yumlogo10.jpg
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports Third-Quarter GAAP Operating Profit Growth of 61%;
Delivers Third-Quarter Core Operating Profit Growth of 11%;
Maintains Full-Year Core Operating Profit Growth Guidance

Louisville, KY (November 2, 2017) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 30, 2017. Third-quarter GAAP EPS was $1.18, an increase of 115%. Third-quarter EPS excluding Special Items was $0.68, an increase of 22%.
GREG CREED COMMENTS
Greg Creed, CEO, said “I’m pleased to report another strong quarter with 11% core operating profit growth and 22% EPS growth excluding special items, as a result of the continued focus on our four key growth drivers. We are maintaining our full-year 2017 guidance and remain on-track with our multi-year transformation strategy. As we celebrate both our 1st anniversary from the spin-off of Yum China and our 20th anniversary as an independent company, I am proud of our accomplishments. I’m especially proud of our ability to leverage our culture to rapidly transform to a more focused, more franchised and more efficient company which delivers more growth to our shareholders.”
THIRD-QUARTER HIGHLIGHTS
Worldwide system sales grew 6%, with KFC at 7%, Taco Bell at 6% and Pizza Hut at 3%.
We opened 362 net new units for 3% net unit growth.
We refranchised 209 restaurants, including 72 KFC, 46 Pizza Hut and 91 Taco Bell units, for gross proceeds of $395 million. We recorded net refranchising gains of $201 million in Special Items. As of quarter end, our global franchise ownership mix increased to 95%.
We repurchased 6.6 million shares totaling $501 million at an average price of $75.
Foreign currency translation favorably impacted divisional operating profit by $2 million.
 
% Change
 
System Sales
Same-Store Sales
Net New Units
GAAP Operating Profit
Core
Operating Profit
KFC Division
+7
+4
+4
+14
+13
Pizza Hut Division
+3
+1
+2
(1)
Even
Taco Bell Division
+6
+3
+3
+3
+3
Worldwide
+6
+3
+3
+61
+11
 
Third Quarter
Year-to-Date
 
2017
2016
% Change
2017
2016
% Change
GAAP EPS
$1.18
$0.55
+115
$2.52
$1.73
+46
Special Items EPS1
$0.50
$(0.01)
NM
$0.51
$0.05
NM
EPS Excluding Special Items
$0.68
$0.56
+22
$2.01
$1.68
+20
1See 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 four-week 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
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
21,063
20,284
+4
N/A
21,063
20,284
+4
N/A
System Sales ($MM)
6,282
5,833
+8
+7
17,688
16,818
+5
+6
Same-Store Sales Growth (%)
+4
+2
NM
NM
+3
+2
NM
NM
Franchise & License Fees ($MM)
296
267
+11
+11
831
761
+9
+10
Restaurant Margin (%)
15.9
15.0
0.9
0.8
15.1
14.4
0.7
0.7
Operating Profit ($MM)
260
230
+14
+13
710
618
+15
+16
Operating Margin (%)
32.8
29.2
3.6
3.9
30.9
26.8
4.1
4.3

 
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
+5
+2
+1

KFC Division opened 291 new international restaurants in 51 countries, including 249 units in emerging markets.
Operating margin increased 3.6 percentage points driven by refranchising and same-store sales growth.
Foreign currency translation favorably impacted GAAP operating profit by $2 million.

KFC Markets1
Percent of KFC System Sales2
System Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
China3
26%
+14
+8
Asia (e.g. Malaysia, Indonesia, Philippines)
6%
+7
+8
Middle East / Turkey / North Africa
5%
(4)
(1)
Latin America (e.g. Mexico, Peru)
4%
+12
+13
Africa
4%
+3
+4
Russia
3%
+22
+24
Thailand
2%
+9
+4
Continental Europe (e.g. Poland)
2%
+15
+17
India
1%
+8
+6
Developed Markets
 
 
 
U.S.
19%
Even
+1
Asia (e.g. Japan, Korea, Taiwan)
7%
(2)
Even
Australia
7%
+6
+8
U.K.
6%
+9
+7
Continental Europe (e.g. France, Germany)
5%
+14
+11
Canada
2%
+4
+4
Latin America (e.g. Puerto Rico)
1%
(2)
(1)
 
1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2Reflects Full Year 2016.
3Includes July, August and September; YUMC Q3 reported results include June, July and August.

