-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzIApHSGVJIwy7H+ATbiHHRTHgkY2+6IbgKXWPq4pLieVrulZyNOPvRrCF5L2OLA oPxVjmwK6zS05ExTNni2bw== 0001157523-05-006089.txt : 20050713 0001157523-05-006089.hdr.sgml : 20050713 20050713163738 ACCESSION NUMBER: 0001157523-05-006089 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050713 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050713 DATE AS OF CHANGE: 20050713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YUM BRANDS INC CENTRAL INDEX KEY: 0001041061 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133951308 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13163 FILM NUMBER: 05952658 BUSINESS ADDRESS: STREET 1: 1441 GARDINER LANE CITY: LOUISVILLE STATE: KY ZIP: 40213 BUSINESS PHONE: 5028748300 MAIL ADDRESS: STREET 1: 1900 COLONEL SANDERS LANE CITY: LOUISVILLE STATE: KY ZIP: 40213 FORMER COMPANY: FORMER CONFORMED NAME: TRICON GLOBAL RESTAURANTS INC DATE OF NAME CHANGE: 19970627 FORMER COMPANY: FORMER CONFORMED NAME: GREAT AMERICAN RESTAURANT CO DATE OF NAME CHANGE: 19970618 8-K 1 a4929802.txt YUM! BRANDS, INC., 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) July 13, 2005 Commission file number 1-13163 ----------- YUM! BRANDS, INC. (Exact name of registrant as specified in its charter) North Carolina 13-3951308 - ---------------------------------------- ---------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1441 Gardiner Lane, Louisville, Kentucky 40213 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 874-8300 Former name or former address, if changed since last report: N/A Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ Section 2 - Financial Information Item 2.02 Results of Operations and Financial Condition On July 13, 2005, YUM! Brands, Inc. issued a press release announcing financial results for the quarter ended June 11, 2005. A copy of the press release is attached hereto as Exhibit 99.1. Section 9 - Financial Statements and Exhibits Item 9.01 Financial Statements and Exhibits (c) Exhibits 99.1 Press Release dated July 13, 2005 from YUM! Brands, Inc. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. YUM! BRANDS, INC. ----------------- (Registrant) Date: July 13, 2005 /s/ Ted F. Knopf ----------------------------------- Senior Vice President of Finance and Corporate Controller (Principal Accounting Officer) EX-99.1 2 a4929802ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Yum! Brands Inc. Reports 2005 Second-Quarter EPS of $0.62 Prior to Special Items, a 12% Increase; Reported EPS, Including a 2004 Special-Item Credit, Grew by 6% LOUISVILLE, Ky.--(BUSINESS WIRE)--July 13, 2005-- Increases Full-Year 2005 EPS Estimate by $0.02 Prior to Special Items to $2.62 or 11% Growth Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 11, 2005. The following are key points relative to the company's current second-quarter and year-over-year performance: -- Total International Division operating profit increased 22% or 16% prior to foreign currency conversion. -- International Division system restaurants in operation at quarter's end grew by 3% led by growth of 7% in the U.K. and 5% in international franchise-only businesses. -- As expected and previously communicated, China Division operating profit decreased $10 million or 30% as sales were negatively impacted by adverse publicity relating to a seasoning-ingredient issue, since resolved. -- China Division system restaurants in operation at quarter's end expanded by 22%. -- U.S. multibrand restaurants in operation expanded by 18%. -- Systemwide U.S. same-store sales increased 3%. -- An IPO of our Poland/Czech Republic franchise business was completed, generating a gain of $17 million. -- Tax rate prior to special items declined to 23.6% from 26.2%. The company also reported estimated Period 7 sales: -- International Division system sales increased 10% in U.S. dollar terms or 5% prior to foreign currency conversion. -- China Division system sales increased 6% in U.S. dollar terms or 5% prior to foreign currency conversion. -- U.S. blended same-store sales at company restaurants increased 5% (Taco Bell, +10%; Pizza Hut, (2)%; KFC, +7%). Consolidated Financial Highlights - ---------------------------------------------------------------------- Second Quarter Year To Date --------------------------------------------------- 2005 2004 % Change 2005 2004 % Change ------- ------- --------- ------- ------- --------- System Restaurants 31,434 30,875 +2 31,434 30,875 +2 Worldwide System Same-Store-Sales Growth +2% +2% NM +3% +2% NM Revenues (million) $2,153 $2,077 +4 $4,207 $4,047 +4 EPS prior to Special Items $0.62 $0.55 +12 $1.15 $1.02 +13 Special Items EPS $0.00 $0.03 NM $0.00 $0.03 NM Reported EPS $0.62 $0.58 +6 $1.15 $1.05 +10 - ---------------------------------------------------------------------- David C. Novak, Chairman and CEO, said, "I am pleased to report the strength of the Yum! Brands' global portfolio is allowing us to raise our full-year 2005 EPS estimate to $2.62 or 11% growth. Our high-return Yum! Restaurants International Division is well on the way to another very strong year. Additionally, our China Division sales performance is much improved, and we expect to return to solid profit growth for the balance of the year. We are especially pleased with our blended U.S. same-store-sales growth led by sustained performance at Taco Bell and the continued turnaround of KFC-U.S., which has experienced eight consecutive periods of positive same-store sales. We expect the underlying strength of our global portfolio of businesses to allow us to once again exceed our annual target of at least 10% growth in EPS. "Importantly, we remain bullish on our long-term new-unit growth opportunity for both our China and Yum! Restaurants International Divisions. In fact, we are on track to reach our full-year target to open a record 375 new restaurants in our China Division and to open at least 725 new restaurants for Yum! Restaurants International Division. This will be the fifth straight year of at least 1,000 new restaurants opened outside the U.S.A., and we expect to at least maintain this pace going forward. "Shareholders should continue to expect us to remain committed to building value by executing the unique growth opportunities of our global portfolio that make us anything but an ordinary restaurant company: build dominant restaurant brands in China, drive profitable international expansion, improve U.S. restaurant operations and multibrand category-leading brands." INTERNATIONAL DIVISION - ---------------------- - ---------------------------------------------------------------------- Second Quarter % Change ----------------------------- Excl 2005 2004 Reported F/x ------- ------- -------- ---- Financial Measures Revenues ($ million) $492 $491 Even (6) Operating Profit ($ million) $90 $74 +22 +16 - ---------------------------------------------------------------------- Operating Metrics Est. System-Sales Growth +11 +6 System Restaurants 10,978 10,626 +3 NM - ---------------------------------------------------------------------- Year to Date % Change ----------------------------- Excl 2005 2004 Reported F/x ------- ------- -------- ---- Financial Measures Revenues ($ million) $976 $976 Even (5) Operating Profit ($ million) $184 $162 +14 +9 - ---------------------------------------------------------------------- Operating Metrics Est. System-Sales Growth +11 +7 System Restaurants 10,978 10,626 +3 NM - ---------------------------------------------------------------------- Note: These results exclude the China Division. The Q2 2005 operating profit does not include the gain of $17 million from the IPO of our Poland/Czech Republic franchise business. A key growth driver for the Yum! Restaurants International Division is continued new-restaurant openings across an array of international markets and leveraging the substantial infrastructure in place around the world. It is important to note that both