YUM BRANDS INC (Form: 8-K, Received: 10/06/2015 16:25:48)

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)

October 6, 2015

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))

Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition

On October 6, 2015, YUM! Brands, Inc. ("YUM") issued a press release announcing financial results for the quarter ended September 5, 2015. The Company also lowered its full-year 2015 EPS outlook. 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 October 6, 2015 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:	October 6, 2015	/s/ David E. Russell
		Vice President, Finance and Corporate Controller
		(Principal Accounting Officer)



	NEWS
	Steve Schmitt
	Vice President, Investor Relations & Corporate Strategy

Yum! Brands Reports Third-Quarter EPS Growth of 14%, Excluding Special Items;

China Sales Recovery Continues although Slower-than-Expected Pace and Stronger Foreign Exchange Headwinds Result in Lower Full-Year EPS Outlook

Louisville, KY (October 6, 2015) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 5, 2015, including EPS of $1.00, excluding Special Items. Reported EPS was $0.95.

THIRD-QUARTER HIGHLIGHTS



●	Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.3 percentage points to 18.2%, and worldwide operating profit increased 23%.

●	Total international development was 376 new restaurants; 72% of this development occurred in emerging markets.

●	China Division system sales increased 8%, driven by 7% unit growth and 2% same-store sales growth. Restaurant margin increased 4.7 percentage points to 19.6%. Operating profit increased 64%.

●	KFC Division system sales increased 6%, driven by 3% unit growth and 3% same-store sales growth. Operating margin decreased 0.2 percentage points to 21.7%. Operating profit increased 3%.

●	Pizza Hut Division system sales increased 2%, driven by 2% unit growth and 1% same-store sales growth. Operating margin decreased 0.7 percentage points to 25.4%. Operating profit was even.

●	Taco Bell Division system sales increased 7%, driven by 3% unit growth and 4% same-store sales growth. Operating margin decreased 0.1 percentage points to 28.0%. Operating profit increased 6%.

●	India Division system sales decreased 9%, as 10% unit growth was offset by an 18% same-store sales decline.

●	Worldwide effective tax rate increased to 24.8% from 22.4%.

●	Foreign currency translation negatively impacted operating profit by $29 million.

FULL-YEAR CHINA SALES AND EPS UPDATE

While it remains difficult to forecast China sales, we are now estimating full-year same-store sales to be low-single-digit negative. For the fourth quarter, this assumes mid-single-digit same-store sales growth for the Division, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut Casual Dining. Given a slower-than-expected recovery in China sales, particularly at Pizza Hut Casual Dining, as well as stronger foreign exchange headwinds, we now expect full-year EPS growth to be low-single-digit positive.



	Third Quarter			Year-to-Date
	2015	2014	% Change	2015	2014	% Change
EPS Excluding Special Items	$1.00	$0.87	14%	$2.50	$2.48	1%
Special Items Gain/(Loss) ¹	$(0.05)	$0.02	NM	$(0.21)	$0.02	NM
EPS	$0.95	$0.89	6%	$2.29	$2.50	(9)%

¹ See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2015 are primarily related to a non-cash charge associated with refranchising our Mexico business and payments related to the recent agreement with KFC U.S. franchisees, partially offset by U.S. refranchising gains.

Note : All comparisons are versus the same period a year ago and exclude Special Items unless noted. System sales and operating profit figures on this page exclude foreign currency translation; restaurant margin and operating margin figures are as reported.

Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213

Tel 502 874-8006 • Website www.yum.com/investors

GREG CREED COMMENTS

Greg Creed, CEO, said “Third-quarter EPS grew 14%. We’re pleased same-store sales turned positive and we achieved restaurant margins of nearly 20% in our China business. However, the pace of recovery in our China Division is below our expectations. Outside of China, our Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS growth to be well below our target of at least 10%.

Our growth fundamentals in China, including new-unit development, remain intact. However, we’re experiencing unexpected headwinds, making the second half of the year more challenging than we anticipated. Our new China Division CEO, Micky Pant, and his leadership team are taking significant actions to get sales, traffic and profits back to historic levels. Outside of China, KFC continued its solid growth across both emerging and developed markets. Taco Bell’s same-store sales growth was boosted by insight-driven innovation coupled with industry-leading value. We remain confident in the actions underway at Pizza Hut to turn this business around longer term.

Our central goal remains building three iconic, global brands people trust and champion. We are focused on the three keys to driving shareholder value: new-unit development, same-store sales growth, and high returns on invested capital. I'm confident that this formula will produce strong, sustainable EPS growth over the long term. As evidence of this, we’re pleased to announce a 12% increase to our quarterly dividend, which marks the eleventh consecutive year we’ve raised our dividend at a double-digit percentage rate.”

