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)

August 3, 2017

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
 
(I.R.S. Employer
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). [ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 




Section 2 – Financial Information

Item 2.02      Results of Operations and Financial Condition

On August 3, 2017, YUM! Brands, Inc. ("YUM") issued a press release announcing financial results for the quarter ended June 30, 2017.  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 August 3, 2017 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:
August 3, 2017
 
/s/ David E. Russell
 
 
 
 
Sr. Vice President, Finance and Corporate Controller
 
 
 
 
(Principal Accounting Officer)
 



YUMLOGO10.JPG
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports Second-Quarter GAAP Operating Profit Growth of 1%;
Delivered Second-Quarter Core Operating Profit Growth of 19%;
Maintains Full-Year Core Operating Profit Growth Guidance

Louisville, KY (August 3, 2017) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 30, 2017. Second-quarter GAAP EPS was $0.58, a decrease of 10%. Second-quarter EPS excluding Special Items was $0.68, an increase of 21%.
GREG CREED COMMENTS
Greg Creed, CEO, said “I’m pleased Yum! Brands’ intensified focus on our four distinct growth drivers helped deliver another successful quarter. Core operating profit grew 19% and EPS excluding special items grew 21% during the second quarter. We are maintaining our full-year 2017 guidance and are on pace with our multi-year transformation strategy designed to further unlock shareholder value.”
SECOND-QUARTER HIGHLIGHTS
●
Worldwide system sales grew 6%, with KFC and Taco Bell at 7% and Pizza Hut at 2%.
●
We opened 174 net new units for 3% net new unit growth.
●
We refranchised 244 restaurants, including 40 KFC, 163 Pizza Hut and 41 Taco Bell units, for proceeds of $136 million. We recorded refranchising gains of $19 million in Special Items. As of quarter end, our global franchise ownership mix was 94%.
●
We repurchased 5.6 million shares totaling $384 million at an average price of $68. As of quarter end, there was approximately $1.1 billion remaining in share repurchase authorization through year end 2017.
●
Foreign currency translation negatively impacted GAAP operating profit by $6 million.
 
% Change
 
System Sales
Same-Store Sales
Net New Units
GAAP Operating Profit
Core
Operating Profit
KFC Division
+7
+3
+4
+19
+21
Pizza Hut Division
+2
(1)
+2
+4
+7
Taco Bell Division
+7
+4
+3
+10
+10
Worldwide
+6
+2
+3
+1
+19
 
Second Quarter
Year-to-Date
 
2017
2016
% Change
2017
2016
% Change
GAAP EPS
$0.58
$0.64
(10)
$1.34
$1.18
+14
Special Items EPS 1
$(0.10)
$0.08
NM
$0.01
$0.06
NM
EPS Excluding Special Items
$0.68
$0.56
+21
$1.33
$1.12
+19
1 See Reconciliation of GAAP results to non-GAAP measurements within this release for further detail of Special Items.

System sales growth figures exclude foreign currency translation ("F/X") and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of GAAP results to non-GAAP measurements within this release for further details.

All comparisons are versus the same period a year ago. Effective January 2017, we removed the reporting lags from our international subsidiary fiscal calendars. To accommodate these changes, Yum! Brands now reports on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 periods in each quarter, respectively. Prior year figures in this earnings release have been restated to present comparable results. An 8-K was filed on April 13, 2017 with restated quarterly 2016 results.

Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213
P: 502 874-8300 • www.yum.com/investors



KFC DIVISION
 
Second Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
20,854
20,125
+4
N/A
20,854
20,125
+4
N/A
System Sales Growth
 
 
+5
+7
 
 
+4
+6
Same-Store Sales Growth (%)
+3
+3
NM
NM
+3
+3
NM
NM
Franchise & License Fees ($MM)
278
251
+11
+13
535
494
+8
+10
Restaurant Margin (%)
15.7
14.6
1.1
1.0
14.7
14.0
0.7
0.7
Operating Profit ($MM)
243
203
+19
+21
450
388
+16
+18
Operating Margin (%)
31.5
26.1
5.4
5.5
29.9
25.6
4.3
4.5
●
KFC Division system sales increased 7%, excluding foreign currency translation.
 