second-quarter and year-to-date revenue comparisons were adversely affected by the refranchising of our Puerto Rico market in last year's fourth quarter. The transaction resulted in the sale of this company-operated market to a franchisee. Excluding the impact of the change in ownership of the Puerto Rico market, revenues increased 3% for the second quarter and 4% year to date, prior to foreign currency conversion. In the second quarter, continued new-restaurant expansion of our key international brands -- KFC and Pizza Hut -- and positive system same-store-sales growth drove International Division system-sales and operating-profit growth. New restaurants opened in the quarter totaled 126 across more than 36 different countries and territories. Year to date, 227 new restaurants were opened, 94% by our franchisees. Total new-restaurant openings for the full year are expected to be at least 725, the sixth straight year of at least 700 new-restaurant openings. Second-quarter International Division system-sales growth prior to foreign currency conversion was 6% versus our ongoing target of at least 5% growth. Overall, system restaurants in operation grew 3%. The company's international franchise-only markets led the way with 10% growth in system sales prior to currency conversion and 5% growth in system restaurants in operation. These businesses cover more than 100 countries and represent 42% of International Division's system restaurants. Other markets contributing to overall system-sales growth prior to currency conversion included the U.K., Mexico and Japan. In the U.K., a key market, system sales increased 4% prior to currency conversion, driven primarily by 7% growth in system restaurants in operation. For the second quarter, restaurant margin as a percentage of sales decreased 0.2 percentage points. Excluding the Puerto Rico market, restaurant margin would have increased 0.4 percentage points versus last year for the second quarter. Substantially stronger performance in Mexico was a significant positive factor for restaurant-margin performance. For the full year, excluding the impact of refranchising the Puerto Rico market, restaurant margin is expected to increase slightly versus 2004 driven primarily by strong business performance in Mexico. For the second quarter, excluding the refranchising of the Puerto Rico market, operating profit would have grown 21% prior to foreign currency conversion. Overall, foreign currency conversion added $5 million to operating profit for the second quarter and $9 million year to date. For the full year 2005, Yum! Restaurants International Division is expected to produce profit growth of at least 14% with system-sales growth of 6% in local currency terms. CHINA DIVISION - -------------- - ---------------------------------------------------------------------- Second Quarter Year to Date % Change % Change --------------------------- --------------------------- Excl Excl 2005 2004 Reported F/x 2005 2004 Reported F/x ------ ------ -------- ---- ------ ------ -------- ---- Financial Measures Revenues ($ million) $276 $237 +16 +15 $511 $425 +20 +20 Operating Profit ($ million) $25 $35 (30) (31) $78 $77 Even Even - ---------------------------------------------------------------------- Operating Metrics Est. System- Sales Growth (fiscal-period basis) +13 +12 +16 +16 System Restaurants 2,082 1,704 +22 NM 2,082 1,704 +22 NM - ---------------------------------------------------------------------- Note: The China Division includes mainland China, Thailand, and KFC Taiwan. Please refer to "Notes and Definitions" at the end of this release for explanation of estimated system-sales growth. A key growth driver for the China Division is rapid new-restaurant expansion of multiple Yum! restaurant brands. In the second quarter, as originally detailed in the company's sales release dated March 24, 2005, sales at KFC restaurants in mainland China were negatively impacted by adverse publicity relating to an issue, since resolved, with a seasoning supplier beginning with results in the third week of Period 4. As a result, China Division second-quarter system sales increased 12% excluding foreign currency conversion, below our ongoing target of at least 22% growth. As indicated in the company's most recent forecast, the below-target sales resulted in a 30% decline in operating profit for the second quarter. Second-quarter restaurant margin decreased 3.3 percentage points versus the prior year, driven primarily by negative same-store-sales growth in company-operated KFC restaurants in mainland China as noted previously. Overall, system restaurants in operation grew 22%. During the second quarter, a total of 68 new restaurants opened, including 50 KFCs, 16 Pizza Huts and 2 East Dawnings. Year to date 2005, 168 new restaurants were opened with an ownership mix of 74% company, 23% joint-venture and 3% franchise restaurants. For the remainder of the year, sales trends are expected to steadily improve from the low point in Period 4, and operating-profit performance is expected to show growth versus last year. Additionally, a partial financial recovery (approximately $13 million) from our mainland China seasoning supplier will be recognized in the third quarter. We expect to recognize some additional recovery during the fourth quarter of 2005 or the first quarter of 2006. UNITED STATES BUSINESS - ---------------------- - ---------------------------------------------------------------------- Second Quarter Year to Date 2005 2004 % Change 2005 2004 % Change ------- ------- --------- ------- ------- --------- Financial Measures Revenues ($ million) $1,385 $1,349 +3 $2,720 $2,646 +3 Operating Profit ($ million) $190 $199 (4)% $352 $371 (5)% - ---------------------------------------------------------------------- Operating Metrics Systemwide Same-Store-Sales Growth +3% +2% NM +3% +3% NM System Restaurants 18,374 18,545 (1)% 18,374 18,545 (1)% - ---------------------------------------------------------------------- A key growth driver for this business segment is same-store-sales growth. In the second quarter, the primary drivers of revenue growth were higher same-store sales and continued development of new, higher-volume restaurants, which, on average, more than offset reduced revenues associated with the closure of lower-volume restaurants. Opening new restaurants with higher volumes than those restaurants that were closed contributed 1 percentage point of revenue growth. Operating profit for the second quarter declined $9 million or 4% primarily due to $10 million in higher facility-actions expense mainly at KFC-U.S. Excluding this factor, U.S. operating profit for the second quarter was slightly higher versus last year. Higher G&A expense of $6 million and commodity costs (mainly meats) of $3 million also impacted year-over-year profit comparisons. For the balance of the year, it is anticipated that U.S. operating profit will show growth prior to the impact of higher facility-action expense in the range of +6% to +8%. WORLDWIDE NEW-RESTAURANT DEVELOPMENT - ------------------------------------ - ---------------------------------------------------------------------- System New-Restaurant Openings Second Quarter Year to Date ---------------- ------------ Worldwide 258 527 Key Markets Mainland China 64 158 United States 64 132 International Franchise-Only Businesses 61 130 (more than 100 countries and territories) U.K. 20 31 Australia/New Zealand 8 18 - ---------------------------------------------------------------------- New-restaurant development of our brands around the world is a key factor in year-to-year earnings growth for the company overall. For the International Division franchise-only businesses, new-restaurant growth versus a year ago continued across all regions: in Asia, +5%; southern Africa, +6%; the Middle East, +7%; and Caribbean/Latin America, +2%. For the 130 new openings year to date from this group of markets, 