Exhibit 99.1
Yum! Brands Inc. Reports Full-Year 2005
Earnings Per Share (EPS) of $2.67, an Increase of 13% Prior to Special
Items and Stock-Options Expensing; Reported 2005 Full-Year EPS
including Stock-Options Expensing and a Special Items Credit Was $2.55
LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 6, 2006--Yum! Brands Inc.
(NYSE: YUM) today also reported results for the fourth quarter ended
December 31, 2005, and provided its latest outlook for 2006.
-- Fourth-quarter EPS was $0.81 prior to employee stock-options
expensing. Reported EPS was $0.77 including stock-option
expenses of $0.04 EPS.
-- Raises full-year 2006 EPS outlook to $2.79 or growth of at
least 10% prior to special items.
In the fourth quarter, the company continued to expand its brands
around the world and grow same-store sales:
-- Worldwide system restaurants increased 2%.
-- Worldwide system same-store sales grew by 2%.
-- U.S. system same-store sales increased 3%.
For the full-year 2005, key highlights were
-- Worldwide system sales increased 5% in local currency terms
and prior to benefit of the 53rd week.
-- Worldwide system same-store sales grew by 3%.
-- Worldwide system new-restaurant openings totaled a record
1,554 including a record 409 new-restaurant openings in our
China Division.
-- U.S. blended same-store sales increased 4%.
-- Multibrand restaurants now in operation reached over 3,000
with 531 additions during 2005.
-- Worldwide franchise fees increased 10% to a record $1.1
billion.
-- Share buybacks totaled $1.1 billion, nearly double the prior
best level in 2004.
-- The quarterly dividend rate was increased 15% one year after
the company initiated quarterly dividends.
FULL-YEAR 2006 OUTLOOK
The company continues to expect EPS growth of at least 10%,
primarily driven by global expansion of 1,500 new restaurants and
same-store-sales growth of +2% to +3% in the U.S. The current outlook
for full-year 2006 EPS is $2.79 or at least 10% profit growth; this
includes $0.13 of expense for employee stock options.
Consolidated Financial Highlights
Fourth Quarter Full Year
-------------------------------------------------
% %
2005 2004 Change 2005 2004 Change
------- ------- -------- ------- ------- --------
System Restaurants 31,901 31,263 +2 31,901 31,263 +2
Revenues (million) $2,899 $2,785 +4 $9,349 $9,011 +4
EPS prior to
Options/Special
Items $0.81 $0.73 +11 $2.67 $2.36 +13
Options Expense EPS $(0.04) NA NM $(0.13) NA NM
Special Items EPS $0.00 $0.04 NM $0.01 $0.06 NM
Reported EPS $0.77 $0.77 +1 $2.55 $2.42 +5
- ----------------------------------------------------------------------
Note: Pro forma stock options expense was $0.12 per share for
full-year 2004 and $0.03 per share for the fourth-quarter 2004.
David C. Novak, Chairman and CEO, said, "I am pleased to report
2005 was another year where we demonstrated the underlying power of
our global portfolio of leading restaurant brands. Fueled by continued
profitable international expansion, including a record 409 new
restaurants in our China Division, another year of consistent
same-store-sales performance from Taco Bell and a clear turnaround at
KFC U.S., we achieved 13% EPS growth prior to special items and
expensing stock options. This makes the fourth straight year of
delivering on our commitment of at least 10% EPS growth.
"Importantly for shareholders, this past year YUM reached several
new milestones. We set new records in key areas: generated cash from
operating activities of over $1.2 billion; earned over $1.1 billion in
franchise fees; returned $1.2 billion to our shareholders through
share buybacks and dividends. Additionally, we raised our quarterly
dividend rate by 15% after establishing a dividend in 2004.
"As we start 2006, we are very confident we can continue to build
on our track record of growing EPS at least 10% each year. The key
drivers are opening over 1,500 new restaurants globally and growing
U.S. same-store sales by +2% to +3%. Given the strength of our
fourth-quarter performance, we have raised our full-year 2006 EPS
estimate one cent to $2.79 or at least 10% growth.
"Shareholders should expect us to continue building consistent
value by differentiating our global portfolio of brands and driving
profitable global expansion through our four key strategies: building
dominant restaurant brands in China, driving profitable international
expansion, improving restaurant operations, and multibranding
category-leading brands."
INTERNATIONAL DIVISION
Fourth Quarter Full Year
(million, % Change % Change
except ---------------- --------------
restaurant
counts and Excl Excl
percentages) 2005 2004 Reported F/x 2005 2004 Reported F/x
---------------------------------------------------------
Financial
Measures
Revenues $658 $643 +2 Even $2,124 $2,128 Even (4)
Operating
Profit $108 $96 +12 +12 $372 $337 +11 +7
Operating
Profit
excluding
Options
Expense $113 $96 +16 +16 $385 $337 +14 +11
- ----------------------------------------------------------------------
Operating
Metrics
Est. System-
Sales Growth +8 +8 +9 +6
Excluding
53rd Week +4 +4 +8 +5
System
Restaurants 11,319 10,887 +4 NA 11,319 10,887 +4 NA
Franchise &
J-V
Ownership % 88 86 +2 88 86 +2
- ----------------------------------------------------------------------
Note: 2004 operating-profit results do not reflect expenses related to
employee stock options.
Key growth drivers for the Yum! Restaurants International (YRI)
Division are new-restaurant openings across an array of international
markets and leveraging our substantial infrastructure in place around
the world. Over the long term, we expect our international franchise
partners to open 85% or more of YRI new restaurants.
