-----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, OQGF6sIIN/q/zslQbYLrIZUJSmKXjLWWlFDa+jO7XsWIaFM6xcLrx3yZjHgAxXzJ hmZtOAfQRJL3Bq32QQCx0w== 0001157523-06-003979.txt : 20060424 0001157523-06-003979.hdr.sgml : 20060424 20060424161525 ACCESSION NUMBER: 0001157523-06-003979 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060424 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060424 DATE AS OF CHANGE: 20060424 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: 06775329 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 a5130863.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) April 24, 2006 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 April 24, 2006, YUM! Brands, Inc. issued a press release announcing financial results for the quarter ended March 25, 2006. 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 April 24, 2006 from YUM! Brands, Inc. 2 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: April 24, 2006 /s/ Ted F. Knopf -------------------------------- Senior Vice President of Finance and Corporate Controller (Principal Accounting Officer) 3 EX-99.1 2 a5130863ex991.txt YUM! BRANDS, INC. EXHIBIT 99.1 Exhibit 99.1 Yum! Brands Inc. Reports 2006 First-Quarter Earnings Per Share of $0.59 or +18% Versus Last Year; Raises Full-Year Forecast LOUISVILLE, Ky.--(BUSINESS WIRE)--April, 24, 2006--Yum! Brands Inc. (NYSE: YUM) today reported record EPS results for the first quarter ended March 25, 2006. Note: All comparisons are versus the same period a year ago. In the first quarter, the company and its franchisees continued to expand its brands around the world and grow same-store sales: -- Yum! Restaurants International Division (YRI) grew the number of system restaurants by 4% led by franchise development. -- Mainland China restaurant unit growth was a very strong 21% driven by company expansion of the KFC and Pizza Hut brands. -- U.S. blended system-same-store sales increased 5%. For the first quarter, key highlights are: -- Worldwide operating profit increased 12%. -- All three business segments reported operating-profit growth: YRI, +3%; China, +10%; and U.S., +19%. -- Worldwide franchise fees increased 9%. -- U.S. multibrand restaurants in operation expanded 16%. -- U.S. operating margin increased 2.2 percentage points. -- YRI operating margin increased 1.2 percentage points to 20.1%, a new record. -- Average diluted shares outstanding were reduced by 6%. FULL-YEAR OUTLOOK The company raised its full-year EPS outlook to at least $2.81, 11% growth prior to special items, based on a very strong first quarter in the U.S. business. The company expects solid full-year operating-profit growth from each of its three segments: China, YRI and the U.S. The company's prior forecast for 2006 EPS was at least $2.79. CONSOLIDATED FINANCIAL HIGHLIGHTS First Quarter -------------------------------- 2006 2005 % Change ---------- ---------- ---------- System Restaurants 31,963 31,366 +2 System-Sales Growth 5% 7% NM Earnings Per Share (EPS) $0.59 $0.50 +18 - ------------------------------------------------------------------ David C. Novak, Chairman and CEO, said, "We had an outstanding first quarter. Our entire portfolio contributed to the strong worldwide first-quarter operating-profit growth of 12% and EPS growth of 18%. This performance is particularly impressive given the immense amount of global news coverage about avian flu. As a result, we are encouraged by our ability to continue to overcome consumer perception issues. Clearly, our customers are getting the message that fully cooked chicken is safe to eat. "Finally, we are pleased with the sales recovery of our mainland China business, reporting system-sales growth of 35% in local currency for March. This, in combination with our strong core profit growth in the first quarter and a much better U.S. commodity outlook, gives us confidence we will have another good year. As a matter of fact, we have raised our full-year 2006 EPS estimate to at least $2.81 or 11% growth. This would make the fifth straight year that we deliver against our annual target of at least 10% EPS growth. "Shareholders should continue to expect us to remain focused on flawlessly executing our four key strategies: building dominant restaurant brands in China, driving profitable international expansion, improving restaurant operations and multibranding category-leading brands." WHAT'S NEW IN THIS RELEASE For each of our business segments, YRI, China, and the U.S., we have provided key financial and operating metrics that we believe are tailored to what is important to each business segment. For YRI, where our business is highly