Exhibit 99.1
Yum! Brands Inc. Reports Strong 2006 Third-Quarter Earnings Per Share
of $0.83 or +20% Versus Last Year Led by Powerful Growth in China
and International;
Raises Full-Year Forecast to $2.89 from $2.83
LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 11, 2006--Yum! Brands Inc.
(NYSE: YUM) today reported financial results for the third quarter
ended September 9, 2006, and provided estimated Period 10 global sales
results.
Highlights for the third quarter are . . .
-- Worldwide operating profit increased 11%.
-- Strong double-digit operating-profit growth from our
international divisions: China, 26%; YRI, 22%.
-- Mainland China new-restaurant growth of 18%.
-- Yum! Restaurants International Division (YRI) new-restaurant
growth of 4%.
-- Worldwide franchise fees increased 8%.
-- Restaurant margin increased 1.3 percentage points worldwide
and grew in all three business segments.
-- Average diluted shares outstanding were reduced by 7%.
Note: All preceding comparisons are versus the same period a year
ago.
FULL-YEAR EPS OUTLOOK
We have raised our full-year EPS outlook to $2.89, or 14% growth
prior to special items, based on continued very strong growth from our
China Division and double-digit growth from our YRI Division. The
company's prior EPS guidance for 2006 was at least $2.83.
CONSOLIDATED FINANCIAL HIGHLIGHTS
Third Quarter Year To Date
----------------------------------------------------
2006 2005 % Change 2006 2005 % Change
------- ------- --------- ------- ------- ---------
Traditional
Restaurants 32,146 31,537 +2 32,146 31,537 +2
System-Sales
Growth +5% +6% NM +5% +7% NM
Reported EPS $0.83 $0.69 +20 $2.10 $1.78 +18
- ----------------------------------------------------------------------
Note: YUM has 34,274 restaurant locations around the world, which
include 2,128 license units.
David C. Novak, Chairman and CEO, said, "We have continuously
positioned Yum! Brands to deliver consistent global growth while at
the same time generating substantial and increasing cash flow.
"Third-quarter performance demonstrated our global growth once
again led by 26% profit growth in China and 22% growth at YRI. As a
result third-quarter EPS increased by 20% despite a 2% decline in U.S.
same-store sales and U.S. profit growth of 1%. Fueled by this
continued strong profit growth from each of our international
divisions, we have once again raised our full-year EPS forecast,
increasing it from $2.83 to $2.89 or 14% growth. This marks our fifth
straight year of at least 13% EPS growth, exceeding our annual target
of at least 10% growth. Importantly, we continue to build even
stronger market positions in our China and YRI businesses.
"At the same time, our company generates substantial free cash
available for payout to our shareholders with the U.S. business
leading the way. We expect to return over $1 billion to shareholders
again this year in the form of share buybacks and an increased
dividend. For 2006, this payout is substantial for each of our
long-term shareholders as our share count will be reduced by 6%, and
our dividend provides an additional return of more than 1%. We fully
expect to continue to return similar substantial amounts of cash to
shareholders for the foreseeable future.
"Looking ahead, the growing strength of our China and YRI
businesses gives us continued confidence in our ability to sustain
annual EPS growth of at least 10% while we consistently generate
substantial cash.
"We remain focused on our four key strategies: (1) build dominant
restaurant brands in China, (2) drive profitable international
expansion, (3) improve U.S. brands and operations, and (4) multibrand
category-leading brands."
YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI)
Key growth driver: Franchise-fee growth by opening new franchise
restaurants and leveraging our substantial infrastructure across an
array of international markets.
Third Quarter
($ million, except restaurant %
counts and percentages) Change
--------------------
Excl
2006 2005 Reported F/x
----------------------------------------
Key Financial Measures
Franchise & License Fees 119 103 +15 +13
Franchisee Sales 2,187 1,957 +12 +10
Company Sales 399 387 +3 +1
Operating Margin % 20.2 17.5 +2.7 ppt +2.9 ppt
Operating Profit 105 86 +22 +20
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Key Operating Metrics
System-Sales Growth
(Local Currency) +9
Traditional Restaurants 11,551 11,066 +4 NA
KFC 6,410 6,124 +5 NA
Pizza Hut 4,673 4,499 +4 NA
Franchise Restaurants 10,262 9,641 +6 NA
- ----------------------------------------------------------------------
Year to Date
($ million, except restaurant %
counts and percentages) Change
--------------------
Excl
2006 2005 Reported F/x
----------------------------------------
Key Financial Measures
Franchise & License Fees 337 301 +12 +13
Franchisee Sales 6,284 5,845 +8 +9
Company Sales 1,139 1,165 -2 -2
Operating Margin % 19.5 18.0 +1.5 ppt +1.6 ppt
Operating Profit 288 264 +9 +10
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Key Operating Metrics
System-Sales Growth
(Local Currency) +7
Traditional Restaurants 11,551 11,066 +4 NA
KFC 6,410 6,124 +5 NA
Pizza Hut 4,673 4,499 +4 NA
Franchise Restaurants 10,262 9,641 +6 NA
- ----------------------------------------------------------------------
For the third quarter, franchise fees continued to grow as a
result of new-restaurant expansion and same-store-sales growth of 4%.
