-----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, RJ1+f+UqMgw4+AUAxnapbiUlKWQdiwV62502s0ps7bJKHgm4N9cjGPTZtASTc03t D/HP4lRHe2JdmiTzhhq62w== 0001157523-07-001439.txt : 20070213 0001157523-07-001439.hdr.sgml : 20070213 20070212181148 ACCESSION NUMBER: 0001157523-07-001439 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070212 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070213 DATE AS OF CHANGE: 20070212 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: 07604949 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 a5332395.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) February 12, 2007 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 of (IRS Employer Identification No.) incorporation or organization) 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 February 12, 2007, YUM! Brands, Inc. issued a press release announcing financial results for the quarter ended December 30, 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 February 12, 2007 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: February 12, 2007 /s/ Ted F. Knopf ---------------------------------------- Senior Vice President of Finance and Corporate Controller (Principal Accounting Officer) EX-99.1 2 a5332395ex991.txt YUM! BRANDS, INC. EXHIBIT 99.1 Exhibit 99.1 Yum! Brands Inc. Reports Strong Full-Year 2006 EPS of $2.92, an Increase of 14%, Led by Powerful Growth in China and International LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 12, 2007--Yum! Brands Inc. (NYSE: YUM) today also reported results for the fourth quarter ended December 30, 2006, and provided the company's latest outlook for 2007. The sales, profit, and margin percentage highlights for the fourth quarter and full year that follow are stated on a like-for-like basis excluding the benefit of an extra week in the fourth quarter of 2005. Highlights for the fourth quarter are . . . -- EPS of $0.83, an increase of 8%. -- Worldwide system sales increased by 7%. -- Worldwide same-store sales grew 3%, and total worldwide restaurants increased by 2%. -- Worldwide restaurant margin improved 0.9 percentage points with improvements in both international businesses, and U.S. margin was even. -- Worldwide operating profit grew 7%. Highlights for the full year are . . . -- Worldwide system sales grew by 5%. -- Worldwide operating profit increased 12%. -- Strong double-digit operating-profit growth from our international divisions: China, 37% and YRI, 11%. -- Mainland China restaurant unit growth of 18%. -- Yum! Restaurants International Division (YRI) restaurant growth of 3%, making this our eighth consecutive year with at least 3% restaurant growth. -- Worldwide franchise fees increased 7%. -- Restaurant margin increased 1.2 percentage points worldwide and improved in all three business segments. -- Operating margin expanded 1.0 percentage points worldwide. -- Average diluted shares outstanding were reduced by 6%. Note: All preceding comparisons are versus the same period a year ago. FULL-YEAR 2007 OUTLOOK The company continues to expect full-year 2007 EPS growth of at least 10%, or at least $3.21 per share. CONSOLIDATED FINANCIAL HIGHLIGHTS - ------------------------------------------- Fourth Quarter Full Year -------------------------- -------------------------- 2006 2005 % Change 2006 2005 % Change ------- ------- --------- ------- ------- --------- Traditional Restaurants 32,458 31,901 +2 32,458 31,901 +2 System-Sales Growth +3% +7% NM +4% +7% NM Excluding 53rd Week +7% +4% NM +5% +6% NM Reported EPS $0.83 $0.77 +8 $2.92 $2.55 +14 Note: YUM has 34,595 restaurant locations around the world, which include 2,137 license units. David C. Novak, Chairman and CEO, said, "I am pleased to report that in 2006 we again demonstrated the power of Yum! with our capability to consistently deliver double-digit EPS growth through our global portfolio of leading restaurant brands. We achieved strong EPS growth of 14%, led by continued profitable international growth, including nearly 400 new restaurants in our China Division, despite a disappointing fourth-quarter performance in the U.S. This marks the fifth straight year of delivering on our annual commitment of at least 10% EPS growth. "Importantly, we continued to return significant cash to shareholders in 2006 while maintaining a strong balance sheet. In fact, we returned $1.1 billion through share buy backs and dividends, making this the second straight year that we returned more than $1 billion to our shareholders. Additionally, this past