2


PIZZA HUT DIVISION
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
16,551
16,215
+2
N/A
16,551
16,215
+2
N/A
System Sales ($MM)
2,966
2,884
+3
+3
8,665
8,629
Even
+2
Same-Store Sales Growth (%)
+1
(1)
NM
NM
(1)
(1)
NM
NM
Franchise & License Fees ($MM)
148
145
+2
+2
433
433
Even
+1
Restaurant Margin (%)
1.9
3.5
(1.6)
(1.6)
6.0
7.9
(1.9)
(1.9)
Operating Profit ($MM)
82
84
(1)
Even
250
256
(2)
Even
Operating Margin (%)
40.5
33.3
7.2
7.3
38.0
32.0
6.0
6.3

 
Third Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+7
+7
(1)
Same-Store Sales Growth
Even
+4
Even

Pizza Hut Division opened 192 new international restaurants in 47 countries, including 144 units in emerging markets.
Operating margin increased 7.2 percentage points driven by refranchising partially offset by higher franchise and license expense due to incremental advertising spend associated with the Transformation Agreement.

Pizza Hut Markets1
Percent of Pizza Hut System Sales2
System Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
China3
17%
+7
+7
Latin America (e.g. Mexico, Peru)
5%
+5
+5
Middle East / Turkey / Africa
4%
(2)
+2
Asia (e.g. Malaysia, Indonesia, Philippines)
4%
+16
+13
India
1%
+7
+7
Continental Europe (e.g. Poland)
1%
+13
+11
Developed Markets
 
 
 
U.S.
48%
(1)
(4)
Asia (e.g. Japan, Korea, Taiwan)
7%
+1
+2
U.K.
5%
+14
+7
Continental Europe (e.g. France, Germany)
4%
+6
+4
Canada
2%
Even
+3
Australia
1%
+35
+25
Latin America (e.g. Puerto Rico)
1%
(2)
Even
1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2Reflects Full Year 2016.      
3Includes July, August and September; YUMC Q3 reported results include June, July and August.

3






TACO BELL DIVISION
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
6,738
6,515
+3
N/A
6,738
6,515
+3
N/A
System Sales ($MM)
2,423
2,293
+6
+6
7,058
6,523
+8
+8
Same-Store Sales Growth (%)
+3
+3
NM
NM
+5
+1
NM
NM
Franchise & License Fees ($MM)
124
115
+7
+7
358
327
+9
+9
Restaurant Margin (%)
21.9
21.7
0.2
0.2
22.1
21.7
0.4
0.4
Operating Profit ($MM)
147
143
+3
+3
440
400
+10
+10
Operating Margin (%)
33.3
29.8
3.5
3.5
32.6
29.2
3.4
3.4
Taco Bell Division opened 70 new restaurants, including 15 international new restaurants.
Operating margin increased 3.5 percentage points driven by refranchising and same-store sales growth partially offset by food and labor inflation.



OTHER ITEMS
Year-to-date through the end of the third quarter, we refranchised 574 restaurants, including 143 KFC, 245 Pizza Hut and 186 Taco Bell units, for gross proceeds of $716 million, recording net refranchising gains of $331 million in Special Items.
Year-to-date through the end of the third quarter, we repurchased 19.1 million shares totaling $1.3 billion at an average price of $69. As of quarter end, there was $588 million remaining under our current share repurchase authorization.
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the third-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, November 2, 2017. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 93593025.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, November 2, 2017 through Wednesday, December 6, 2017. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 93593025.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors/events-presentations and selecting “Q3 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/financial-information/financial-reports. 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 over 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 to the Dow Jones Sustainability North America Index and 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.
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
 
9/30/17
 
9/30/16
 
B/(W)
 
9/30/17
 
9/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
871

 
$
992

 
(12)
 
$
2,682

 
$
2,951

 
(9)
Franchise and license fees and income
565

 
526

 
7
 
1,619

 
1,519

 
7
Total revenues
1,436

 
1,518

 
(5)
 
4,301

 
4,470

 
(4)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
275

 
303

 
10
 
831

 
897

 
7
   Payroll and employee benefits
224

 
260

 
14
 
707

 
780

 
9
   Occupancy and other operating expenses
218

 
268

 
18
 
685

 
798

 
14
Company restaurant expenses
717

 
831

 
14
 
2,223

 
2,475

 
10
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
215

 
270

 
20
 
699

 
767

 
9
Franchise and license expenses
61

 
40

 
(53)
 
161

 
145

 
(12)
Closures and impairment (income) expenses
1

 
1

 
74
 
3

 
10

 
77
Refranchising (gain) loss
(201
)
 
(21
)
 