63 were new KFCs and 57 were new Pizza Huts. In the U.S. market, the majority of new-restaurant openings were by Pizza Hut, KFC and Taco Bell franchisees. Over 75% of U.S. new-restaurant openings were franchised. Worldwide new franchise-restaurant openings are a key contributor to the company's continued above-industry-average performance of return on invested capital. Globally, our franchisees are required to fund their new-restaurant development. This discussion excludes changes in license-unit locations, which are expected to have no material impact on the company's overall profit performance in 2005. License locations are typically nontraditional sites, such as airports, that normally have substantially lower average unit volumes than traditional restaurant locations. U.S. MULTIBRANDING EXPANSION - ---------------------------- - ---------------------------------------------------------------------- Second Quarter -------------------- Incr/ Multibrand Restaurants in Operation 2005 2004 (Decr) ------ ------ ------ U.S. Systemwide 2,813 2,375 +18% % U.S. System Restaurants 15% 13% +2 ppts - ---------------------------------------------------------------------- In the second quarter, 121 multibrand restaurants were added in the United States. Of the 121 U.S. multibrand additions, 76% were conversions of existing single-brand restaurants, 15% were new-restaurant openings and 9% were relocations -- building a completely new multibrand restaurant in place of an older single-brand restaurant nearby. More than 45% of the 2,813 U.S. multibrand restaurants in operation at the end of the second quarter were franchised. For the full-year 2005, the company expects the U.S. system to add at least 550 multibrand restaurant locations, including more than 300 Pizza Hut and WingStreet combinations and more than 100 with Long John Silver's in combination with Taco Bell, KFC or A&W. FRANCHISE GROWTH AND FEES - ------------------------- - ---------------------------------------------------------------------- Second Quarter Year to Date ---------------- ------------ Franchise Net New-Restaurant Growth +1% +1% Total Franchise Fees ($ million) $251 $495 Growth Vs. 2004 +9% +9% - ---------------------------------------------------------------------- Franchise fees experienced across-the-board growth driven by worldwide franchise new-restaurant development, refranchising (primarily the Puerto Rico market), same-store-sales growth and international royalty-rate increases. For the second quarter and year to date, favorable foreign currency conversion added 2 percentage points of franchise-fee growth. In the second quarter, worldwide franchise fees were generated primarily in the United States (58%) and the International Division (39%). The China Division contributed the remaining 3% to worldwide franchise fees. The company has more than 2,400 worldwide franchise partners including more than 1,800 in the United States, nearly 600 in the International Division and 29 in the China Division. G&A EXPENSES Worldwide G&A expenses for the second quarter were $28 million higher than last year. G&A was negatively impacted by a charge of $10 million related to the potential resolution of certain litigation matters as well as higher legal fees of $3 million associated with these matters. Additionally, the company continues to invest in the China Division infrastructure. CASH FLOW Year to date, the company generated $605 million in net cash provided by operating activities, invested capital of $210 million and repurchased $489 million of its own shares. As expected, additional cash was generated from employee stock-option proceeds, refranchising restaurants and the IPO of our Poland/Czech Republic franchise business. TAX RATE The effective tax rate prior to special items of 23.6% was 2.6 percentage points lower than last year's second-quarter rate primarily due to settlements related to the closure of regular audit cycles, partially offset by additional tax expense due to anticipated foreign earnings repatriation under the American Jobs Creation Act of 2004. The lower tax rate for the second quarter added $0.03 to EPS versus the company's previously announced expectations. We had previously identified $110 million in expected foreign earnings repatriation in the fourth quarter of 2004 and recorded the appropriate additional tax expense that quarter. During the second quarter of 2005, the company identified additional expected repatriation of approximately $400 million. As a result, $19 million of additional tax expense was reflected in the full-year effective tax rate, $8 million of which was recorded as income tax expense in the second-quarter. This repatriation will ultimately save the company over $100 million versus normal and expected tax rates to repatriate earnings. The additional taxes of $19 million included in this year's tax rate equates to $0.06 per share on a full-year basis. STOCK-OPTION EXPENSING We are considering whether to begin options expensing, adopting SFAS123R, in either the fourth quarter of 2005 or the first quarter of 2006. We will have a final decision communicated in our third-quarter earnings release scheduled for October 4, 2005. THIRD-QUARTER AND FOURTH-QUARTER 2005 OUTLOOK The company expects EPS prior to special items of $0.70 and $0.77 for the third and fourth quarters, an increase of 15% and 5% respectively. A number of factors are expected to impact results: -- In the fourth quarter, facility-action expenses and the effective tax rate are both expected to be unfavorable versus the prior year, more than offsetting the benefit of the fifty-third week. -- The company will record a partial financial recovery of approximately $13 million from its supplier in mainland China related to the ingredient issue. This recovery will be included in third-quarter 2005 results. We expect to recognize some additional recovery during the fourth quarter of 2005 or the first quarter of 2006. -- Updates will be provided if there is a material change to these expectations. FULL-YEAR OUTLOOK Each year, the company expects earnings per share to grow at least 10% with the continued execution of four key strategies: (1) build dominant restaurant brands in China, (2) profitable international expansion, (3) run great restaurants and (4) develop and expand multibranding. Based on second-quarter results year to date and information currently available, the company increased its full-year EPS expectations by $0.02 to $2.62 prior to special items. Projected factors contributing to the company's original annual 2005 EPS guidance were published in the company's release dated December 2, 2004. Based on current information, following is an update on the full year: -- Worldwide system-sales growth of +5% to +6%, which includes about 1 percentage-point benefit from the fifty-third week; International Division system-sales growth of at least +6% (local currency basis); China Division system-sales growth of +10% to +15% (local currency basis), and U.S. system-sales growth of +3% to +4%. -- Worldwide revenue growth of +4% to +5%, which includes about 1 percentage-point benefit from the fifty-third week: China Division, +10% to +15% (local currency basis), and U.S., +3% to +4%. International Division revenue is expected to increase +5% to +6% (local currency basis) prior to the impact of refranchising the Puerto Rico market. The impact of refranchising the Puerto Rico market this past October will result in a decline in reported revenue of about 1%. -- U.S. blended same-store-sales growth at company restaurants in a range of +3% to +4%. -- Continued growth in franchise fees of at least 7% resulting from worldwide restaurant expansion and same-store-sales growth, which includes about 1 percentage-point benefit from the fifty-third week. The growth in franchise fees includes the benefit of +1 percentage point from refranchising the Puerto Rico market in 2004. -- Worldwide