CHINA DIVISION



	Third Quarter				Year-to-Date
			% Change				% Change
	2015	2014	Reported	Ex F/X	2015	2014	Reported	Ex F/X
System Sales Growth			+7	+8			(1)	Even
Same-Store Sales Growth (%)	+2	(14)	NM	NM	(6)	+1	NM	NM
Franchise & License Fees ($MM)	34	31	+13	+14	83	80	+4	+6
Restaurant Margin (%)	19.6	14.9	4.7	4.7	17.7	17.9	(0.2)	(0.1)
Operating Profit ($MM)	327	202	+62	+64	661	681	(3)	(1)



●	China Division system sales increased 8%, prior to foreign currency translation.
○		Same-store sales increased 2%, with an increase of 3% at KFC, partially offset by a decline of 1% at Pizza Hut Casual Dining.
○		Negative same-store sales in the first half of the quarter were more than offset by sales growth in the second half of the quarter, as sales turned significantly positive when we overlapped the supplier incident on July 20th of last year.
●	China Division opened 108 new units during the quarter.



China Units	Q3 2015	% Change ²
Restaurants ¹	6,867	+7
KFC	4,889	+5
Pizza Hut
Casual Dining	1,421	+21
Home Service	284	+26

¹ Total includes East Dawning and Little Sheep units.

² Represents year-over-year change.



●	Restaurant margin was 19.6%, an increase of 4.7 percentage points driven by productivity initiatives and sales leverage.
●	Foreign currency translation negatively impacted operating profit by $4 million.

KFC DIVISION



	Third Quarter				Year-to-Date
			% Change				% Change
	2015	2014	Reported	Ex F/X	2015	2014	Reported	Ex F/X
Restaurants	14,316	13,961	+3	NA	14,316	13,961	+3	NA
System Sales Growth			(6)	+6			(3)	+7
Same-Store Sales Growth (%)	+3	+3	NM	NM	+3	+2	NM	NM
Franchise & License Fees ($MM)	193	205	(6)	+6	579	596	(3)	+7
Restaurant Margin (%)	14.0	13.4	0.6	0.7	14.9	13.1	1.8	1.7
Operating Profit ($MM)	150	169	(11)	+3	471	487	(3)	+8
Operating Margin (%)	21.7	21.9	(0.2)	(0.4)	23.2	22.2	1.0	0.6



●	KFC Division system sales increased 6%, excluding foreign currency translation.



	Third Quarter (% Change)
	Int'l Emerging Markets	Int'l Developed Markets	U.S.
System Sales Growth (Ex F/X)	+11%	+6%	Even
Same-Store Sales Growth	+3%	+3%	+2%



●	KFC Division opened 141 new international restaurants in 45 countries, including 101 units in emerging markets. 82% of these new units were opened by franchisees.
●	Operating margin decreased 0.2 percentage points, including higher advertising expense as part of our recent agreement with KFC U.S. franchisees, partially offset by an increase of 0.6 percentage points in restaurant margin.
●	Foreign currency translation negatively impacted operating profit by $23 million, as approximately 90% of division profits are generated outside the U.S.



KFC MARKETS ¹	Percent of KFC System Sales ²	SYSTEM Sales Growth Ex F/X
KFC MARKETS ¹	Percent of KFC System Sales ²	Third Quarter (%)	Year-to-Date (%)
Emerging Markets
Asia (e.g. Malaysia, Indonesia, Philippines)	8%	+6	+5
Africa	7%	+6	+11
Latin America (e.g. Mexico, Peru)	6%	+8	+8
Middle East / North Africa	6%	+3	+3
Russia	4%	+45	+45
Thailand	3%	+3	+6
Continental Europe (e.g. Poland)	2%	+14	+14


Developed Markets
U.S.	24%	Even	+2
Asia (e.g. Japan, Korea, Taiwan)	10%	+10	+3
Australia	10%	+8	+9
U.K.	9%	+1	+4
Continental Europe (e.g. France, Germany)	7%	+8	+8
Canada	3%	+1	+1
Latin America (e.g. Puerto Rico)	1%	(1)	+3

¹ See website www.yum.com under tab "Investors" for a list of the countries within each of the markets.

² Reflects Full Year 2014.

