Yum! Brands (YUM) 8-K Results of Operations and Financial Condition

YUM! Brands, Inc.
Recast Consolidated Summary of Results
(amounts in millions)
(unaudited)
	2016															2015
	Quarter Ended March 31			Quarter Ended June 30			Quarter Ended September 30			Quarter Ended December 31			Year Ended December 31			Year Ended December 31
Revenues
Company sales	$	953		$	1,006		$	992		$	1,238		$	4,189		$	4,336
Franchise and license fees and income	490			503			526			648			2,167			2,082
Total revenues	1,443			1,509			1,518			1,886			6,356			6,418
Costs and Expenses, Net
Company restaurant expenses
Food and paper	287			307			303			370			1,267			1,340
Payroll and employee benefits	257			263			260			326			1,106			1,125
Occupancy and other operating expenses	261			269			268			318			1,116			1,162
Company restaurant expenses	805			839			831			1,014			3,489			3,627
General and administrative expenses	243			254			270			362			1,129			1,058
Franchise and license expenses	51			54			40			56			201			240
Closures and impairment (income) expenses	2			7			1			5			15			16
Refranchising (gain) loss	—			(54		)	(21		)	(88		)	(163		)	23
Other (income) expense	(7		)	(6		)	(1		)	17			3			20
Total costs and expenses, net	1,094			1,094			1,120			1,366			4,674			4,984
Operating Profit	349			415			398			520			1,682			1,434
Interest expense, net	42			51			98			114			305			141
Other pension (income) expense	(1		)	—			(1		)	34			32			40
Income from continuing operations before income taxes	308			364			301			372			1,345			1,253
Income tax provision	82			98			83			64			327			327
Income from continuing operations	226			266			218			308			1,018			926
Income from discontinued operations, net of tax	138			70			422			(5		)	625			357
Net Income	$	364		$	336		$	640		$	303		$	1,643		$	1,283
Basic Earnings per Common Share from continuing operations	$	0.55		$	0.65		$	0.56		$	0.84		$	2.58		$	2.13
Basic Earnings per Common Share from discontinued operations	0.33			0.17			1.09			(0.01		)	1.59			0.82
Basic earnings per Common Share	$	0.88		$	0.82		$	1.65		$	0.83		$	4.17		$	2.95
Average basic shares outstanding	415			408			388			366			394			435
Diluted Earnings per Common Share from continuing operations	$	0.54		$	0.64		$	0.55		$	0.83		$	2.54		$	2.09
Diluted Earnings per Common Share from discontinued operations	0.33			0.17			1.07			(0.01		)	1.56			0.81
Diluted earnings per Common Share	$	0.87		$	0.81		$	1.62		$	0.82		$	4.10		$	2.90
Average diluted shares outstanding	421			415			395			372			400			443

YUM! Brands, Inc.
Recast Annual Segment Operating Results
(amounts in millions)
(unaudited)
Year Ended 12/31/16	KFC			Pizza Hut			Taco Bell			Corporate and Unallocated			Consolidated
Company sales	$	2,156		$	493		$	1,540		$	—		4,189
Franchise and license fees and income	1,069			615			485			(2		)	2,167
Total revenues	3,225			1,108			2,025			(2		)	6,356
Company restaurant expenses
Food and paper	733			137			397			—			1,267
Payroll and employee benefits	507			156			443			—			1,106
Occupancy and other operating expenses	599			159			358			—			1,116
Company restaurant expenses	1,839			452			1,198			—			3,489
General and administrative expenses	396			242			211			280			1,129
Franchise and license expenses	108			48			21			24			201
Closures and impairment (income) expenses	11			1			3			—			15
Refranchising (gain) loss	—			—			—			(163		)	(163		)
Other (income) expense	—			(2		)	(3		)	8			3
Total costs and expenses, net	2,354			741			1,430			149			4,674
Operating Profit (loss)	$	871		$	367		$	595		$	(151	)	$	1,682
Year Ended 12/31/15	KFC			Pizza Hut			Taco Bell			Corporate and Unallocated			Consolidated
Company sales	$	2,191		$	601		$	1,544		$	—		$	4,336
Franchise and license fees and income	1,031			604			447			—			2,082
Total revenues	3,222			1,205			1,991			—			6,418
Company restaurant expenses
Food and paper	751			167			422			—			1,340
Payroll and employee benefits	511			187			427			—			1,125
Occupancy and other operating expenses	622			189			351			—			1,162
Company restaurant expenses	1,884			543			1,200			—			3,627
General and administrative expenses	395			262			221			180			1,058
Franchise and license expenses	101			45			23			71			240
Closures and impairment (income) expenses	9			4			3			—			16
Refranchising (gain) loss	—			—			—			23			23
Other (income) expense	(2		)	—			(2		)	24			20
Total costs and expenses, net	2,387			854			1,445			298			4,984
Operating Profit (loss)	$	835		$	351		$	546		$	(298	)	$	1,434