Yum! Restaurants International opened 377 new restaurants in the
fourth quarter and 780 new restaurants for the year. This included 394
KFCs, 336 Pizza Huts, 36 A&Ws, and 11 Taco Bells. Our franchise and
joint-venture partners opened 93% of the 780 new restaurants.
For the fourth quarter and full year, revenue growth in local
currency terms was impacted by two unusual factors. First,
refranchising (including Puerto Rico market in late 2004) negatively
impacted fourth-quarter and full-year revenue growth by 7 and 10
percentage points respectively. For the full-year 2005, the company
refranchised 137 restaurants. Second, a 53rd (extra) week in 2005
benefited revenue growth for the fourth quarter and full year by 4 and
1 percentage points respectively.
For the fourth quarter and full year, results for company
operations were below target primarily due to negative
same-store-sales performance in the U.K. and Pizza Hut South Korea.
This adversely affected company sales, company restaurant profit
growth and company restaurant-margin percentage for both the fourth
quarter and full year. Mexico and Australia both contributed
positively to the fourth-quarter results.
Strong performance continued in YRI's franchise-only markets of
Asia, Middle East, southern Africa, Europe and Caribbean/Latin America
that drove overall growth for YRI in both the fourth quarter and full
year. These markets represent KFC and Pizza Hut franchise businesses
in more than 100 countries and territories and approximately 40% of
overall YRI profit. For the fourth quarter, system-sales growth for
the franchise-only markets was 12% in local currency terms including
6% growth in the number of restaurants. This led strong performance in
YRI franchise fee growth. Overall, YRI franchise fees (in local
currency terms) grew by 18% in the fourth quarter and 15% for the full
year.
For the full-year 2005, YRI produced system-sales growth of 5% in
local currency terms and prior to the benefit of the 53rd week. This
performance was right on our long-term target of at least +5% growth
in system sales (local currency terms). The system-sales growth was
driven by record new-restaurant openings and positive system
same-store-sales growth. Operating profit, excluding options expense,
grew by 14%; 11% in local currency terms. The 53rd extra week added $6
million of profit in the fourth quarter and full year.
For 2006, YRI expects to again open over 700 new restaurants for
the seventh consecutive year, generate at least 5% growth in system
sales (local currency), improve restaurant-margin percentage and grow
operating profit by about 10%. Capital spending is targeted at about
$120 million.
Foreign currency conversion did not significantly impact
fourth-quarter operating profit. For the full year, the impact was a
positive $11 million. For 2006, a negative impact is expected on
operating profit of about $10 million including $4 million in the
first quarter.
CHINA DIVISION
Fourth Quarter Full Year
(million, % Change % Change
except ----------------- ----------------
restaurant
counts
and Excl Excl
percentages) 2005 2004 Reported F/x 2005 2004 Reported F/x
---------------------------------------------------------
Financial
Measures
Revenues $425 $394 +8 +5 $1,296 $1,120 +16 +14
Operating
Profit $51 $64 (20) (22) $211 $205 +3 +1
Operating
Profit
excluding
Options
Expense $52 $64 (18) (20) $215 $205 +5 +3
- ----------------------------------------------------------------------
Operating
Metrics
Est. System-
Sales Growth
(fiscal-
period
basis) +5 +3 +13 +11
System
Restaurants 2,291 1,924 +19 NA 2,291 1,924 +19 NA
Franchise &
J-V
Ownership % 33 34 (1) NA 33 34 (1) NA
- ----------------------------------------------------------------------
Note: 2004 operating-profit results do not reflect expenses related to
employee stock options.
A key growth driver for the China Division is rapid new-restaurant
expansion of multiple Yum! restaurant brands and leveraging our
significant infrastructure in mainland China.
Overall, system restaurants in operation grew 19%. During the
fourth quarter, a total of 157 new restaurants were opened. For the
full year, there were a record 409 new-restaurant openings, of which
71% were by the company. The new openings included 341 KFCs, 53 Pizza
Hut Casual Dining restaurants, 11 Pizza Hut Home Service locations and
3 East Dawnings.
Fourth-quarter performance was negatively impacted by consumer
concerns related to avian flu and the lingering effects of consumers'
reactions to a seasoning-supplier issue in the second quarter.
Restaurant margin decreased 5.9 percentage points versus the prior
year primarily as a result of negative same-store sales in
company-operated KFC restaurants in mainland China.
Operating profit for the fourth quarter benefited by $10 million
of financial recovery from a seasoning supplier and by $24 million for
the full year (included in other income). As communicated in our
third-quarter 2005 earnings release, operating profit in the fourth
quarter was adversely impacted by the change in reporting calendar
timing for 2005. This reduced fourth-quarter profit by an estimated $6
million and benefited the third quarter by a like amount.
For the full-year 2005, the China Division in local currency terms
produced system-sales growth of 11%, below our ongoing target for at
least 22% growth. The aforementioned seasoning-supplier issue and
consumer concerns related to avian flu adversely impacted sales and
operating-profit growth for a substantial portion of 2005.
For 2006, the company expects system sales growth of at least 22%
in local currency terms and at least 20% growth in operating profit.
Capital spending is targeted at about $170 million.
Foreign currency conversion added about $2 million to operating
profit for the fourth quarter and $3 million for the full year 2005.
For 2006, a positive impact is expected on operating profit of about
$10 million.
