-----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, PjtFgpAsvi1iIystVGtHT2s7HX7tPG+UNEplyjh6p4cK3jw3GJK8SRFEW/E2dJth R5M2CzN9pFevfEHqgJMigw== 0001157523-06-007048.txt : 20060720 0001157523-06-007048.hdr.sgml : 20060720 20060719184816 ACCESSION NUMBER: 0001157523-06-007048 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060719 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060720 DATE AS OF CHANGE: 20060719 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: 06970205 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 a5191419.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 19, 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 July 19, 2006, YUM! Brands, Inc. issued a press release announcing financial results for the quarter ended June 17, 2006. A copy of the press release is attached hereto as Exhibit 99.1. Section 8 - Other Events Item 8.01 Other Events On July 19, 2006, YUM! Brands, Inc. updated its full year 2006 guidance. A copy of the guidance is attached hereto as Exhibit 99.2. Section 9 - Financial Statements and Exhibits Item 9.01 Financial Statements and Exhibits (c) Exhibits 99.1 Earnings Press Release dated July 19, 2006 from YUM! Brands, Inc. 99.2 Guidance Update dated July 19, 2006 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 19, 2006 /s/ Ted F. Knopf ---------------------------------- Senior Vice President of Finance and Corporate Controller (Principal Accounting Officer) EX-99.1 2 a5191419ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Yum! Brands Inc. Reports Strong 2006 Second-Quarter Earnings Per Share of $0.68 or +15% Versus Last Year; Raises Full-Year Forecast LOUISVILLE, Ky.--(BUSINESS WIRE)--July 19, 2006--Yum! Brands Inc. (NYSE: YUM) today reported financial results for the second quarter ended June 17, 2006, and provided estimated Period 7 global sales results. In the second quarter, we and our franchise partners continued to expand our brands around the world and grow same-store sales: -- Yum! Restaurants International Division (YRI) system restaurants grew by 4%. -- Mainland China KFC and Pizza Hut restaurants increased by 21%. -- Worldwide system same-store sales grew by 2%. For the second quarter, key highlights are . . . -- Worldwide operating profit increased 18%. -- All three business segments reported operating-profit growth: YRI, 2%; China, 136%; and U.S., 5%. -- Worldwide franchise fees increased 7%. -- China Division restaurant margin increased nearly 5 percentage points. -- U.S. multibrand restaurants in operation expanded 15%. -- Average diluted shares outstanding were reduced by 7%. -- Announced a 30% increase in the quarterly dividend to $0.15 per share, payable August 4, 2006. Note: All preceding comparisons are versus the same period a year ago. FULL-YEAR OUTLOOK The company raised its full-year earnings per share (EPS) outlook to at least $2.83, or 11% growth, based on very strong second-quarter results in our China Division and an expected strong second half of 2006 for YRI. The company expects solid full-year operating-profit growth from each of its three divisions: China, YRI, and the U.S. The company's prior EPS guidance for 2006 was at least $2.81. CONSOLIDATED FINANCIAL HIGHLIGHTS - --------------------------------- Second Quarter Year To Date ------------------------- ------------------------- 2006 2005 % Change 2006 2005 % Change ------- ------- --------- ------- ------- --------- Traditional Restaurants 32,022 31,434 +2 32,022 31,434 +2 System-Sales Growth +5% +7% NM +5% +7% NM Earnings Per Share (EPS) $0.68 $0.59 +15 $1.28 $1.09 +17 - ---------------------------------------------------------------------- Note: YUM has 34,165 restaurant locations around the world, which includes 2,143 license units. David C. Novak, Chairman and CEO, said, "I am pleased to report we had another outstanding quarter. Our entire portfolio contributed to the strong worldwide second-quarter operating profit growth of 18% and EPS growth of 15%. Given the robust growth we expect from our China and YRI Divisions, we are able to once again raise our full-year EPS forecast from at least $2.81 to at least $2.83. "Our China business is obviously experiencing booming growth. It's particularly impressive that we are achieving record second-quarter restaurant margin as we are on track to open another 400 new restaurants this year. In addition, our Yum! Restaurants International Division brings strong business trends into the second half and is expected to exceed our target of opening at least 750 new restaurants for 2006. This will be the sixth straight year of at least 1,000 new restaurants opened outside the U.S., and we expect to maintain at least