YUM
$73.95
Yum! Brands
($2.02)
(2.66%)
Earnings Details
2nd Quarter June 2017
Thursday, August 03, 2017 7:00:16 AM
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Summary

Yum! Brands Beats

Yum! Brands (YUM) reported 2nd Quarter June 2017 earnings of $0.68 per share on revenue of $1.4 billion. The consensus earnings estimate was $0.61 per share on revenue of $1.4 billion. The Earnings Whisper number was $0.64 per share. Revenue fell 51.9% compared to the same quarter a year ago.

Yum Brands Inc through the three concepts of KFC, Pizza Hut and Taco Bell, develops, operates, franchises and licenses a system of restaurants which prepare, package and sell a menu of competitively priced food items.

Results
Reported Earnings
$0.68
Earnings Whisper
$0.64
Consensus Estimate
$0.61
Reported Revenue
$1.45 Bil
Revenue Estimate
$1.41 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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

Yum! Brands, Inc. (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%.

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20170803005538/en/

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
Core
Operating Profit
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.

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 Growth Ex F/X
System Sales(2)
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.

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
System Sales Growth Ex F/X
Hut System Sales(2)
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.

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.

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 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2017, Yum! Brands was named among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. The 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 leader in global retail development.

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.
YUM! Brands, Inc.
KFC 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
$
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.
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.
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.
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
356
370
in 2016
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
2,021
2,113
amortization of $1,990 in 2017 and $1,995 in 2016
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.
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
439
587
Operations
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
173
(90 )
Continuing Operations
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
(410 )
2,820
Continuing Operations
Effect of Exchange Rate on Cash and Cash Equivalents
23
(1 )
Net Increase in Cash and Cash Equivalents, Restricted Cash and
225
3,316
Restricted Cash Equivalents - Continuing Operations
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
831
351
Equivalents - Beginning of Period
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
$
1,056
$
3,667
Equivalents - End of Period
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.
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
--
--
(22 )
--
Pension Income (Expense)
Special Items Income (Expense) from Continuing Operations before
(20 )
40
57
31
Income Taxes
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
%
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 6/30/17
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
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
Consolidated
and
Unallocated
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.

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Year to Date 6/30/17
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
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
Consolidated
and
Unallocated
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.

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.
(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.

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SOURCE: YUM! Brands, Inc.

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