December we announced the doubling of our quarterly dividend rate from $0.15 to $0.30 per share after initiating a dividend only two years ago. This new quarterly dividend rate is expected to generate an approximate 2% yield for our shareholders beginning in our second quarter 2007. "As we look ahead to our expectations for 2007, we remain confident we can continue to build on our track record of growing EPS at least 10% each year by generating 20% operating profit growth from our China Division, 10% from our YRI Division and 5% from our U.S. businesses. "Shareholders should expect us to continue building consistent value by focusing on executing YUM's unique growth opportunities -- building dominant restaurant brands in China, driving profitable international growth, improving U.S. brand positioning and returns, and driving high ROIC and strong shareholder payout -- that make us a global growth company and allow us to generate substantial free cash flow." CHINA DIVISION - ----------------------------------------- Fourth Quarter Full Year ($ million, % % except Change Change restaurant -------------- -------------- counts and Excl Excl percentages) 2006 2005 Reported F/x 2006 2005 Reported F/x ------ ------ -------- ----- ------ ------ -------- ----- Key Financial Measures System-Sales Growth +27 +23 +26 +23 Mainland China only +32 +29 +31 +28 Company Sales 521 411 +27 +23 1,587 1,255 +26 +23 Restaurant Margin % 17.8 13.9 +3.9 +3.9 20.4 17.4 +3.0 +2.9 Operating Profit 70 51 +36 +31 290 211 +37 +33 - ---------------------------------------------------------------------- Key Development Metrics for Mainland China Total YUM Restaurants 2,121 1,792 +18 NA 2,121 1,792 +18 NA KFC 1,822 1,557 +17 NA 1,822 1,557 +17 NA Pizza Hut Casual Dining 254 204 +25 NA 254 204 +25 NA Pizza Hut Home Service 37 26 +42 NA 37 26 +42 NA Note: China Division includes mainland China, Thailand and the KFC Taiwan business. For the fourth quarter 2006, company sales for the China Division increased 23% in local-currency terms due to the continued strong expansion of both our KFC and Pizza Hut brands in mainland China. In particular, mainland China experienced strong fourth-quarter system-same-store-sales growth of 12%, and restaurant unit growth of 18%. Fourth-quarter 2006 reported operating profit increased 36% versus last year. The key contributing factor was continued sales growth in mainland China for both KFC and Pizza Hut. YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI) - -------------------------------------------------------------------- Fourth Quarter ($ million, except restaurant counts and % percentages) Change -------------- Excl F/x & 53rd 2006 2005 Reported Wk ------- ------- -------- ----- Key Financial Measures System-Sales Growth +10 +11 Franchise & License Fees 157 147 +7 +8 Franchisee Sales 2,788 2,654 +5 +7 Company Sales 687 511 +34 +37 Operating Margin % 14.2 16.4 (2.2) (1.9) Operating Profit 119 108 +11 +15 - ---------------------------------------------------------------------- Key Development Metrics Traditional Restaurants 11,710 11,319 +3 NA KFC 6,550 6,246 +5 NA Pizza Hut 4,694 4,610 +2 NA Franchise Restaurants 9,387 8,848 +6 NA Full Year ($ million, except restaurant counts % and percentages) Change -------------- Excl F/x & 53rd 2006 2005 Reported Wk ------- ------- -------- ----- Key Financial Measures System-Sales Growth +7 +9 Franchise & License Fees 494 448 +10 +11 Franchisee Sales 9,072 8,499 +7 +8 Company Sales 1,826 1,676 +9 +10 Operating Margin % 17.6 17.5 +0.1 +0.2 Operating Profit 407 372 +9 +12 - ---------------------------------------------------------------------- Key Development Metrics Traditional Restaurants 11,710 11,319 +3 NA KFC 6,550 6,246 +5 NA Pizza Hut 4,694 4,610 +2 NA Franchise Restaurants 9,387 8,848 +6 NA Note: Full year 2005 and Q4 2005 benefited from having an extra week. The following discussion addresses 2006 performance on a like-for-like basis or without this benefit in 2005. Fourth-quarter 2006 operating profit increased 18% including the positive impact of foreign exchange. In addition, system-sales increased 11% in local currency terms, one of the best quarterly performances ever for the division. The key contributing factors were the strength of the franchise businesses around the world with strong same-store-sales growth of 7% and the recovery of the KFC U.K. business. Finally, YRI opened 333 and 785 new traditional restaurants for the fourth quarter and full year 2006 respectively, of which 90% were opened by