EX-99.1 2 a5445329ex991.txt EXHIBIT 99.1 Exhibit 99.1 Yum! Brands Inc. Reports Strong Second-Quarter 2007 EPS Growth of 15% or $0.39 Per Share, Led by Consistent Growth in China and International Divisions Raises Full-Year EPS Growth Forecast to 12% from 11% LOUISVILLE, Ky.--(BUSINESS WIRE)--July 11, 2007--Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 16, 2007. Note: Unless otherwise noted, all earnings per share (EPS) figures discussed in this release are on a split-adjusted basis, giving effect to the two-for-one stock split on June 26, 2007. Highlights for the second quarter are... -- Worldwide system-same-store sales grew by 2%, including 7% growth in mainland China, 5% growth in Yum! Restaurants International Division (YRI), and flat results in the U.S. -- Strong double-digit system-sales growth from both our international businesses: China Division, +25%; YRI, +15%. -- Mainland China restaurant unit growth of 19%. -- YRI unit growth of 4%, the eighteenth consecutive quarter of at least 3% year-over-year unit growth, our ongoing growth target. -- Double-digit operating-profit growth from our international divisions: China, +14%, and YRI, +15%. -- Average diluted shares outstanding were reduced by 3%, the twelfth consecutive quarter with year-over-year share reduction as a result of substantial share buybacks. -- An overall effective tax rate of 21.5%, which was 7.5 percentage points lower than last year's. Note: All preceding comparisons are versus the same period a year ago. FULL-YEAR 2007 OUTLOOK We have raised our full-year EPS growth forecast to 12% from 11% based on the continued strong growth from our China and YRI divisions. The new full-year EPS forecast is $1.63 per share. (Previously, our guidance, pre-split, was for full-year EPS of $3.23. It is now 3 cents higher at $3.26 on the "pre-split" basis. The two-for-one stock split was effective on June 26, 2007.) CONSOLIDATED FINANCIAL HIGHLIGHTS ---------------------------------------------------------------------- Second Quarter Year To Date ----------------------- ----------------------- 2007 2006 %Change 2007 2006 %Change ------- ------- ------- ------- ------- ------- Traditional Restaurants 32,708 32,022 +2 32,708 32,022 +2 System-Sales Growth +7% +5% NM +6% +5% NM Reported EPS $0.39 $0.34 +15 $0.74 $0.64 +17 ---------------------------------------------------------------------- Note: YUM has 34,820 restaurant locations around the world, which include 2,112 license units. David C. Novak, Chairman and CEO, said, "I am pleased to report that robust second-quarter sales in both our China and YRI divisions, coupled with a reduction in our tax rate, helped drive strong EPS growth of 15%. This quarter demonstrated once again the tremendous growth potential of our global portfolio. In fact, we are raising our full-year EPS growth rate, now +12% from +11%. "Our mainland China business continues to generate strong top-line growth with same-store-sales growth of +7%, while we are well on our way to opening another 375 new restaurants for 2007. Furthermore, our YRI Division had one of its best quarterly performances ever, delivering system-sales growth of 11% and is on pace to open 800 new YRI restaurants in 2007. This global growth will contribute to Yum! Brands' seventh straight year of opening at least 1,000 new restaurants outside the U.S. Importantly, we anticipate this pace of development will be maintained into the future, reinforcing our position as the leading international retail developer. "In the U.S., we are making steady progress toward a full recovery with improving sales results across our brands in the second quarter. We continue to expect to generate positive growth in our second-half results after a first-half decline in sales and profits. Overall for the U.S., we expect full-year operating profit growth to be slightly positive. "There is no question that we are continuing to build our strong global brand positions and demonstrate our track record for consistency in spite of a challenging global environment from commodity inflation. In summary, this will be the sixth straight year that we demonstrate the strength of our global portfolio to beat our target