Second Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+9
+7
+1
Same-Store Sales Growth
+4
+4
+2
●
KFC Division opened 241 new international restaurants in 56 countries, including 202 units in emerging markets.
●
Operating margin increased 5.4 percentage points driven by same-store sales growth, refranchising, reduced G&A and higher initial and renewal fee income partially offset by higher restaurant operating costs.
●
Foreign currency translation negatively impacted GAAP operating profit by $4 million.
KFC Markets 1
Percent of KFC System Sales 2
System Sales Growth Ex F/X
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
China 3
26%
+8
+6
Asia (e.g. Malaysia, Indonesia, Philippines)
6%
+11
+9
Middle East / Turkey / North Africa
5%
+3
+1
Latin America (e.g. Mexico, Peru)
4%
+14
+13
Africa
4%
+4
+5
Russia
3%
+22
+25
Thailand
2%
(2)
+2
Continental Europe (e.g. Poland)
2%
+17
+18
India
1%
+9
+6
Developed Markets
 
 
 
U.S.
19%
+1
+2
Asia (e.g. Japan, Korea, Taiwan)
7%
+4
+1
Australia
7%
+9
+8
U.K.
6%
+6
+6
Continental Europe (e.g. France, Germany)
5%
+11
+10
Canada
2%
+5
+5
Latin America (e.g. Puerto Rico)
1%
(2)
Even
 
1 Refer to www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2016.
3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

2

PIZZA HUT DIVISION
 
Second Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
16,452
16,178
+2
N/A
16,452
16,178
+2
N/A
System Sales Growth
 
 
Even
+2
 
 
(1)
+1
Same-Store Sales Growth (%)
(1)
(1)
NM
NM
(2)
(1)
NM
NM
Franchise & License Fees ($MM)
141
142
Even
+1
285
288
(1)
Even
Restaurant Margin (%)
8.5
9.4
(0.9)
(1.0)
7.4
9.7
(2.3)
(2.3)
Operating Profit ($MM)
85
81
+4
+7
168
172
(3)
Even
Operating Margin (%)
38.1
30.3
7.8
8.1
36.8
31.4
5.4
5.8
●
Pizza Hut Division system sales increased 2%, excluding foreign currency translation.
 
Second Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+8
+5
(4)
Same-Store Sales Growth
+2
Even
(3)
●
Pizza Hut Division opened 142 new international restaurants in 42 countries, including 103 units in emerging markets.
●
Operating margin increased 7.8 percentage points driven by refranchising partially offset by increased G&A related to litigation costs.
●
Foreign currency translation negatively impacted GAAP operating profit by $2 million.
Pizza Hut Markets 1
Percent of Pizza Hut System Sales 2
System Sales Growth Ex F/X
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
China 3
17%
+6
+7
Latin America (e.g. Mexico, Peru)
5%
+6
+5
Middle East / Turkey / Africa
4%
+7
+5
Asia (e.g. Malaysia, Indonesia, Philippines)
4%
+17
+12
India
1%
+8
+7
Continental Europe (e.g. Poland)
1%
+13
+10
Developed Markets
 
 
 
U.S.
48%
(4)
(5)
Asia (e.g. Japan, Korea, Taiwan)
7%
+4
+2
U.K.
5%
+4
+4
Continental Europe (e.g. France, Germany)
4%
+4
+3
Canada
2%
+5
+5
Australia
1%
+19
+20
Latin America (e.g. Puerto Rico)
1%
(5)
+1
1 Refer to www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2016.       
3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

3





TACO BELL DIVISION
 
Second Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
6,686
6,466
+3
N/A
6,686
6,466
+3
N/A
System Sales Growth
 
 
+7
+7
 
 
+10
+10
Same-Store Sales Growth (%)
+4
(1)
NM
NM
+6
Even
NM
NM
Franchise & License Fees ($MM)
120
111
+8
+8
234
212
+11
+11
Restaurant Margin (%)
22.8
22.3
0.5
0.5
22.3
21.6
0.7
0.7
Operating Profit ($MM)
152
139
+10
+10
293
257
+14
+14
Operating Margin (%)
33.4
29.8
3.6
3.6
32.3
28.9
3.4
3.4
●
Taco Bell Division system sales increased 7%.
●
Taco Bell Division opened 56 new restaurants.
●
Restaurant margin was 22.8%, an increase of 0.5 percentage points, driven by same-store sales growth partially offset by food and labor inflation.
●
Operating margin increased 3.6 percentage points driven by same-store sales growth, reduced G&A including lower litigation costs and refranchising partially offset by food and labor inflation.