PIZZA HUT DIVISION



	Third Quarter				Year-to-Date
			% Change				% Change
	2015	2014	Reported	Ex F/X	2015	2014	Reported	Ex F/X
Restaurants	13,616	13,393	+2	NA	13,616	13,393	+2	NA
System Sales Growth			(3)	+2			(2)	+2
Same-Store Sales Growth (%)	+1	(1)	NM	NM	Even	(2)	NM	NM
Franchise & License Fees ($MM)	121	124	(3)	+3	367	374	(2)	+2
Restaurant Margin (%)	7.8	8.9	(1.1)	(1.6)	9.8	9.0	0.8	0.3
Operating Profit ($MM)	67	68	(3)	Even	208	215	(4)	(1)
Operating Margin (%)	25.4	26.1	(0.7)	(1.0)	26.0	27.1	(1.1)	(1.2)



●	Pizza Hut Division system sales increased 2%, excluding foreign currency translation.



	Third Quarter (% Change)
	Int'l Emerging Markets	Int'l Developed Markets	U.S.
System Sales Growth (Ex F/X)	+9%	+1%	Even
Same-Store Sales Growth	+4%	Even	Even



●	Pizza Hut Division opened 105 new international restaurants in 38 countries, including 46 units in emerging markets. 95% of these new units were opened by franchisees.
●	Operating margin declined 0.7 percentage points, driven by strategic investments in international G&A.
●	Foreign currency translation negatively impacted operating profit by $2 million.



PIZZA HUT MARKETS ¹	Percent of Pizza Hut System Sales ²	SYSTEM Sales Growth Ex F/X
PIZZA HUT MARKETS ¹	Percent of Pizza Hut System Sales ²	Third Quarter (%)	Year-to-Date (%)
Emerging Markets
Latin America (e.g. Mexico, Peru)	7%	+11	+8
Asia (e.g. Malaysia, Indonesia, Philippines)	5%	+4	+3
Middle East / North Africa	5%	+8	+7
Continental Europe (e.g. Poland)	1%	+12	+9

Developed Markets
U.S.	55%	Even	Even
Asia (e.g. Japan, Korea, Taiwan)	9%	Even	(1)
U.K.	6%	+6	+4
Continental Europe (e.g. France, Germany)	5%	+2	+3
Australia	3%	(9)	(6)
Canada	3%	+7	+5
Latin America (e.g. Puerto Rico)	1%	(5)	Even

¹ See website www.yum.com under tab "Investors" for a list of the countries within each of the markets.

² Reflects Full Year 2014.

TACO BELL DIVISION



	Third Quarter				Year-to-Date
			% Change				% Change
	2015	2014	Reported	Ex F/X	2015	2014	Reported	Ex F/X
Restaurants	6,314	6,109	+3	NA	6,314	6,109	+3	NA
System Sales Growth			+7	+7			+8	+8
Same-Store Sales Growth (%)	+4	+3	NM	NM	+5	+1	NM	NM
Franchise & License Fees ($MM)	107	99	+8	+8	309	281	+10	+10
Restaurant Margin (%)	22.1	20.7	1.4	1.4	21.6	18.1	3.5	3.5
Operating Profit ($MM)	132	124	+6	+6	387	317	+22	+22
Operating Margin (%)	28.0	28.1	(0.1)	(0.1)	28.1	24.9	3.2	3.2



●	Taco Bell Division system sales increased 7%, driven by 4% same-store sales growth and 3% unit growth.
●	Taco Bell Division opened 62 new restaurants; 81% of these new units were opened by franchisees.
●	Restaurant margin was 22.1%, an increase of 1.4 percentage points, driven by same-store sales growth.
●	Operating margin decreased 0.1 percentage points, driven by an increase in G&A related to incentive compensation and pension. This was largely offset by an increase of 1.4 percentage points in restaurant margin.

INDIA DIVISION



●	India Division system sales decreased 9% prior to foreign currency translation, as 10% unit growth was offset by an 18% same-store sales decline.
●	Operating loss was $8 million, as compared to an operating loss of $3 million in prior year.



India Units	Q3 2015	% Change ²
Restaurants ¹	811	+10
KFC	378	+10
Pizza Hut
Casual Dining	175	(4)
Home Service	251	+23

¹ Total includes 7 Taco Bell units.

² Represents year-over-year change.