that development pace going forward into 2007. "In the U.S., significant improvement in commodity costs will more than offset what we believe is short-term sales softness that Taco Bell and KFC experienced during Period 7, as the brands lapped last year's outstanding same-store-sales growth of +10% and +7% respectively. We are confident of our positioning and programs for these brands and expect to have overall positive same-store-sales growth at both of them for the second half of 2006. At Pizza Hut, we foresee a slow recovery as the brand begins to execute a turnaround plan. Overall, we expect to grow the operating profit of our U.S. business by 6%, our strongest performance in four years. "This will be our fifth straight year where we demonstrate the strength of our portfolio to deliver at least 10% EPS growth. The key factor for the consistency of our growth is our global portfolio that provides us the opportunity to build dominant restaurant brands in China, drive profitable international expansion, improve U.S. brands and operations, and multibrand category-leading brands." YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI) - --------------------------------------------- Second Quarter Year to Date ($ million, % % except Change Change restaurant -------- -------- counts and Excl Excl percentages) 2006 2005 Reported F/x 2006 2005 Reported F/x ------------------------------------------------------- Key Financial Measures Franchise & License Fees 108 98 +10 +12 218 198 +10 +13 Franchisee Sales 2,026 1,895 +7 +10 4,097 3,888 +5 +9 Company Sales 381 394 (3) (2) 740 778 (5) (3) Operating Margin 18.1% 17.7% +0.4 ppt NA 19.1% 18.3% +0.8 ppt NA Operating Profit 88 87 +2 +5 183 178 +3 +5 - ---------------------------------------------------------------------- Key Operating Metrics System-Sales Growth (Local Currency) +8 +7 System Restaurants 11,438 10,978 +4 NA 11,438 10,978 +4 NA Franchise & JV Restaurants 10,087 9,539 +6 NA 10,087 9,539 +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 second quarter, franchise fees continued to grow as a result of new-restaurant expansion, same-store-sales growth of 4%, and the expansion of our franchise base due to the sale of company restaurants to franchisees (refranchising). YRI opened 152 new restaurants in the second quarter, 92% of those by franchise and joint-venture partners, including 87 KFCs, 54 Pizza Huts, 9 A&Ws, and 2 Taco Bells. Strong same-store-sales-growth performance continued in YRI's franchise-only markets of Asia, southern Africa, the Middle East and the Caribbean/Latin America. For the second quarter, company sales were negatively affected by the refranchising of 103 company restaurants over the past year, impacting company-sales growth by 5 percentage points. Company same-store-sales growth was slightly positive, improving from a decline in the first quarter. In our emerging-markets category, we finalized the acquisition of the Rostik's brand in Russia during the second quarter. As we convert the existing Rostik's restaurants, we will add a substantial number of new cobranded Rostik's/KFCs in Russia over the next 18 months. In India, our scale continues to build with 125 Pizza Hut and 15 KFC restaurants currently in operation. Foreign currency conversion for the second quarter negatively impacted YRI operating profit by $3 million and $5 million year to date. Based on current foreign currency rates, we expect that the balance-of-year conversion impact will be slightly favorable. For YRI full-year 2006 in local-currency terms we expect: -- System-sales growth of 7%, from at least 5% previously. -- To exceed our target of 750 new restaurants. -- Franchise-fee growth of at least 10%, from at least 8% previously. -- Operating-profit growth of 10%. These full-year growth rates are on a like-for-like basis excluding the fifty-third-week benefit in 2005. CHINA DIVISION - -------------- Second Quarter Year to Date ($ million, except % % restaurant counts Change Change and percentages) -------- -------- Excl Excl 2006 2005 Reported F/x 2006 2005 Reported F/x ---------------------------------------------------- Key Financial Measures Company Sales 352 268 +31 +28 621 495 +25 +23 Restaurant Margin 18.8% 13.9% +4.9 NA 20.1% 18.1% +2.0 NA Operating Profit 57 25 +136 +130 115 77 +50 +46 - ---------------------------------------------------------------------- Key Operating Metrics MAINLAND CHINA: KFC Restaurants 1,657 1,378 +20 NA 1,657 1,378 +20 NA Pizza Hut Restaurants 252 201 +25 NA 252 201 +25 NA System-Sales Growth (Local Currency) +36 +26 - ---------------------------------------------------------------------- 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 