NM
 
(331
)
 
(75
)
 
NM
Other (income) expense

 
(1
)
 
NM
 

 
(14
)
 
NM
Total costs and expenses, net
793

 
1,120

 
29
 
2,755

 
3,308

 
17
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
643

 
398

 
61
 
1,546

 
1,162

 
33
Other pension (income) expense
10

 
(1
)
 
NM
 
42

 
(2
)
 
NM
Interest expense, net
109

 
98

 
(11)
 
322

 
191

 
(69)
Income from continuing operations before income taxes
524

 
301

 
75
 
1,182

 
973

 
22
Income tax provision
106

 
83

 
(28)
 
278

 
263

 
(6)
Income from continuing operations
418

 
218

 
92
 
904

 
710

 
27
Income from discontinued operations, net of tax

 
422

 
NM
 

 
630

 
NM
Net Income
418

 
640

 
(35)
 
904

 
1,340

 
(33)
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate from Continuing Operations
20.2
%
 
27.5
%
 
7.3 ppts.
 
23.5
%
 
27.0
%
 
3.5 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.21

 
$
0.56

 
116
 
$
2.58

 
$
1.76

 
47
Average shares outstanding
345


388

 
11
 
351

 
404

 
13
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.18

 
$
0.55

 
115
 
$
2.52

 
$
1.73

 
46
Average shares outstanding
353

 
395

 
11
 
358

 
410

 
13
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
1.09

 
NM
 
N/A

 
$
1.56

 
NM
Average shares outstanding
N/A

 
388

 
NM
 
N/A

 
404

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
1.07

 
NM
 
N/A

 
$
1.54

 
NM
Average shares outstanding
N/A

 
395

 
NM
 
N/A

 
410

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$

 
$
0.51

 
 
 
$
0.60

 
$
1.43

 
 

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

6


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

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/30/17
 
9/30/16
 
B/(W)
 
9/30/17
 
9/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
498

 
$
520

 
(4)
 
$
1,465

 
$
1,541

 
(5)
Franchise and license fees and income
296

 
267

 
11
 
831

 
761

 
9
Total revenues
794

 
787

 
1
 
2,296

 
2,302

 
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
172

 
178

 
3
 
504

 
526

 
4
Payroll and employee benefits
114

 
120

 
5
 
345

 
362

 
5
Occupancy and other operating expenses
133

 
144

 
8
 
395

 
432

 
9
Company restaurant expenses
419

 
442

 
5
 
1,244

 
1,320

 
6
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
85

 
89

 
5
 
259

 
276

 
6
Franchise and license expenses
29

 
26

 
(11)
 
80

 
82

 
2
Closures and impairment (income) expenses
1

 

 
NM
 
3

 
6

 
51
Other (income) expense

 

 
NM
 

 

 
NM
Total costs and expenses, net
534

 
557

 
4
 
1,586

 
1,684

 
6
Operating Profit
$
260

 
$
230

 
14
 
$
710

 
$
618

 
15
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
34.5
%
 
34.2
%
 
(0.3) ppts.
 
34.4
%
 
34.1
%
 
(0.3) ppts.
Payroll and employee benefits
23.0
%
 
23.2
%
 
0.2 ppts.
 
23.6
%
 
23.5
%
 
(0.1) ppts.
Occupancy and other operating expenses
26.6
%
 
27.6
%
 
1.0 ppts.
 
26.9
%
 
28.0
%
 
1.1 ppts.
Restaurant margin
15.9
%
 
15.0
%
 
0.9 ppts.
 
15.1
%
 
14.4
%
 
0.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
32.8
%
 
29.2
%
 
3.6 ppts.
 
30.9
%
 
26.8
%
 
4.1 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
 
9/30/17
 
9/30/16
 
B/(W)
 
9/30/17
 
9/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
55

 
$
106

 
(47)
 
$
226

 
$
366

 
(38)
Franchise and license fees and income
148

 
145

 
2
 
433

 
433

 
Total revenues
203

 
251

 
(19)
 
659

 
799

 
(17)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
16

 
29

 
46
 
65

 
101

 
36
Payroll and employee benefits
19

 
35

 
45
 
74

 
116

 
36
Occupancy and other operating expenses
19

 
38

 
49
 
73

 
120

 
38
Company restaurant expenses
54

 
102

 
47
 
212

 
337

 
37
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
44

 
55

 
21
 
151

 
170

 
12
Franchise and license expenses
21

 
11

 
(91)
 
44

 
35

 
(27)
Closures and impairment (income) expenses

 
1

 
NM
 

 
3

 
NM
Other (income) expense
2

 
(2
)
 
NM
 
2

 
(2
)
 
NM
Total costs and expenses, net
121

 
167

 
28
 
409

 
543

 
25
Operating Profit
$
82

 
$
84

 
(1)
 
$
250

 
$
256

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
29.0
%
 
28.1
%
 
(0.9) ppts.
 