franchised, we have focused on the performance of that aspect of the business and overall business profitability commonly designated as operating margin. Operating margin is operating profit dollars as a percentage of revenue dollars. This measure is more important and relevant than our company restaurant margin as we own only 12% of system restaurants. Conversely, for our China Division, which is predominantly company owned, the business is very much driven by company expansion in mainland China, therefore the key measures target company-restaurant sales and profitability performance. Company restaurant margin remains a key indicator. Additionally, we have added sales-growth data specific to just the mainland China portion of the business. In the U.S., we have provided same-store-sales growth, restaurant and operating margins to reflect a balanced view of the key drivers for our current business. Additionally, we have also provided key measures similar to YRI as that business transitions to a more franchise-focused model during the next 24 months. We believe these measures provide enhanced understanding and transparency with each of our three business segments and allow you to track our progress and performance. YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI) First Quarter (million, except restaurant counts % Change and percentages) ----------------- 2006 2005 Reported Excl F/x -------- -------- -------- -------- Key Financial Measures Franchise & License Fees $110 $100 +10 +13 Franchisee Sales $2,071 $1,993 +4 +7 Company Sales $359 $384 (7) (5) Operating Margin 20.1% 18.9% +1.2 pt NA Operating Profit $95 $91 +3 +6 - ---------------------------------- -------- -------- -------- -------- Key Operating Metrics Local Currency System-Sales Growth +6 System Restaurants 11,378 10,933 +4 NA Franchise & JV Restaurants 10,012 9,444 +6 NA - ---------------------------------- -------- -------- -------- -------- Key growth driver: Franchise-fee growth by opening new franchise restaurants and leveraging our substantial infrastructure across an array of international markets. For the first quarter, franchise fees continued to grow as a result of new-restaurant expansion (+8%), positive same-store-sales growth, the renewal of franchise contracts at a higher rate, and the expansion of our franchise base due to the sales of company restaurants to franchisees (refranchising). The sale of 139 company-owned restaurants to franchisees took place over the past 12 months. Strong performance continued in YRI's franchise-only markets of Asia, southern Africa, Middle East and Caribbean/Latin America, despite some minor short-term impact to sales in various Middle East and European franchise markets from the avian flu during the first quarter. The franchise-only markets represent KFC and Pizza Hut franchise businesses in more than 100 countries and territories. For the first quarter, sales from company operations were negatively impacted by the refranchising of 139 company restaurants during the last year as previously mentioned. This impacted company-sales growth by 6 percentage points. In addition, same-store sales in the KFC U.K. and Pizza Hut South Korea company businesses were down versus last year, which offset positive growth in other company markets such as Mexico, Canada, France and Australia. As the year progresses, we look for performance in the U.K. market to slowly improve. YRI opened 124 new restaurants in the first quarter, 98% of those by franchise and joint-venture partners, including 59 KFCs, 59 Pizza Huts, 4 A&Ws, and 2 Taco Bells. For the first quarter of 2006, foreign currency conversion negatively impacted YRI operating profit by $2 million. We expect similar quarterly impacts for the balance of 2006. For YRI full-year 2006, we expect: -- System-sales growth to meet our annual target of at least 5% in local currency terms. -- 750 new restaurants, of which well over 80% should be by franchise and joint-venture partners. -- Franchise-fee growth of at least 8%. -- Operating-profit growth of 10% in local currency terms. All the full-year growth rates are on a like-for-like basis and exclude the fifty-third week benefit in 2005. CHINA DIVISION First Quarter (million, except restaurant counts % Change and percentages) ----------------- 2006 2005 Reported Excl F/x ------- ------- -------- -------- Key Financial Measures Company Sales $269 $227 +18 +16 Restaurant Margin 21.8% 23.1% (1.3) NA Operating Profit $58 $52 +10 +8 - ------------------------------------ ------- ------- -------- -------- Key Operating Metrics Mainland China: KFC Restaurants 1,602 1,335 +20 NA Pizza Hut Restaurants 243 186 +31 NA Local Currency System-Sales Growth +15 - ------------------------------------ ------- ------- -------- -------- Note: China Division includes mainland China, Thailand and the KFC Taiwan business. Key growth driver: Profitable expansion of new KFC and Pizza Hut company restaurants in mainland China. For the first quarter 2006, company sales for the China Division increased 16% in local currency due to the continued strong expansion of both our KFC and Pizza Hut brands in mainland China. KFC sales in mainland China began to recover from consumer perception issues relating to avian flu that peaked in the fourth quarter of 2005. For the first quarter, system-same-store sales in mainland China decreased only 3% versus a strong first quarter last year. As sales trends improved in the first quarter, restaurant margin is over 20% once again. Versus last year, it declined 1.3 percentage points primarily as a result of higher labor costs and negative same-store sales in company-operated mainland China KFC restaurants. We are optimistic that both same-store sales and margin trends will reverse beginning in the second quarter. Overall, mainland China system restaurants in operation grew 21% with a total of 63 new restaurants. Foreign currency conversion added approximately $1 million to operating profit for the first quarter. We expect this quarterly trend to continue for the balance of 2006, possibly at a slightly higher rate. For the China Division full-year 2006 in local currency terms, we expect: -- Company-sales growth of at least 22%. -- System-sales growth of at least 22%. -- Operating-profit growth of at least 20%. -- 375 new-restaurant openings in mainland China and 400 in total for the Division. UNITED STATES BUSINESS First Quarter (million, except restaurant counts and percentages) 2006 2005 % Change ------- ------- --------- Key Financial Measures Franchisee Sales $2,912 $2,682 +9 Franchise & License Fees $148 $136 +9 Company Sales $1,191 $1,199 (1) Restaurant Margin 15.0% 13.1% +1.9 Operating Margin 14.0% 11.8% +2.2 Operating Profit $188 $157 +19 - ---------------------------------------------------------------------- Key Operating Metrics Blended System Same-Store-Sales Growth % +5 +3 NM System Multibrand Restaurants 3,160 2,726 +16 Franchise Restaurants 13,630 13,447 +1 - ---------------------------------------------------------------------- Key growth drivers: Positive blended same-store-sales growth, improvements in restaurant and operating margins. For the first quarter, franchisee sales and fees continued to grow as a result of strong same-store-sales growth, adding new restaurants led by Taco Bell franchisees and the expansion of our franchise base due to the sale of 308 company-owned restaurants to franchisees (refranchising) over the past year. Company sales declined by 1% for the first quarter as the impact of refranchising 308 company-owned restaurants the past 12 months offset solid same-store-sales growth. Additionally, we have begun unit expansion of Taco Bell in the U.S. Taco Bell units increased 1% compared to last year. We expect this trend to continue and for the rate of growth to slowly increase over time. The primary driver of improvements in first-quarter restaurant and operating margins was strong same-store-sales growth and a much improved commodity-cost environment. Overall, commodity costs declined by approximately $8 million versus last year. For the U.S. in 2006, we expect: -- +2% to +3% U.S. blended same-store-sales growth. -- Additional 550 system multibrand restaurants. -- Full-year operating-profit growth of at least 6%, raised from 5% previously. -- U.S. revenue to decrease 1 to 2%, excluding the impact of lapping the fifty-third week in 2005; including the impact of lapping the fifty-third week in 2005, revenue to decrease 2 to 3%. This forecast incorporates the impact from our ongoing refranchising of U.S. company restaurants. FRANCHISE FEES & FRANCHISE OWNERSHIP For the first quarter, worldwide franchise fees increased by 9% to $266 million, a new record level. Franchise fees continue to be an increasing source of worldwide operating profit. We have over 2,000 franchise partners in the U.S. and over 700 outside the U.S. As previously communicated, the company is targeting to increase franchise ownership from 75% currently in the U.S. business to about 80% over the next two years. This two-year plan in the U.S. business calls for selling approximately 1,000 company restaurants to franchisees. It is expected the impact to ongoing worldwide operating profit will be neutral and refranchise gains/losses are expected to be about break-even. Importantly, this