franchisees. The acquisition of the remaining 50% ownership of the Pizza Hut U.K. joint venture from Whitbread was completed during the fourth quarter 2006, which impacted certain fourth-quarter and full-year financial measures. Excluding the impact of the acquisition and foreign exchange, the growth rates for the following fourth-quarter and full-year measures would have been: franchise fees, 13% and 13%, and company sales, +4% and even. Additionally, operating margin would have been 17.3% and 18.9% respectively. UNITED STATES BUSINESS - -------------------------------------------------------------------- Fourth Quarter ($ million, except restaurant counts and % percentages) Change -------------- Excl 53rd 2006 2005 Reported Wk ------- ------- -------- ----- Key Financial Measures Blended Same-Store-Sales Growth % Company (2) +4 NM NM System Even +3 NM NM Franchisee Sales 3,877 3,898 (1) +3 Company Sales 1,437 1,616 (11) (8) Franchise & License Fees 197 200 (1) +3 Restaurant Margin % 13.5 13.9 (0.4) 0.0 Operating Margin % 12.1 12.9 (0.8) (0.2) Operating Profit 198 235 (15) (8) - ---------------------------------------------------------------------- Key Development Metrics Total Traditional Restaurants 18,117 18,291 (1) NA System Multibrand Restaurants 3,433 3,096 +11 NA Franchise Restaurants 13,905 13,605 +2 NA Full Year ($ million, except restaurant counts and % percentages) Change ------------- Excl 53rd 2006 2005 Reported Wk ------- ------- -------- ---- Key Financial Measures Blended Same-Store-Sales Growth % Company Even +4 NM NM System +1 +3 NM NM Franchisee Sales 12,804 12,428 +3 +4 Company Sales 4,952 5,294 (6) (5) Franchise & License Fees 651 635 +3 +4 Restaurant Margin % 14.6 13.8 0.8 0.9 Operating Margin % 13.6 12.8 0.8 1.0 Operating Profit 763 760 Even +3 - ---------------------------------------------------------------------- Key Development Metrics Total Traditional Restaurants 18,117 18,291 (1) NA System Multibrand Restaurants 3,433 3,096 +11 NA Franchise Restaurants 13,905 13,605 +2 NA Note: Full year 2005 and Q4 2005 benefited from having an extra week. The following discussion addresses 2006 performance on a like-for-like basis or without this benefit in 2005. For the fourth quarter, operating profit was lower by 8% primarily as a result of higher closure and impairment expenses. An additional factor was a 2% decline in blended company same-stores sales. The primary driver of the same-store sales decline was Taco Bell's decline of 5%, lapping a very strong +7% in the fourth quarter last year. This also reflects a very significant negative sales impact during the month of December from adverse publicity related to a produce-sourcing issue. The low point of the Taco Bell sales decline occurred during the third week of December, and sales have begun to recover from that point in time. Refranchising company restaurants negatively impacted fourth-quarter and full-year company-sales growth by 6 and 5 percentage points respectively. For the fourth quarter, franchise sales and fees grew as a result of the expansion of our franchise-restaurant base due to the sale of 452 company-owned restaurants to franchisees (refranchising) over the past year. TAX RATE The tax rates for the full year and fourth quarter, 2006 were better than anticipated. The low rate for the fourth quarter included the reversal of tax reserves in connection with our regular U.S. audit cycle, which we had communicated earlier this year, as well as other adjustments to prior years' accruals and reserves. U.S. FRANCHISE OWNERSHIP UPDATE As previously communicated during our analyst meeting on December 6, 2006, we extended our original two-year plan to sell approximately 1,000 company restaurants to franchisees during 2006 and 2007. Our current three-year plan, through 2008, is to sell approximately 1,500 company restaurants to franchisees, which will reduce company ownership to approximately 17% of the U.S. system. For the full year 2006, 452 company-owned U.S. restaurants were sold to our franchisees. Our latest estimate for 2007 is cash proceeds from U.S. refranchising of $200 million. Operating-profit impact for the U.S. in 2007, due to refranchising activities, is expected to be about neutral. Our three-year program is targeted to produce total cash proceeds of $550 to $600 million, improvements in restaurant margin and ROIC, and an approximate neutral impact on U.S. operating profit. FREE CASH FLOW For full-year 2006, we generated a record $1.3 billion in Cash from Operating