UNITED STATES BUSINESS
- ----------------------
Fourth Quarter Full Year
(million, except
restaurant counts
and percentages) 2005 2004 % Change 2005 2004 % Change
------- -------- -------- ------- -------- ----------
Financial
Measures
Revenues $1,816 $1,748 +4 $5,929 $5,763 +3
Operating Profit $235 $210 +11 $760 $777 (2)
Operating Profit
excluding
Options Expense $241 $210 +15 $782 $777 +1
- ----------------------------------------------------------------------
Operating Metrics
Systemwide
Same-Store-Sales
Growth % +3 +3 NM +3 +3 NM
System Multibrand
Restaurants 3,096 2,641 +17 3,096 2,641 +17
System
Restaurants 18,291 18,471 (1) 18,291 18,471 (1)
Franchise
Ownership % 74 73 +1 74 73 +1
- ----------------------------------------------------------------------
Note: 2004 operating-profit results do not reflect expenses related to
employee stock options; multibrand restaurant details can be found on
our Web site: www.yum.com/investors/restcounts.asp.
Key growth drivers for this business segment are positive
same-store-sales growth, improvements in productivity related to the
cost structure and franchise development.
Refranchising of company restaurants negatively impacted
fourth-quarter and full-year revenue growth by 3 and 2 percentage
points respectively. When company restaurants are refranchised,
revenue from these restaurants changes from company sales to franchise
royalty fees, significantly reducing the company's reported revenue
for those restaurants. During 2005, 244 U.S. company restaurants were
refranchised.
Excluding the benefit of the extra 53rd week, the primary driver
of revenue growth for the fourth quarter and full year was higher
same-store sales. Operating profit increased 5% for the fourth
quarter, excluding the benefit of the 53rd week and stock options
expense. Fourth quarter restaurant-margins improved by 1.4 percentage
points prior to expensing stock options. The 53rd week added $20
million of profit in the fourth quarter and full year.
For the full year 2005, excluding stock options expense, U.S.
operating profit increased 1% and restaurant margin improved slightly.
For 2006, the company expects +2% to +3% U.S. blended
same-store-sales growth, an additional 550 system multibrand
restaurants, improved restaurant-margin percentage, and operating
profit growth of at least 5%. Capital spending is forecast to total
about $380 million.
In terms of changing trends, we experienced higher-than-expected
energy costs (approximately $3 million) in the fourth quarter. We
expect this trend to continue into first-quarter 2006 with
year-over-year utility inflation of approximately 20%.
CORPORATE EXPENSES, OTHER INCOME & EXPENSES
For the fourth quarter, the increase in unallocated and corporate
expense versus last year was due in large part to $7 million of
additional expense for discontinuing corporate software development
projects and $6 million in stock options expense. We also recorded a
$2 million nonrecurring increase to long-term liabilities related to
employee benefits (an additional $5 million was recorded in the U.S.
"Payroll and Employee Benefits" line). An additional $3 million of G&A
expense was incurred for the extra 53rd week.
Finally, we recorded a $6 million adjustment to our previously
recorded gain relating to the IPO of our Poland/Czech Republic
franchise business during the second quarter of 2005, which is
reflected in the unallocated other income (expense) line.
For the full year 2005, the increase in unallocated and corporate
expense versus 2004 was due to $19 million in stock options expense
and $16 million of charges related to potential resolution of certain
litigation matters.
CASH FLOW
For the full year 2005, the company generated a record $1,238
million in net cash provided by operating activities, invested $609
million of capital spending in the business and repurchased $1,056
million of its own shares; 21 million shares were repurchased at an
average cost of $50.
STOCK-OPTIONS EXPENSING
We adopted SFAS 123R, "Share-Based Payment," in the fourth quarter
2005 retroactive to the beginning of 2005. Accordingly, our results
for the first three quarters of the year have been restated, as shown
in the following table, to reflect the numbers previously disclosed on
a pro forma basis in accordance with SFAS 123 "Accounting for
Stock-Based Compensation." Prior year numbers were not adjusted and do
not reflect any expense related to stock options.
Q1 Q2 Q3
------- ------- -------
Reported EPS $0.53 $0.62 $0.72
Options Expense EPS $(0.03) $(0.03) $(0.03)
Restated Reported EPS $0.50 $0.59 $0.69
- ----------------------------------------------------------------------
Note: Third-quarter and full-year reported EPS include a $0.01
special-item credit.
PERIOD 1 SALES RESULTS
INTERNATIONAL DIVISION SYSTEM-SALES GROWTH (Estimated)
2006 2005
Local Currency Local Currency
------------------ ------------------
Period 1 +7% +8%
- ----------------------------------------------------------
Including the negative impact of foreign currency conversion, reported
Period 1 system sales in U.S. dollars increased 4%.
U.S. COMPANY SAME-STORE-SALES GROWTH (Estimated)
Period 1, 2006 Period 1, 2005
------------------ ------------------
U.S. BLENDED +5% +3%
Taco Bell +11% +3%
Pizza Hut (4)% +6%
KFC +8% +1%
- --------------------------------------------------------
CHINA DIVISION SALES UPDATE
Preliminary results for January 2006 show sales in the China
Division grew by an estimated +22% in local currency terms. Timing of
the Chinese New Year, occurring in late January this year versus
February last year, positively impacted sales. Estimated first-quarter
2006 system-sales growth is expected to be at least +12% in
local-currency terms, lapping strong growth of +26% in 2005 (including
+65% in February 2005 or Period 3, 2005). Final January sales results
for our China Division will be reported in the company's Period 2
results, to be released March 2, 2006.
QUARTERLY EPS FORECAST
As previously communicated in our annual guidance released on
December 1, 2005, the company will no longer provide quarterly EPS
outlooks. We will provide updates at the end of each quarter on our
progress towards the full-year targets.
2006 Period 1 End Dates 2006 Period 2 End Dates
- ----------------------------------- ----------------------------------
International Division 1/2/2006 International Division 1/30/2006
China Division NA(a) China Division 1/31/2006
U.S. Business 1/28/2006 U.S. Business 2/25/2006
- ----------------------------------- ----------------------------------
(a) China is a monthly reporting business. Their 12 months of results
are matched with Periods 2 through 13 for Yum! Brands reporting
purposes.