second quarter 2006, company sales for the China Division increased 28% in local currency due to the continued strong expansion of both our KFC and Pizza Hut brands in mainland China. Mainland China system restaurants in operation grew 21% and system-same-store sales grew 16%. Second-quarter 2006 operating profit increased 130% in local currency terms versus second quarter last year. The key contributing factor to the significant increase was continued improvement in mainland China KFC sales trends, lapping the negative sales impact that KFC restaurants experienced during the second quarter last year from an unapproved food ingredient issue. Importantly, second-quarter restaurant margin was up solidly even against results from 2004. Foreign currency conversion added approximately $2 million to operating profit for the second quarter and $3 million year to date. We expect similar favorable quarterly impacts from foreign currency conversion for the balance of 2006. For the China Division full-year 2006 in local currency terms, we expect: -- System-sales growth of at least 22%. -- Operating-profit growth of at least 25%, from at least 20% previously. -- 375 new-restaurant openings in mainland China and 400 in total for the Division. UNITED STATES BUSINESS - ---------------------- ($ million, except Second Quarter Year to Date restaurant counts % % and percentages) 2006 2005 Change 2006 2005 Change -------------------------------------------- Key Financial Measures Franchisee Sales 2,967 2,849 +4 5,879 5,531 +6 Franchise & License Fees 151 145 +4 299 281 +6 Company Sales 1,179 1,240 (5) 2,370 2,439 (3) Restaurant Margin 16.1% 14.4% +1.7 15.5% 13.8% +1.7 Operating Margin 14.6% 13.4% +1.2 14.3% 12.6% +1.7 Operating Profit 194 185 +5 382 342 +11 - ---------------------------------------------------------------------- Key Operating Metrics Blended System Same-Store-Sales Growth % +1 +3 NM +3 +3 NM System Multibrand Restaurants 3,224 2,813 +15 3,224 2,813 +15 Franchise Restaurants 13,603 13,508 +1 13,603 13,508 +1 - ---------------------------------------------------------------------- Key growth drivers: Positive blended same-store-sales growth, improvements in restaurant and operating margins. For the second quarter, franchise sales and fees continued to grow as a result of adding new franchise restaurants and the expansion of our franchise-system base across all brands due to the sale of 268 company-owned restaurants to franchisees (refranchising) over the past year. Company sales declined by 5% for the second quarter from the impact of refranchising 268 company-owned restaurants the past 12 months. The key driver of improvements in second-quarter restaurant and operating margins was a much improved commodity-cost environment. Overall, commodity costs declined by approximately $16 million versus last year. For the U.S. in 2006, we expect: -- Approximately +1% U.S. blended same-store-sales growth, from +2% to +3% previously. -- Significantly lower commodity costs: approximately $40 million favorable impact versus 2005, from $18 million favorable impact previously expected. -- Full-year operating-profit growth of 6% on a like-for-like basis excluding the fifty-third-week benefit in 2005. U.S. FRANCHISE OWNERSHIP UPDATE As previously communicated, in the U.S. business we have targeted to sell approximately 1,000 company restaurants to franchisees during 2006 and 2007. We are currently ahead of schedule in this plan and remain fully confident of meeting or exceeding our original two-year plan. For the full year 2006, we now expect cash proceeds of at least $250 million versus the original target of $150 million. Year to date 2006, 107 company-owned U.S. restaurants have been sold to our franchisees. FREE CASH FLOW For full-year 2006, we continue to expect to generate about $1.3 billion in Cash from Operating Activities. In addition, we are lowering our full-year capital spending from $675 million to about $625 million and increasing our expected cash proceeds from refranchising by $100 million from the original target of $150 million to $250 million. These are the key drivers to free cash available and after including all changes to our forecasted sources and uses of cash, we expect our free cash available for the full year 2006 to increase by approximately $100 to $150 million. The reduction in full-year capital spending reflects a mid-year fine tuning of our global forecast, no major development changes. As we have previously communicated, our objective is to return virtually all free cash available to our shareholders through our share buybacks and quarterly dividends. During the second quarter of 2006, we purchased 