(116
)
 
(447
)
Reported Operating Profit (loss)
$
441

 
$
(43
)
 
$
1,921

 
$
1,557

 
 
 
 
 
 
 
 
Reconciliation of EPS Before Special Items to Reported EPS
 
 
 
 
 
 
 
Diluted EPS Before Special Items
$
0.68

 
$
0.61

 
$
3.18

 
$
3.09

Special Items EPS
(0.05
)
 
(0.81
)
 
(0.26
)
 
(0.77
)
Reported EPS
$
0.63

 
$
(0.20
)
 
$
2.92

 
$
2.32

 
 
 
 
 
 
 
 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
 
 
 
 
 
 
 
Effective Tax Rate Before Special Items
29.4
%
 
30.0
 %
 
25.6
%
 
25.5
%
Impact on Tax Rate as a result of Special Items
2.8
%
 
(74.1
)%
 
1.7
%
 
3.0
%
Reported Effective Tax Rate
32.2
%
 
(44.1
)%
 
27.3
%
 
28.5
%

15

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

Quarter Ended 12/26/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
2,048

 
$
918

 
$
348

 
$
608

 
$
29

 
$
—

 
$
3,951

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,780

 
559

 
162

 
359

 
25

 
—

 
2,885

General and administrative expenses
139

 
122

 
90

 
88

 
7

 
82

 
528

Franchise and license expenses
5

 
26

 
14

 
10

 
1

 
40

 
96

Closures and impairment (income) expenses
42

 
6

 
1

 
—

 
—

 
—

 
49

Refranchising (gain) loss
—

 
—

 
—

 
—

 
—

 
(50
)
 
(50
)
Other (income) expense
(14
)
 
(1
)
 
—

 
(1
)
 
—

 
18

 
2

 
1,952

 
712

 
267

 
456

 
33

 
90

 
3,510

Operating Profit (loss)
$
96

 
$
206

 
$
81

 
$
152

 
$
(4
)
 
$
(90
)
 
$
441



Quarter Ended 12/27/14
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
2,006

 
$
1,004

 
$
352

 
$
590

 
$
45

 
$
—

 
$
3,997

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,833

 
628

 
173

 
365

 
39

 
1

 
3,039

General and administrative expenses
132

 
122

 
81

 
57

 
8

 
73

 
473

Franchise and license expenses
5

 
26

 
15

 
5

 
—

 
—

 
51

Closures and impairment (income) expenses
31

 
7

 
3

 
1

 
—

 
463

 
505

Refranchising (gain) loss
—

 
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Other (income) expense
(27
)
 
—

 
—

 
(1
)
 
—

 
6

 
(22
)
 
1,974

 
783

 
272

 
427

 
47

 
537

 
4,040

Operating Profit (loss)
$
32

 
$
221

 
$
80

 
$
163

 
$
(2
)
 
$
(537
)
 
$
(43
)


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.



16

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

Year Ended 12/26/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
6,909

 
$
2,948

 
$
1,145

 
$
1,988

 
$
115

 
$
—

 
$
13,105

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
5,712

 
1,794

 
550

 
1,198

 
105

 
—

 
9,359

General and administrative expenses
397

 
386

 
266

 
228

 
23

 
204

 
1,504

Franchise and license expenses
20

 
85

 
39

 
22

 
5

 
71

 
242

Closures and impairment (income) expenses
64

 
8

 
3

 
3

 
1

 
—

 
79

Refranchising (gain) loss
—

 
—

 
—

 
—

 
—

 
10

 
10

Other (income) expense
(41
)
 
(2
)
 
(2
)
 
(2
)
 
—

 
37

 
(10
)
 
6,152

 
2,271

 
856

 
1,449

 
134

 
322

 
11,184

Operating Profit (loss)
$
757

 
$
677

 
$
289

 
$
539

 
$
(19
)
 
$
(322
)
 
$
1,921



Year Ended 12/27/14
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
India
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
6,934

 
$
3,193

 
$
1,148

 
$
1,863

 
$
141

 
$
—

 
$
13,279

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
5,812

 
2,012

 
557

 
1,178

 
122

 
1

 
9,682

General and administrative expenses
391

 
383

 
246

 
185

 
25

 
189

 
1,419

Franchise and license expenses
16

 
80

 
44

 
18

 
2

 
—

 
160

Closures and impairment (income) expenses
54

 
9

 
5

 
3

 
1

 
463

 
535

Refranchising (gain) loss
—

 
—

 
—

 
—

 
—

 
(33
)
 
(33
)
Other (income) expense
(52
)
 
1

 
1

 
(1
)
 
—

 
10

 
(41
)
 
6,221

 
2,485

 
853

 
1,383

 
150

 
630

 
11,722

Operating Profit (loss)
$
713

 
$
708

 
$
295

 
$
480

 
$
(9
)
 
$
(630
)
 
$
1,557



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.



17

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 26, 2015 are preliminary.

(b)
Other (income) expense for the China Division primarily consists of equity income (loss) from investments in unconsolidated affiliates. The quarters ended December 26, 2015 and December 27, 2014 also include insurance recoveries of $5 million and $25 million, respectively, related to the 2012 poultry supply incident.

(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. During the quarter ended December 26, 2015, we sold the real estate for approximately $58 million. While these proceeds exceeded the book value of the real estate, the sale represented a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we were required to write-off accumulated translation losses associated with our Mexican business. As such, during the year to date ended December 26, 2015 we recorded charges of $80 million, representing the excess of the sum of the book value of the real estate and other related assets and our accumulated translation losses over the sales price. Consistent with the classification of the original market refranchising transaction, these charges were classified as Refranchising Loss within Special Items. Additionally, during the quarter and year to date ended December 26, 2015 we recognized Special Items charges of $3 million and $16 million, respectively, associated with the refranchising of our Pizza Hut Korea restaurants. The carrying value of the remaining restaurants not yet sold as of year end is not significant. While 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 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 and year to date ended December 26, 2015 of $41 million and $72 million, respectively, primarily related to the funding of investments for new back-of-house equipment for franchisees.

(e)
During the quarter ended December 26, 2015, we initiated plans to sell an aircraft used in our China Division and determined it was held for sale, resulting in a write down of $15 million.

(f)
In October 2015 we announced our intent to spin off YUM!’s China Division from YUM! Brands into a separate independent, publicly-traded company by the end of 2016. A part of this plan is 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 December 26, 2015 we incurred costs of $9 million related to these initiatives.

(g)
During the quarters ended December 26, 2015 and December 27, 2014, we recorded Special Item gains of $51 million and losses of $5 million, respectively, related to refranchising in the U.S. During the years to date ended December 26, 2015 and December 27, 2014, we recorded Special Item gains of $75 million and $6 million, respectively, related to refranchising in the U.S. Refranchising gains and losses in the U.S. have been reflected as Special Items due to the scope of our U.S. refranchising program in recent years and the volatility in associated gains and losses.

(h)
During the quarter ended December 27, 2014, we recorded an impairment charge related to Little Sheep totaling $361 million (net of income tax benefit of $76 million and amounts allocated to noncontrolling interests of $26 million). This charge was driven by a write down in trademark from $342 million to $58 million and a write off of all remaining goodwill of $160 million.

18