action will put these restaurants in the hands of experienced and highly capable local franchise operators. During the first quarter of 2006, 75 company-owned U.S. restaurants were sold to our franchisees. Over the two years of the plan, we expect the transactions with our franchisees will result in about $300 million of pretax cash proceeds. Furthermore, we expect company capital requirements to be reduced as a result of these transactions, U.S. restaurant margin to improve by at least 0.50 percentage points and Yum! return on invested capital (ROIC) to increase by at least 0.75 percentage points. FREE CASH FLOW For the past four quarters, including first-quarter 2006, free cash flow continues at a substantial level; we generated $236 million in free cash flow, defined as net cash provided by operating activities ($297 million) less net cash used in investing activities ($61 million). As we have previously communicated, our objective is to return virtually all free cash flow to our shareholders through our quarterly dividend and share buybacks. For the first quarter, we purchased 7.6 million shares for $371 million. For the full year 2006, we expect free cash flow, as previously defined, to approximate $850 million. PERIOD 4 SALES INTERNATIONAL DIVISION SYSTEM-SALES GROWTH (Estimated) 2006 2005 Local Currency Local Currency ------------------ ------------------ Period 4 +5% +7% - ---------------------------------------------------------- Including the negative impact of foreign currency conversion, reported Period 4 system sales in U.S. dollars increased 1%. CHINA DIVISION SYSTEM-SALES GROWTH (Estimated) 2006 2005 Local Currency Local Currency ------------------ ------------------ Period 4 +25% +10% - ---------------------------------------------------------- Note: China Division includes mainland China, Thailand and the KFC Taiwan business. Overall for the China Division, Period 4 system sales in U.S. dollars increased 28%. This includes the positive impact of foreign currency conversion. The mainland China business represents the largest portion of our Yum! China Division. Therefore, we have begun to provide results for just mainland China in addition to the overall division results. System-sales growth for mainland China in Period 4 was +35% local currency basis. U.S. COMPANY SAME-STORE-SALES GROWTH (Estimated) Period 4, 2006 Period 4, 2005 ------------------ ------------------ U.S. BLENDED +1% +4% Taco Bell +6% +5% Pizza Hut (5)% +4% KFC +2% +4% - -------------------------------------------------------- 2006 Period 4 End Dates 2006 Period 5 End Dates - --------------------------------- --------------------------------- International Division 3/27/2006 International Division 4/24/2006 China Division 3/31/2006 China Division 4/30/2006 U.S. Business 4/22/2006 U.S. Business 5/20/2006 - --------------------------------- --------------------------------- 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 Tuesday, April 25, 2006. 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 at noon Eastern Time Tuesday, April 25, through 5 p.m. Friday, May 5. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 6666915. The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site: www.yum.com and selecting "1st Quarter Earnings Webcast." New! For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors. Yum! China Investor Conference II September 7-8, 2006, the Yum! team will host the second China Investor Conference in Shanghai, China. Our investors and analysts are invited to attend this two-day event with the Yum! China management team. Attendees will also visit local KFC and Pizza Hut restaurants. Please contact Yum! Investor Relations at 888/298-6986 and ask for Donna to confirm that you plan to attend. We need to hear from you as soon as possible to complete details for this unique opportunity. DEFINITIONS FOR TERMS USED THROUGHOUT THIS DOCUMENT All related definitions for terms used throughout this release can be found on our Web site: www.yum.com/investors/media/earnings/notes/q1_2006.pdf. Worldwide restaurant count details by brand can be found online at www.yum.com/investors/restcounts.asp. 