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the
company's financial performance and strategies at 9:15 a.m. EST
Tuesday, February 7, 2006.
For U.S. callers, the number is 877/815-2029. For international
callers, the number is 706/645-9271.
The call will be available for playback beginning Tuesday,
February 7, at noon EST through Friday, February 17, 5:00 p.m. To
access the playback, dial 800/642-1687 in the United States and
706/645-9291 internationally. The playback pass code is 3893213.
The call and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site: www.yum.com and selecting "4th Quarter
Earnings Webcast."
DEFINITIONS FOR TERMS USED THROUGHOUT THIS DOCUMENT
All related definitions for terms used throughout this release can
be found on our Web site:
www.yum.com/investors/media/earnings/notes/q4_2005.pdf.
Worldwide restaurant count details by brand can be found online at
www.yum.com/investors/restcounts.asp.
This announcement contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements include those identified by such words as may, will,
expect, project, anticipate, believe, plan and other similar
terminology. These "forward-looking" statements reflect management's
current expectations regarding future events and operating and
financial performance and are based on currently available data.
However, actual results are subject to future events and
uncertainties, which could cause actual results to differ from those
projected in this announcement. Accordingly, you are cautioned not to
place undue reliance on forward-looking statements. Factors that can
cause actual results to differ materially include, but are not limited
to, changes in global and local business, economic and political
conditions in the countries and territories where Yum! Brands
operates, including the effects of war and terrorist activities;
changes in currency exchange and interest rates; changes in commodity,
labor and other operating costs; changes in competition in the food
industry, consumer preferences or perceptions concerning the products
of the company and/or our competitors, spending patterns and
demographic trends; the impact that any widespread illness or general
health concern may have on our business and the economy of the
countries in which we operate; the effectiveness of our operating
initiatives and marketing, advertising and promotional efforts;
new-product and concept development by Yum! Brands and other
food-industry competitors; the success of our strategies for
refranchising and international development and operations; the
ongoing business viability of our franchise and license operators; our
ability to secure distribution to our restaurants at competitive rates
and to ensure adequate supplies of restaurant products and equipment
in our stores; unexpected disruptions in our supply chain; publicity
that may impact our business and/or industry; severe weather
conditions; effects and outcomes of pending or future legal claims
involving the company; changes in effective tax rates; our actuarially
determined casualty loss estimates; new legislation and governmental
regulations or changes in legislation and regulations and the
consequent impact on our business; and changes in accounting policies
and practices. Further information about factors that could affect
Yum! Brands' financial and other results are included in the company's
Forms 10-Q and 10-K, filed with the Securities and Exchange
Commission.
Yum! Brands Inc., based in Louisville, Kentucky, is the world's
largest restaurant company in terms of system restaurants with over
34,000 restaurants in more than 100 countries and territories. Four of
the company's restaurant brands -- KFC, Pizza Hut, Taco Bell and Long
John Silver's -- are the global leaders of the chicken, pizza,
Mexican-style food and quick-service seafood categories respectively.
Yum! Brands is the worldwide leader in multibranding, which offers
consumers more choice and convenience at one restaurant location from
a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver's
brands. The company and its franchisees today operate over 3,200
multibrand restaurants. Outside the United States in 2005, the Yum!
Brands' system opened about three new restaurants each day of the
year, making it one of the fastest growing retailers in the world. For
the past three years, the company has been recognized as one of
Fortune Magazine's "Top 50 Employers for Minorities." It also has been
recognized as one of the "Top 50 Employers for Women" by Fortune, one
of the "Top 30 Best Companies for Diversity" by Black Enterprise
Magazine, one of the "Corporate 100 Companies Providing Opportunities
for Hispanics" by Hispanic Magazine and by BusinessWeek as one of the
"Top 15 Companies for In-Kind Corporate Philanthropy."
Yum! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
Preliminary and Unaudited
Quarter % Change Year to date % Change
----------------- ------------------
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
----------------- ------ ------------------ --------
Company sales $2,538 $2,464 3 $8,225 $7,992 3
Franchise and
license fees 361 321 12 1,124 1,019 10
------- ------- ------- -------
Total revenues 2,899 2,785 4 9,349 9,011 4
------- ------- ------- -------
Costs and expenses
Food and paper 791 792 -- 2,584 2,538 (2)
Payroll and
employee
benefits 678 642 (6) 2,171 2,112 (3)
Occupancy and
other
operating
expenses 733 692 (6) 2,315 2,183 (6)
------- --------- ------- -------
Company
restaurant
expenses 2,202 2,126 (4) 7,070 6,833 (3)
General and
administrative
expenses 374 335 (12) 1,158 1,056 (10)
Franchise and
license expenses 9 10 8 33 26 (24)
Facility actions (3) 4 NM 19 26 NM
Other (income)
expense (14) (20) (32) (80) (55) 44
Wrench litigation
(income) expense -- (14) NM (2) (14) NM
AmeriServe and other
charges(credits) (2) (2) NM (2) (16) NM
------- ------- ------- -------
Total costs and
expenses 2,566 2,439 (5) 8,196 7,856 (4)
------- ------- ------- -------
Operating profit 333 346 (4) 1,153 1,155 --
Interest expense,
net 41 33 (19) 127 129 2
------- ------- ------- -------
Income before
income taxes 292 313 (7) 1,026 1,026 --
Income tax
provision 66 78 14 264 286 7
------- ------- ------- -------
Net income $ 226 $ 235 (4) $ 762 $ 740 3
======= ======= ======= =======
Basic EPS Data
- --------------
EPS $ 0.80 $ 0.80 -- $ 2.66 $ 2.54 5
======= ======= ======= =======
Average shares
outstanding 281 293 4 286 291 2
======= ======= ======= =======
Diluted EPS Data
- ----------------
EPS $ 0.77 $ 0.77 1 $ 2.55 $ 2.42 5
======= ======= ======= =======
Average shares
outstanding 292 307 5 298 305 2
======= ======= ======= ========
Dividends
declared per
common share $ 0.23 $ 0.20 NM $0.445 $ 0.30 NM
======= ======= ======= =======
See accompanying notes.