of at least 10% EPS growth. We expect to continue generating substantial free cash flow in 2007, which allows us to return to our shareholders another $1 billion through share buybacks, which will reduce our reported share count by at least 3%. We are also providing a meaningful dividend currently with a yield of nearly 2%. The key factor behind these consistent results is the undeniable strength of our global portfolio. Our shareholders should expect us to build on our strong global position by continuing to execute our four key strategies: (1) Build dominant restaurant brands in China; (2) Drive profitable international expansion; (3) Improve U.S. brand positioning and returns; and (4) Drive high ROIC and strong shareholder payout." CHINA DIVISION ---------------------------------------------------------------------- Second Quarter Year To Date ($ million, except %Change %Change restaurant counts -------------- ------------- and percentages) Excl Excl 2007 2006 Reported F/x 2007 2006 Reported F/x ----- ----- -------- ----- ----- ----- -------- ---- Key Financial Measures System-Sales Growth +25 +19 +24 +19 MAINLAND CHINA (MLC) ONLY +27 +22 +28 +23 Same-Store-Sales Growth MLC ONLY NA +7 NA +8 Company Sales 439 352 +25 +19 770 621 +24 +19 Restaurant Margin% 18.2 18.8 (0.6) (0.6) 20.2 20.1 +0.1 +0.1 Operating Profit 65 57 +14 +9 141 115 +23 +18 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Key Development Metrics for MAINLAND CHINA ONLY Total YUM Restaurants 2,281 1,915 +19 NA 2,281 1,915 +19 NA KFC 1,940 1,657 +17 NA 1,940 1,657 +17 NA Pizza Hut Casual Dining 289 221 +31 NA 289 221 +31 NA Pizza Hut Home Service 41 31 +32 NA 41 31 +32 NA ---------------------------------------------------------------------- Note: China Division includes mainland China, Thailand and the KFC Taiwan business. For the second quarter and year to date, China Division results were driven by strong system-sales growth from continued broad development of our brands in terms of both unit expansion and same-store-sales growth in mainland China. This is represented by 22% growth of system sales in local currency for the second quarter and 23% for the year to date. For the second quarter, same-store-sales growth in mainland China was a strong 7%. Second-quarter 2007 reported operating profit for mainland China increased 20% with same-store-sales growth and continued new-unit development for both KFC and Pizza Hut as the key contributing factors. Reported operating profit for the China Division overall increased 14% versus last year, as weak performances in our Thailand and KFC Taiwan markets impacted the division's growth rate. Increased levels of commodity inflation for some food ingredients, including chicken and higher labor costs moderated the overall growth of operating profit and resulted in a decline in restaurant margin. We expect these factors to continue, with the rate of commodity inflation expected to increase during the second half of 2007. YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI) ---------------------------------------------------------------------- Second Quarter Year To Date ($ million, %Change %Change except -------------- -------------- restaurant counts and Excl Excl percentages) 2007 2006 Reported F/x 2007 2006 Reported F/x ------ ------ -------- ----- ------ ------ -------- ----- Key Financial Measures System-Sales Growth +15 +11 +14 +10 Franchise & License Fees 122 108 +14 +11 243 218 +12 +9 Franchisee Sales 2,185 2,026 +8 +5 4,371 4,097 +7 +5 Company Sales 574 381 +51 +44 1,134 740 +53 +47 Operating Margin% 14.6 18.1 (3.5) (3.5) 16.0 19.1 (3.1) (2.9) Operating Profit 101 88 +15 +11 220 183 +20 +17 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Key Financial Measures Excluding Impact from Pizza Hut U.K. Acquisition (October 2006) Company Sales +8 +1 +8 +2 Operating Profit +15 +11 +21 +17 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Key Development Metrics Traditional Restaurants 11,889 11,438 +4 NA 11,889 11,438 +4 NA KFC 6,688 6,327 +6 NA 6,688 6,327 +6 NA Pizza Hut 4,726 4,645 +2 NA 4,726 4,645 +2 NA Franchise Restaurants 9,607 9,000 +7 NA 9,607 9,000 +7 NA ---------------------------------------------------------------------- System-sales