Activities and invested $614 million in capital in our businesses. Additionally, we generated $456 million in cash from refranchising, stock option proceeds and sale of excess properties. As a result, total free cash available totaled over $1.1 billion. More importantly, all three of our reporting segments continue to generate free cash flow. In 2006, we again returned virtually all free cash available to our shareholders through share buy backs and quarterly dividends. Specifically, we returned a total of over $1.1 billion to our shareholders, that included significant share buy backs totaling $1.0 billion at an average price of $49.60, and $144 million returned through the quarterly dividends. For 2007, we expect similar total payout levels to our shareholders through both significant share buy backs and dividends. As we announced December 5, 2006, we have doubled our quarterly dividend for the second-quarter 2007 payment from $0.15 to $0.30 per share. YUM GROWTH MODEL AND 2007 OUTLOOK Earnings Growth Model: -- China Division operating-profit growth of 20%. This growth is driven largely by development in mainland China measured by 20% system-sales growth and 375 new-restaurant openings. -- YRI Division operating-profit growth of 10%. This growth is driven by system-sales growth of at least 5% (unit and same-store-sales growth), with 750 new-restaurant openings. -- U.S. operating-profit growth of 5%. This growth is driven by 2% to 3% same-store-sales growth. -- EPS growth of at least 10%. This assumes operating profit from our three lines of business as previously noted with additional benefit from the reduction in shares outstanding due to substantial share buy backs. Full-Year Outlook: -- Full-year 2007 EPS growth of at least 10%, or at least $3.21 per share. -- Profit growth from our combined international businesses is expected to be solidly double digit each quarter. In addition, full-year targeted U.S. sales and profit growth is expected to occur with solidly positive U.S. growth in the second half of 2007, offsetting a negative first quarter in the U.S. 2006 Fourth-Quarter End Dates 2007 First-Quarter End Dates - ---------------------------------- --------------------------------- International Division 12/4/2006 International Division 2/26/2007 China Division 12/31/2006 China Division 2/28/2007 U.S. Business 12/30/2006 U.S. Business 3/24/2007 CONFERENCE CALL Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. EST Tuesday, February 13, 2007. 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, February 13, through 5 p.m. Friday, February 23. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 5699345. The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site, www.yum.com, and selecting "4th-Quarter Earnings Webcast." For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors. ADDITIONAL INFORMATION ONLINE Fourth-quarter restaurant-count details and definitions of terms are available online at http://media.corporate-ir.net/media_files/irol/11/117941/ YumQ406Earnings.pdf. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) Segment-results reconciliation is available online at http://media.corporate-ir.net/media_files/irol/11/117941/ YumQ406Segment.pdf. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) 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 2006, 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 four 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 Black Enterprise Magazine's "30 Hottest Franchises for 2006, 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) (unaudited) % % Quarter Change Year to date Change ------------------- ------------------- 12/30/06 12/31/05 B/(W) 12/30/06 12/31/05 B/(W) --------- --------- ------- --------- --------- ------- Company sales $ 2,645 $ 2,538 4 $ 8,365 $ 8,225 2 Franchise and license fees 371 361 3 1,196 1,124 7 --------- --------- --------- --------- Total revenues 3,016 2,899 4 9,561 9,349 2 --------- --------- --------- --------- Costs and expenses Food and paper 803 791 (1) 2,549 2,584 1 Payroll and employee benefits 681 678 -- 2,142 2,171 1 Occupancy and other operating expenses 796 733 (9) 2,403 2,315 (4) --------- --------- --------- --------- Company restaurant expenses 2,280 2,202 (3) 7,094 7,070 -- General and administrative expenses 398 374 (6) 1,187 1,158 (2) Franchise and license expenses 11 9 (25) 35 33 (8) Closures and impairment expenses 34 19 NM 59 62 NM Refranchising (gain) loss (17) (22) NM (24) (43) NM Other (income) expense (18) (14) 23 (51) (80) (37) Wrench