3.2 million shares for $158 million and announced an increase in our quarterly dividend of 30% to $0.15 per share payable August 4, 2006. Year-to-date share repurchases total $529 million. PERIOD 7 SALES - -------------- INTERNATIONAL DIVISION SYSTEM-SALES GROWTH (Estimated) 2006 2005 Local Currency Local Currency -------------- -------------- Period 7 +8% +5% - ---------------------------------------------------------------------- YRI Period 7 system-sales growth benefited by approximately 1 ppt. from the inclusion of the Rostik's restaurants in Russia. On March 24, 2006, YUM acquired the Rostik's brand. We have just begun the two-year process of cobranding the 94 Rostik's and the existing 18 franchise KFCs into Rostik's/KFC restaurants. YRI Period 7 system sales in U.S. dollars increased 10%. CHINA DIVISION SYSTEM-SALES GROWTH (Estimated) 2006 2005 Local Currency Local Currency ------------------ ------------------ Period 7 +24% +5% - ---------------------------------------------------------- Note: China Division includes mainland China, Thailand and the KFC Taiwan business. Including the positive impact of foreign currency conversion, reported Period 7 system sales in U.S. dollars increased 28%. System-sales growth for mainland China in Period 7 was +28% local currency basis, +33% in U.S. dollars. U.S. COMPANY SAME-STORE-SALES GROWTH (Estimated) Period 7 Second Quarter ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- U.S. BLENDED (3)% +5% Even +5% Taco Bell (3)% +10% +5% +5% Pizza Hut (7)% (2)% (7)% +2% KFC Even +7% +2% +8% - -------------------------------------------------- ------------------- 2006 Period 7 End Dates 2006 Period 8 End Dates - ---------------------------------- ---------------------------------- International Division 6/19/2006 International Division 7/17/2006 China Division 6/30/2006 China Division 7/31/2006 U.S. Business 7/15/2006 U.S. Business 8/12/2006 - ---------------------------------- ---------------------------------- FULL-YEAR 2006 GUIDANCE Within each reporting segment section previously in this release, you can review our updated full-year expectations for key measures. Please refer to the following link: http://media.corporate-ir.net/ media_files/irol/11/117941/06Guidance.pdf for the updated version of our detailed full-year 2006 guidance. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser's URL address field.) 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 20, 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 Thursday, July 20, through 5 p.m. Friday, July 28. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 2311004. 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." 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 2 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: http://media.corporate-ir.net/media_files/ irol/11/117941/YumQ206Earnings.pdf. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser's URL address field.) 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, which includes over 2,000 licensed 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 3,400 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 "40 Best Companies for Diversity" by Black Enterprise Magazine for the past two years, 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." Yum! Brands, Inc. Consolidated Summary of Results (amounts in millions, except per share amounts) Quarter % Year to date % ---------------- Change ---------------- Change 6/17/06 6/11/05 B/(W) 6/17/06 6/11/05 B/(W) ------- ------- ------ ------- ------- ------ Company sales $1,912 $1,902 1 $3,731 $3,712 1 Franchise and license fees 270 251 7 536 495 8 ------- ------- ------- ------- Total revenues 2,182 2,153 1 4,267 4,207 1 ------- ------- ------- ------- Costs and expenses Food and paper 583 600 3 1,140 1,174 3 Payroll and employee benefits 492 506 3 969 992 2 Occupancy and other operating expenses 536 530 (1) 1,037 1,021 (2) ------- ------- ------- ------- Company restaurant expenses 1,611 1,636 2 3,146 3,187 1 General and administrative expenses 264 273 3 518 520 -- Franchise and license expenses 9 4 (120) 17 12 (41) Closures and impairment expenses 18 17 NM 24 26 NM Refranchising (gain) loss (15) (13) NM (11) (11) NM Other (income) expense (12) (25) (53) (16) (39) (58) Wrench litigation (income) expense -- -- NM -- -- NM AmeriServe and other charges (credits) -- -- NM -- -- NM ------- ------- ------- ------- Total costs and expenses 1,875 1,892 1 3,678 3,695 -- ------- ------- ------- ------- Operating profit 307 261 18 589 512 15 Interest expense, net 36 30 (25) 71 58 (23) ------- ------- ------- ------- Income before income taxes 271 231 17 518 454 14 Income tax provision 79 53 (47) 156 123 (26) ------- ------- ------- ------- Net income $ 192 $ 178 8 $ 362 $ 331 9 ======= ======= ======= ======= Effective tax rate 29.0% 23.0% 30.1% 27.1% - ------------------ ======= ======= ======= ======= Basic EPS Data - -------------- EPS $ 0.71 $ 0.62 14 $ 1.32 $ 1.14 16 ======= ======= ======= ======= Average shares outstanding 272 288 6 274 290 5 ======= ======= ======= ======= Diluted EPS Data - ---------------- EPS $ 0.68 $ 0.59 15 $ 1.28 $ 1.09 17 ======= ======= ======= ======= Average shares outstanding 281 301 7 284 303 6 ======= ======= ======= ======= Dividends declared per common share $ 0.15 $0.115 30 $0.265 $0.215 23 ======= ======= ======= ======= Please note that the results for all periods presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes Yum! Brands, Inc. Segment Results (amounts in millions) Corporate Quarter Ended United International China and 6/17/06 States Division Division Unallocated Consolidated ------- ------------- -------- ----------- ------------ Total revenues $1,330 $ 489 $ 363 $ -- $ 2,182 ------- ------------- -------- ----------- ------------ Company restaurant expenses 990 335 286 -- 1,611 General and administrative expenses 125 64 26 49 264 Franchise and license expenses 7 2 -- -- 9 Closures and impairment expenses 14 3 1 -- 18 Refranchising (gain) loss -- -- -- (15) (15) Other (income) expense -- (3) (7) (2) (12) ------- ------------- -------- ----------- ------------ 1,136 401 306 32 1,875 ------- ------------- -------- ----------- ------------ Operating profit (loss) $ 194 $ 88 $ 57 $ (32) $ 307 ======= ============= ======== =========== ============ Corporate Quarter Ended United International China and 6/11/05 States Division Division Unallocated Consolidated ------- ------------- -------- ----------- ------------ Total revenues $1,385 $ 492 $ 276 $ -- $ 2,153 ------- ------------- -------- ----------- ------------ Company restaurant expenses 1,062 343 231 -- 1,636 General and administrative expenses 121 65 21 66 273 Franchise and license expenses 3 1 -- -- 4 Closures and impairment expenses 14 1 2 -- 17 Refranchising (gain) loss -- -- -- (13) (13) Other (income) expense -- (5) (3) (17) (25) ------- ------------- -------- ----------- ------------ 1,200 405 251 36 1,892 ------- ------------- -------- ----------- ------------ Operating profit (loss) $ 185 $ 87 $ 25 $ (36) $ 261 ======= ============= ======== =========== ============ 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 presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes Yum! Brands, Inc. Segment Results (amounts in millions) Corporate Year to Date United International China and Ended 6/17/06 States Division Division Unallocated Consolidated ------- ------------- -------- ----------- ------------ Total revenues $2,669 $ 958 $ 640 $ -- $ 4,267 ------- ------------- -------- ----------- ------------ Company restaurant expenses 2,002 648 496 -- 3,146 General and administrative expenses 251 122 41 104 518 Franchise and license expenses 11 6 -- -- 17 Closures and impairment expenses 15 7 2 -- 24 Refranchising (gain) loss -- -- -- (11) (11) Other (income) expense 8 (8) (14) (2) (16) ------- ------------- -------- ----------- ------------ 2,287 775 525 91 3,678 ------- ------------- -------- ----------- ------------ Operating profit (loss) $ 382 $ 183 $ 115 $ (91) $ 589 ======= ============= ======== =========== ============ Corporate Year to Date United International China and Ended 6/11/05 States Division Division Unallocated Consolidated ------- ------------- -------- ----------- ------------ Total revenues $2,720 $ 976 $ 511 $ -- $ 4,207 ------- ------------- -------- ----------- ------------ Company restaurant expenses 2,103 678 406 -- 3,187 General and administrative expenses 244 129 35 112 520 Franchise and license expenses 9 3 -- -- 12 Closures and impairment expenses 22 2 2 -- 26 Refranchising (gain) loss -- -- -- (11) (11) Other (income) expense -- (14) (9) (16) (39) ------- ------------- -------- ----------- ------------ 2,378 798 434 85 3,695 ------- ------------- -------- ----------- ------------ Operating profit (loss) $ 342 $ 178 $ 77 $ (85) $ 512 ======= ============= ======== =========== ============ 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 years to date presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes Yum! Brands, Inc. UNITED STATES Operating Results (amounts in millions) Quarter % Year to date % ---------------- Change ---------------- Change 6/17/06 6/11/05 B/(W) 6/17/06 6/11/05 B/(W) ------- ------- ------ ------- ------- ------ Company sales $1,179 $1,240 (5) $2,370 $2,439 (3) Franchise and license fees 151 145 4 299 281 6 ------- ------- ------- ------- Revenues 1,330 1,385 (4) 2,669 2,720 (2) ------- ------- ------- ------- Company restaurants Food and paper 332 374 11 672 737 9 Payroll and employee benefits 350 371 6 709 738 4 Occupancy and other operating expenses 308 317 3 621 628 1 ------- ------- ------- ------- 990 1,062 7 2,002 2,103 5 General and administrative expenses 125 121 (4) 251 244 (3) Franchise and license expenses 7 3 (98) 11 9 (18) Closures and impairment expenses 14 14 NM 15 22 NM Other (income) expense -- -- NM 8 -- NM ------- ------- ------- ------- 1,136 1,200 5 2,287 2,378 4 ------- ------- ------- ------- Operating profit $ 194 $ 185 5 $ 382 $ 342 11 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 28.2 30.2 2.0 28.4 30.2 1.8 ppts. ppts. Payroll and employee benefits 29.6 29.9 0.3 29.9 30.3 0.4 ppts. ppts. Occupancy and other operating expenses 26.1 25.5 (0.6) 26.2 25.7 (0.5) ppts. ppts. ------- ------- ------- ------- Restaurant margin 16.1% 14.4% 1.7 15.5% 13.8% 1.7 ppts. ppts. ======= ======= ======= ======= Operating margin 14.6% 13.4% 1.2 14.3% 12.6% 1.7 ppts. ppts. ======= ======= ======= ======= Please note that the results for all periods presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes Yum! Brands, Inc. INTERNATIONAL DIVISION Operating Results (amounts in millions) Quarter % Year to date % ---------------- Change ---------------- Change 6/17/06 6/11/05 B/(W) 6/17/06 6/11/05 B/(W) ------- ------- ------ ------- ------- ------ Company sales $ 381 $ 394 (3) $ 740 $ 778 (5) Franchise and license fees 108 98 10 218 198 10 ------- ------- ------- ------- Revenues 489 492 (1) 958 976 (2) ------- ------- ------- ------- Company restaurants Food and paper 126 128 2 246 256 4 Payroll and employee benefits 94 96 3 178 188 5 Occupancy and other operating expenses 115 119 4 224 234 5 ------- ------- ------- ------- 335 343 3 648 678 4 General and administrative expenses 64 65 3 122 129 6 Franchise and license expenses 2 1 NM 6 3 NM Closures and impairment expenses 3 1 NM 7 2 NM Other (income) expense (3) (5) (42) (8) (14) (47) ------- ------- ------- ------- 401 405 1 775 798 3 ------- ------- ------- ------- Operating profit $ 88 $ 87 2 $ 183 $ 178 3 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 33.2 32.6 (0.6) 33.3 32.9 (0.4) ppts. ppts. Payroll and employee benefits 24.6 24.5 (0.1) 24.1 24.1 -- ppts. ppts. Occupancy and other operating expenses 30.1 30.1 -- 30.1 30.1 -- ppts. ppts. ------- ------- ------- ------- Restaurant margin 12.1% 12.8% (0.7) 12.5% 12.9% (0.4) ppts. ppts. ======= ======= ======= ======= Operating margin 18.1% 17.7% 0.4 19.1% 18.3% 0.8 ppts. ppts. ======= ======= ======= ======= Please note that the results for all periods presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes Yum! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) Quarter % Year to date % ---------------- Change ---------------- Change 6/17/06 6/11/05 B/(W) 6/17/06 6/11/05 B/(W) ------------------------------------------------------ Company sales $ 352 $ 268 31 $ 621 $ 495 25 Franchise and license fees 11 8 34 19 16 21 ------- ------- ------- ------- Revenues 363 276 32 640 511 25 ------- ------- ------- ------- Company restaurants Food and paper 125 98 (28) 222 181 (23) Payroll and employee benefits 48 39 (23) 82 66 (25) Occupancy and other operating expenses 113 94 (20) 192 159 (21) ------- ------- ------- ------- 286 231 (24) 496 406 (22) General and administrative expenses 26 21 (13) 41 35 (12) Franchise and license expenses -- -- NM -- -- NM Closures and impairment expenses 1 2 NM 2 2 NM Other (income) expense (7) (3) 104 (14) (9) 46 ------- ------- ------- ------- 306 251 (22) 525 434 (21) ------- ------- ------- ------- Operating profit $ 57 $ 25 136 $ 115 $ 77 50 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 35.5 36.4 0.9 35.7 36.5 0.8 ppts. ppts. Payroll and employee benefits 13.6 14.5 0.9 13.3 13.3 -- ppts. ppts. Occupancy and other operating expenses 32.1 35.2 3.1 30.9 32.1 1.2 ppts. ppts. ------- ------- ------- ------- Restaurant margin 18.8% 13.9% 4.9 20.1% 18.1% 2.0 ppts. ppts. ======= ======= ======= ======= Please note that the results for all periods presented include the negative impact of expensing stock options and stock appreciation rights. See accompanying notes China Division includes mainland China, Thailand and KFC Taiwan Yum! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) 6/17/06 12/31/05 ---------- ---------- ASSETS Current Assets Cash and cash equivalents $ 267 $ 158 Short-term investments 74 43 Accounts and notes receivable, less allowance: $20 in 2006 and $23 in 2005 223 236 Inventories 84 85 Prepaid expenses and other current assets 100 75 Deferred income taxes 158 163 Advertising cooperative assets, restricted 97 77 ---------- ---------- Total Current Assets 1,003 837 Property, plant and equipment, net of accumulated depreciation and amortization of $2,945 in 2006 and $2,830 in 2005 3,300 3,356 Goodwill 540 538 Intangible assets, net 341 330 Investments in unconsolidated affiliates 173 173 Other assets 507 464 ---------- ---------- Total Assets $ 5,864 $ 5,698 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $ 1,185 $ 1,238 Income taxes payable 64 79 Short-term borrowings 13 211 Advertising cooperative liabilities 97 77 ---------- ---------- Total Current Liabilities 1,359 1,605 Long-term debt 2,027 1,649 Other liabilities and deferred credits 1,073 995 ---------- ---------- Total Liabilities 4,459 4,249 ---------- ---------- Shareholders' Equity Preferred stock, no par value, 250 shares authorized; no shares issued -- -- Common stock, no par value, 750 shares authorized; 272 shares and 278 shares issued in 2006 and 2005, respectively -- -- Retained earnings 1,548 1,619 Accumulated other comprehensive loss (143) (170) ---------- ---------- Total Shareholders' Equity 1,405 1,449 ---------- ---------- Total Liabilities and Shareholders' Equity $ 5,864 $ 5,698 ========== ========== See accompanying notes on our web site: www.yum.com Yum! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) Year to date ---------------------- 6/17/06 6/11/05 ---------- ---------- Cash Flows - Operating Activities Net income $ 362 $ 331 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 210 208 Closures and impairment expenses 24 26 Refranchising (gain) loss (11) (11) Contributions to defined benefit pension plans (18) -- Other liabilities and deferred credits 67 4 Deferred income taxes (58) (32) Equity income from investments in unconsolidated affiliates (21) (23) Distributions of income received from unconsolidated affiliates 15 17 Excess tax benefit from share-based compensation (37) (51) Share-based compensation expense 30 27 Other non-cash charges and credits, net 39 18 Changes in operating working capital, excluding effects of acquisitions and dispositions: Accounts and notes receivable 25 (4) Inventories 1 4 Prepaid expenses and other current assets (24) 57 Accounts payable and other current liabilities (66) -- Income taxes payable 20 -- ---------- ---------- Net change in operating working capital (44) 57 ---------- ---------- Net Cash Provided by Operating Activities 558 571 ---------- ---------- Cash Flows - Investing Activities Capital spending (186) (210) Proceeds from refranchising of restaurants 48 41 Acquisition of restaurants from franchisees -- -- Short-term investments (31) (31) Sales of property, plant and equipment 26 22 Other, net (16) 21 ---------- ---------- Net Cash Used in Investing Activities (159) (157) ---------- ---------- Cash Flows - Financing Activities Proceeds from Senior Unsecured Notes 300 -- Revolving Credit Facility activity Three months or less, net 77 46 Repayments of long-term debt (203) (9) Short-term borrowings-three months or less, net 4 (23) Repurchase shares of common stock (529) (489) Excess tax benefit from share-based compensation 37 51 Employee stock option proceeds 84 89 Dividends paid on common shares (63) (58) ---------- ---------- Net Cash Used in Financing Activities (293) (393) ---------- ---------- Effect of Exchange Rate on Cash and Cash Equivalents 3 (4) ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 109 17 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 $ 267 $ 113 ========== ========== 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". Previously reported diluted EPS prior to the adoption of SFAS 123R and this adjustment was $0.62 and $1.15 in the quarter and year to date ended June 11, 2005, respectively. (c) Amounts presented as of and for the quarter and year to date ended June 17, 2006 are preliminary. (d) Other (income) expense primarily includes equity income from investments in unconsolidated affiliates. In the quarter ended March 25, 2006, we also recorded an $8 million charge associated with the termination of a beverage agreement in the United States segment as other expense. In the quarter ended June 11, 2005, we recorded a $17 million gain associated with the IPO of our Poland/Czech Republic business as other income. (e) In the quarter ended June 17, 2006, the International Division ("YRI") and Rostiks Restaurant Ltd. ("RRL"), a franchisor and operator of a chicken chain in Russia, finalized a five-year partnership to develop fast-food restaurants in Russia and the surrounding states. Under the terms of the agreement, YRI acquired RRL's trademarks, patents, recipes, operating platform and