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 over 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 3,300 multibrand restaurants. Outside the United States in 2005, 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. For the past three years, the company has been recognized as one of FORTUNE magazine's "Top 50 Employers for Minorities." It also has been recognized as one of the "Top 50 Employers for Women" by FORTUNE, one of the "Top 30 Best Companies for Diversity" by BLACK ENTERPRISE Magazine, one of the "Corporate 100 Companies Providing Opportunities for Hispanics" by Hispanic Magazine, one of the "Top 50 Corporations for Supplier Diversity" by HISPANIC Trends Magazine and by BusinessWeek as one of the "Top 15 Companies for In-Kind Corporate Philanthropy." Analysts are invited to contact Tim Jerzyk, Vice President Investor Relations, at 888/298-6986 Quan Nghe, Director Investor Relations, at 888/298-6986 Members of the media are invited to contact Amy Sherwood, Vice President Public Relations, at 502/874-8200 Yum! Brands, Inc. Consolidated Summary of Results (amounts in millions, except per share amounts) Quarter ------------------ % Change 3/25/06 3/19/05 B/(W) -------- -------- --------- Company sales $1,819 $1,810 1 Franchise and license fees 266 244 9 -------- -------- Total revenues 2,085 2,054 2 -------- -------- Costs and expenses Food and paper 557 574 3 Payroll and employee benefits 477 486 2 Occupancy and other operating expenses 501 491 (2) -------- -------- Company restaurant expenses 1,535 1,551 1 General and administrative expenses 254 247 (3) Franchise and license expenses 8 8 1 Closures and impairment expenses 6 9 NM Refranchising (gain) loss 4 2 NM Other (income) expense (4) (14) (68) Wrench litigation (income) expense -- -- NM AmeriServe and other charges(credits) -- -- NM -------- -------- Total costs and expenses 1,803 1,803 -- -------- -------- Operating profit 282 251 12 Interest expense, net 35 28 (22) -------- -------- Income before income taxes 247 223 11 Income tax provision 77 70 (10) -------- -------- Net income $ 170 $ 153 11 ======== ======== Effective tax rate 31.3% 31.4% - ------------------ ======== ======== Basic EPS Data - -------------- EPS $ 0.62 $ 0.52 17 ======== ======== Average shares outstanding 276 291 5 ======== ======== Diluted EPS Data - ---------------- EPS $ 0.59 $ 0.50 18 ======== ======== Average shares outstanding 286 304 6 ======== ======== Dividends declared per common share $0.115 $ 0.10 NM ======== ======== Please note that the results for both fiscal quarters include the negative impact of expensing our stock options. See accompanying notes on our web site: www.yum.com Yum! Brands, Inc. Segment Results (amounts in millions) Quarter Corporate Ended United International China and 3/25/06 States Division Division Unallocated Consolidated ------- ------------- --------- ------------ ------------ Total revenues $1,339 $469 $277 $ -- $2,085 ------- ------------- --------- ------------ ------------ Company restaurant expenses 1,012 313 210 -- 1,535 General and administrative expenses 126 58 15 55 254 Franchise and license expenses 4 4 -- -- 8 Closures and impairment expenses 1 4 1 -- 6 Refranchising (gain) loss -- -- -- 4 4 Other (income) expense 8 (5) (7) -- (4) ------- ------------- --------- ------------ ------------ 1,151 374 219 59 1,803 ------- ------------- --------- ------------ ------------ Operating profit (loss) $ 188 $ 95 $ 58 $(59) $ 282 ======= ============= ========= ============ ============ Quarter Corporate Ended United International China and 3/19/05 States Division Division Unallocated Consolidated ------- ------------- --------- ------------ ------------ Total revenues $1,335 $484 $235 $ -- $2,054 ------- ------------- --------- ------------ ------------ Company restaurant expenses 1,041 335 175 -- 1,551 General and administrative expenses 123 64 14 46 247 Franchise and license expenses 6 2 -- -- 8 Closures and impairment expenses 8 1 -- -- 9 Refranchising (gain) loss -- -- -- 2 2 Other (income) expense -- (9) (6) 1 (14) ------- ------------- --------- ------------ ------------ 1,178 393 183 49 1,803 ------- ------------- --------- ------------ ------------ Operating profit (loss) $ 157 $ 91 $ 52 $(49) $ 251 ======= ============= ========= ============ ============ The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise general and administrative expenses, refranchising (gains) and losses and other (income) expense that are not allocated to segments for performance reporting purposes. Please note that the results for both fiscal quarters include the negative impact of expensing our stock options. Yum! Brands, Inc. UNITED STATES Operating Results (amounts in millions) Quarter ------------------ % Change 3/25/06 3/19/05 B/(W) -------- -------- ------------- Company sales $1,191 $1,199 (1) Franchise and license fees 148 136 9 -------- -------- Revenues 1,339 1,335 -- -------- -------- Company restaurant expenses Food and paper 340 363 6 Payroll and employee benefits 359 367 2 Occupancy and other operating expenses 313 311 (1) -------- -------- 1,012 1,041 3 General and administrative