YUM! Brands, Inc.
Recast Quarterly Segment Operating Results
(amounts in millions)
(unaudited)
Quarter Ended 3/31/16		KFC		Pizza Hut		Taco Bell			Corporate and Unallocated			Consolidated
Company sales		$	493	$	135	$	325		$	—		$	953
Franchise and license fees and income		243		146		101			—			490
Total revenues		736		281		426			—			1,443
Company restaurant expenses
	Food and paper	167		37		83			—			287
	Payroll and employee benefits	118		42		97			—			257
	Occupancy and other operating expenses	142		42		77			—			261
Company restaurant expenses		427		121		257			—			805
General and administrative expenses		94		59		47			43			243
Franchise and license expenses		28		10		4			9			51
Closures and impairment (income) expenses		2		—		—			—			2
Refranchising (gain) loss		—		—		—			—			—
Other (income) expense		—		—		—			(7		)	(7		)
Total costs and expenses, net		551		190		308			45			1,094
Operating Profit (loss)		$	185	$	91	$	118		$	(45	)	$	349
Quarter Ended 6/30/16		KFC		Pizza Hut		Taco Bell			Corporate and Unallocated			Consolidated
Company sales		$	528	$	125	$	353		$	—		$	1,006
Franchise and license fees and income		251		142		111			(1		)	503
Total revenues		779		267		464			(1		)	1,509
Company restaurant expenses
	Food and paper	181		35		91			—			307
	Payroll and employee benefits	124		39		100			—			263
	Occupancy and other operating expenses	146		40		83			—			269
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		)
Total costs and expenses, net		576		186		325			7			1,094
Operating Profit (loss)		$	203	$	81	$	139		$	(8	)	$	415

YUM! Brands, Inc.
Recast Quarterly Segment Operating Results
(amounts in millions)
(unaudited)
Quarter Ended 9/30/16		KFC		Pizza Hut			Taco Bell			Corporate and Unallocated			Consolidated
Company sales		$	520	$	106		$	366		$	—		$	992
Franchise and license fees and income		267		145			115			(1		)	526
Total revenues		787		251			481			(1		)	1,518
Company restaurant expenses
	Food and paper	178		29			96			—			303
	Payroll and employee benefits	120		35			105			—			260
	Occupancy and other operating expenses	144		38			86			—			268
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
Quarter Ended 12/31/16		KFC		Pizza Hut			Taco Bell			Corporate and Unallocated			Consolidated
Company sales		$	615	$	127		$	496		$	—		$	1,238
Franchise and license fees and income		308		182			158			—			648
Total revenues		923		309			654			—			1,886
Company restaurant expenses
	Food and paper	207		36			127			—			370
	Payroll and employee benefits	145		40			141			—			326
	Occupancy and other operating expenses	167		39			112			—			318
Company restaurant expenses		519		115			380			—			1,014
General and administrative expenses		120		72			70			100			362
Franchise and license expenses		26		13			8			9			56
Closures and impairment (income) expenses		5		(2		)	2			—			5
Refranchising (gain) loss		—		—			—			(88		)	(88		)
Other (income) expense		—		—			(1		)	18			17
Total costs and expenses, net		670		198			459			39			1,366
Operating Profit (loss)		$	253	$	111		$	195		$	(39	)	$	520