28.7
%
 
27.7
%
 
(1.0) ppts.
Payroll and employee benefits
34.4
%
 
33.0
%
 
(1.4) ppts.
 
32.7
%
 
31.8
%
 
(0.9) ppts.
Occupancy and other operating expenses
34.7
%
 
35.4
%
 
0.7 ppts.
 
32.6
%
 
32.6
%
 
Restaurant margin
1.9
%
 
3.5
%
 
(1.6) ppts.
 
6.0
%
 
7.9
%
 
(1.9) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
40.5
%
 
33.3
%
 
7.2 ppts.
 
38.0
%
 
32.0
%
 
6.0 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
 
9/30/17
 
9/30/16
 
B/(W)
 
9/30/17
 
9/30/16
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
318

 
$
366

 
(13)
 
$
991

 
$
1,044

 
(5)
Franchise and license fees and income
124

 
115

 
7
 
358

 
327

 
9
Total revenues
442

 
481

 
(8)
 
1,349

 
1,371

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
87

 
96

 
10
 
262

 
270

 
3
Payroll and employee benefits
91

 
105

 
13
 
288

 
302

 
5
Occupancy and other operating expenses
71

 
86

 
17
 
222

 
246

 
10
Company restaurant expenses
249

 
287

 
13
 
772

 
818

 
6
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
41

 
48

 
15
 
122

 
141

 
14
Franchise and license expenses
6

 
4

 
(97)
 
16

 
13

 
(30)
Closures and impairment (income) expenses

 

 
NM
 

 
1

 
NM
Other (income) expense
(1
)
 
(1
)
 
NM
 
(1
)
 
(2
)
 
(69)
Total costs and expenses, net
295

 
338

 
13
 
909

 
971

 
6
Operating Profit
$
147

 
$
143

 
3
 
$
440

 
$
400

 
10
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
27.0
%
 
26.1
%
 
(0.9) ppts.
 
26.5
%
 
25.9
%
 
(0.6) ppts.
Payroll and employee benefits
28.6
%
 
28.6
%
 
 
29.0
%
 
28.9
%
 
(0.1) ppts.
Occupancy and other operating expenses
22.5
%
 
23.6
%
 
1.1 ppts.
 
22.4
%
 
23.5
%
 
1.1 ppts.
Restaurant margin
21.9
%
 
21.7
%
 
0.2 ppts.
 
22.1
%
 
21.7
%
 
0.4 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.3
%
 
29.8
%
 
3.5 ppts.
 
32.6
%
 
29.2
%
 
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)
 
9/30/17
 
12/31/16
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
980

 
$
725

Accounts and notes receivable, less allowance: $20 in 2017 and $14 in 2016
358

 
370

Inventories
15

 
37

Prepaid expenses and other current assets
465

 
236

Advertising cooperative assets, restricted
181

 
137

Total Current Assets
1,999

 
1,505

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,761 in
 
 
 
2017 and $1,995 in 2016
1,861

 
2,113

Goodwill
525

 
536

Intangible assets, net
116

 
151

Other assets
304

 
376

Deferred income taxes
649

 
772

Total Assets
$
5,454

 
$
5,453

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
823

 
$
1,067

Income taxes payable
27

 
32

Short-term borrowings
372

 
66

Advertising cooperative liabilities
181

 
137

Total Current Liabilities
1,403

 
1,302

 
 
 
 
Long-term debt
9,479

 
9,059

Other liabilities and deferred credits
693

 
704

Total Liabilities
11,575

 
11,065

 
 
 
 
Shareholders' Deficit
 
 
 
Common stock, no par value, 750 shares authorized; 339 shares and 355 shares issued in 2017 and 2016, respectively

 

Retained earnings (accumulated deficit)
(5,817
)
 
(5,158
)
Accumulated other comprehensive income (loss)
(304
)
 
(454
)
Total Shareholders' Deficit
(6,121
)
 
(5,612
)
Total Liabilities and Shareholders' Deficit
$
5,454

 
$
5,453

 See accompanying notes.