increased 11% in local currency terms, one of the best quarterly performances ever for the division. In particular, the KFC brand delivered strong system-sales growth of 14% in local currency terms with strong performances across our franchise markets as well as our KFC U.K. business. Overall, the vast majority of our YRI markets generated solid same-store-sales growth, +5% for the system, and we are continuing to add new KFC and Pizza Hut restaurants around the world primarily through franchise development. YRI opened 178 new traditional restaurants for the second quarter 2007 and 322 year to date, of which 93% were opened by franchisees. Second-quarter 2007 operating profit for YRI increased 15% including the positive impact of foreign currency translation. Restaurant margin declined slightly primarily due to the inclusion of our Pizza Hut U.K. business as a company-owned business this year. Excluding the impact of the acquisition of our Pizza Hut U.K. business, restaurant and operating margins would have increased by 0.9 and 0.7 percentage points respectively. UNITED STATES BUSINESS ---------------------------------------------------------------------- Second Quarter Year To Date ($ million, except restaurant counts and percentages) 2007 2006 %Change 2007 2006 %Change ------- ------ -------- ------- ------ -------- Key Financial Measures Blended Same-Store- Sales Growth% Company (3) Even NM (5) +2 NM System Even +1 NM (2) +3 NM Franchisee Sales 3,097 2,967 +4 6,029 5,879 +3 Company Sales 1,060 1,179 (10) 2,111 2,370 (11) Franchise & License Fees 158 151 +5 307 299 +3 Restaurant Margin% 15.3 16.1 (0.8) 14.3 15.5 (1.2) Operating Profit 191 194 (2) 356 382 (7) Operating Margin% 15.6 14.6 1.0 14.7 14.3 0.4 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Key Development Metrics Total Traditional Restaurants 18,021 18,164 (1) 18,021 18,164 (1) System Multibrand Restaurants 3,518 3,224 +9 3,518 3,224 +9 Franchise Restaurants 13,984 13,603 +3 13,984 13,603 +3 ---------------------------------------------------------------------- For the second quarter, U.S. system-same-store sales, which includes franchisees' sales, were flat versus prior year as positive franchise performance offset a 3% decline for company restaurants. The primary driver of the 3% decline in company same-store-sales was a decline of 7% at Taco Bell. For the second quarter, franchise sales and fees grew as a result of the expansion of our franchise-restaurant base due to the sale of 492 company-owned restaurants to franchisees (refranchising) over the past four quarters. In the second quarter of 2007, 42 U.S. restaurants were refranchised, resulting in a shift of revenues from Company Sales to Franchise Fees. Company sales decreased by 10% in the second quarter, with 8% of that reduction due to refranchising; commensurately, franchisee fees grew by 5%. For the second quarter, U.S. operating profit decreased 2% versus last year due to a decline in restaurant margin. Furthermore, restaurant margin declined primarily due to higher commodity and labor costs, as well as operating deleverage from a drop in company same-store sales. These factors were partially offset by lower insurance expenses. For the full year 2007, we expect U.S. operating profit growth to be slightly positive based on improved second-half performance. U.S. REFRANCHISE PLAN UPDATE Our current three-year U.S. refranchising plan, through 2008, is to sell approximately 1,500 company restaurants to franchisees, which will increase U.S. franchise ownership to approximately 83% of the system from 78% today. This will reduce the number of U.S. company-owned restaurants from over 4,686, at the start of this program in 2006, to approximately 3,200 by year-end 2008, a reduction of more than 30% in restaurant count. This is a result of our regular review of company operations and our "Earn the Right to Own" principle. Since the beginning of 2006, a total of 599 company-owned U.S. restaurants were sold to franchisees, including 42 U.S. restaurants in the second quarter 2007. FREE CASH FLOW UPDATE For 2007, we expect to again return over $1 billion to shareholders through both significant