OTHER ITEMS
●
During the quarter, we recorded a non-cash charge of $16 million in Special Items related to the ongoing impact of share-based compensation award modifications made at the time of the separation of Yum China Holdings, Inc.
●
On May 1, 2017, we entered into a Transformation Agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements to operations and technology and permanently increase advertising, digital and technology contributions from franchisees. In connection with this agreement, we recognized a Special Items charge of $12 million during the quarter primarily related to investments for digital initiatives.
●
On June 15, 2017, our Restricted Group subsidiaries that operate the company’s KFC, Pizza Hut and Taco Bell businesses issued $750 million aggregate principal amount of 4.75% Senior Notes due 2027.
●
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the second quarter Form 10-Q.

4

CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time Thursday, August 3, 2017. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 51482139.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, August 3, 2017 through Wednesday, September 6, 2017. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 51482139.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors/events-presentations and selecting “Q2 2017 Yum! Brands, Inc. Earnings Conference Call.”

ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at www.yum.com/investors. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.

FORWARD-LOOKING STATEMENTS
This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; the success of our franchisees and licensees; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including disagreements with taxing authorities; consumer preferences and perceptions of our brands; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; and risks relating to our significant amount of indebtedness. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has nearly 44,000 restaurants in more than 135 co untries and territories and is one of the Aon Hewitt Top Companies for Leaders in North Ame rica.  In 2017, Yum! Brands was named among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine . Th e company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories.  Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a lea der in global retail development.

Analysts are invited to contact:
 
Keith Siegner, Vice President, Investor Relations, Corporate Strategy and Treasurer at 888/298-6986
 
Kelly Knybel, Director, Investor Relations, at 888/298-6986
Members of the media are invited to contact:
 
Virginia Ferguson, Director, Public Relations, at 502/874-8200

5

YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/17
 
6/30/16
 
B/(W)
 
6/30/17
 
6/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
909

 
$
1,006

 
(10)
 
$
1,811

 
$
1,959

 
(8)
Franchise and license fees and income
539

 
503

 
7
 
1,054

 
993

 
6
Total revenues
1,448

 
1,509

 
(4)
 
2,865

 
2,952

 
(3)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
280

 
307

 
9
 
556

 
594

 
6
   Payroll and employee benefits
239

 
263

 
9
 
483

 
520

 
7
   Occupancy and other operating expenses
229

 
269

 
15
 
467

 
530

 
12
Company restaurant expenses
748

 
839

 
11
 
1,506

 
1,644

 
8
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
247

 
254

 
3
 
484

 
497

 
3
Franchise and license expenses
54

 
54

 
(1)
 
100

 
105

 
4
Closures and impairment (income) expenses
1

 
7

 
84
 
2

 
9

 
78
Refranchising (gain) loss
(19
)
 
(54
)
 
(65)
 
(130
)
 
(54
)
 
NM
Other (income) expense
(2
)
 
(6
)
 
(58)
 
—

 
(13
)
 
(93)
Total costs and expenses, net
1,029

 
1,094

 
6
 
1,962

 
2,188

 
10
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
419

 
415

 
1
 
903

 
764

 
18
Other pension (income) expense
4

 
—

 
NM
 
32

 
(1
)
 
NM
Interest expense, net
104

 
51

 
NM
 
213

 
93

 
NM
Income from continuing operations before income taxes
311

 
364

 
(15)
 
658

 
672

 
(2)
Income tax provision
105

 
98

 
(7)
 
172

 
180

 
4
Income from continuing operations
206

 
266

 
(23)
 
486

 
492

 
(1)
Income from discontinued operations, net of tax
—

 
70

 
NM
 
—

 
208

 
NM
Net Income
206

 
336

 
(39)
 
486

 
700

 
(31)
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate from Continuing Operations
33.8
%
 
27.0
%
 
(6.8 ppts.)
 