franchise fees rights for $10 million in the current quarter with another $5 million due upon final registration and assignment of the RRL trademark. This agreement did not have a material impact on revenue or operating profit for the quarter ended June 17, 2006. (f) For the quarter and year to date ended June 17, 2006, we repurchased approximately 3.2 million shares and 10.7 million shares of our Common Stock, respectively, at an average price of $50 and $49 per share for the quarter and year to date, respectively. CONTACT: Yum! Brands, Inc., Louisville Analysts: Tim Jerzyk, VP Investor Relations, 888-298-6986 Quan Nghe, Director Investor Relations, 888-298-6986 or Media: Amy Sherwood, VP Public Relations, 502-874-8200 www.yum.com EX-99.2 3 a5191419ex99_2.txt EXHIBIT 99.2 Exhibit 99.2 July 19, 2006 FULL-YEAR 2006 DETAILED GUIDANCE UPDATE The company expects . . . o Worldwide system-sales growth of +5% to +6%; International Division system-sales growth, local-currency basis, of +7% (from at least +5% local-currency basis); China Division system-sales growth of at least +22%, and U.S. system-sales growth of about +3% (from +3% to +4%). These growth rates are prior to the impact of lapping the fifty-third week in 2005. Including the fifty-third week, growth rates for 2006 would be reduced by 1% point in the worldwide, U.S. and International divisions. o Worldwide revenue growth of about 2% (from +4% to +5%); China Division, +20%; International Division, at least 1%; and U.S., down 3% to 4% (from +1% to 2%). These growth rates are prior to the impact of lapping the fifty-third week in 2005. Including the fifty-third week, growth for 2006 would be reduced by 1% point in the worldwide, U.S. and International Division growth rates. Note: Updated refranchising activity for 2005 and 2006 negatively impacts all these growth rates except the China Division. o U.S. blended same-store-sales growth at company restaurants of approximately +1% (from +2% to +3%). o At least 1,500 new system restaurants to be opened worldwide: - 750 new International Division restaurants - 400 new China Division restaurants - 350 new U.S. restaurants o International Division net-restaurant expansion to be at least +3%. o The U.S. restaurant base is expected to decrease slightly versus 2005. o About 550 multibrand restaurant additions for the U.S. system, including conversions of existing restaurants, rebuilds, and new builds. o Growth in franchise fees of about +8% (from at least 5%) resulting from worldwide restaurant expansion, same-store-sales growth, and refranchising. o Worldwide restaurant margin improvement of about +1 percentage point (from slightly favorable) versus 2005, with improvement expected in each division. o General and administrative costs will increase versus 2005 by approximately +1% with increased China spending to support unit expansion. Franchise and license expense will be even. o Interest expense will be up at least $15 million (from $10 to $15 million) versus 2005. o Closure and impairment charges of $45 to $50 million. Refranchising gains are expected to be $0 to $15 million. o Slightly positive impact (from no net impact) from foreign currency conversion on operating profit for the full year. This assumes approximately $7 million (from $10 million) of benefit in the China Division offset by approximately $5 million (from $10 million) of negative impact for the International Division. 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. o Average shares outstanding to be about 280 million shares (from a range of 285 to 290 million) or down 6% from last year. o Effective tax rate of 26% to 28%. o Return on invested capital to remain at about 18%. o Capital expenditures to be about $625 million (from $675 million). Pretax refranchising and surplus PP&E proceeds of about $300 million (from $200 million) are expected, resulting in net capital spending of about $325 million being invested in the business. o Additional refranchising in the U.S. will reduce company ownership from the current level of 25% to 20% by the end of 2007. The company will provide additional annual guidance for these preceding items only when there is a material change to the full-year expectations previously noted. Otherwise these expectations for full-year 2006 remain in effect. 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, which includes over 2,000 licensed 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 3,400 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 "40 Best Companies for Diversity" by Black Enterprise Magazine for the past two years, 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 -----END PRIVACY-ENHANCED MESSAGE-----