litigation (income) expense -- -- NM -- (2) NM AmeriServe and other charges (credits) (1) (2) NM (1) (2) NM --------- --------- --------- --------- Total costs and expenses 2,687 2,566 (5) 8,299 8,196 (1) --------- --------- --------- --------- Operating profit 329 333 (1) 1,262 1,153 9 Interest expense, net 49 41 (23) 154 127 (22) --------- --------- --------- --------- Income before income taxes 280 292 (4) 1,108 1,026 8 Income tax provision 48 66 27 284 264 (7) --------- --------- --------- --------- Net income $ 232 $ 226 3 $ 824 $ 762 8 ========= ========= ========= ========= Effective tax rate 17.2% 22.7% 25.6% 25.8% - ---------------========= ========= ========= ========= Basic EPS Data - --------------- EPS $ 0.86 $ 0.80 8 $ 3.02 $ 2.66 13 ========= ========= ========= ========= Average shares outstanding 268 281 5 273 286 5 ========= ========= ========= ========= Diluted EPS Data - --------------- EPS $ 0.83 $ 0.77 8 $ 2.92 $ 2.55 14 ========= ========= ========= ========= Average shares outstanding 278 292 5 282 298 6 ========= ========= ========= ========= Dividends declared per common share $ 0.60 $ 0.23 $ 0.865 $ 0.445 ========= ========= ========= ========= 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. UNITED STATES Operating Results (amounts in millions) (unaudited) % % Quarter Change Year to date Change ------------------- ------------------- 12/30/06 12/31/05 B/(W) 12/30/06 12/31/05 B/(W) --------- --------- ------- --------- --------- ------- Company sales $ 1,437 $ 1,616 (11) $ 4,952 $ 5,294 (6) Franchise and license fees 197 200 (1) 651 635 3 --------- --------- --------- --------- Revenues 1,634 1,816 (10) 5,603 5,929 (5) --------- --------- --------- --------- Company restaurants Food and paper 408 471 13 1,399 1,576 11 Payroll and employee benefits 434 495 12 1,489 1,600 7 Occupancy and other operating expenses 400 425 6 1,340 1,385 3 --------- --------- --------- --------- 1,242 1,391 11 4,228 4,561 7 General and administrative expenses 166 171 4 546 536 (2) Franchise and license expenses 8 8 (10) 23 26 9 Closures and impairment expenses 22 11 NM 37 46 NM Other (income) expense (2) -- NM 6 -- NM --------- --------- --------- --------- 1,436 1,581 9 4,840 5,169 6 --------- --------- --------- --------- Operating profit $ 198 $ 235 (15) $ 763 $ 760 -- ========= ========= ========= ========= Company sales 100.0% 100.0% 100.0% 100.0% 0.8 1.6 Food and paper 28.4 29.2 ppts. 28.2 29.8 ppts. Payroll and employee 0.4 0.1 benefits 30.2 30.6 ppts. 30.1 30.2 ppts. Occupancy and other operating (1.6) (0.9) expenses 27.9 26.3 ppts. 27.1 26.2 ppts. --------- --------- --------- --------- Restaurant (0.4) 0.8 margin 13.5% 13.9% ppts. 14.6% 13.8% ppts. ========= ========= ========= ========= Operating (0.8) 0.8 margin 12.1% 12.9% ppts. 13.6% 12.8% 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) (unaudited) % % Quarter Change Year to date Change ------------------- ------------------- 12/30/06 12/31/05 B/(W) 12/30/06 12/31/05 B/(W) --------- --------- ------- --------- --------- ------- Company sales $ 687 $ 511 34 $ 1,826 $ 1,676 9 Franchise and license fees 157 147 7 494 448 10 --------- --------- --------- --------- Revenues 844 658 28 2,320 2,124 9 --------- --------- --------- --------- Company restaurants Food and paper 211 170 (23) 588 554 (6) Payroll and employee benefits 175 124 (41) 448 404 (11) Occupancy and other operating expenses 224 163 (38) 566 515 (10) --------- --------- --------- --------- 610 457 (33) 1,602 1,473 (9) General and administrative expenses 106 92 (14) 293 284 (4) Franchise and license expenses 3 1 NM 12 7 (69) Closures and impairment expenses 8 3 NM 16 9 NM Other (income) expense (2) (3) (62) (10) (21) (54) --------- --------- --------- --------- 725 550 (32) 1,913 1,752 (9) --------- --------- --------- --------- Operating profit $ 119 $ 108 11 $ 407 $ 372 9 ========= ========= ========= ========= Company sales 100.0% 100.0% 100.0% 100.0% 2.6 0.9 Food and paper 30.6 33.2 ppts. 32.2 33.1 ppts. Payroll and employee (1.2) (0.5) benefits 25.5 24.3 ppts. 24.6 24.1 ppts. Occupancy and other operating (0.8) (0.3) expenses 32.6 31.8 ppts. 31.0 30.7 ppts. --------- --------- --------- --------- Restaurant 0.6 0.1 margin 11.3% 10.7% ppts. 12.2% 12.1% ppts. ========= ========= ========= ========= Operating (2.2) 0.1 margin 14.2% 16.4% ppts. 17.6% 17.5% 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) (unaudited) % % Quarter Change Year to date Change ------------------- ------------------- 12/30/06 