share buybacks and dividends. This would be the third consecutive year that we have returned more than 100% of the company's net income to our shareholders. As announced December 5, 2006, we doubled our quarterly dividend with the second-quarter 2007 payment. During the second-quarter 2007, we purchased 7.2 million shares at an average split-adjusted purchase price of $31.97, or a total of $231 million. FOREIGN CURRENCY IMPACTS ---------------------------------------------------------------------- (operating profit $ million) 2007 Division Second Quarter Year To Date ------------------------------------------ YRI +4 +6 China +3 +6 ---------------------------------------------------------------------- YUM ONGOING EARNINGS GROWTH MODEL -- China Division operating-profit growth of 20%. This growth is driven largely by new-unit development in mainland China. Our key metric for mainland China is system-sales growth with an annual target of +20% driven by at least 375 new-restaurant openings. -- YRI Division operating-profit growth of 10%. This growth is driven mainly by new-unit development measured by system-sales growth of at least 5% (at least 3% unit growth and 2% to 3% same-store-sales growth) including 750 new-restaurant openings. -- U.S. operating-profit growth of 5% with same-store-sales growth of +2% to +3% and leverage of the G&A infrastructure. -- EPS growth of at least 10%. This assumes operating profit performance from our three lines of business as previously noted with additional benefit from reduction in shares outstanding due to substantial share buybacks. FULL-YEAR 2007 UPDATE -- EPS growth is increased to at least 12%, or at least $1.63 per share, from prior EPS guidance of at least $1.62 or 11% growth (split-adjusted). -- China Division's operating profit growth is expected to be 20%, driven by higher than expected revenue growth partially offset by higher commodity and labor costs. -- YRI Division's operating-profit growth is expected to meet or exceed the targets set forth in the long-term earnings growth model. -- U.S. operating profit growth is expected to be slightly positive driven by better results during the second half of 2007. For the updated version of our detailed full-year 2007 guidance table, please refer online to http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings. 2007 Second-Quarter End Dates 2007 Third-Quarter End Dates ---------------------------------- ---------------------------------- International Division 5/21/2007 International Division 8/13/2007 China Division 5/31/2007 China Division 8/31/2007 U.S. Business 6/16/2007 U.S. Business 9/8/2007 ---------------------------------- ---------------------------------- CONFERENCE CALL Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. ET Thursday, July 12, 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 Thursday, July 12, through 5 p.m. Friday, July 20. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 5793810. 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." 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 The updated version of our detailed full-year 2007 guidance table is available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings. Second-quarter restaurant-count details, definitions of terms, and segment-results reconciliation are available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings. 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 3,500 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 three 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 ----------------- ----------------- 6/16/07 6/17/06 B/(W) 6/16/07 6/17/06 B/(W) -------- -------- -------- -------- -------- -------- Company sales $2,073 $1,912 8 $4,015 $3,731 8 Franchise and license fees 294 270 9 575 536 7 -------- -------- -------- -------- Total revenues 2,367 2,182 9 4,590 4,267 8 -------- -------- -------- -------- Costs and expenses Food and paper 638 583 (9) 1,224 1,140 (7) Payroll and employee benefits 527 492 (7) 1,041 969 (7) Occupancy and other operating expenses 598 536 (12) 1,152 1,037 (11) -------- -------- -------- -------- Company restaurant expenses 1,763 1,611 (10) 3,417 3,146 (9) General and administrative