Amounts included in these financial statements for the quarter and
year to date ended December 31, 2005 reflect the adoption of SFAS
123R, "Share-Based Payment." Amounts included in these financial
statements for the quarter and year to date ended December 25, 2004 do
not include any expense related to stock options.
Yum! Brands, Inc.
WORLDWIDE Operating Results
(amounts in millions)
Preliminary and Unaudited
Quarter % Change Year to date % Change
------------------ ------------------
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
------------------------------------------------------
Reconciliation of Segment Operating Profit to
Reported Operated Profit
- ---------------------------------------------
U.S. operating
profit $235 $210 11 $ 760 $ 777 (2)
International
Division
operating
profit 108 96 12 372 337 11
China Division
operating
profit 51 64 (20) 211 205 3
Unallocated and
corporate
expense (79) (64) (24) (246) (204) (21)
Unallocated
other income
(expense) (6) 2 NM 9 (2) NM
Unallocated
facility
actions 22 22 NM 43 12 NM
Wrench
litigation
income
(expense) -- 14 NM 2 14 NM
AmeriServe and
other (charges)
credits 2 2 NM 2 16 NM
------ ------ ------- -------
Reported
operating
profit $333 $346 (4) $1,153 $1,155 --
====== ====== ======= =======
Worldwide
Margins
- ----------------
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 0.9 0.4
31.2 32.1 ppts. 31.4 31.8 ppts.
Payroll and
employee (0.6) --
benefits 26.7 26.1 ppts. 26.4 26.4 ppts.
Occupancy and
other operating (0.8) (0.9)
expenses 28.9 28.1 ppts. 28.2 27.3 ppts.
------ ------ ------- -------
Restaurant
margin (0.5) (0.5)
13.2% 13.7% ppts. 14.0% 14.5% ppts.
====== ====== ======= =======
See accompanying notes.
Amounts included in these financial statements for the quarter and
year to date ended December 31, 2005 reflect the adoption of SFAS
123R, "Share-Based Payment." Amounts included in these financial
statements for the quarter and year to date ended December 25, 2004 do
not include any expense related to stock options.
Yum! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
Preliminary and Unaudited
Quarter % Change Year to date % Change
------------------ ------------------
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
----------------------------------------------------------
Company sales $1,616 $1,564 3 $5,294 $5,163 3
Franchise and
license fees 200 184 9 635 600 6
------- ------- -------- ------
Revenues 1,816 1,748 4 5,929 5,763 3
------- ------- -------- ------
Company
restaurants
Food and paper 471 477 1 1,576 1,546 (2)
Payroll and
employee
benefits 495 474 (4) 1,600 1,573 (2)
Occupancy and
other
operating
expenses 425 416 (2) 1,385 1,333 (4)
------- ------- -------- ------
1,391 1,367 (2) 4,561 4,452 (2)
General and
administrative
expenses 171 154 (11) 536 501 (7)
Franchise and
license
expenses 8 8 (6) 26 19 (38)
Facility
actions 11 9 NM 46 14 NM
------- ------- -------- ------
1,581 1,538 (3) 5,169 4,986 (4)
------- ------- -------- ------
Operating
profit $ 235 $ 210 11 $ 760 $ 777 (2)
======= ======= ======= ======
Company sales 100.0% 100.0% 100.0% 100.0%
1.3 0.1
Food and paper 29.2 30.5 ppts. 29.8 29.9 ppts.
Payroll and
employee (0.3) 0.3
benefits 30.6 30.3 ppts. 30.2 30.5 ppts.
Occupancy and
other
operating 0.2 (0.4)
expenses 26.3 26.5 ppts. 26.2 25.8 ppts.
------- ------- -------- -------
Restaurant 1.2 --
margin 13.9% 12.7% ppts. 13.8% 13.8% ppts.
======= ======= ======== =======
See accompanying notes.
Amounts included in these financial statements for the quarter and
year to date ended December 31, 2005 reflect the adoption of SFAS
123R, "Share-Based Payment." Amounts included in these financial
statements for the quarter and year to date ended December 25, 2004 do
not include any expense related to stock options.
Yum! Brands, Inc.
INTERNATIONAL DIVISION Operating Results
(amounts in millions)
Preliminary and Unaudited
Quarter Year to date
----------------- % Change ----------------- % Change
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
--------- -------- -------- -------- -------- --------
Company sales $ 511 $ 518 (1) $ 1,676 $ 1,747 (4)
Franchise and
license fees 147 125 18 448 381 17
-------- -------- -------- --------
Revenues 658 643 2 2,124 2,128 --
-------- -------- -------- --------
Company
restaurants
Food and paper 170 175 3 554 591 6
Payroll and
employee
benefits 124 122 (1) 404 414 2
Occupancy and
other
operating
expenses 163 156 (4) 515 513 --
-------- -------- -------- --------
457 453 (1) 1,473 1,518 3
General and
administrative
expenses 92 85 (9) 284 271 (5)
Franchise and
license
expenses 1 2 56 7 7 11
Facility
actions 3 14 NM 9 20 NM
Other (income)
expense (3) (7) (54) (21) (25) (17)
-------- -------- -------- --------
550 547 (1) 1,752 1,791 2
-------- -------- -------- --------
Operating
profit $ 108 $ 96 12 $ 372 $ 337 11
======== ======== ======== ========
Company sales 100.0% 100.0% 100.0% 100.0%
0.5 0.7
Food and paper 33.2 33.7 ppts. 33.1 33.8 ppts.