restaurant margin is expected to be flat to slightly lower versus 2004. International Division margin is expected to be about even versus 2004; China Division margin, which was negatively impacted by sales declines caused by adverse publicity relating to an isolated issue with a seasoning supplier, is expected to be 17% to 18%, and U.S. margin is expected to increase slightly. -- General and administrative costs (G&A) will increase versus 2004 by approximately +3% prior to the impact of the fifty-third week, due to increased China spending to support brand expansion and higher charges relating to certain litigation matters. The fifty-third week adds approximately +1% for the full year. -- Interest expense will be even versus last year. -- Positive profit impact from foreign currency conversion on operating profit of $15 to $17 million, or $0.03 or $0.04, for the full year. As always, we will update you each quarter relative to the impact of foreign currency conversion. The Chinese renminbi, British pound sterling, Australian dollar, Korean won, Japanese yen, Canadian dollar, Mexican peso and European euro are important currencies in the company's international business. -- Facility actions to include $60 to $65 million of closure and impairment charges, an increase of $20 million versus 2004. Refranchising gains are expected to be about even with the 2004 full-year forecast of about $10 million. The forecast could be revised upward based on additional reviews during the third quarter. -- Effective tax rate of 26% to 28%. -- The U.S. restaurant base is expected to be down slightly, about 1%, versus 2004. The following full-year factors have not been changed: -- Capital expenditures, including franchise restaurant acquisitions, to be about $720 million. Pretax refranchising and surplus PP&E proceeds are expected to total $180 million resulting in net capital spending of $540 million being invested in the business. -- Over 1,450 new system restaurants to be opened worldwide -- At least 725 new International Division restaurants -- At least 375 new China Division restaurants -- At least 350 new U.S. restaurants -- International Division net-restaurant expansion to be at least +3%. -- Five hundred fifty (550) multibrand restaurant additions (gross) for the U.S. system, including conversions of existing restaurants, rebuilds, and new builds. -- Average shares outstanding to be in a range of 295 to 300 million shares, less than the expected average 305 million shares in 2004. -- Return on invested capital to remain at about 18%. -- Note: The fifty-third week primarily benefits the U.S. business. The China market is a monthly reporting business with no fifty-third week impact. Many International Division markets are also monthly reporting businesses with no fifty-third-week benefit. Additionally, in the U.S. the timing of the KFC business closing will be accelerated by one week in December 2005 eliminating any fifty-third week benefit for this business. This will align all three major U.S. brands' fiscal closings. - ---------------------------------------------------------------------- Annual Outlook Forecast Actual 2005 2004 Incr/(Decr) -------- ------ ----------- EPS prior to Special Items $2.62 $2.36 +11% Special Items EPS $0.00 $0.06 NM Reported EPS $2.62 $2.42 +8% - ---------------------------------------------------------------------- PERIOD 7 SALES - -------------- INTERNATIONAL DIVISION SYSTEM-SALES GROWTH (Estimated) - ------------------------------------------------------ - ---------------------------------------------------------------------- 2005 2005 2004 Reported (U.S. $) Local Currency Local Currency ----------------- --------------- --------------- Period 7 +10% +5% +8% - ---------------------------------------------------------------------- Note: These results exclude the China Division. The company's annual target growth rate for International Division system sales is at least +5% prior to foreign currency conversion. CHINA DIVISION SYSTEM-SALES GROWTH (Estimated) - ---------------------------------------------- - ---------------------------------------------------------------------- 2005 2005 2004 Reported (U.S. $) Local Currency Local Currency ----------------- ---------------- --------------- Period 7 +6% +5% +28% - ---------------------------------------------------------------------- Note: The China Division includes mainland China, Thailand, and KFC Taiwan. For the purpose of this sales release, like calendar months have been compared. The company's annual target growth rate for China Division system sales is at least +22% prior to foreign currency conversion. China Division Period 7 system sales increased 5% prior to foreign currency conversion versus last year. As originally detailed in the company's sales release dated March 24, 2005, sales at KFC restaurants in mainland China were negatively impacted by adverse publicity relating to an isolated issue with a seasoning supplier. Since that point in time, sales growth has continued to improve at a steady pace. Sales in our mainland China Pizza Hut restaurants were not impacted. Currently, we expect Period 8 system sales to increase at least 12% versus last year and sales recovery from the low point in the last week of Period 4 to continue. Period 8 sales growth will benefit by approximately 2 percentage points due to a shift in the number of weekend days (with higher sales) versus last year's Period 8. This impact will reverse in Period 9, resulting in a negative impact of 2 percentage points. U.S. COMPANY SAME-STORE-SALES GROWTH (Estimated) - ------------------------------------------------ - ---------------------------------------------------------------------- Period 7, 2005 Period 7, 2004 --------------- ---------------- U.S. BLENDED +5% +4% Taco Bell +10% +5% Pizza Hut (2)% +6% KFC +7% Even - ---------------------------------------------------------------------- Note: The company's annual target growth rate for U.S. same-store sales is +1% to +2%. - ---------------------------------------------------------------------- 2005 Period 7 End Dates 2005 Period 8 End Dates - ------------------------------------- ---------------------------- International International Division 6/13/2005 Division 7/11/2005 China Division 6/30/2005 China Division 7/31/2005 U.S. Business 7/9/2005 U.S. Business 8/6/2005 - ---------------------------------------------------------------------- CONFERENCE CALL - --------------- Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. EDT Thursday, July 14, 2005. For U.S. callers, the number is 877/815-2029. For international callers, the number is 706/645-9271. The call will be available for playback beginning Thursday, July 14, at 12:15 p.m. EDT through Friday, July 29, at midnight EDT. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 7195371. The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site: www.yum.com and selecting "2nd Quarter Earnings Webcast." NOTES & DEFINITIONS FOR TERMS USED THROUGHOUT THIS DOCUMENT - ----------------------------------------------------------- China Division system-sales growth explanation: Estimated system-sales growth differs from the 2% reported in the Period 6 sales release, which compared like calendar months. For 2005, we have moved forward the mainland China business reporting calendar one month to more closely align the timing of reporting that business's results of operations with our U.S. business. Notes: Sales results for Period 8 (the four-week period ending August 6, 2005) are scheduled to be released August 11, 2005, before market hours. Sales and profit information included in the release is rounded to the nearest million; however, percentage-point change calculations are based on numbers that are not rounded. Definitions: Excl F/x represents the percentage change excluding the impact of foreign currency translation. These amounts are calculated by translating current-year results at prior-year average exchange rates. We believe elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. Franchise Fees include fees from unconsolidated affiliates (joint ventures) and franchise and license restaurants. Fees include ongoing royalty and license fees, initial fees for new restaurants and contract-renewal fees. Franchise Restaurants include unconsolidated affiliates (joint ventures) and franchise restaurants and exclude license restaurants. Franchise Net New-Restaurant Growth is the year-over-year total of franchise restaurant and unconsolidated affiliates (joint-venture) openings less franchise restaurant and unconsolidated affiliates (joint-venture) closings divided by the prior year's franchise and unconsolidated affiliates (joint-venture) restaurant total. New-Restaurant Openings include unconsolidated affiliates (joint ventures), company-owned and franchise restaurants and exclude license restaurants. Special Items include AmeriServe and other charges (credits) and Wrench litigation. System Restaurants include unconsolidated affiliates (joint ventures), company-owned and franchise restaurants but exclude license restaurants. System-Sales Growth includes the results of all restaurants regardless of ownership including unconsolidated affiliates, company-owned, franchise and license restaurants. Sales of unconsolidated affiliates (joint ventures), franchise and license restaurants generate franchise and license fees for the company (typically at a rate of 4% to 6% of sales). Unconsolidated affiliates (joint ventures), franchise and license restaurant sales are not included in company sales we present on the Condensed Consolidated Statements of Income; however, the franchise fees previously defined are included in the company's revenues. We believe system-sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all our revenue drivers, company and franchise same-store sales as well as new-restaurant development. System Same-Store-Sales Growth is the estimated growth in sales of all restaurants that have been open one year or more regardless of ownership including unconsolidated affiliates (joint ventures), company-owned, franchise and license restaurants. Systemwide U.S. Same-Store Sales include all company, franchise and license restaurants that have been open one year or more. U.S. same-store sales include KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W restaurants. U.S. Blended Same-Store Sales include only company restaurants that have been open one year or more. U.S. blended same-store sales include KFC, Pizza Hut, and Taco Bell company-owned restaurants only. U.S. same-store sales for Long John Silver's and A&W restaurants are not included. This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include those identified by such words as may, will, expect, project, anticipate, believe, plan and other similar terminology. These "forward-looking" statements reflect management's current expectations regarding future events and operating and financial performance and are based on currently available data. However, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in this announcement. Accordingly, you are cautioned not to place undue reliance on forward-looking statements. Factors that can cause actual results to differ materially include, but are not limited to, changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates, including the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences or perceptions concerning the products of the company and/or our competitors, spending patterns and demographic trends; the impact that any widespread illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and marketing, advertising and promotional efforts; new-product and concept development by Yum! Brands and other food-industry competitors; the success of our strategies for refranchising and international development and operations; the ongoing business viability of our franchise and license operators; our ability to secure distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; unexpected disruptions in our supply chain; publicity that may impact our business and/or industry; severe weather conditions; effects and outcomes of pending or future legal claims involving the company; changes in effective tax rates; our actuarially determined casualty loss estimates; new legislation and governmental regulations or changes in legislation and regulations and the consequent impact on our business; and changes in accounting policies and practices. Further information about factors that could affect Yum! Brands' financial and other results are included in the company's Forms 10-Q and 10-K, filed with the Securities and Exchange Commission. Yum! Brands Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with nearly 34,000 restaurants in more than 100 countries and territories. Four of the company's restaurant brands -- KFC, Pizza Hut, Taco Bell and Long John Silver's -- are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories respectively. Yum! Brands is the worldwide leader in multibranding, which offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver's brands. The company and its franchisees today operate over 2,900 multibrand restaurants. Outside the United States in 2004, the Yum! Brands' system opened about three new restaurants each day of the year, making it one of the fastest growing retailers in the world. The company has been recognized in Black Enterprise Magazine as one of the "30 Best Companies for Diversity" and for the past two years in Fortune's top 50 "Best Companies for Minorities," claiming the number-one spot for "managerial diversity." Yum! Brands, Inc. Consolidated Summary of Results (amounts in millions, except per share amounts) Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ Total revenues $2,153 $2,077 4 $4,207 $4,047 4 Costs and expenses Company restaurant expenses 1,634 1,576 (4) 3,182 3,067 (4) General and administrative expenses 262 234 (12) 499 471 (6) Franchise and license expenses 4 6 29 12 8 (45) Facility actions 4 10 NM 15 19 NM Other (income) expense (25) (10) NM (39) (22) 83 Wrench litigation (income) expense - - - - - - AmeriServe and other charges (credits) - (14) NM - (14) NM ------- ------- ------- ------- Total costs and expenses 1,879 1,802 (4) 3,669 3,529 (4) ------- ------- ------- ------- Operating profit 274 275 - 538 518 4 Interest expense, net 30 32 10 58 67 14 ------- ------- ------- ------- Income before income taxes 244 243 1 480 451 7 Income tax provision 57 65 11 132 131 (1) ------- ------- ------- ------- Net income $ 187 $ 178 6 $ 348 $ 320 9 ======= ======= ======= ======= Basic EPS Data - -------------- EPS $ 0.65 $ 0.61 6 $ 1.20 $ 1.10 9 ======= ======= ======= ======= Average shares outstanding 288 290 - 290 290 - ======= ======= ======= ======= Diluted EPS Data - ---------------- EPS $ 0.62 $ 0.58 6 $ 1.15 $ 1.05 10 ======= ======= ======= ======= Average shares outstanding 302 304 1 303 305 - ======= ======= ======= ======= Dividends declared per common share $0.115 $ 0.10 15 $0.215 $ 0.10 NM ======= ======= ======= ======= See accompanying notes. Wrench litigation and AmeriServe and other charges (credits) have been summed and referred to as "Special Items" throughout this press release. See further discussion in the accompanying Notes. Yum! Brands, Inc. WORLDWIDE Operating Results (amounts in millions) Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ Company sales $1,902 $1,846 3 $3,712 $3,593 3 Franchise and license fees 251 231 9 495 454 9 --------------- --------------- Revenues 2,153 2,077 4 4,207 4,047 4 --------------- --------------- Company restaurants Food and paper 600 588 (2) 1,174 1,128 (4) Payroll and employee benefits 504 493 (2) 987 973 (1) Occupancy and other operating expenses 530 495 (7) 1,021 966 (6) --------------- --------------- 1,634 1,576 (4) 3,182 3,067 (4) General and administrative expenses 262 234 (12) 499 