26.2
%
 
26.8
%
 
0.6 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.59

 
$
0.65

 
(10)
 
$
1.37

 
$
1.20

 
15
Average shares outstanding
350

 
408

 
14
 
354

 
411

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.58

 
$
0.64

 
(10)
 
$
1.34

 
$
1.18

 
14
Average shares outstanding
358

 
415

 
14
 
361

 
418

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
0.17

 
NM
 
N/A

 
$
0.51

 
NM
Average shares outstanding
N/A

 
408

 
NM
 
N/A

 
411

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
0.17

 
NM
 
N/A

 
$
0.50

 
NM
Average shares outstanding
N/A

 
415

 
NM
 
N/A

 
418

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.30

 
$
0.46

 
 
 
$
0.60

 
$
0.92

 
 

See accompanying notes.
 Percentages may not recompute due to rounding.

6

YUM! Brands, Inc.
KFC DIVISON Operating Results
(amounts in millions)
(unaudited)

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/17
 
6/30/16
 
B/(W)
 
6/30/17
 
6/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
492

 
$
528

 
(7)
 
$
967

 
$
1,021

 
(5)
Franchise and license fees and income
278

 
251

 
11
 
535

 
494

 
8
Total revenues
770

 
779

 
(1)
 
1,502

 
1,515

 
(1)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
169

 
181

 
6
 
332

 
348

 
4
Payroll and employee benefits
116

 
124

 
6
 
231

 
242

 
5
Occupancy and other operating expenses
130

 
146

 
11
 
262

 
288

 
9
Company restaurant expenses
415

 
451

 
8
 
825

 
878

 
6
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
85

 
93

 
9
 
174

 
187

 
7
Franchise and license expenses
26

 
28

 
6
 
51

 
56

 
8
Closures and impairment (income) expenses
1

 
4

 
80
 
2

 
6

 
78
Other (income) expense
—

 
—

 
NM
 
—

 
—

 
NM
Total costs and expenses, net
527

 
576

 
9
 
1,052

 
1,127

 
7
Operating Profit
$
243

 
$
203

 
19
 
$
450

 
$
388

 
16
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
34.3
%
 
34.1
%
 
(0.2 ppts.)
 
34.3
%
 
34.0
%
 
(0.3 ppts.)
Payroll and employee benefits
23.5
%
 
23.4
%
 
(0.1 ppts.)
 
23.9
%
 
23.7
%
 
(0.2 ppts.)
Occupancy and other operating expenses
26.5
%
 
27.9
%
 
1.4 ppts.
 
27.1
%
 
28.3
%
 
1.2 ppts.
Restaurant margin
15.7
%
 
14.6
%
 
1.1 ppts.
 
14.7
%
 
14.0
%
 
0.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
31.5
%
 
26.1
%
 
5.4 ppts.
 
29.9
%
 
25.6
%
 
4.3 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



7

YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/17
 
6/30/16
 
B/(W)
 
6/30/17
 
6/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
81

 
$
125

 
(36)
 
$
171

 
$
260

 
(34)
Franchise and license fees and income
141

 
142

 
—
 
285

 
288

 
(1)
Total revenues
222

 
267

 
(17)
 
456

 
548

 
(17)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
23

 
35

 
34
 
49

 
72

 
32
Payroll and employee benefits
26

 
39

 
34
 
55

 
81

 
33
Occupancy and other operating expenses
24

 
40

 
37
 
54

 
82

 
33
Company restaurant expenses
73

 
114

 
35
 
158

 
235

 
33
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
54

 
56

 
5
 
107

 
115

 
7
Franchise and license expenses
10

 
14

 
27
 
23

 
24

 
3
Closures and impairment (income) expenses
—

 
2

 
NM
 
—

 
2

 
83
Other (income) expense
—

 
—

 
NM
 
—

 
—

 
NM
Total costs and expenses, net
137

 
186

 
26
 
288

 
376

 
23
Operating Profit
$
85

 
$
81

 
4
 
$
168

 
$
172

 
(3)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
28.3
%
 
27.4
%
 
(0.9 ppts.)
 