SPECIAL ITEMS / SHARE REPURCHASE UPDATE / DIVIDEND INCREASE



●	For the third quarter in the U.S., we refranchised 24 units, primarily related to Taco Bell, for proceeds of $30 million. We recorded pre-tax U.S. refranchising gains of $16 million in Special Items. At the end of the third quarter, our company ownership in the U.S. across our three branded divisions was 9%.
●	During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that will give us brand marketing control, as well as an accelerated path to expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $21 million during the quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.
●	During the quarter, we recorded a $20 million refranchising loss in Special Items related to the planned refranchising of certain international markets.
●	Year-to-date through October 5, 2015, we repurchased 4.5 million shares totaling $370 million at an average price of $82.
●	The Company's Board of Directors approved a 12% increase in the Company’s quarterly dividend. The quarterly cash dividend will increase from $0.41 to $0.46 per share and will be effective with the dividend payment to be distributed on November 6, 2015 to shareholders of record at the close of business on October 16, 2015. This increase raises the annual dividend rate to $1.84 per share. Over the long term, Yum! is now targeting a payout ratio of 45% to 50% of annual net income, before Special Items.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the Company's financial performance and strategies at 9:15 a.m. Eastern Time Wednesday, October 7, 2015. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at 12:30 p.m. Eastern Time Wednesday, October 7, through midnight Saturday, November 7, 2015. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 98023873.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q3 2015 Earnings Conference Call” under “Events & Presentations.” A podcast will be available within 24 hours.

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com under “Investors.”

This announcement, any related announcements and the related webcast 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 can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food safety and food borne-illness issues; changes in economic conditions, consumer preferences, tax rates and laws and the regulatory environment, as well as increased competition and other risks in China, where a significant and growing portion of our restaurants are located; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; changes in economic and political conditions in the other countries outside the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our international development strategy; commodity, labor and other operating costs; the continued viability and success of our franchise and license operators; consumer preferences and perceptions of our brands; the impact of social media; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations; tax matters, including disagreements with taxing authorities; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; and competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. 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 Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 41,000 restaurants in more than 125 countries and territories. Yum! is ranked #228 on the Fortune 500 List with revenues of over $13 billion in 2014 and is one of the Aon Hewitt Top Companies for Leaders in North America. The Company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opens over five new restaurants per day on average, making it a leader in international retail development.



Analysts are invited to contact
	Steve Schmitt, Vice President Investor Relations & Corporate Strategy, at 888/298-6986
	Elizabeth Grenfell, Director Investor Relations, at 888/298-6986
Members of the media are invited to contact
	Virginia Ferguson, Director Public Relations, at 502/874-8200

YUM! Brands, Inc.

Condensed Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)



	Quarter ended						% Change	Year to date						% Change
	9/5/15			9/6/14			B/(W)	9/5/15			9/6/14			B/(W)

Company sales	$	2,968		$	2,891		3	$	7,806		$	7,941		(2)
Franchise and license fees and income	459			463			(1)	1,348			1,341			—
Total revenues	3,427			3,354			2	9,154			9,282			(1)

Company restaurant expenses
Food and paper	933			951			2	2,462			2,562			4
Payroll and employee benefits	625			642			3	1,720			1,755			2
Occupancy and other operating expenses	871			869			—	2,292			2,326			1
Company restaurant expenses	2,429			2,462			1	6,474			6,643			3

General and administrative expenses	328			323			(1)	976			946			(3)
Franchise and license expenses	65			42			(54)	146			109			(34)
Closures and impairment (income) expenses	3			6			48	30			30			2
Refranchising (gain) loss	2			(20		)	NM	60			(27		)	NM
Other (income) expense	(3		)	(9		)	(67)	(12		)	(19		)	(38)
Total costs and expenses, net	2,824			2,804			(1)	7,674			7,682			—

Operating Profit	603			550			10	1,480			1,600			(7)
Interest expense, net	32			28			(11)	99			90			(9)
Income before income taxes	571			522			10	1,381			1,510			(9)
Income tax provision	145			119			(22)	358			370			3
Net income - including noncontrolling interests	426			403			6	1,023			1,140			(10)
Net income (loss) - noncontrolling interests	5			(1		)	NM	5			3			(72)
Net income - YUM! Brands, Inc.	$	421		$	404		4	$	1,018		$	1,137		(10)

Effective tax rate	25.3		%	22.7		%	(2.6 ppts.)	25.9		%	24.5		%	(1.4 ppts.)

Basic EPS Data
EPS	$	0.97		$	0.91		6	$	2.33		$	2.55		(9)
Average shares outstanding	436			443			2	437			445			2

Diluted EPS Data
EPS	$	0.95		$	0.89		6	$	2.29		$	2.50		(9)
Average shares outstanding	444			452			2	445			455			2

Dividends declared per common share	$	—		$	—			$	0.82		$	0.74

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.