Additionally, the expansion of our franchise-restaurant base due to
the sale of company restaurants to franchisees (refranchising) added
to growth in franchise fees. YRI opened 176 new restaurants in the
third quarter and 452 year to date with franchisees opening 94% of the
total year to date. Strong system-sales-growth performance continued
in YRI's franchise-only markets driven by both solid growth in new
units and same-store sales.
For the third quarter, company sales were reduced by the impact of
refranchising 157 company restaurants over the past year.
Company-sales growth of +3% was lower by 6 percentage points due to
this change in restaurant ownership. Overall, company same-store-sales
growth was +4%, improving from a decline in the first quarter and
slightly positive results in the second quarter.
Operating margin increased 2.7 percentage points in the third
quarter driven by strong franchise performance reflected by 15% growth
in franchise fees.
We received regulatory approval to complete the acquisition of the
remaining 50% ownership of the Pizza Hut U.K. joint venture from
Whitbread PLC on September 12, 2006. We expect some additional
balance-of-year operating-profit growth from this business.
For YRI full-year 2006, we expect . . .
-- System-sales growth of at least 7%.
-- New-restaurant openings of at least 770.
-- Operating profit of at least +10%.
These full-year growth rates are in local currency and excluding
the impact of the fifty-third week last year.
CHINA DIVISION
Key growth driver: Profitable expansion of new KFC and Pizza Hut
company restaurants in mainland China.
Third Quarter
($ million, except restaurant %
counts and percentages) Change
---------------------
Excl
2006 2005 Reported F/x
-----------------------------------------
Key Financial Measures
Company Sales 445 349 +28 +25
Restaurant Margin % 23.7 20.6 +3.1 ppt +3.0 ppt
Operating Profit 105 83 +26 +23
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Key Operating Metrics
MAINLAND CHINA:
KFC Restaurants 1,695 1,441 +18 NA
Pizza Hut Restaurants 261 211 +24 NA
System-Sales Growth
(Local Currency) +29
- ----------------------------------------------------------------------
Year to Date
($ million, except restaurant %
counts and percentages) Change
---------------------
Excl
2006 2005 Reported F/x
-----------------------------------------
Key Financial Measures
Company Sales 1,066 844 +26 +24
Restaurant Margin % 21.6 19.1 +2.5 ppt +2.5 ppt
Operating Profit 220 160 +38 +34
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Key Operating Metrics
MAINLAND CHINA:
KFC Restaurants 1,695 1,441 +18 NA
Pizza Hut Restaurants 261 211 +24 NA
System-Sales Growth
(Local Currency) +27
- ----------------------------------------------------------------------
Note: China Division includes mainland China, Thailand and the KFC
Taiwan business.
For the third quarter 2006, company sales for the China Division
increased 25% in local-currency terms due to the continued strong
expansion of both our KFC and Pizza Hut brands in mainland China. Each
brand is the market leader within the quick-service category and
casual-dining category respectively. Mainland China system restaurants
in operation grew 18%, and system-same-store sales grew 12% in
local-currency terms.
Third-quarter 2006 operating profit increased 23% in
local-currency terms versus last year. The key contributing factor was
continued growth in both our KFC and Pizza Hut brands' sales in
mainland China. Importantly, third-quarter restaurant margin reached
an all-time record. Last year, third-quarter China Division operating
profit included $14 million in other income from a one-time financial
recovery from a supplier.
For the China Division full-year 2006 in local currency, we expect
.. . .
-- System-sales growth of 24%.
-- Operating-profit growth in the range of 35% to 40%.
UNITED STATES BUSINESS
Key growth drivers: Positive blended same-store-sales growth,
improvements in restaurant and operating margins.