28.5
%
 
27.5
%
 
(1.0 ppts.)
Payroll and employee benefits
32.2
%
 
31.5
%
 
(0.7 ppts.)
 
32.1
%
 
31.3
%
 
(0.8 ppts.)
Occupancy and other operating expenses
31.0
%
 
31.7
%
 
0.7 ppts.
 
32.0
%
 
31.5
%
 
(0.5 ppts.)
Restaurant margin
8.5
%
 
9.4
%
 
(0.9 ppts.)
 
7.4
%
 
9.7
%
 
(2.3 ppts.)
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
38.1
%
 
30.3
%
 
7.8 ppts.
 
36.8
%
 
31.4
%
 
5.4 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



8

YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/17
 
6/30/16
 
B/(W)
 
6/30/17
 
6/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
336

 
$
353

 
(5)
 
$
673

 
$
678

 
(1)
Franchise and license fees and income
120

 
111

 
8
 
234

 
212

 
11
Total revenues
456

 
464

 
(2)
 
907

 
890

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
88

 
91

 
4
 
175

 
174

 
(1)
Payroll and employee benefits
97

 
100

 
3
 
197

 
197

 
—
Occupancy and other operating expenses
75

 
83

 
10
 
151

 
160

 
6
Company restaurant expenses
260

 
274

 
6
 
523

 
531

 
2
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
39

 
46

 
15
 
81

 
93

 
13
Franchise and license expenses
5

 
5

 
(1)
 
10

 
9

 
(9)
Closures and impairment (income) expenses
—

 
1

 
51
 
—

 
1

 
58
Other (income) expense
—

 
(1
)
 
(47)
 
—

 
(1
)
 
(59)
Total costs and expenses, net
304

 
325

 
7
 
614

 
633

 
3
Operating Profit
$
152

 
$
139

 
10
 
$
293

 
$
257

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
26.2
%
 
25.9
%
 
(0.3 ppts.)
 
26.1
%
 
25.7
%
 
(0.4 ppts.)
Payroll and employee benefits
28.9
%
 
28.4
%
 
(0.5 ppts.)
 
29.2
%
 
29.1
%
 
(0.1 ppts.)
Occupancy and other operating expenses
22.1
%
 
23.4
%
 
1.3 ppts.
 
22.4
%
 
23.6
%
 
1.2 ppts.
Restaurant margin
22.8
%
 
22.3
%
 
0.5 ppts.
 
22.3
%
 
21.6
%
 
0.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.4
%
 
29.8
%
 
3.6 ppts.
 
32.3
%
 
28.9
%
 
3.4 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



9

YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
 
6/30/17
 
12/31/16
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
970

 
$
725

Accounts and notes receivable, less allowance: $19 in 2017 and $14 in 2016
356

 
370

Inventories
31

 
37

Prepaid expenses and other current assets
267

 
236

Advertising cooperative assets, restricted
161

 
137

Total Current Assets
1,785

 
1,505

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,990 in
 
 
 
2017 and $1,995 in 2016
2,021

 
2,113

Goodwill
540

 
536

Intangible assets, net
147

 
151

Other assets
340

 
376

Deferred income taxes
763

 
772

Total Assets
$
5,596

 
$
5,453

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
929

 
$
1,067

Income taxes payable
13

 
32

Short-term borrowings
375

 
66

Advertising cooperative liabilities
161

 
137

Total Current Liabilities
1,478

 
1,302

 
 
 
 
Long-term debt
9,474

 
9,059

Other liabilities and deferred credits
746

 
704

Total Liabilities
11,698

 
11,065

 
 
 
 
Shareholders' Deficit
 
 
 
Common stock, no par value, 750 shares authorized; 345 shares and 355 shares issued in 2017 and 2016, respectively
—

 
—

Retained earnings (accumulated deficit)
(5,710
)
 
(5,158
)
Accumulated other comprehensive income (loss)
(392
)
 
(454
)
Total Shareholders' Deficit
(6,102
)
 
(5,612
)
Total Liabilities and Shareholders' Deficit
$
5,596

 
$
5,453

 See accompanying notes.