12/31/05 B/(W) 12/30/06 12/31/05 B/(W) --------- --------- ------- --------- --------- ------- Company sales $ 521 $ 411 27 $ 1,587 $ 1,255 26 Franchise and license fees 17 14 27 51 41 25 --------- --------- --------- --------- Revenues 538 425 27 1,638 1,296 26 --------- --------- --------- --------- Company restaurants Food and paper 184 150 (23) 562 454 (24) Payroll and employee benefits 72 59 (21) 205 167 (23) Occupancy and other operating expenses 172 145 (18) 497 415 (20) --------- --------- --------- --------- 428 354 (21) 1,264 1,036 (22) General and administrative expenses 48 32 (53) 119 92 (30) Franchise and license expenses -- -- NM -- -- NM Closures and impairment expenses 4 5 NM 6 7 NM Other (income) expense (12) (17) (26) (41) (50) (17) --------- --------- --------- --------- 468 374 (25) 1,348 1,085 (24) --------- --------- --------- --------- Operating profit $ 70 $ 51 36 $ 290 $ 211 37 ========= ========= ========= ========= Company sales 100.0% 100.0% 100.0% 100.0% 1.0 0.8 Food and paper 35.5 36.5 ppts. 35.4 36.2 ppts. Payroll and employee 0.7 0.4 benefits 13.7 14.4 ppts. 12.9 13.3 ppts. Occupancy and other operating 2.2 1.8 expenses 33.0 35.2 ppts. 31.3 33.1 ppts. --------- --------- --------- --------- Restaurant 3.9 3.0 margin 17.8% 13.9% ppts. 20.4% 17.4% 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. Consolidated Balance Sheets (amounts in millions) (unaudited) ----------- 12/30/06 12/31/05 ----------- --------- ASSETS Current Assets Cash and cash equivalents $ 319 $ 158 Short-term investments 6 43 Accounts and notes receivable, less allowance: $18 in 2006 and $23 in 2005 220 236 Inventories 93 85 Prepaid expenses and other current assets 132 75 Deferred income taxes 55 181 Advertising cooperative assets, restricted 74 77 ----------- --------- Total Current Assets 899 855 Property, plant and equipment, net of accumulated depreciation and amortization of $3,146 in 2006 and $2,830 in 2005 3,631 3,356 Goodwill 662 538 Intangible assets, net 347 330 Investments in unconsolidated affiliates 138 173 Other assets 363 308 Deferred income taxes 341 243 ----------- --------- Total Assets $ 6,381 $ 5,803 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $ 1,387 $ 1,256 Income taxes payable 37 79 Short-term borrowings 227 211 Advertising cooperative liabilities 74 77 ----------- --------- Total Current Liabilities 1,725 1,623 Long-term debt 2,045 1,649 Other liabilities and deferred credits 1,174 1,082 ----------- --------- Total Liabilities 4,944 4,354 ----------- --------- Shareholders' Equity Preferred stock, no par value, 250 shares authorized; no shares issued -- -- Common stock, no par value, 750 shares authorized; 265 shares and 278 shares issued in 2006 and 2005, respectively -- -- Retained earnings 1,593 1,619 Accumulated other comprehensive loss (156) (170) ----------- --------- Total Shareholders' Equity 1,437 1,449 ----------- --------- Total Liabilities and Shareholders' Equity $ 6,381 $ 5,803 =========== ========= See accompanying notes. Yum! Brands, Inc. Consolidated Statements of Cash Flows (amounts in millions) Year to date ---------------------- (unaudited) ---------------------- 12/30/06 12/31/05 ----------- --------- Cash Flows - Operating Activities Net income $ 824 $ 762 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 479 469 Closures and impairment expenses 59 62 Refranchising (gain) loss (24) (43) Contributions to defined benefit pension plans (43) (74) Deferred income taxes (30) (101) Equity income from investments in unconsolidated affiliates (51) (51) Distributions of income received from unconsolidated affiliates 32 44 Excess tax benefit from share-based compensation (62) (87) Share-based compensation expense 65 62 Other non-cash charges and credits, net 101 78 Changes in operating working capital, excluding effects of acquisitions and dispositions: Accounts and notes receivable 24 (1) Inventories (3) (4) Prepaid expenses and other current assets (33) 78 Accounts payable and other current liabilities (46) (10) Income taxes payable 10 54 ----------- --------- Net change in operating working capital (48) 117 ----------- --------- Net Cash Provided by Operating Activities 1,302 1,238 ----------- --------- Cash Flows - Investing Activities Capital spending (614) (609) Proceeds from refranchising of restaurants 257 145 Acquisition of remaining interest in unconsolidated affiliate, net of cash assumed (178) -- Acquisition of restaurants from franchisees (7) (2) Short-term investments 39 12 Sales of property, plant