Payroll and
employee (0.4) (0.3)
benefits 24.3 23.9 ppts. 24.1 23.8 ppts.
Occupancy and
other
operating (1.7) (1.3)
expenses 31.8 30.1 ppts. 30.7 29.4 ppts.
-------- -------- -------- --------
Restaurant (1.6) (0.9)
margin 10.7% 12.3% ppts. 12.1% 13.0% ppts.
======== ======== ======== ========
See accompanying notes.
Amounts included in these financial statements for the quarter and
year to date ended December 31, 2005 reflect the adoption of SFAS
123R, "Share-Based Payment." Amounts included in these financial
statements for the quarter and year to date ended December 25, 2004 do
not include any expense related to stock options.
Yum! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
Preliminary and Unaudited
Quarter % Change Year to date % Change
---------------- -----------------
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
---------- ---------------------------------------------
Company sales $ 411 $ 382 8 $1,255 $1,082 16
Franchise and
license fees 14 12 (1) 41 38 8
------------------ ----------------
Revenues 425 394 8 1,296 1,120 16
------------------ ----------------
Company
restaurants
Food and paper 150 140 (7) 454 401 (13)
Payroll and
employee
benefits 59 46 (29) 167 125 (34)
Occupancy and
other
operating
expenses 145 120 (20) 415 337 (23)
------------------ ----------------
354 306 (16) 1,036 863 (20)
General and
administrative
expenses 32 32 1 92 80 (14)
Franchise and
license
expenses -- -- -- -- -- --
Facility
actions 5 3 NM 7 4 NM
Other (income)
expense (17) (11) 63 (50) (32) 52
------------------ ---------------
374 330 (13) 1,085 915 (19)
------------------ ---------------
Operating
profit $ 51 $ 64 (20) $ 211 $ 205 3
================== ===============
Company sales 100.0% 100.0% 100.0% 100.0%
0.2 0.9
Food and paper 36.5 36.7 ppts. 36.2 37.1 ppts.
Payroll and
employee (2.4) (1.8)
benefits 14.4 12.0 ppts. 13.3 11.5 ppts.
Occupancy and
other
operating (3.7) (2.0)
expenses 35.2 31.5 ppts. 33.1 31.1 ppts.
------------------ ---------------
Restaurant (5.9) (2.9)
margin 13.9% 19.8% ppts. 17.4% 20.3% ppts.
================== ===============
See accompanying notes.
China Division includes mainland China, Thailand and KFC Taiwan
Amounts included in these financial statements for the quarter and
year to date ended December 31, 2005 reflect the adoption of SFAS
123R, "Share-Based Payment." Amounts included in these financial
statements for the quarter and year to date ended December 25, 2004 do
not include any expense related to stock options.
Yum! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)
Preliminary and Unaudited
12/31/05 12/25/04
------------------
ASSETS
Current Assets
Cash and cash equivalents $ 158 $ 62
Short-term investments 43 54
Accounts and notes receivable, less allowance: $23
in 2005 and $22 in 2004 236 192
Inventories 85 76
Prepaid expenses and other current assets 75 142
Deferred income taxes 163 156
Advertising cooperative assets, restricted 77 65
------------------
Total Current Assets 837 747
Property, plant and equipment 3,356 3,439
Goodwill 538 553
Intangible assets, net 330 347
Investments in unconsolidated affiliates 173 194
Other assets 464 416
------------------
Total Assets $5,698 $5,696
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,238 $1,189
Income taxes payable 79 111
Short-term borrowings 211 11
Advertising cooperative liabilities 77 65
------------------
Total Current Liabilities 1,605 1,376
Long-term debt 1,649 1,731
Other liabilities and deferred credits 995 994
------------------
Total Liabilities 4,249 4,101
------------------
Shareholders' Equity
Preferred stock, no par value, 250 shares
authorized; no shares issued -- --
Common stock, no par value, 750 shares authorized;
278 shares and 290 shares issued in 2005 and
2004, respectively -- 659
Retained earnings 1,619 1067
Accumulated other comprehensive loss (170) (131)
------------------
Total Shareholders' Equity 1,449 1,595
------------------
Total Liabilities and Shareholders' Equity $5,698 $5,696
==================
See accompanying notes.
Yum! Brands, Inc.