CHINA DIVISION Operating Results

(amounts in millions)

(unaudited)



	Quarter ended						% Change	Year to date						% Change
	9/5/15			9/6/14			B/(W)	9/5/15			9/6/14			B/(W)

Company sales	$	1,935		$	1,809		7	$	4,778		$	4,848		(1)
Franchise and license fees and income	34			31			13	83			80			4
Total revenues	1,969			1,840			7	4,861			4,928			(1)

Company restaurant expenses
Food and paper	611			598			(2)	1,518			1,547			2
Payroll and employee benefits	356			366			3	933			944			1
Occupancy and other operating expenses	589			576			(2)	1,481			1,488			—
Company restaurant expenses	1,556			1,540			(1)	3,932			3,979			1
General and administrative expenses	90			95			5	258			259			—
Franchise and license expenses	6			5			(21)	15			11			(34)
Closures and impairment (income) expenses	3			4			23	22			23			6
Other (income) expense	(13		)	(6		)	NM	(27		)	(25		)	5
	1,642			1,638			—	4,200			4,247			1
Operating Profit	$	327		$	202		62	$	661		$	681		(3)

Company sales	100.0		%	100.0		%		100.0		%	100.0		%
Food and paper	31.6			33.1			1.5 ppts.	31.8			31.9			0.1 ppts.
Payroll and employee benefits	18.4			20.2			1.8 ppts.	19.5			19.5			—
Occupancy and other operating expenses	30.4			31.8			1.4 ppts.	31.0			30.7			(0.3 ppts.)
Restaurant margin	19.6		%	14.9		%	4.7 ppts.	17.7		%	17.9		%	(0.2 ppts.)

Operating margin	16.6		%	11.0		%	5.6 ppts.	13.6		%	13.8		%	(0.2 ppts.)

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.

KFC DIVISON Operating Results

(amounts in millions)

(unaudited)



	Quarter ended						% Change	Year to date						% Change
	9/5/15			9/6/14			B/(W)	9/5/15			9/6/14			B/(W)

Company sales	$	501		$	566		(12)	$	1,451		$	1,593		(9)
Franchise and license fees and income	193			205			(6)	579			596			(3)
Total revenues	694			771			(10)	2,030			2,189			(7)

Company restaurant expenses
Food and paper	171			197			13	495			555			11
Payroll and employee benefits	120			135			11	342			384			11
Occupancy and other operating expenses	140			158			12	398			445			11
Company restaurant expenses	431			490			12	1,235			1,384			11
General and administrative expenses	92			91			(1)	264			261			(1)
Franchise and license expenses	21			20			(6)	59			54			(9)
Closures and impairment (income) expenses	—			1			NM	2			2			4
Other (income) expense	—			—			NM	(1		)	1			NM
	544			602			10	1,559			1,702			8
Operating Profit	$	150		$	169		(11)	$	471		$	487		(3)

Company sales	100.0		%	100.0		%		100.0		%	100.0		%
Food and paper	34.1			34.8			0.7 ppts.	34.1			34.9			0.8 ppts.
Payroll and employee benefits	23.9			23.8			(0.1 ppts.)	23.6			24.1			0.5 ppts.
Occupancy and other operating expenses	28.0			28.0			—	27.4			27.9			0.5 ppts.
Restaurant margin	14.0		%	13.4		%	0.6 ppts.	14.9		%	13.1		%	1.8 ppts.

Operating margin	21.7		%	21.9		%	(0.2 ppts.)	23.2		%	22.2		%	1.0 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.

PIZZA HUT DIVISION Operating Results

(amounts in millions)

(unaudited)



	Quarter ended						% Change	Year to date						% Change
	9/5/15			9/6/14			B/(W)	9/5/15			9/6/14			B/(W)

Company sales	$	141		$	140		1	$	430		$	422		2
Franchise and license fees and income	121			124			(3)	367			374			(2)
Total revenues	262			264			(1)	797			796			—

Company restaurant expenses
Food and paper	40			41			3	120			126			5
Payroll and employee benefits	44			42			(5)	133			129			(3)
Occupancy and other operating expenses	46			44			(5)	135			129			(5)
Company restaurant expenses	130			127			(2)	388			384			(1)
General and administrative expenses	58			58			(3)	176			165			(8)
Franchise and license expenses	8			11			27	25			29			14
Closures and impairment (income) expenses	(1		)	—			NM	2			2			4
Other (income) expense	—			—			NM	(2		)	1			NM
	195			196			—	589			581			(2)
Operating Profit	$	67		$	68		(3)	$	208		$	215		(4)

Company sales	100.0		%	100.0		%		100.0		%	100.0		%
Food and paper	28.0			29.1			1.1 ppts.	27.8			29.8			2.0 ppts.
Payroll and employee benefits	31.5			30.5			(1.0 ppts.)	31.0			30.6			(0.4 ppts.)
Occupancy and other operating expenses	32.7			31.5			(1.2 ppts.)	31.4			30.6			(0.8 ppts.)
Restaurant margin	7.8		%	8.9		%	(1.1 ppts.)	9.8		%	9.0		%	0.8 ppts.