YUM! Brands, Inc.
Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions)
(unaudited)
Note: Consult our filings with the Securities and Exchange Commission for additional details related to our use of the Non-GAAP measures of Diluted EPS from Continuing Operations before Special Items and Core Operating Profit.
	2016															2015
	Quarter Ended March 31			Quarter Ended June 30			Quarter Ended September 30			Quarter Ended December 31			Year Ended December 31			Year Ended December 31
Detail of Special Items
Refranchising initiatives	$	—		$	54		$	21		$	88		$	163		$	(19	)
YUM's Strategic Transformation Initiatives	—			(4		)	(30		)	(33		)	(67		)	—
Non-cash charges associated with share-based compensation	—			—			—			(30		)	(30		)	—
Costs associated with KFC U.S. Acceleration Agreement	(9		)	(8		)	—			(9		)	(26		)	(72		)
Other Special Items Income (Expense)	—			(2		)	(1		)	(2		)	(5		)	—
Special Items Income (Expense) - Operating Profit	(9		)	40			(10		)	14			35			(91		)
Settlement charges associated with pension deferred vested project and Other pension charges	—			—			—			(26		)	(26		)	—
Tax Benefit (Expense) on Special Items	2			(7		)	5			24			24			(4		)
Special Items Income (Expense), net of tax - Continuing Operations	$	(7	)	$	33		$	(5	)	$	12		$	33		$	(95	)
Average diluted shares outstanding	421			415			395			372			400			443
Special Items diluted EPS	$	(0.01	)	$	0.08		$	(0.01	)	$	0.03		$	0.08		$	(0.22	)
Reconciliation of GAAP Operating Profit to Core Operating Profit
Consolidated
GAAP Operating Profit	$	349		$	415		$	398		$	520		$	1,682		$	1,434
Special Items Income (Expense) - Operating Profit	(9		)	40			(10		)	14			35			(91		)
Foreign Currency Impact on Reported Operating Profit	(15		)	(13		)	(9		)	(10		)	(47		)	N/A
Core Operating Profit	$	373		$	388		$	417		$	516		$	1,694		$	1,525
KFC Division
GAAP Operating Profit	$	185		203			230			253			871			835
Foreign Currency Impact on Reported Operating Profit	(13		)	(12		)	(8		)	(8		)	(41		)	N/A
Core Operating Profit	$	198		$	215		$	238		$	261		$	912		$	835
Pizza Hut Division
GAAP Operating Profit	$	91		$	81		$	84		$	111		$	367		$	351
Foreign Currency Impact on Reported Operating Profit	(2		)	(1		)	(1		)	(3		)	(7		)	N/A
Core Operating Profit	$	93		$	82		$	85		$	114		$	374		$	351
Taco Bell Division
GAAP Operating Profit	$	118		$	139		$	143		$	195		$	595		$	546
Foreign Currency Impact on Reported Operating Profit	—			—			—			1			1			N/A
Core Operating Profit	$	118		$	139		$	143		$	194		$	594		$	546
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations Before Special Items
Diluted EPS from Continuing Operations	$	0.54		$	0.64		$	0.55		$	0.83		$	2.54		$	2.09
Special Items EPS	(0.01		)	0.08			(0.01		)	0.03			0.08			(0.22		)
Diluted EPS from Continuing Operations before Special Items	$	0.55		$	0.56		$	0.56		$	0.80		$	2.46		$	2.31

YUM! Brands, Inc.
Recast Annual Division System Sales Growth
(unaudited)
Year Ended 12/31/16	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	3	%	0	%	6	%	3	%
System sales, excluding FX	7	%	2	%	6	%	5	%
System sales, excluding FX and 53rd week	6	%	1	%	5	%	4	%
Same store sales growth (decline)	2	%	-2	%	2	%	1	%
Year Ended 12/31/15	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	-3	%	-1	%	8	%	0	%
System sales, excluding FX	5	%	3	%	8	%	5	%
Same store sales growth (decline)	1	%	0	%	5	%	2	%