10

YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year to Date
 
6/30/17

6/30/16
Cash Flows - Operating Activities from Continuing Operations
 
 
 
Net income
$
486

 
$
700

Income from discontinued operations, net of tax
—

 
(208
)
Depreciation and amortization
135

 
147

Closures and impairment (income) expenses
2

 
9

Refranchising (gain) loss
(130
)
 
(54
)
Contributions to defined benefit pension plans
(12
)
 
(6
)
Deferred income taxes
10

 
(19
)
Share-based compensation expense
25

 
22

Changes in accounts and notes receivable
30

 
34

Changes in inventories
4

 
4

Changes in prepaid expenses and other current assets
(1
)
 
15

Changes in accounts payable and other current liabilities
(143
)
 
(66
)
Changes in income taxes payable
(83
)
 
12

Other, net
116

 
(3
)
Net Cash Provided by Operating Activities from Continuing Operations
439

 
587

 
 
 
 
Cash Flows - Investing Activities from Continuing Operations
 
 
 
Capital spending
(150
)
 
(186
)
Proceeds from refranchising of restaurants
321

 
84

Other, net
2

 
12

Net Cash Provided by (Used in) Investing Activities from Continuing Operations
173

 
(90
)
 
 
 
 
Cash Flows - Financing Activities from Continuing Operations
 
 
 
Proceeds from long-term debt
1,072

 
6,900

Repayments of long-term debt
(344
)
 
(304
)
Revolving credit facilities, three months or less, net
—

 
(685
)
Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
—

 
1,400

More than three months - payments
—

 
(2,000
)
Three months or less, net
—

 
—

Repurchase shares of Common Stock
(856
)
 
(2,067
)
Dividends paid on Common Stock
(211
)
 
(379
)
Debt issuance costs
(32
)
 
(86
)
Net transfers from discontinued operations
—

 
70

Other, net
(39
)
 
(29
)
Net Cash Provided by (Used in) Financing Activities from Continuing Operations
(410
)
 
2,820

Effect of Exchange Rate on Cash and Cash Equivalents
23

 
(1
)
Net Increase in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Continuing Operations
225

 
3,316

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
831

 
351

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
1,056

 
$
3,667

 
 
 
 
Cash Provided by Operating Activities from Discontinued Operations
$
—

 
$
376

Cash Used in Investing Activities from Discontinued Operations
—

 
(214
)
Cash Used in Financing Activities from Discontinued Operations
—

 
(71
)
 
 
 
 
See accompanying notes.


11

Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
 
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items and Core Operating Profit. Core Operating Profit excludes Special Items and foreign currency translation and we use Core Operating Profit for the purposes of evaluating performance internally. Special Items are not included in any of our division segment results, and we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. The Special Items are described in (b), (c), (d), (e), (f) and (g) in the accompanying notes.   

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items and Core Operating Profit provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended June 30, 2017 and June 30, 2016 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.
 
 
Quarter ended
 
Year to date
 
 
6/30/17
 
6/30/16
 
6/30/17
 
6/30/16
Detail of Special Items
 
 
 
 
 
 
 
 
Refranchising initiatives (b)
 
$
19

 
$
54

 
$
130

 
$
54

YUM's Strategic Transformation Initiatives (c)
 
(4
)
 
(4
)
 
(11
)
 
(4
)
Costs associated with Pizza Hut U.S. Transformation Agreement (d)
 
(12
)
 
—

 
(12
)
 
—

Costs associated with KFC U.S. Acceleration Agreement (e)
 
(5
)
 
(8
)
 
(8
)
 
(17
)
Non-cash charges associated with share-based compensation (f)
 
(16
)
 
—

 
(18
)
 
—

Other Special Items Income (Expense)
 
(2
)
 
(2
)
 
(2
)
 
(2
)
Special Items Income (Expense) - Operating Profit
 
(20
)
 
40

 
79

 
31

Deferred vested pension liability adjustment (g)  - Other Pension Income (Expense)
 
—

 
—

 
(22
)
 