Operating margin	25.4		%	26.1		%	(0.7 ppts.)	26.0		%	27.1		%	(1.1 ppts.)

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.

TACO BELL DIVISION Operating Results

(amounts in millions)

(unaudited)



	Quarter ended						% Change	Year to date						% Change
	9/5/15			9/6/14			B/(W)	9/5/15			9/6/14			B/(W)

Company sales	$	366		$	344		6	$	1,071		$	992		8
Franchise and license fees and income	107			99			8	309			281			10
Total revenues	473			443			7	1,380			1,273			8

Company restaurant expenses
Food and paper	100			101			1	297			297			—
Payroll and employee benefits	100			95			(6)	299			287			(5)
Occupancy and other operating expenses	84			78			(9)	243			229			(6)
Company restaurant expenses	284			274			(4)	839			813			(3)
General and administrative expenses	50			40			(20)	140			128			(8)
Franchise and license expenses	6			4			(30)	12			13			9
Closures and impairment (income) expenses	1			1			NM	3			2			(76)
Other (income) expense	—			—			NM	(1		)	—			NM
	341			319			(7)	993			956			(4)
Operating Profit	$	132		$	124		6	$	387		$	317		22

Company sales	100.0		%	100.0		%		100.0		%	100.0		%
Food and paper	27.3			29.2			1.9 ppts.	27.7			29.9			2.2 ppts.
Payroll and employee benefits	27.5			27.6			0.1 ppts.	28.0			28.9			0.9 ppts.
Occupancy and other operating expenses	23.1			22.5			(0.6 ppts.)	22.7			23.1			0.4 ppts.
Restaurant margin	22.1		%	20.7		%	1.4 ppts.	21.6		%	18.1		%	3.5 ppts.

Operating margin	28.0		%	28.1		%	(0.1 ppts.)	28.1		%	24.9		%	3.2 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)



	(unaudited)
	9/5/15			12/27/14
ASSETS
Current Assets
Cash and cash equivalents	$	861		$	578
Accounts and notes receivable, less allowance: $20 in 2015 and $12 in 2014	355			325
Inventories	230			301
Prepaid expenses and other current assets	248			254
Deferred income taxes	113			93
Advertising cooperative assets, restricted	112			95
Total Current Assets	1,919			1,646

Property, plant and equipment, net of accumulated depreciation and amortization of $3,697 in
2015 and $3,584 in 2014	4,263			4,498
Goodwill	674			700
Intangible assets, net	287			318
Investments in unconsolidated affiliates	53			52
Other assets	561			560
Deferred income taxes	563			571
Total Assets	$	8,320		$	8,345

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,811		$	1,972
Income taxes payable	153			77
Short-term borrowings	566			267
Advertising cooperative liabilities	112			95
Total Current Liabilities	2,642			2,411

Long-term debt	2,651			3,077
Other liabilities and deferred credits	1,120			1,244
Total Liabilities	6,413			6,732

Redeemable noncontrolling interest	8			9

Shareholders' Equity
Common stock, no par value, 750 shares authorized; 431 shares and 434 shares issued in 2015 and 2014, respectively	8			—
Retained earnings	2,079			1,737
Accumulated other comprehensive income (loss)	(248		)	(190		)
Total Shareholders' Equity - YUM! Brands, Inc.	1,839			1,547
Noncontrolling interests	60			57
Total Shareholders' Equity	1,899			1,604
Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity	$	8,320		$	8,345

See accompanying notes.