471 (6) Franchise and license expenses 4 6 29 12 8 (45) Facility actions 4 10 NM 15 19 NM Other (income) expense (25) (10) NM (39) (22) 83 --------------- --------------- 1,879 1,816 (3) 3,669 3,543 (4) --------------- --------------- Operating profit before special items 274 261 5 538 504 7 Interest expense, net 30 32 10 58 67 14 Income tax provision 57 60 4 132 126 (5) --------------- --------------- Earnings before special items $ 187 $ 169 11 $ 348 $ 311 12 ======= ======= ======= ======= Tax rate before special items 23.6% 26.2% 2.6 27.5% 28.9% 1.4 ======= ======= ppts. ======= ======= ppts. Diluted EPS before special items $ 0.62 $ 0.55 12 $ 1.15 $ 1.02 13 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 31.6 31.9 0.3 31.6 31.4 (0.2) ppts. ppts. Payroll and employee benefits 26.5 26.7 0.2 26.6 27.0 0.4 ppts. ppts. Occupancy and other operating expenses 27.8 26.8 (1.0) 27.5 26.9 (0.6) ppts. ppts. --------------- --------------- Restaurant margin 14.1% 14.6% (0.5) 14.3% 14.7% (0.4) ppts. ppts. ======= ======= ======= ======= Reconciliation of Segment Operating Profit to Reported Operating Profit - ---------------------------------------------------------------------- U.S. operating profit $ 190 $ 199 (4) $ 352 $ 371 (5) International Division operating profit 90 74 22 184 162 14 China Division operating profit 25 35 (30) 78 77 - Unallocated and corporate expense (61) (44) (38) (103) (92) (12) Unallocated other income (expense) 17 - NM 16 (3) NM Unallocated facility actions 13 (3) NM 11 (11) NM ------- ------- ------- ------- Operating profit before special items 274 261 5 538 504 7 Wrench litigation (income) expense - - - - - - AmeriServe and other (charges) credits - 14 NM - 14 NM ------- ------- ------- ------- Reported operating profit $ 274 $ 275 - $ 538 $ 518 4 ======= ======= ======= ======= See accompanying notes and reconciliations of non-GAAP measurements to GAAP results. Yum! Brands, Inc. UNITED STATES Operating Results (amounts in millions) Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ Company sales $1,240 $1,208 3 $2,439 $2,374 3 Franchise and license fees 145 141 3 281 272 3 --------------- --------------- Revenues 1,385 1,349 3 2,720 2,646 3 --------------- --------------- Company restaurants Food and paper 374 365 (3) 737 698 (6) Payroll and employee benefits 369 367 - 734 733 - Occupancy and other operating expenses 317 299 (6) 628 603 (4) --------------- --------------- 1,060 1,031 (3) 2,099 2,034 (3) General and administrative expenses 118 112 (5) 238 232 (3) Franchise and license expenses 3 3 12 9 4 (99) Facility actions 14 4 NM 22 5 NM --------------- --------------- 1,195 1,150 (4) 2,368 2,275 (4) --------------- --------------- Operating profit $ 190 $ 199 (4) $ 352 $ 371 (5) ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 30.2 30.2 - 30.2 29.4 (0.8) ppts. Payroll and employee benefits 29.7 30.3 0.6 30.1 30.9 0.8 ppts. ppts. Occupancy and other operating expenses 25.5 24.8 (0.7) 25.7 25.4 (0.3) ppts. ppts. --------------- --------------- Restaurant margin 14.6% 14.7% (0.1) 14.0% 14.3% (0.3) ppts. ppts. ======= ======= ======= ======= See accompanying notes. Yum! Brands, Inc. INTERNATIONAL DIVISION Operating Results (amounts in millions) Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ Company sales $ 394 $ 409 (4) $ 778 $ 809 (4) Franchise and license fees 98 82 19 198 167 18 --------------- --------------- Revenues 492 491 - 976 976 - --------------- --------------- Company restaurants Food and paper 128 137 7 256 275 7 Payroll and employee benefits 96 99 2 187 193 3 Occupancy and other operating expenses 119 119 1 234 234 - --------------- --------------- 343 355 3 677 702 4 General and administrative expenses 62 60 (2) 124 119 (4) Franchise and license expenses 1 3 53 3 4 23 Facility actions 1 2 NM 2 2 NM Other (income) expense (5) (3) 64 (14) (13) 24 --------------- --------------- 402 417 4 792 814 3 --------------- --------------- Operating profit $ 90 $ 74 22 $ 184 $ 162 14 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 32.6 33.6 1.0 32.9 33.9 1.0 ppts. ppts. Payroll and employee benefits 24.4 24.1 (0.3) 24.1 23.9 (0.2) ppts. ppts. Occupancy and other operating expenses 30.1 29.2 (0.9) 30.1 29.0 (1.1) ppts. ppts. --------------- --------------- Restaurant margin 12.9% 13.1% (0.2) 12.9% 13.2% (0.3) ppts. ppts. ======= ======= ======= ======= See accompanying notes. Yum! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ Company sales $ 268 $ 229 17 $ 495 $ 410 21 Franchise and license fees 8 8 5 16 15 14 --------------- --------------- Revenues 276 237 16 511 425 20 --------------- --------------- Company restaurants Food and paper 98 86 (13) 181 155 (16) Payroll and employee benefits 39 27 (44) 66 47 (42) Occupancy and other operating expenses 94 77 (23) 159 129 (24) --------------- --------------- 231 190 (21) 406 331 (23) General and administrative expenses 21 18 (24) 34 28 (23) Franchise and license expenses - - - - - - Facility actions 2 1 NM 2 1 NM Other (income) expense (3) (7) (52) (9) (12) (29) --------------- --------------- 251 202 (25) 433 348 (25) --------------- --------------- Operating profit $ 25 $ 35 (30) $ 78 $ 77 - ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 36.4 37.7 1.3 36.5 37.9 1.4 ppts. ppts. Payroll and employee benefits 14.5 11.8 (2.7) 13.3 11.3 (2.0) ppts. ppts. Occupancy and other operating expenses 35.2 33.3 (1.9) 32.1 31.4 (0.7) ppts. ppts. --------------- --------------- Restaurant margin 13.9% 17.2% (3.3) 18.1% 19.4% (1.3) ppts. ppts. ======= ======= ======= ======= See accompanying notes. China Division includes mainland China, Thailand and KFC Taiwan. Yum! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) 6/11/05 12/25/04 --------- --------- ASSETS Current Assets Cash and cash equivalents $ 113 $ 62 Short-term investments 87 54 Accounts and notes receivable, less allowance: $21 in 2005 and $22 in 2004 212 192 Inventories 77 76 Prepaid expenses and other current assets 91 142 Deferred income taxes 143 156 Advertising cooperative assets, restricted 78 65 --------- --------- Total Current Assets 801 747 Property, plant and equipment, net of accumulated depreciation and amortization of $2,733 in 2005 and $2,618 in 2004 3,371 3,439 Goodwill 550 553 Intangible assets, net 340 347 Investments in unconsolidated affiliates 179 194 Other assets 434 416 --------- --------- Total Assets $ 5,675 $ 5,696 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $ 1,214 $ 1,189 Income taxes payable 60 111 Short-term borrowings 222 11 Advertising cooperative liabilities 78 65 --------- --------- Total Current Liabilities 1,574 1,376 Long-term debt 1,562 1,731 Other liabilities and deferred credits 992 994 --------- --------- Total Liabilities 4,128 4,101 --------- --------- Shareholders' Equity Preferred stock, no par value, 250 shares authorized; no shares issued - - Common stock, no par value, 750 shares authorized; 286 shares and 290 shares issued in 2005 and 2004, respectively 328 659 Retained earnings 1,359 1,067 Accumulated other comprehensive loss (140) (131) --------- --------- Total Shareholders' Equity 1,547 1,595 --------- --------- Total Liabilities and Shareholders' Equity $ 5,675 $ 5,696 ========= ========= See accompanying notes. Yum! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) Year to date ------------------- 6/11/05 6/12/04 --------- --------- Cash Flows - Operating Activities Net income $ 348 $ 320 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 208 195 Facility actions 15 19 Other liabilities and deferred credits 4 8 Deferred income taxes (23) - Other non-cash charges and credits, net (4) 19 Changes in operating working capital, excluding effects of acquisitions and dispositions: Accounts and notes receivable (4) (14) Inventories 4 (6) Prepaid expenses and other current assets 57 (21) Accounts payable and other current liabilities - (64) Income taxes payable - (66) --------- --------- Net change in operating working capital 57 (171) --------- --------- Net Cash Provided by Operating Activities 605 390 --------- --------- Cash Flows - Investing Activities Capital spending (210) (221) Proceeds from refranchising of restaurants 41 8 Acquisition of restaurants from franchisees - (5) Short-term investments (31) (27) Sales of property, plant and equipment 22 24 Other, net 38 23 --------- --------- Net Cash Used in Investing Activities (140) (198) --------- --------- Cash Flows - Financing Activities Revolving Credit Facility activity, by original maturity Three months or less, net 46 - Repayments of long-term debt (9) (7) Short-term borrowings-three months or less, net (23) - Repurchase shares of common stock (489) (294) Employee stock option proceeds 89 102 Dividends paid on common shares (58) - --------- --------- Net Cash Used in Financing Activities (444) (199) --------- --------- Effect of Exchange Rates on Cash and Cash Equivalents (4) (2) --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 17 (9) Net Increase in Cash and Cash Equivalents of the China Division for December 2004 34 - Cash and Cash Equivalents - Beginning of Period 62 192 --------- --------- Cash and Cash Equivalents - End of Period $ 113 $ 183 ========= ========= See accompanying notes. Reconciliation of Non-GAAP Measurements to GAAP Results (amounts in millions, except per share amounts) 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 on a basis before special items. Special items include the GAAP income statement captions of Wrench litigation (income) expense and AmeriServe and other charges (credits). These amounts are described in (f) in the accompanying notes. The Company uses earnings before special items as a key performance measure of results of operations for purposes 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 facilitate the comparison of past and present operations, excluding items that the Company does not believe are indicative of our ongoing operations. Quarter Year to date ------------------- ------------------- 6/11/05 6/12/04 6/11/05 6/12/04 --------- --------- --------- --------- Detail of Special Items - ------------------------------ Wrench litigation (income) expense $ - $ - $ - $ - AmeriServe and other (charges) credits - 14 - 14 --------- --------- --------- --------- Total special items - 14 - 14 Tax on special items - (5) - (5) --------- --------- --------- --------- Special items, net of tax $ - $ 9 $ - $ 9 ========= ========= ========= ========= Average shares outstanding 302 304 303 305 ========= ========= ========= ========= Special items diluted EPS $ - $ 0.03 $ - $ 0.03 ========= ========= ========= ========= Reconciliation of Earnings Before Special Items to Net Income - ------------------------------ Earnings before special items $ 187 $ 169 $ 348 $ 311 Special items, net of tax - 9 - 9 --------- --------- --------- --------- Net income $ 187 $ 178 $ 348 $ 320 ========= ========= ========= ========= Reconciliation of EPS Before Special Items to Reported EPS - ------------------------------ Diluted EPS before special items $ 0.62 $ 0.55 $ 1.15 $ 1.02 Special items EPS - 0.03 - 0.03 --------- --------- --------- --------- Reported EPS $ 0.62 $ 0.58 $ 1.15 $ 1.05 ========= ========= ========= ========= Notes to the Consolidated Summary of Results, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (amounts in millions, except per share amounts) (a) Percentages may not recompute due to rounding. (b) In 2005, we began reporting information for our international business in two separate operating segments as a result of changes to our management structure. The China Division includes mainland China ("China"), Thailand and KFC Taiwan, and the International Division includes the remainder of our international operations. While this reporting change did not impact our consolidated results, segment information for previous periods has been restated to be consistent with the current period presentation. (b) In 2005, we also changed the China business reporting calendar to more closely align the timing of the reporting of its results of operations with our U.S. business. Previously our China business, like the rest of our international businesses, closed one month (or one period for certain of our international businesses) earlier than YUM's period end date to facilitate consolidated reporting. To maintain comparability of our consolidated results of operations, net income of the China business of $6 million for the one month period ended December 31, 2004 was recognized as an adjustment to consolidated retained earnings in the year to date ended June 11, 2005, as opposed to being recorded in our Consolidated Statement of Income. Our consolidated results of operations for the quarter and year to date ended June 11, 2005 include the results of operations of the China business for the months of March, 2005 through May, 2005 and January, 2005 through May, 2005, respectively, and the months to be included in future quarterly reporting periods will begin one month later than in previous years. Our consolidated results of operations for the quarter and year to date ended June 12, 2004 continue to include the results of operations of the China business for the months of February, 2004 through April, 2004 and December, 2003 through April, 2004, respectively. (c) Franchisee sales represents the combined estimated sales of unconsolidated affiliate, franchise and license restaurants. Franchisee sales, which are not included in the Company sales we present on the Consolidated Statements of Income, generate franchise and license fees (typically at a rate of 4% to 6% of sales) that are included in the Company's revenues. Quarter % Year to date % --------------- Change --------------- Change 6/11/05 6/12/04 B/(W) 6/11/05 6/12/04 B/(W) ------- ------- ------ ------- ------- ------ United States Company sales $1,240 $1,208 3 $2,439 $2,374 3 Franchisee sales 2,849 2,736 4 5,531 5,313 4 International Division Company sales $ 394 $ 409 (4) $ 778 $ 809 (4) Franchisee sales 1,898 1,651 15 3,882 3,386 15 China Division Company sales $ 268 $ 229 17 $ 495 $ 410 21 Franchisee sales 138 130 6 262 241 9 Worldwide Company sales $1,902 $1,846 3 $3,712 $3,593 3 Franchisee sales 4,885 4,517 8 9,675 8,940 8 (d) Facility actions included the following: Quarter Year to date ------------------- ------------------- 6/11/05 6/12/04 6/11/05 6/12/04 --------- --------- --------- --------- Store closure costs $ (1) $ (5) $ 3 $ (5) Asset impairment charges 18 12 23 13 Refranchising net loss (gain) (13) 3 (11) 11 --------- --------- --------- --------- Facility actions $ 4 $ 10 $ 15 $ 19 ========= ========= ========= ========= (e) Other (income) expense primarily includes the $17 million gain associated with the IPO of our Poland/Czech Republic business in the quarter ended June 11, 2005 as well as equity income from investments in unconsolidated affiliates. (f) Amounts recorded as AmeriServe and other charges (credits) primarily result from cash recoveries related to the AmeriServe bankruptcy reorganization process, which were not significant for both the quarter and year to date ended June 11, 2005. There was no Wrench litigation (income) expense recorded for the quarter and year to date ended June 11, 2005. (g) For the quarter and year to date ended June 11, 2005, we repurchased approximately 7.5 million shares and 9.8 million shares of our Common Stock, respectively, at an average price of $50 per share for both the quarter and year to date. Yum! Brands, Inc. Restaurant Units Activity Summary Total Unconsolidated Excluding Company Affiliates Franchisees Licensees(a) ------- -------------- ----------- ------------ Total U.S. Beginning of Year 4,989 - 13,482 18,471 New Builds 32 - 100 132 Acquisitions - - - - Refranchising (83) - 81 (2) Closures (62) - (160) (222) Other (10) - 5 (5) ------- -------------- ----------- ------------ End of Quarter 4,866 - 13,508 