10


YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year to Date
 
9/30/17

9/30/16
Cash Flows - Operating Activities from Continuing Operations
 
 
 
Net income
$
904

 
$
1,340

Income from discontinued operations, net of tax

 
(630
)
Depreciation and amortization
195

 
224

Closures and impairment (income) expenses
3

 
10

Refranchising (gain) loss
(331
)
 
(75
)
Contributions to defined benefit pension plans
(47
)
 
(7
)
Deferred income taxes
122

 
29

Share-based compensation expense
35

 
42

Changes in accounts and notes receivable
17

 
31

Changes in inventories
7

 
6

Changes in prepaid expenses and other current assets
(14
)
 
19

Changes in accounts payable and other current liabilities
(168
)
 
(54
)
Changes in income taxes payable
(125
)
 
8

Other, net
120

 
(7
)
Net Cash Provided by Operating Activities from Continuing Operations
718

 
936

 
 
 
 
Cash Flows - Investing Activities from Continuing Operations
 
 
 
Capital spending
(228
)
 
(292
)
Proceeds from refranchising of restaurants
716

 
147

Other, net
1

 
18

Net Cash Provided by (Used in) Investing Activities from Continuing Operations
489

 
(127
)
 
 
 
 
Cash Flows - Financing Activities from Continuing Operations
 
 
 
Proceeds from long-term debt
1,088

 
6,900

Repayments of long-term debt
(372
)
 
(310
)
Revolving credit facilities, three months or less, net
35

 
(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
(1,348
)
 
(4,316
)
Dividends paid on Common Stock
(315
)
 
(559
)
Debt issuance costs
(32
)
 
(86
)
Net transfers from discontinued operations

 
180

Other, net
(85
)
 
(82
)
Net Cash Provided by (Used in) Financing Activities from Continuing Operations
(1,029
)
 
442

Effect of Exchange Rate on Cash and Cash Equivalents
42

 
(8
)
Net Increase in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Continuing Operations
220

 
1,243

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
1,051

 
1,594

 
 
 
 
Cash Provided by Operating Activities from Discontinued Operations
$

 
$
761

Cash Used in Investing Activities from Discontinued Operations

 
(231
)
Cash Used in Financing Activities from Discontinued Operations

 
(186
)
 
 
 
 
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, System Sales 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 September 30, 2017 and September 30, 2016 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. System sales and system sales growth include the results of all restaurants regardless of ownership, including company-owned and franchise restaurants that operate our Concepts. Sales of franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees are included in the Company’s revenues. We believe system sales and system sales growth are useful to investors as significant indicators of the overall strength of our business as they incorporate all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
 
 
Quarter ended
 
Year to date
 
 
9/30/17
 
9/30/16
 
9/30/17
 
9/30/16
Detail of Special Items
 
 
 
 
 
 
 
 
Refranchising gain (loss)(b)
 
$
201

 
$
21

 
$
331

 
$
75

YUM's Strategic Transformation Initiatives(c)
 
(4
)
 
(30
)
 
(15
)
 
(34
)
Costs associated with Pizza Hut U.S. Transformation Agreement(d)
 
(8
)
 

 
(20
)
 

Costs associated with KFC U.S. Acceleration Agreement(e)
 
(4
)
 

 
(12
)
 
(17
)
Non-cash charges associated with share-based compensation(f)
 

 

 
(18
)
 

Other Special Items Income (Expense)
 
5

 
(1
)
 
3

 
(3
)
Special Items Income (Expense) - Operating Profit
 
190

 
(10
)
 
269

 
21

Special Items - Other Pension Income (Expense)(g)
 
(1
)
 

 
(23
)
 

Special Items Income (Expense) from Continuing Operations before Income Taxes
 
189

 
(10
)
 
246

 
21

Tax Benefit (Expense) on Special Items
 
(13
)
 
5

 
(64
)
 

Special Items Income (Expense), net of tax
 
176

 
(5
)
 
182

 
21

Average diluted shares outstanding
 
353

 
395

 
358

 
410

Special Items diluted EPS
 
$
0.50

 
$
(0.01
)
 
$
0.51

 
$
0.05

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
643

 
$
398

 
$
1,546

 
1,162

Special Items Income (Expense)
 
190

 
(10
)
 
269

 
21

Foreign Currency Impact on Reported Operating Profit
 
2

 
N/A

 
(9
)
 