expenses 126 123 (3) Franchise and license expenses 4 6 28 Closures and impairment expenses 1 8 NM Other (income) expense 8 -- NM -------- -------- 1,151 1,178 2 -------- -------- Operating profit $ 188 $ 157 19 ======== ======== Company sales 100.0% 100.0% Food and paper 28.5 30.3 1.8 ppts. Payroll and employee benefits 30.2 30.7 0.5 ppts. Occupancy and other operating expenses 26.3 25.9 (0.4) ppts. -------- -------- Restaurant margin 15.0% 13.1% 1.9 ppts. ======== ======== Operating margin 14.0% 11.8% 2.2 ppts. ======== ======== Please note that the results for both fiscal quarters include the negative impact of expensing our stock options. See accompanying notes on our web site: www.yum.com Yum! Brands, Inc. INTERNATIONAL DIVISION Operating Results (amounts in millions) Quarter ------------------ % Change 3/25/06 3/19/05 B/(W) -------- -------- ----------- Company sales $ 359 $ 384 (7) Franchise and license fees 110 100 10 -------- -------- Revenues 469 484 (3) -------- -------- Company restaurant expenses Food and paper 120 128 6 Payroll and employee benefits 84 92 8 Occupancy and other operating expenses 109 115 6 -------- -------- 313 335 6 General and administrative expenses 58 64 9 Franchise and license expenses 4 2 (71) Closures and impairment expenses 4 1 NM Other (income) expense (5) (9) (50) -------- -------- 374 393 5 -------- -------- Operating profit $ 95 $ 91 3 ======== ======== Company sales 100.0 % 100.0 % Food and paper 33.5 33.2 (0.3) ppts. Payroll and employee benefits 23.5 23.9 0.4 ppts. Occupancy and other operating expenses 30.2 30.0 (0.2) ppts. -------- -------- Restaurant margin 12.8 % 12.9 % (0.1) ppts. ======== ======== Operating margin 20.1 % 18.9 % 1.2 ppts. ======== ======== Please note that the results for both fiscal quarters include the negative impact of expensing our stock options. See accompanying notes on our web site: www.yum.com Yum! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) Quarter % Change ------------------ 3/25/06 3/19/05 B/(W) -------- -------- ------------- Company sales $ 269 $ 227 18 Franchise and license fees 8 8 8 -------- -------- Revenues 277 235 18 Company restaurant expenses Food and paper 97 83 (16) Payroll and employee benefits 34 27 (28) Occupancy and other operating expenses 79 65 (22) -------- -------- 210 175 (20) General and administrative expenses 15 14 (12) Franchise and license expenses -- -- NM Closures and impairment expenses 1 -- NM Other (income) expense (7) (6) 14 -------- -------- 219 183 (20) -------- -------- Operating profit $ 58 $ 52 10 ======== ======== Company sales 100.0% 100.0% Food and paper 36.0 36.6 0.6 ppts. Payroll and employee benefits 12.8 11.9 (0.9) ppts. Occupancy and other operating expenses 29.4 28.4 (1.0) ppts. -------- -------- Restaurant margin 21.8% 23.1% (1.3) ppts. ======== ======== Please note that the results for both fiscal quarters include the negative impact of expensing our stock options. See accompanying notes on our web site: www.yum.com China Division includes mainland China, Thailand and KFC Taiwan Yum! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) 3/25/06 12/31/05 -------- --------- ASSETS Current Assets Cash and cash equivalents $ 134 $ 158 Short-term investments 61 43 Accounts and notes receivable, less allowance: $21 in 2006 and $23 in 2005 258 236 Inventories 84 85 Prepaid expenses and other current assets 95 75 Deferred income taxes 159 163 Advertising cooperative assets, restricted 102 77 -------- --------- Total Current Assets 893 837 Property, plant and equipment, net of accumulated depreciation and amortization of $2,876 in 2006 and $2,830 in 2005 3,295 3,356 Goodwill 540 538 Intangible assets, net 327 330 Investments in unconsolidated affiliates 157 173 Other assets 505 464 -------- --------- Total Assets $5,717 $5,698 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $1,208 $1,238 Income taxes payable 118 79 Short-term borrowings 223 211 Advertising cooperative liabilities 102 77 -------- --------- Total Current Liabilities 1,651 1,605 Long-term debt 1,710 1,649 Other liabilities and deferred credits 1,026 995 -------- --------- Total Liabilities 4,387 4,249 -------- --------- Shareholders' Equity Preferred stock, no par value, 250 shares authorized; no shares issued -- -- Common stock, no par value, 750 shares authorized; 273 shares and 278 shares issued in 2006 and 2005, respectively -- -- Retained earnings 1,484 1,619 Accumulated other comprehensive loss (154) (170) -------- --------- Total Shareholders' Equity 1,330 1,449 -------- --------- Total Liabilities and Shareholders' Equity $5,717 $5,698 ======== ========= See accompanying notes on our web site: www.yum.com Yum! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) Quarter to date ------------------ 3/25/06 3/19/05 -------- -------- Cash Flows - Operating Activities Net income $ 170 $ 153 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 99 97 Closures and impairment expenses 6 9 Refranchising (gain) loss 4 2 Contributions to defined benefit pension plans -- -- Other liabilities and deferred credits 24 17 Deferred income taxes (51) (10) Equity income from investments in unconsolidated affiliates (11) (15) Distributions of income received from unconsolidated affiliates -- -- Excess tax benefit from share-based compensation (20) (23) Share-based compensation expense 16 13 Other non-cash charges and credits, net 19 21 Changes in operating working capital, excluding effects of acquisitions and dispositions: Accounts and notes receivable 8 (6) Inventories 2 -- Prepaid expenses and other current assets (13) 31 Accounts payable and other current liabilities (28) (44) Income taxes payable 72 (13) -------- -------- Net change in operating working capital 41 (32) -------- -------- Net Cash Provided by Operating Activities 297 232 -------- -------- Cash Flows - Investing Activities Capital spending (72) (94) Proceeds from refranchising of restaurants 22 4 Acquisition of restaurants from franchisees -- -- Short-term investments (17) (18) Sales of property, plant and equipment 8 3 Other, net (2) -- -------- -------- Net Cash Used in Investing Activities (61) (105) -------- -------- Cash Flows - Financing Activities Revolving Credit Facility activity Three months or less, net 71 3 Repayments of long-term debt (4) (3) Short-term borrowings-three months or less, net 11 (29) Repurchase shares of common stock (371) (116) Excess tax benefit from share-based compensation 20 23 Employee stock option proceeds 44 46 Dividends paid on common shares (32) (29) -------- -------- Net Cash Used in Financing Activities (261) (105) -------- -------- Effect of Exchange Rate on Cash and Cash Equivalents 1 -- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents (24) 22 Net Increase in Cash and Cash Equivalents of Mainland China for December 2004 -- 34 -------- -------- Cash and Cash Equivalents - Beginning of Period 158 62 -------- -------- Cash and Cash Equivalents - End of Period $ 134 $ 118 ======== ======== See accompanying notes on our web site www.yum.com. 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) All periods presented reflect the Company's adoption of Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123R) effective September 4, 2005. The Company adopted SFAS 123R by applying the modified retrospective application transition method to the beginning of 2005, and as such the first three fiscal quarters of 2005 were adjusted to recognize the compensation cost for stock options previously reported only in the financial statement proforma footnote disclosures as required by SFAS No. 123, "Accounting for Stock-Based Compensation". (c) Amounts presented as of and for the quarter ended March 25, 2006 are preliminary. (d) Other (income) expense primarily includes equity income from investments in unconsolidated affiliates and, in the quarter ended March 25, 2006, an $8 million charge associated with the termination of a beverage agreement in the United States segment. (e) For the quarter ended March 25, 2006, we repurchased approximately 7.6 million shares of our Common Stock at an average price of $49 per share. (f) In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has presented the non-GAAP measurement of free cash flow. Free cash flow is defined as Net Cash Provided by Operating Activities less Net Cash Used in Investing Activities. We believe free cash flow is an important measure as it provides an indication of amounts available to return to our shareholders, through either share repurchases or dividends, or to pay down long-term debt. Free cash flow for the past four quarters is computed as follows: Quarter Ended ----------------------------------- ------- 3/25/06 12/31/05 9/3/05 6/11/05 Total -------- --------- ------- -------- ------- Net Cash Provided by Operating Activities $297 $243 $ 424 $339 $1,303 Net Cash used in Investing Activities (61) (75) (113) (52) (301) -------- --------- ------- -------- ------- Free Cash Flow $236 $168 $ 311 $287 $1,002 ======== ========= ======= ======== ======= CONTACT: Yum! Brands Inc., Louisville Analysts: Tim Jerzyk, Vice President Investor Relations, 888-298-6986 or Quan Nghe, Director Investor Relations, 888-298-6986 or Media: Amy Sherwood, Vice President Public Relations, 502-874-8200 -----END PRIVACY-ENHANCED MESSAGE-----