YUM! Brands, Inc.
Recast Quarterly Division System Sales Growth
(unaudited)
Quarter Ended 3/31/16	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	1	%	0	%	4	%	1	%
System sales, excluding FX	6	%	3	%	4	%	5	%
Same store sales growth (decline)	3	%	-1	%	1	%	2	%
Quarter Ended 6/30/16	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	2	%	0	%	2	%	1	%
System sales, excluding FX	6	%	2	%	2	%	4	%
Same store sales growth (decline)	3	%	-1	%	-1	%	1	%
Quarter Ended 9/30/16	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	2	%	0	%	5	%	2	%
System sales, excluding FX	5	%	1	%	5	%	4	%
Same store sales growth (decline)	2	%	-1	%	3	%	1	%
Quarter Ended 12/31/16	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	6	%	1	%	12	%	6	%
System sales, excluding FX	9	%	4	%	12	%	8	%
System sales, excluding FX and 53rd week	6	%	0	%	6	%	4	%
Same store sales growth (decline)	2	%	-3	%	3	%	1	%
Quarter Ended 3/31/15	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	-3	%	1	%	9	%	0	%
System sales, excluding FX	2	%	3	%	9	%	4	%
Same store sales growth (decline)	-1	%	-1	%	6	%	0	%
Quarter Ended 6/30/15	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	-6	%	-1	%	9	%	-2	%
System sales, excluding FX	2	%	3	%	9	%	3	%
Same store sales growth (decline)	-2	%	-1	%	6	%	0	%
Quarter Ended 9/30/15	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	-1	%	0	%	7	%	1	%
System sales, excluding FX	9	%	5	%	7	%	7	%
Same store sales growth (decline)	5	%	1	%	4	%	4	%
Quarter Ended 12/31/15	KFC		Pizza Hut		Taco Bell		Worldwide
System sales, reported	-4	%	-2	%	7	%	-1	%
System sales, excluding FX	6	%	2	%	7	%	5	%
Same store sales growth (decline)	3	%	0	%	4	%	2	%

YUM! Brands, Inc.
Recast Division Unit Activity
(unaudited)
KFC	Franchise	Company-owned		Total
Year ended 12/31/2014	17,895	1,523		19,418
Net Unit Change
Q1 2015	85	7		92
Q2 2015	43	16		59
Q3 2015	92	13		105
Q4 2015	358	(46	)	312
Year Ended 12/31/2015	18,473	1,513		19,986
Net Unit Change
Q1 2016	16	(14	)	2
Q2 2016	132	5		137
Q3 2016	157	2		159
Q4 2016	458	(99	)	359
Year ended 12/31/2016	19,236	1,407		20,643
Pizza Hut	Franchise	Company-owned		Total
Year ended 12/31/2014	14,787	823		15,610
Net Unit Change
Q1 2015	89	(36	)	53
Q2 2015	40	10		50
Q3 2015	153	(48	)	105
Q4 2015	265	1		266
Year Ended 12/31/2015	15,334	750		16,084
Net Unit Change
Q1 2016	5	(1	)	4
Q2 2016	155	(65	)	90
Q3 2016	84	(47	)	37
Q4 2016	293	(88	)	205
Year ended 12/31/2016	15,871	549		16,420
Taco Bell	Franchise	Company-owned		Total
Year ended 12/31/2014	5,277	933		6,210
Net Unit Change
Q1 2015	32	(2	)	30
Q2 2015	24	2		26
Q3 2015	67	(10	)	57
Q4 2015	113	(23	)	90
Year Ended 12/31/2015	5,513	900		6,413
Net Unit Change
Q1 2016	20	3		23
Q2 2016	24	6		30
Q3 2016	57	(8	)	49
Q4 2016	113	(16	)	97
Year ended 12/31/2016	5,727	885		6,612