N/A

Core Operating Profit
 
$
451

 
$
408

 
$
1,286

 
$
1,141

 
 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
260

 
$
230

 
$
710

 
$
618

Foreign Currency Impact on Reported Operating Profit
 
2

 
N/A

 
(5
)
 
N/A

Core Operating Profit
 
$
258

 
$
230

 
$
715

 
$
618

 
 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
82

 
$
84

 
$
250

 
$
256

Foreign Currency Impact on Reported Operating Profit
 

 
N/A

 
(4
)
 
N/A

Core Operating Profit
 
$
82

 
$
84

 
$
254

 
$
256

 
 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
147

 
$
143

 
$
440

 
$
400

Foreign Currency Impact on Reported Operating Profit
 

 
N/A

 

 
N/A

Core Operating Profit
 
$
147

 
$
143

 
$
440

 
$
400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12


Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(amounts in millions, except per share amounts)
(unaudited)

 
 
Quarter ended
 
Year to date
 
 
9/30/17
 
9/30/16
 
9/30/17
 
9/30/16
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations excluding Special Items
 
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
 
$
1.18

 
$
0.55

 
$
2.52

 
$
1.73

Special Items Diluted EPS
 
0.50

 
(0.01
)
 
0.51

 
0.05

Diluted EPS from Continuing Operations excluding Special Items
 
$
0.68

 
$
0.56

 
$
2.01

 
$
1.68

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
 
 
 
 
GAAP Effective Tax Rate
 
20.2
 %
 
27.5
 %
 
23.5
%
 
27.0
 %
Impact on Tax Rate as a result of Special Items
 
(7.6
)%
 
(0.5
)%
 
0.7
%
 
(0.6
)%
Effective Tax Rate excluding Special Items
 
27.8
 %
 
28.0
 %
 
22.8
%
 
27.6
 %
 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Company Sales to System Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
871

 
$
992

 
$
2,682

 
$
2,951

Franchise sales
 
10,800

 
10,018

 
30,729

 
29,019

System sales
 
$
11,671

 
$
11,010

 
$
33,411

 
$
31,970

 
 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
498

 
$
520

 
$
1,465

 
$
1,541

Franchise sales
 
5,784

 
5,313

 
16,223

 
15,277

System sales
 
$
6,282

 
$
5,833

 
$
17,688

 
$
16,818

 
 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
55

 
$
106

 
$
226

 
$
366

Franchise sales
 
2,911

 
2,778

 
8,439

 
8,263

System sales
 
$
2,966

 
$
2,884

 
$
8,665

 
$
8,629

 
 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
318

 
$
366

 
$
991

 
$
1,044

Franchise sales
 
2,105

 
1,927

 
6,067

 
5,479

System sales
 
$
2,423

 
$
2,293

 
$
7,058

 
$
6,523

 
 
 
 
 
 
 
 
 


13


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

Quarter Ended 9/30/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
794

 
$
203

 
$
442

 
$
(3
)
 
$
1,436

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
419

 
54

 
249

 
(5
)
 
717

General and administrative expenses
85

 
44

 
41

 
45

 
215

Franchise and license expenses
29

 
21

 
6

 
5

 
61

Closures and impairment (income) expenses
1

 

 

 

 
1

Refranchising (gain) loss

 

 

 
(201
)
 
(201
)
Other (income) expense

 
2

 
(1
)
 
(1
)
 

Total costs and expenses, net
534

 
121

 
295

 
(157
)
 
793

Operating Profit (loss)
$
260

 
$
82

 
$
147

 
$
154

 
$
643



Quarter Ended 9/30/16
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
787

 
$
251

 
$
481

 
$
(1
)
 
$
1,518

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
442

 
102

 
287

 

 
831

General and administrative expenses
89

 
55

 
48

 
78

 
270

Franchise and license expenses
26

 
11

 
4

 
(1
)
 
40

Closures and impairment (income) expenses

 
1

 

 

 
1

Refranchising (gain) loss

 

 

 
(21
)
 
(21
)
Other (income) expense

 
(2
)
 
(1
)
 
2

 
(1
)
Total costs and expenses, net
557

 
167

 
338

 
58

 
1,120

Operating Profit (loss)
$
230

 
$
84

 
$
143

 
$
(59
)
 
$
398



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


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

Year to Date 9/30/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
2,296

 
$
659

 
$
1,349

 
$
(3
)
 
$
4,301

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,244

 
212

 
772

 
(5
)
 
2,223

General and administrative expenses
259

 
151

 
122

 
167

 
699

Franchise and license expenses
80

 
44

 
16

 
21

 
161