expenses 287 264 (9) 549 518 (6) Franchise and license expenses 10 9 (7) 18 17 (4) Closures and impairment expenses 9 18 NM 13 24 NM Refranchising (gain) loss (4) (15) NM (5) (11) NM Other (income) expense (8) (12) (28) (28) (16) 73 -------- -------- -------- -------- Total costs and expenses 2,057 1,875 (10) 3,964 3,678 (8) -------- -------- -------- -------- Operating profit 310 307 1 626 589 7 Interest expense, net 38 36 (4) 74 71 (5) -------- -------- -------- -------- Income before income taxes 272 271 1 552 518 7 Income tax provision 58 79 25 144 156 7 -------- -------- -------- -------- Net income $214 $192 12 $408 $362 13 ======== ======== ======== ======== Effective tax rate 21.5% 29.0% 26.1% 30.1% ---------------- ======== ======== ======== ======== Basic EPS Data ---------------- EPS $0.41 $0.35 15 $0.77 $0.66 17 ======== ======== ======== ======== Average shares outstanding 528 544 3 530 548 3 ======== ======== ======== ======== Diluted EPS Data ---------------- EPS $0.39 $0.34 15 $0.74 $0.64 17 ======== ======== ======== ======== Average shares outstanding 547 563 3 549 567 3 ======== ======== ======== ======== Dividends declared per common share $0.15 $0.075 $0.15 $0.1325 ======== ======== ======== ======== See accompanying notes. Yum! Brands, Inc. UNITED STATES Operating Results (amounts in millions) (unaudited) Quarter %Change Year to date %Change --------------- --------------- 6/16/07 6/17/06 B/(W) 6/16/07 6/17/06 B/(W) ------- ------- ------- ------- ------- ------- Company sales $1,060 $1,179 (10) $2,111 $2,370 (11) Franchise and license fees 158 151 5 307 299 3 ------- ------- ------- ------- Revenues 1,218 1,330 (8) 2,418 2,669 (9) ------- ------- ------- ------- Company restaurants Food and paper 310 332 7 610 672 9 Payroll and employee benefits 314 350 10 640 709 10 Occupancy and other operating expenses 275 308 11 560 621 10 ------- ------- ------- ------- 899 990 9 1,810 2,002 10 General and administrative expenses 117 125 6 239 251 5 Franchise and license expenses 7 7 (4) 12 11 (8) Closures and impairment expenses 4 14 NM 4 15 NM Other (income) expense -- -- NM (3) 8 NM ------- ------- ------- ------- 1,027 1,136 10 2,062 2,287 10 ------- ------- ------- ------- Operating profit $191 $194 (2) $356 $382 (7) ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% (1.0) (0.5) Food and paper 29.2 28.2 ppts. 28.9 28.4 ppts. Payroll and employee -- (0.4) benefits 29.6 29.6 ppts. 30.3 29.9 ppts. Occupancy and other 0.2 (0.3) operating expenses 25.9 26.1 ppts. 26.5 26.2 ppts. ------- ------- ------- ------- (0.8) (1.2) Restaurant margin 15.3% 16.1% ppts. 14.3% 15.5% ppts. ======= ======= ======= ======= 1.0 0.4 Operating margin 15.6% 14.6% ppts. 14.7% 14.3% ppts. ======= ======= ======= ======= See accompanying notes. Yum! Brands, Inc. INTERNATIONAL DIVISION Operating Results (amounts in millions) (unaudited) Quarter %Change Year to date %Change ---------------- ---------------- 6/16/07 6/17/06 B/(W) 6/16/07 6/17/06 B/(W) ------- ------- ------- ------- ------- ------- Company sales $574 $381 51 $1,134 $740 53 Franchise and license fees 122 108 14 243 218 12 ------- ------- ------- ------- Revenues 696 489 43 1,377 958 44 ------- ------- ------- ------- Company restaurants Food and paper 171 126 (36) 338 246 (37) Payroll and employee benefits 152 94 (62) 297 178 (66) Occupancy and other operating expenses 183 115 (60) 358 224 (60) ------- ------- ------- ------- 506 335 (51) 993 648 (53) General and administrative expenses 84 64 (33) 155 122 (28) Franchise and license expenses 3 2 (15) 6 6 3 Closures and impairment expenses 3 3 NM 7 7 NM Other (income) expense (1) (3) (63) (4) (8) (43) ------- ------- ------- ------- 595 401 (49) 1,157 775 (49) ------- ------- ------- ------- Operating profit $101 $88 15 $220 $183 20 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% 3.3 3.5 Food and paper 29.9 33.2 ppts. 29.8 33.3 ppts. Payroll and employee (1.8) (2.1) benefits 26.4 24.6 ppts. 26.2 24.1 ppts. Occupancy and other operating (1.7) (1.4) expenses 31.8 30.1 ppts. 31.5 30.1 ppts. ------- ------- ------- ------- (0.2) -- Restaurant margin 11.9% 12.1% ppts. 12.5% 12.5% ppts. ======= ======= ======= ======= (3.5) (3.1) Operating margin 14.6 % 18.1% ppts. 16.0% 19.1% ppts. ======= ======= ======= ======= See accompanying notes. As discussed further at note (e), Company sales increased $164 million and $337 million, restaurant profit increased $15 million and $33 million, franchise fees decreased $6 million and $12 million and general and administrative expenses increased $9 million and $19 million compared to the quarter and year to date ended June 16, 2007, respectively, due to the ownership structure change of the Pizza Hut United Kingdom business. Yum! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) (unaudited) Quarter %Change Year to date %Change ---------------- ---------------- 6/16/07 6/17/06 B/(W) 6/16/07 6/17/06 B/(W) ------- ------- ------- ------- ------- ------- Company sales $439 $352 25 $770 $621 24 Franchise and license fees 14 11 29 25 19 29 ------- ------- ------- ------- Revenues 453 363 25 795 640 24 ------- ------- ------- ------- Company restaurants Food and paper 157 125 (25) 276 222 (24) Payroll and employee benefits 61 48 (29) 104 82 (26) Occupancy and other operating expenses 140 113 (25) 234 192 (22) ------- ------- ------- ------- 358 286 (26) 614 496 (24) General and administrative expenses 35 26 (33) 55 41 (32) Franchise and license expenses -- -- NM -- -- NM Closures and impairment expenses 2 1 NM 2 2 NM Other (income) expense (7) (7) 13 (17) (14) 27 ------- ------- ------- ------- 388 306 (27) 654 525 (24) ------- ------- ------- ------- Operating profit $65 $57 14 $141 $115 23 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% (0.2) (0.2) Food and paper 35.7 35.5 ppts. 35.9 35.7 ppts. Payroll and employee (0.4) (0.2) benefits 14.0 13.6 ppts. 13.5 13.3 ppts. Occupancy and other operating -- 0.5 expenses 32.1 32.1 ppts. 30.4 30.9 ppts. ------- ------- ------- ------- (0.6) 0.1 Restaurant margin 18.2% 18.8% ppts. 20.2% 20.1% ppts. ======= ======= ======= ======= See accompanying notes. China Division includes mainland China, Thailand and KFC Taiwan Yum! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) (unaudited) ----------- 6/16/07 12/30/06 ----------- --------- ASSETS Current Assets Cash and cash equivalents $436 $319 Accounts and notes receivable, less allowance: $20 in 2007 and $18 in 2006 252 220 Inventories 98 93 Prepaid expenses and other current assets 152 138 Deferred income taxes 90 57 Advertising cooperative assets, restricted 76 74 ----------- --------- Total Current Assets 1,104 901 Property, plant and equipment, net of accumulated depreciation and amortization of $3,206 in 2007 and $3,146 in 2006 3,552 3,631 Goodwill 656 662 Intangible assets, net 340 347 Investments in unconsolidated affiliates 118 138 Other assets 395 369 Deferred income taxes 265 305 ----------- --------- Total Assets $6,430 $6,353 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $1,264 $1,386 Income taxes payable 49 37 Short-term borrowings 306 227 Advertising cooperative liabilities 76 74 ----------- --------- Total Current Liabilities 1,695 1,724 Long-term debt 2,088 2,045 Other liabilities and deferred credits 1,190 1,147 ----------- --------- Total Liabilities 4,973 4,916 ----------- --------- Shareholders' Equity Preferred stock, no par value, zero shares and 250 shares authorized in 2007 and 2006, respectively; no shares issued -- -- Common stock, no par value, 750 shares authorized; 521 shares and 530 shares issued in 2007 and 2006, respectively -- -- Retained earnings 1,579 1,593 Accumulated other comprehensive loss (122) (156) ----------- --------- Total Shareholders' Equity 1,457 1,437 ----------- --------- Total Liabilities and Shareholders' Equity $6,430 $6,353 =========== ========= See accompanying notes. Yum! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) (unaudited) Year to date ----------------- 6/16/07 6/17/06 -------- -------- Cash Flows - Operating Activities Net income $408 $362 Depreciation and amortization 233 210 Closures and impairment expenses 13 24 Refranchising (gain) loss (5) (11) Contributions to defined benefit pension plans -- (18) Deferred income taxes (12) (58) Equity income from investments in unconsolidated affiliates (21) (21) Distributions of income received from unconsolidated affiliates 20 15 Excess tax benefit from share-based compensation (30) (37) Share-based compensation expense 29 30 Changes in accounts and notes receivable (16) 25 Changes in inventories (4) 1 Changes in prepaid expenses and other current assets 1 (24) Changes in accounts payable and other current liabilities (64) (50) Changes in income taxes payable 24 20 Other non-cash charges and credits, net 17 90 -------- -------- Net Cash Provided by Operating Activities 593 558 -------- -------- Cash Flows - Investing Activities Capital spending (217) (186) Proceeds from refranchising of restaurants 65 48 Short-term investments 5 (31) Sales of property, plant and equipment 25 26 Other, net 6 (16) -------- -------- Net Cash Used in Investing Activities (116) (159) -------- -------- Cash Flows - Financing Activities Proceeds from long-term debt -- 300 Repayments of long-term debt (7) (203) Revolving credit facilities, three months or less, net 315 77 Short-term borrowings by original maturity More than three months - proceeds 1 -- More than three months - payments (183) -- Three months or less, net 11 4 Repurchase shares of common stock (477) (529) Excess tax benefit from share-based compensation 30 37 Employee stock option proceeds 63 84 Dividends paid on common shares (119) (63) -------- -------- Net Cash Used in Financing Activities (366) (293) -------- -------- Effect of Exchange Rate on Cash and Cash Equivalents 6 3 -------- -------- Net Increase in Cash and Cash Equivalents 117 109 Cash and Cash Equivalents - Beginning of Period 319 158 -------- -------- Cash and Cash Equivalents - End of Period $436 $267 -------- -------- See accompanying notes. 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) (unaudited) (a) Percentages may not recompute due to rounding. (b) Amounts presented as of and for the quarter and year to date ended June 16, 2007 are preliminary. (c) On May 17, 2007, the Company announced that its Board of Directors approved a two-for-one split of the Company's outstanding shares of Common Stock. The stock split was effected in the form of a stock dividend and entitled each shareholder of record at the close of business on June 1, 2007 to receive one additional share for every outstanding share of Common Stock held. The stock dividend was distributed on June 26, 2007, with approximately 261 million shares of Common Stock distributed. All per share and share amounts in the accompanying Consolidated Summary of Results and Condensed Consolidated Balance Sheets have been adjusted to reflect the stock split. (d) Other (income) expense primarily includes equity income from our investments in unconsolidated affiliates in our China and International Divisions. In the quarter ended March 24, 2007, other (income) expense also included recognition of income of $5 million associated with receipt of payment for a note receivable arising from the 2005 sale of our fifty percent interest in the entity that operated almost all KFCs and Pizza Huts in Poland and the Czech Republic to our then partner in the entity. In the quarter ended March 25, 2006, other (income) expense also included an $8 million charge associated with the termination of a beverage agreement in the United States segment. (e) During the fourth quarter of 2006, we completed the acquisition of the remaining fifty percent ownership interest of our Pizza Hut United Kingdom ("PHUK") 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. In 2007, our financial statements are presented consolidating the PHUK's results of operations and cash flows. As a result of this acquisition, Company sales increased $164 million and $337 million, restaurant profit increased $15 million and $33 million, franchise fees decreased $6 million and $12 million and general and administrative expenses increased $9 million and $19 million compared to the quarter and year to date ended June 17, 2006, respectively. The impacts on operating profit and net income were not significant. CONTACT: Yum! Brands Inc. Analysts: Tim Jerzyk Senior Vice President, Investor Relations/Treasurer 502-874-8006 or Quan Nghe Director Investor Relations 502-874-8918 or Media: Amy Sherwood Vice President Public Relations 502-874-8200