—

Special Items Income (Expense) from Continuing Operations before Income Taxes
 
(20
)
 
40

 
57

 
31

Tax Benefit (Expense) on Special Items
 
(17
)
 
(7
)
 
(51
)
 
(5
)
Special Items Income (Expense), net of tax
 
(37
)
 
33

 
6

 
26

Average diluted shares outstanding
 
358

 
415

 
361

 
418

Special Items diluted EPS
 
$
(0.10
)
 
$
0.08

 
$
0.01

 
$
0.06

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
419

 
$
415

 
$
903

 
764

Special Items Income (Expense)
 
(20
)
 
40

 
79

 
31

Foreign Currency Impact on Reported Operating Profit
 
(6
)
 
N/A

 
(11
)
 
N/A

Core Operating Profit
 
$
445

 
$
375

 
$
835

 
$
733

 
 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
243

 
$
203

 
$
450

 
$
388

Foreign Currency Impact on Reported Operating Profit
 
(4
)
 
N/A

 
(7
)
 
N/A

Core Operating Profit
 
$
247

 
$
203

 
$
457

 
$
388

 
 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
85

 
$
81

 
$
168

 
$
172

Foreign Currency Impact on Reported Operating Profit
 
(2
)
 
N/A

 
(4
)
 
N/A

Core Operating Profit
 
$
87

 
$
81

 
$
172

 
$
172

 
 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
152

 
$
139

 
$
293

 
$
257

Foreign Currency Impact on Reported Operating Profit
 
—

 
N/A

 
—

 
N/A

Core Operating Profit
 
$
152

 
$
139

 
$
293

 
$
257

 
 
 
 
 
 
 
 
 
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations excluding Special Items
 
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
 
$
0.58

 
$
0.64

 
$
1.34

 
$
1.18

Special Items EPS
 
(0.10
)
 
0.08

 
0.01

 
0.06

Diluted EPS from Continuing Operations excluding Special Items
 
$
0.68

 
$
0.56

 
$
1.33

 
$
1.12

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
 
 
 
 
GAAP Effective Tax Rate
 
33.8
%
 
27.0
 %
 
26.2
%
 
26.8
 %
Impact on Tax Rate as a result of Special Items
 
7.5
%
 
(0.9
)%
 
6.1
%
 
(0.5
)%
Effective Tax Rate excluding Special Items
 
26.3
%
 
27.9
 %
 
20.1
%
 
27.3
 %

12

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Quarter Ended 6/30/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
770

 
$
222

 
$
456

 
$
—

 
$
1,448

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
415

 
73

 
260

 
—

 
748

General and administrative expenses
85

 
54

 
39

 
69

 
247

Franchise and license expenses
26

 
10

 
5

 
13

 
54

Closures and impairment (income) expenses
1

 
—

 
—

 
—

 
1

Refranchising (gain) loss
—

 
—

 
—

 
(19
)
 
(19
)
Other (income) expense
—

 
—

 
—

 
(2
)
 
(2
)
 
527

 
137

 
304

 
61

 
1,029

Operating Profit (loss)
$
243

 
$
85

 
$
152

 
$
(61
)
 
$
419



Quarter Ended 6/30/16
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
779

 
$
267

 
$
464

 
$
(1
)
 
$
1,509

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
451

 
114

 
274

 
—

 
839

General and administrative expenses
93

 
56

 
46

 
59

 
254

Franchise and license expenses
28

 
14

 
5

 
7

 
54

Closures and impairment (income) expenses
4

 
2

 
1

 
—

 
7

Refranchising (gain) loss
—

 
—

 
—

 
(54
)
 
(54
)
Other (income) expense
—

 
—

 
(1
)
 
(5
)
 
(6
)
 
576

 
186

 
325

 
7

 
1,094

Operating Profit (loss)
$
203

 
$
81

 
$
139

 
$
(8
)
 
$
415



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.