Consolidated Statements of Cash Flows
amounts in millions)
Preliminary and Unaudited
Year to date
------------------
12/31/05 12/25/04
------------------
Cash Flows - Operating Activities
Net income $ 762 $ 740
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 469 448
Facility actions 19 26
Contributions to defined benefit pension plans (74) (55)
Other liabilities and deferred credits 34 21
Deferred income taxes (101) 142
Equity income from investments in
unconsolidated affiliates (47) (54)
Distributions of income received from
unconsolidated affiliates 44 55
Excess tax benefit from share based compensation (87) --
Share based compensation expense 62 2
Other non-cash charges and credits, net 36 63
Changes in operating working capital, excluding
effects of acquisitions and dispositions:
Accounts and notes receivable (1) (39)
Inventories (4) (7)
Prepaid expenses and other current assets 78 (5)
Accounts payable and other current liabilities (6) (20)
Income taxes payable 54 (131)
------------------
Net change in operating working capital 121 (202)
------------------
Net Cash Provided by Operating Activities 1,238 1,186
------------------
Cash Flows - Investing Activities
Capital spending (609) (645)
Proceeds from refranchising of restaurants 145 140
Acquisition of restaurants from franchisees (2) (38)
Short-term investments 12 (36)
Sales of property, plant and equipment 81 52
Other, net 28 (14)
------------------
Net Cash Used in Investing Activities (345) (541)
------------------
Cash Flows - Financing Activities
Revolving Credit Facility activity
Three months or less, net 160 19
Repayments of long-term debt (14) (371)
Short-term borrowings-three months or less, net (34) --
Repurchase shares of common stock (1,056) (569)
Excess tax benefit from share based compensation 87 --
Employee stock option proceeds 148 200
Dividends paid on common shares (123) (58)
------------------
Net Cash Used in Financing Activities (832) (779)
------------------
Effect of Exchange Rate on Cash and Cash Equivalents 1 4
------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 62 (130)
Net Increase in Cash and Cash Equivalents of
Mainland China for December 2004 34 --
Cash and Cash Equivalents - Beginning of Period 62 192
------------------
Cash and Cash Equivalents - End of Period $ 158 $ 62
==================
See accompanying notes.
Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
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 on a basis before stock option expense and special items.
Special items include the GAAP income statement captions of Wrench
litigation and AmeriServe and other charges (credits). Stock option
expense relates to the fourth quarter adoption of SFAS No. 123
(Revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces
SFAS 123, supersedes APB 25 and related interpretations and amends
SFAS No. 95, "Statement of Cash Flows." SFAS 123R requires all
share-based compensation, including grants of employee stock options,
to be recognized in the consolidated statement of income based on fair
value. We adopted SFAS 123R using the modified retrospective
application transition method effective September 4, 2005, with
retroactive application to the beginning of the fiscal year of
adoption (our fiscal year 2005). As such, the first three fiscal
quarters of 2005 have been restated to recognize the compensation cost
previously reported in the pro forma footnote disclosures under the
provisions of SFAS 123. However, years prior to 2005 have not been
restated. The adoption of SFAS 123R in 2005 resulted in a reduction of
operating profit of $58 million, a reduction of net income of $38
million (net of tax benefits of $20 million), a reduction of diluted
earnings per share of $0.13 per share, a reduction of $87 million in
cash flows from operating activities and an increase of $87 million in
cash flows from financing activities.
The Company used earnings before stock option expensing and before
special items as a key performance measure of results of operations
for purposes of evaluating performance internally and determining
incentive compensation in 2005. 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 results before special items and stock option expense
provides additional information to facilitate the comparison of past
and present operations, excluding items that the Company does not
believe are indicative of our ongoing operations and the adoption of
SFAS 123R which did not impact our financial statements in the quarter
and year to date ended December 25, 2004. Additionally, we are
providing the impact of stock option expensing by segment and by
income statement line item for the quarter and year to date ended
December 31, 2005, as we believe such information is useful to
investors in evaluating our performance versus prior year.
Quarter Year to date
------------------------------------
12/31/05 12/25/04 12/31/05 12/25/04
------------------------------------
Detail of Special Items
- ----------------------------------
Wrench litigation income (expense) $-- $ 14 $ 2 $ 14
AmeriServe and other (charges)
credits 2 2 2 16
--------- -------- -------- --------
Total special items 2 16 4 30
Tax on special items -- (6) (1) (11)
--------- -------- -------- --------
Special items, net of tax $ 2 $ 10 $ 3 $ 19
========= ======== ======== ========
Special items diluted EPS $-- $0.04 $0.01 $0.06
========= ======== ======== ========
Detail of Impact of Stock Option Expense
- ----------------------------------------
Quarter ended December 31, 2005
----------------------------------------------
U.S. International China Unallocated Total
------ -------------- ----- ----------- ------
Payroll and employee
benefits $ (2) $ (1) $ -- $ -- $ (3)
General and
administrative (4) (4) (1) (6) (15)
---------- ---------- ------ --------- -------
Operating profit (6) (5) (1) (6) (18)
Income tax provision 2 2 -- 2 6
---------- ---------- ------ --------- -------
Net income $ (4) $ (3) $ (1) $ (4) $ (12)
========== ========== ====== ========= =======
Stock option expense diluted EPS $(0.04)
========
Year ended December 31, 2005
----------------------------------------------
Payroll and employee
benefits $ (8) $ (2) $ -- $ -- $ (10)
General and administrative (14) (11) (4) (19) (48)
---------- ---------- ------ --------- -------
Operating profit (22) (13) (4) (19) (58)
Income tax provision 8 4 1 7 20
---------- ---------- ------ --------- -------
Net income $ (14) $ (9) $ (3) $(12) $ (38)
========== ========== ====== ========= =======
Stock option expense diluted EPS $(0.13)
========
Reconciliation of Operating Profit to Operating Profit
excluding Stock Option Expense
- ------------------------------------------------------
Quarter ended December 31, 2005
----------------------------------------------
U.S. International China
------ -------------- -----
Operating profit
excluding stock
option expense $ 241 $113 $ 52
Impact of stock option
expense on operating
profit (6) (5) (1)
---------------------------
Reported operating
profit $ 235 $108 $ 51
===========================
Year ended December 31, 2005
----------------------------------------------
Operating profit
excluding stock
option expense $ 782 $385 $215
Impact of stock option
expense on operating
profit (22) (13) (4)
---------------------------
Reported operating
profit $ 760 $372 $211
===========================
Quarter Year to date
----------------------------------------------
12/31/05 12/25/04 12/31/05 12/25/04
---------------- ---------- -------- ---------
Reconciliation of EPS Before Stock Option Expense and Before
Special Items to Reported EPS
- ------------------------------------------------------------
Diluted EPS before stock
option expense and
before special items $ 0.81 $0.73 $ 2.67 $2.36
Stock option expense
diluted EPS (0.04) -- (0.13) --
----------------------------------------------
Diluted EPS before
special items $ 0.77 $0.73 $ 2.54 2.36
Special items diluted
EPS -- 0.04 0.01 0.06
----------------------------------------------
Reported EPS $ 0.77 $0.77 $ 2.55 $2.42
==============================================
Notes to the Consolidated Summary of Results,
Consolidated Balance Sheets
and Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(a) Percentages may not recompute due to rounding.