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)



	Year to date ended
	9/5/15			9/6/14
Cash Flows - Operating Activities
Net income - including noncontrolling interests	$	1,023		$	1,140
Depreciation and amortization	505			501
Closures and impairment (income) expenses	30			30
Refranchising (gain) loss	60			(27		)
Contributions to defined benefit pension plans	(83		)	(17		)
Deferred income taxes	(42		)	(94		)
Equity income from investments in unconsolidated affiliates	(31		)	(31		)
Distributions of income received from unconsolidated affiliates	9			12
Excess tax benefit from share-based compensation	(46		)	(29		)
Share-based compensation expense	40			36
Changes in accounts and notes receivable	(15		)	(25		)
Changes in inventories	62			24
Changes in prepaid expenses and other current assets	(27		)	(3		)
Changes in accounts payable and other current liabilities	197			59
Changes in income taxes payable	111			(24		)
Other, net	24			60
Net Cash Provided by Operating Activities	1,817			1,612

Cash Flows - Investing Activities
Capital spending	(642		)	(655		)
Changes in short-term investments, net	(2		)	(315		)
Proceeds from refranchising of restaurants	72			66
Other, net	50			(16		)
Net Cash Used in Investing Activities	(522		)	(920		)

Cash Flows - Financing Activities
Repayments of long-term debt	(10		)	(7		)
Short-term borrowings by original maturity
More than three months - proceeds	—			2
More than three months - payments	—			—
Three months or less, net	—			—
Revolving credit facilities, three months or less, net	(116		)	397
Repurchase shares of Common Stock	(370		)	(510		)
Excess tax benefit from share-based compensation	46			29
Employee stock option proceeds	12			21
Dividends paid on Common Stock	(532		)	(490		)
Other, net	(49		)	(28		)
Net Cash Used in Financing Activities	(1,019		)	(586		)
Effect of Exchange Rate on Cash and Cash Equivalents	7			6
Net Increase in Cash and Cash Equivalents	283			112
Cash and Cash Equivalents - Beginning of Period	578			573
Cash and Cash Equivalents - End of Period	$	861		$	685

See accompanying notes.

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 operating results in 2015 and 2014 on a basis before Special Items. Included in Special Items are gains/(losses) associated with the refranchising of equity markets outside the U.S., costs associated with the KFC U.S. Acceleration Agreement and U.S. refranchising gains. These amounts are described in (c), (d) and (e) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended September 5, 2015 and September 6, 2014 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.



	Quarter ended						Year to date
	9/5/15			9/6/14			9/5/15			9/6/14
Detail of Special Items
Gains (losses) associated with the refranchising of equity markets outside the U.S. ^(c)	$	(20	)	$	7		$	(93	)	$	7
Costs associated with KFC U.S. Acceleration Agreement ^(d)	(21		)	—			(31		)	—
U.S. Refranchising gain ^(e)	16			8			24			11
Other Special Items Income (Expense)	(1		)	—			1			—
Total Special Items Income (Expense)	(26		)	15			(99		)	18
Tax Benefit (Expense) on Special Items	4			(5		)	5			(6		)
Special Items Income (Expense), net of tax	$	(22	)	$	10		$	(94	)	$	12
Average diluted shares outstanding	444			452			445			455
Special Items diluted EPS	$	(0.05	)	$	0.02		$	(0.21	)	$	0.02

Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
Operating Profit Before Special Items	$	629		$	535		$	1,579		$	1,582
Special Items Income (Expense)	(26		)	15			(99		)	18
Reported Operating Profit	$	603		$	550		$	1,480		$	1,600

Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS Before Special Items	$	1.00		$	0.87		$	2.50		$	2.48
Special Items EPS	(0.05		)	0.02			(0.21		)	0.02
Reported EPS	$	0.95		$	0.89		$	2.29		$	2.50

Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
Effective Tax Rate Before Special Items	24.8		%	22.4		%	24.6		%	24.4		%
Impact on Tax Rate as a result of Special Items	0.5		%	0.3		%	1.3		%	0.1		%
Reported Effective Tax Rate	25.3		%	22.7		%	25.9		%	24.5		%

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)



Quarter Ended 9/5/15	China			KFC		Pizza Hut			Taco Bell		India			Corporate and Unallocated			Consolidated
Total revenues	$	1,969		$	694	$	262		$	473	$	29		$	—		$	3,427

Company restaurant expenses	1,556			431		130			284		28			—			2,429
General and administrative expenses	90			92		58			50		6			32			328
Franchise and license expenses	6			21		8			6		3			21			65
Closures and impairment (income) expenses	3			—		(1		)	1		—			—			3
Refranchising (gain) loss	—			—		—			—		—			2			2
Other (income) expense	(13		)	—		—			—		—			10			(3		)
	1,642			544		195			341		37			65			2,824
Operating Profit (loss)	$	327		$	150	$	67		$	132	$	(8	)	$	(65	)	$	603