13

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Year to Date 6/30/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,502

 
$
456

 
$
907

 
$
—

 
$
2,865

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
825

 
158

 
523

 
—

 
1,506

General and administrative expenses
174

 
107

 
81

 
122

 
484

Franchise and license expenses
51

 
23

 
10

 
16

 
100

Closures and impairment (income) expenses
2

 
—

 
—

 
—

 
2

Refranchising (gain) loss
—

 
—

 
—

 
(130
)
 
(130
)
Other (income) expense
—

 
—

 
—

 
—

 
—

 
1,052

 
288

 
614

 
8

 
1,962

Operating Profit (loss)
$
450

 
$
168

 
$
293

 
$
(8
)
 
$
903



Year to Date 6/30/16
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,515

 
$
548

 
$
890

 
$
(1
)
 
$
2,952

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
878

 
235

 
531

 
—

 
1,644

General and administrative expenses
187

 
115

 
93

 
102

 
497

Franchise and license expenses
56

 
24

 
9

 
16

 
105

Closures and impairment (income) expenses
6

 
2

 
1

 
—

 
9

Refranchising (gain) loss
—

 
—

 
—

 
(54
)
 
(54
)
Other (income) expense
—

 
—

 
(1
)
 
(12
)
 
(13
)
 
1,127

 
376

 
633

 
52

 
2,188

Operating Profit (loss)
$
388

 
$
172

 
$
257

 
$
(53
)
 
$
764



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.


14

Notes to the Condensed Consolidated Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)


(a)
Amounts presented as of and for the quarters and years to date ended June 30, 2017 and 2016 are preliminary.

(b)
In connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018, we recorded net refranchising gains during the quarters ended June 30, 2017 and 2016 of $19 million and $54 million, respectively, that have been reflected as Special Items. During the years to date ended June 30, 2017 and 2016, we recorded net refranchising gains of $130 million and $54 million, respectively, that have been reflected as Special Items.

The second quarter 2017 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S., partially offset by charges associated with the refranchising of certain international markets. The second quarter 2016 net refranchising gains relate primarily to refranchising Pizza Hut restaurants in the U.S.

(c)
In the fourth quarter of 2016, we announced our plan to transform our business. Major features of the Company's strategic transformation plans involve being more focused on development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure (“YUM’s Strategic Transformation Initiatives”). During both the quarters ended June 30, 2017 and 2016, we recognized Special Item charges of $4 million related to these initiatives. During the years to date ended June 30, 2017 and 2016, we recognized Special Item charges of $11 million and $4 million, respectively. These costs primarily related to severance and relocation costs that were recorded within G&A.

(d)
On May 1, 2017, we reached an agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising contributions by franchisees beginning in 2018. During the quarter ended June 30, 2017, we recorded Special Item charges of $12 million for these investments. These amounts were recorded primarily as Franchise and license expenses.

(e)
During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement, we recognized Special Item charges of $5 million and $8 million for the quarters ended June 30, 2017 and 2016, respectively. During the years to date ended June 30, 2017 and 2016, we recognized Special Item charges of $8 million and $17 million, respectively. The majority of these costs were recorded as Franchise and license expenses.

(f)
In connection with the separation of Yum China, we modified certain share-based compensation awards held as part of our Executive Income Deferral Plan in YUM stock to provide one Yum China share-based award for each outstanding YUM share-based award. These Yum China awards may now be settled in cash, as opposed to stock, which requires recognition of the fair value of these awards each quarter within G&A in our Condensed Consolidated Income Statement. During the quarter and year to date ended June 30, 2017, we recorded non-cash Special Item charges of $16 million and $18 million, respectively, related to these awards.

(g)
Reflects a non-cash charge of $22 million related to the adjustment of certain historical deferred vested liability balances in our qualified U.S. plan during the first quarter of 2017. This charge was recorded in Other pension (income) expense.

(h)
In March 2017, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The standard requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We early adopted the standard beginning with the quarter ended March 31, 2017 on a retrospective basis and have reported the other components of net benefit costs within Other pension (income) expense for the quarters and years to date ended June 30, 2017 and 2016.

15


(i)
In March 2016, the FASB issued guidance related to stock-based compensation which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including their income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted this standard beginning with the quarter ended March 31, 2017. The primary impact of adoption of this standard was that beginning January 1, 2017 we are required to report excess tax benefits associated with share-based compensation, which we previously recognized within Common Stock, within our Income tax provision.


16