and equipment 57 81 Other, net (30) 28 ----------- --------- Net Cash Used in Investing Activities (476) (345) ----------- --------- Cash Flows - Financing Activities Proceeds from issuance of long-term debt 300 -- Payments of long-term debt (211) (14) Short-term borrowings by original maturity More than three months - proceeds 236 -- More than three months - payments (54) -- Three months or less, net 4 (34) Revolving credit facilities, three months or less, net (23) 160 Repurchase shares of common stock (983) (1,056) Excess tax benefit from share-based compensation 62 87 Employee stock option proceeds 142 148 Dividends paid on common shares (144) (123) Other, net (2) -- ----------- --------- Net Cash Used in Financing Activities (673) (832) ----------- --------- Effect of Exchange Rate on Cash and Cash Equivalents 8 1 ----------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 161 62 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 $ 319 $ 158 =========== ========= See accompanying notes. Notes to the Consolidated Summary of Results, Consolidated Balance Sheets and Consolidated Statements of Cash Flows (amounts in millions, except per share amounts) (unaudited) (a) 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 and year to date ended December 30, 2006 are preliminary. (d) Foreign currency translation impacted the YRI Division's operating profit by a positive $2 million in the quarter ended December 30, 2006 and by a negative $1 million in the year to date ended December 30, 2006. Foreign currency translation positively impacted the China Division's operating profit by $2 million and $8 million in the quarter and year to date ended December 30, 2006, respectively. (e) The effective tax rate for the year to date ended December 30, 2006 was lower than originally forecasted due to the net impact of several non-recurring items. The most significant of these items included out-of-year adjustments to reserves and accruals (which lowered our effective tax rate by approximately 2 percentage points) and a state tax law change that resulted in the loss of certain net operating loss carryforwards (which increased our effective tax rate by approximately 1 percentage point). (f) Other (income) expense primarily includes equity income from investments in unconsolidated affiliates. In the year to date ended December 30, 2006, other (income) expense also includes an $8 million charge associated with the termination of a beverage agreement in the United States segment recorded as other expense in the first quarter of 2006. In the quarter and year to date ended December 31, 2005, other (income) expense also includes a partial financial recovery of $10 million and $24 million, respectively, related to a China supplier ingredient issue. In the year to date ended December 31, 2005, other (income) expense also includes an $11 million gain associated with the IPO of our Poland/Czech Republic business, including a $6 million adjustment to the previously recorded gain in the quarter ended December 31, 2005. (g) During the fourth quarter of 2006, we completed the acquisition of the remaining fifty percent ownership interest of our Pizza Hut United Kingdom ("PH UK") unconsolidated affiliate. This unconsolidated affiliate owned over 500 restaurants in the United Kingdom. Prior to this acquisition, we accounted for our interest under the equity method. From the acquisition date of September 12, 2006 through December 4, 2006 (the end of the fiscal year for PH UK), our financial statements are presented consolidating the PH UK's results of operations and cash flows. Additionally, our Consolidated Balance Sheet at December 30, 2006 now reflects the individual assets and liabilities of the PH UK, including the results of our initial purchase price allocation, as opposed to the investment in unconsolidated affiliate that was previously presented. As a result of this acquisition, company sales and restaurant profit increased $164 million and $16 million, respectively, franchise fees decreased $7 million and general and administrative expenses increased $8 million compared to the quarter and year to date ended December 31, 2005. The impacts on operating profit and net income were not significant. CONTACT: Yum! Brands, Inc. Analysts: Tim Jerzyk, 502-874-8006 Senior Vice President, Investor Relations/Treasurer or Quan Nghe, 502-874-8918 Director Investor Relations or Media: Amy Sherwood, 502-874-8200 Vice President Public Relations -----END PRIVACY-ENHANCED MESSAGE-----