18,374 ======= ============== =========== ============ % of Total 26% - 74% 100% Total International Division Beginning of Year 1,504 1,204 8,179 10,887 New Builds 14 20 193 227 Acquisitions - - - - Refranchising (58) (135) 193 - Closures (15) (16) (104) (135) Other (6) - 5 (1) ------- -------------- ----------- ------------ End of Quarter 1,439 1,073 8,466 10,978 ======= ============== =========== ============ % of Total 13% 10% 77% 100% Total China Division Beginning of Year(b) 1,266 460 198 1,924 New Builds 124 39 5 168 Acquisitions - - - - Refranchising - - - - Closures (10) (4) - (14) Other - - 4 4 ------- -------------- ----------- ------------ End of Quarter (c) 1,380 495 207 2,082 ======= ============== =========== ============ % of Total 66% 24% 10% 100% Total Worldwide Beginning of Year 7,759 1,664 21,859 31,282 New Builds 170 59 298 527 Acquisitions - - - - Refranchising (141) (135) 274 (2) Closures (87) (20) (264) (371) Other (16) - 14 (2) ------- -------------- ----------- ------------ End of Quarter 7,685 1,568 22,181 31,434 ======= ============== =========== ============ % of Total 24% 5% 71% 100% (a) The total excludes 2,148 U.S. and 197 International Division licensee units. There are no licensed units in the China Division. The U.S. licensee unit count includes 1,241 Pizza Huts, 832 Taco Bells and 75 KFCs. The International Division licensee unit count includes 91 Pizza Huts, 62 KFCs, 43 Taco Bells and 1 Long John Silver's. (b) Beginning of the year balances have been adjusted to include December activity in Mainland China due to the change in its reporting calendar. The net change was an addition of 16, 2, 1 and 19 units for company, unconsolidated affiliates, franchisees and total excluding licensees, respectively. (c) The totals include 3 Company-owned Taco Bell Grandes and 2 Company-owned East Dawning units. Yum! Brands, Inc. Restaurant Units Activity Summary United States - ---------------------------------------------------------------------- Total Excluding Company Franchisees Licensees -------------- ----------- ------------ Pizza Hut Beginning of Year 1,741 4,565 6,306 New Builds 14 36 50 Acquisitions - - - Refranchising (60) 60 - Closures (21) (51) (72) Other - - - -------------- ----------- ------------ End of Quarter 1,674 4,610 6,284 ============== =========== ============ % of Total 27% 73% 100% KFC Beginning of Year 1,248 4,202 5,450 New Builds 4 35 39 Acquisitions - - - Refranchising (7) 7 - Closures (22) (47) (69) Other (10) 5 (5) -------------- ----------- ------------ End of Quarter 1,213 4,202 5,415 ============== =========== ============ % of Total 22% 78% 100% Taco Bell Beginning of Year 1,283 3,747 5,030 New Builds 2 20 22 Acquisitions - - - Refranchising (8) 6 (2) Closures (5) (28) (33) Other - - - -------------- ----------- ------------ End of Quarter 1,272 3,745 5,017 ============== =========== ============ % of Total 25% 75% 100% Long John Silver's Beginning of Year 700 500 1,200 New Builds 12 7 19 Acquisitions - - - Refranchising (8) 8 - Closures (12) (10) (22) Other - - - -------------- ----------- ------------ End of Quarter 692 505 1,197 ============== =========== ============ % of Total 58% 42% 100% A&W Beginning of Year 17 468 485 New Builds - 2 2 Acquisitions - - - Refranchising - - - Closures (2) (24) (26) Other - - - -------------- ----------- ------------ End of Quarter 15 446 461 ============== =========== ============ % of Total 3% 97% 100% Yum! Brands, Inc. Restaurant Units Activity Summary International Division - ---------------------------------------------------------------------- Total Unconsolidated Excluding Company Affiliates Franchisees Licensees ------- -------------- ----------- ------------ KFC Beginning of Year 726 439 4,854 6,019 New Builds 11 11 97 119 Acquisitions - - - - Refranchising (1) (89) 90 - Closures (3) (6) (46) (55) Other (1) 1 (2) (2) ------- -------------- ----------- ------------ End of Quarter 732 356 4,993 6,081 ======= ============== =========== ============ % of Total 12% 6% 82% 100% Pizza Hut Beginning of Year 766 765 2,903 4,434 New Builds 3 9 85 97 Acquisitions - - - - Refranchising (48) (46) 94 - Closures (12) (10) (48) (70) Other (5) (1) 5 (1) ------- -------------- ----------- ------------ End of Quarter 704 717 3,039 4,460 ======= ============== =========== ============ % of Total 16% 16% 68% 100% A&W Beginning of Year - - 209 209 New Builds - - 9 9 Acquisitions - - - - Refranchising - - - - Closures - - (9) (9) Other - - (1) (1) ------- -------------- ----------- ------------ End of Quarter - - 208 208 ======= ============== =========== ============ % of Total - - 100% 100% Taco Bell Beginning of Year 12 - 180 192 New Builds - - - - Acquisitions - - - - Refranchising (9) - 9 - Closures - - - - Other - - 3 3 ------- -------------- ----------- ------------ End of Quarter 3 - 192 195 ======= ============== =========== ============ % of Total 2% - 98% 100% Long John Silver's Beginning of Year - - 33 33 New Builds - - 2 2 Acquisitions - - - - Refranchising - - - - Closures - - (1) (1) Other - - - - ------- -------------- ----------- ------------ End of Quarter - - 34 34 ======= ============== =========== ============ % of Total - - 100% 100% Yum! Brands, Inc. Restaurant Units Activity Summary China Division - ---------------------------------------------------------------------- Total Unconsolidated Excluding Company Affiliates Franchisees Licensees ------- -------------- ----------- ------------ KFC Beginning of Year 1,039 460 175 1,674 New Builds 91 39 4 134 Acquisitions - - - - Refranchising - - - - Closures (8) (4) - (12) Other - - 4 4 ------- -------------- ----------- ------------ End of Quarter 1,122 495 183 1,800 ======= ============== =========== ============ % of Total 62% 28% 10% 100% Pizza Hut Beginning of Year 224 - 23 247 New Builds 30 - 1 31 Acquisitions - - - - Refranchising - - - - Closures (1) - - (1) Other - - - - ------- -------------- ----------- ------------ End of Quarter 253 - 24 277 ======= ============== =========== ============ % of Total 91% - 9% 100% China Division includes mainland China, Thailand and KFC Taiwan. Yum! Brands, Inc. United States Multibrand Restaurants United States(a) ------------------------------------------ Multibrand Restaurants in Operation at 6/11/05 ----------------------------- Gross Additions Year to Date 6/11/05 Company Franchise Total ------------ --------- --------- --------- KFC Taco Bell 2 180 488 668 A&W 13 121 196 317 Long John Silver's 27 63 93 156 Pizza Hut - 97 42 139 Taco Bell/Pizza Hut 3 n 1 - 19 23 42 Wing Works - 26 - 26 ------------ --------- --------- --------- 42 506 842 1,348 Taco Bell Pizza Hut 2 314 274 588 Long John Silver's 6 68 27 95 A&W - 2 - 2 ------------ --------- --------- --------- 8 384 301 685 Pizza Hut WingStreet 151 456 22 478 KFC - - 4 4 Taco Bell - - 1 1 Wing Works - 1 - 1 ------------ --------- --------- --------- 151 457 27 484 Long John Silver's A&W 24 176 120 296 ------------ --------- --------- --------- Total 225 1,523 1,290 2,813 ============ ========= ========= ========= Multibrand conversions increase the sales and points of distribution for the second brand added to a restaurant but do not result in an additional unit count. Similarly, a new multibrand restaurant, while increasing sales and points of distribution for two brands, results in just one additional unit count. (a) Amounts do not reflect 185 International Division multibrand units in operation at the end of the period. There are no multibrand units in the China Division. MULTIMEDIA AVAILABLE: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=4929094 CONTACT: Yum! Brands, Inc., Louisville Analysts are invited to contact: Tim Jerzyk, Vice President Investor Relations, 888-298-6986 or Quan Nghe, Director Investor Relations, 888-298-6986 or Members of the media are invited to contact: Amy Sherwood, Vice President Public Relations, 502-874-8200 -----END PRIVACY-ENHANCED MESSAGE-----