(b) In 2005, we began reporting information for our international
business in two separate operating segments as a result of changes
to our management structure. The China Division includes mainland
China ("China"), Thailand and KFC Taiwan, and the International
Division includes the remainder of our international operations.
While this reporting change did not impact our consolidated
results, segment information for previous periods has been
restated to be consistent with the current period presentation.
In 2005, we also changed the China business reporting calendar to
more closely align the timing of the reporting of its results of
operations with our U.S. business. Previously our China business,
like the rest of our international businesses, closed one month
(or one period for certain of our international businesses)
earlier than YUM's period end date to facilitate consolidated
reporting. To maintain comparability of our consolidated results
of operations, net income of the China business of $6 million for
the one month period ended December 31, 2004 was recognized as an
adjustment to consolidated retained earnings in the year to date
ended December 31, 2005, as opposed to being recorded in our
Consolidated Statement of Income. Our consolidated results of
operations for the quarter and year to date ended December 31,
2005 include the results of operations of the China business for
the months of September, 2005 through December, 2005 and January,
2005 through December, 2005, respectively. Our consolidated
results of operations for the quarter and year to date ended
December 25, 2004 continue to include the results of operations of
the China business for the months of August, 2004 through
November, 2004 and December, 2003 through November, 2004,
respectively.
(c) Franchisee sales represent the combined estimated sales of
unconsolidated affiliate, franchise and license restaurants.
Franchisee sales, which are not included in the Company sales we
present on the Consolidated Statements of Income, generate
franchise and license fees (typically at a rate of 4% to 6% of
sales) that are included in the Company's revenues.
Quarter % Year to date %
------------------- Change ------------------- Change
12/31/05 12/25/04 B/(W) 12/31/05 12/25/04 B/(W)
--------- --------- -------- --------- --------- -------
United States
Company
sales $ 1,616 $ 1,564 3 $ 5,294 $ 5,163 3
Franchisee
sales 3,898 3,579 9 12,428 11,724 6
International
Division
Company
sales $ 511 $ 518 (1) $ 1,676 $ 1,747 (4)
Franchisee
sales 2,658 2,417 10 8,499 7,570 12
China
Division
Company
sales $ 411 $ 382 8 $ 1,255 $ 1,082 16
Franchisee
sales 214 213 -- 665 619 7
Worldwide
Company
sales $ 2,538 $ 2,464 3 $ 8,225 $ 7,992 3
Franchisee
sales 6,770 6,209 9 21,592 19,913 8
(d) Facility actions included the following:
Quarter Year to date
-------------------- --------------------
12/31/05 12/25/04 12/31/05 12/25/04
--------- -------------------- ---------
Store closure (income)
costs $ (4) $ -- $ -- $ (3)
Asset impairment charges 23 26 62 41
Refranchising net loss
(gain) (22) (22) (43) (12)
--------- --------- --------- ---------
Facility actions $ (3) $ 4 $ 19 $ 26
========= ========= ========= =========
(e) Other (income) expense includes equity income from investments in
unconsolidated affiliates. In the quarter and year to date ended
December 31, 2005 other (income) expense also includes a partial
financial recovery of $10 million and $24 million, respectively,
related to a China supplier ingredient issue. In the year to date
ended December 31, 2005 other (income) expense also includes a $11
million gain associated with the IPO of our Poland/Czech Republic
business, including a $6 million adjustment to the previously
recorded gain in the quarter ended December 31, 2005.
(f) Income of $2 million was recorded for the year to date ended
December 31, 2005 from a settlement with an insurance carrier
related to the legal judgment against Taco Bell Corp. on June 4,
2003, in Wrench v. Taco Bell Corp.
(g) Income of $2 million was recorded for the quarter and year to date
ended December 31, 2005 as AmeriServe and other charges (credits).
The amount primarily resulted from cash recoveries related to the
AmeriServe bankruptcy reorganization process.
(h) For the quarter and year to date ended December 31, 2005, we
repurchased approximately 7.7 million shares and 21.3 million
shares of our Common Stock, respectively, at an average price of
$49 and $50 per share for the quarter and year to date,
respectively.
(i) We have reclassified dividends received from our unconsolidated
affiliates on the consolidated statements of cash flows from
investing activities to operating activities, for all years
presented. These dividend distributions represent returns of
equity investments, and therefore have been reclassified to be in
accordance with SFAS 95, "Accounting for Cash Flows." There was no
impact on the previously reported consolidated statements of
income or consolidated balance sheets as a result of these
reclassifications. Dividends received from unconsolidated
affiliates were $44 million and $55 million for the years ended
2005 and 2004, respectively.
CONTACT: Yum! Brands Inc.
Analysts:
Tim Jerzyk, VP Investor Relations, 888-298-6986
Quan Nghe, Director Investor Relations, 888-298-6986
or
Media:
Amy Sherwood, VP Public Relations, 502-874-8200