Quarter Ended 9/6/14	China			KFC		Pizza Hut		Taco Bell		India			Corporate and Unallocated			Consolidated
Total revenues	$	1,840		$	771	$	264	$	443	$	36		$	—		$	3,354

Company restaurant expenses	1,540			490		127		274		31			—			2,462
General and administrative expenses	95			91		58		40		6			33			323
Franchise and license expenses	5			20		11		4		2			—			42
Closures and impairment (income) expenses	4			1		—		1		—			—			6
Refranchising (gain) loss	—			—		—		—		—			(20		)	(20		)
Other (income) expense	(6		)	—		—		—		—			(3		)	(9		)
	1,638			602		196		319		39			10			2,804
Operating Profit (loss)	$	202		$	169	$	68	$	124	$	(3	)	$	(10	)	$	550

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.

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)



Year to Date 9/5/15	China			KFC			Pizza Hut			Taco Bell			India			Corporate and Unallocated			Consolidated
Total revenues	$	4,861		$	2,030		$	797		$	1,380		$	86		$	—		$	9,154

Company restaurant expenses	3,932			1,235			388			839			80			—			6,474
General and administrative expenses	258			264			176			140			16			122			976
Franchise and license expenses	15			59			25			12			4			31			146
Closures and impairment (income) expenses	22			2			2			3			1			—			30
Refranchising (gain) loss	—			—			—			—			—			60			60
Other (income) expense	(27		)	(1		)	(2		)	(1		)	—			19			(12		)
	4,200			1,559			589			993			101			232			7,674
Operating Profit (loss)	$	661		$	471		$	208		$	387		$	(15	)	$	(232	)	$	1,480



Year to Date 9/6/14	China			KFC		Pizza Hut		Taco Bell		India			Corporate and Unallocated			Consolidated
Total revenues	$	4,928		$	2,189	$	796	$	1,273	$	96		$	—		$	9,282

Company restaurant expenses	3,979			1,384		384		813		83			—			6,643
General and administrative expenses	259			261		165		128		17			116			946
Franchise and license expenses	11			54		29		13		2			—			109
Closures and impairment (income) expenses	23			2		2		2		1			—			30
Refranchising (gain) loss	—			—		—		—		—			(27		)	(27		)
Other (income) expense	(25		)	1		1		—		—			4			(19		)
	4,247			1,702		581		956		103			93			7,682
Operating Profit (loss)	$	681		$	487	$	215	$	317	$	(7	)	$	(93	)	$	1,600

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.

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 quarter and year to date ended September 5, 2015 are preliminary.


(b)	Other (income) expense for the China Division primarily consists of equity (income) loss from investments in unconsolidated affiliates.

(c)

In 2010 we refranchised our then remaining Company-operated restaurants in Mexico. To the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. During the quarter ended June 13, 2015 we initiated plans to sell this real estate and determined it was held for sale in accordance with GAAP. On September 28, 2015, subsequent to our quarter end, we sold the real estate for approximately $58 million. While these proceeds exceeded the book value of the real estate, the sale represents a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we were required to include accumulated translation losses associated with our Mexican business within our carrying value when performing impairment evaluations in the quarters subsequent to determining that the restaurants were held for sale. As such, we recorded charges of $12 million and $80 million in the quarter and year to date ended September 5, 2015, respectively, representing the excess of the sum of the book value of the real estate and other related assets and our accumulated translation losses over the then expected sales price. Consistent with the classification of the original market refranchising transaction, these charges were classified as Refranchising Loss within Special Items. We do not expect to record further significant charges as a result of the consummation of the sale.

Additionally, during the quarter and year to date ended September 5, 2015 we recognized Special Items charges of $8 million and $13 million, respectively, associated with the decision to offer to refranchise our Pizza Hut Korea restaurants. The remaining carrying value of these restaurants is not significant. While additional charges may occur as the refranchising plans move forward, such charges are not expected to be material at this time.

(d)

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 for the quarter and year to date ended September 5, 2015 of $21 million and $31 million, respectively, primarily related to the funding of investments for new back-of-house equipment for franchisees. We continue to expect a total Special Item charge of approximately $80 million in 2015 for these and other investments we agreed to fund.

(e)

During the quarters ended September 5, 2015 and September 6, 2014, we recorded Special Item gains of $16 million and $8 million, respectively, related to refranchising in the U.S. During the years to date ended September 5, 2015 and September 6, 2014, we recorded Special Item gains of $24 million and $11 million, respectively, related to refranchising in the U.S. Refranchising gains and losses in the U.S. have been reflected as Special Items due to the scope of our U.S. refranchising program in recent years and the volatility in associated gains and losses.