($ million, except Third Quarter Year to Date
restaurant counts and % %
percentages) 2006 2005 Change 2006 2005 Change
----------------------------------------------
Key Financial Measures
Franchisee Sales 3,048 2,999 +2 8,927 8,530 +5
Company Sales 1,145 1,239 -8 3,515 3,678 -4
Franchise & License Fees 155 154 +1 454 435 +4
Restaurant Margin % 14.1 13.9 +0.2 ppt 15.1 13.8 +1.3 ppt
Operating Margin % 14.2 13.2 +1.0 ppt 14.2 12.8 +1.4 ppt
Operating Profit 183 183 +1 565 525 +8
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Key Operating Metrics
Blended System
Same-Store-Sales Growth
% -2 +4 NM +1 +4 NM
System Multibrand
Restaurants 3,277 2,918 +12 3,277 2,918 +12
Franchise Restaurants 13,662 13,530 +1 13,662 13,530 +1
- ----------------------------------------------------------------------
For the third quarter, franchise sales and fees grew slightly as a
result of opening new franchise restaurants and the expansion of our
franchise-restaurant base due to the sale of 307 company-owned
restaurants to franchisees (refranchising) over the past year.
Company sales declined by 8% for the third quarter primarily from
the impact of refranchising 307 company-owned restaurants the past 12
months.
The key drivers of improvement in third-quarter restaurant and
operating margins were a much improved commodity-cost environment and
lower impairment expenses versus a year ago respectively. Overall,
commodity costs declined by approximately $10 million versus last
year.
For the U.S. in 2006, we expect . . .
-- Blended same-store sales to be flat.
-- Operating-profit growth of +3% to +5%, excluding the
fifty-third-week benefit in 2005.
U.S. FRANCHISE OWNERSHIP UPDATE
As previously communicated, in the U.S. business we have targeted
to sell approximately 1,000 company restaurants to franchisees during
2006 and 2007. We are on schedule and remain fully confident of
meeting our original two-year plan. Year-to-date 2006, 191
company-owned U.S. restaurants have been sold to our franchisees.
Our two-year program was originally targeted to produce cash
proceeds of $300 million, improve restaurant margin by at least 0.5
percentage points, improve ROIC by at least 0.75 percentage points,
and have a neutral impact on U.S. operating profit. Our latest
estimate is that cash proceeds for 2006 alone will total at least $250
million versus the original target of $150 million. Operating-profit
impact for the U.S. in 2006 will be slightly negative, offset in 2007
by reduced G&A related to the operation of company restaurants sold
during 2006.
FREE CASH FLOW
For full-year 2006, we continue to expect to generate about $1.3
billion in Cash from Operating Activities and about $700 million of
free cash flow after capital expenditures. As we have previously
communicated, our objective is to return virtually all free cash
available to our shareholders through our share buybacks and quarterly
dividends after investing more than $600 million in our worldwide
businesses. For the full year 2006, we expect the total payout to net
about 7% to shareholders, which includes significant share buybacks,
reducing share count by 6%, and approximately 1% returned through the
quarterly dividend.
During the third quarter of 2006, we purchased 7.1 million shares
for $337 million. Year-to-date share repurchases totaled $853 million.
FOREIGN CURRENCY IMPACTS
(operating profit $ million) 2006
--------------------------
Division Third Quarter Year to Date
------------- ------------
YRI +1 -4
China +3 +6
- --------------------------------------------------------
FULL-YEAR 2006 GUIDANCE UPDATE ONLINE
For the entire updated version of our detailed full-year 2006
guidance, go to the following link: http://media.corporate-ir.net
/media_files/irol/11/117941/06Guidance2.pdf. (Due to its length, this
URL may need to be copied/pasted into your Internet browser's address
field. Remove the extra space if one exists.)
PERIOD 10 SALES
INTERNATIONAL SYSTEM-SALES GROWTH (Estimated)
P10 2006 P10 2005 P10 2006
Local Local U.S.
Currency Currency Dollars
------------ ------------ ---------
Yum! Restaurants International +9% +4% +11%
CHINA Division +19% +13% +21%
Mainland China +25% +15% +28%
- ----------------------------------------------------------------------
The 6 percentage-point gap between the Period 10 local currency
system sales of the China Division of +19% and mainland China's +25%
is due to the general softness in our Taiwan business.
U.S. COMPANY SAME-STORE-SALES GROWTH (Estimated)
Period 10 Third Quarter
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------- ------------- ------------
U.S. BLENDED -1% +3% -2% +4%
Taco Bell -1% +6% -2% +8%
Pizza Hut Even -3% -5% -3%
KFC -2% +6% Even +6%
- ----------------------------------------- --------------------------
2006 Period 10 End Dates 2006 Period 11 End Dates
- --------------------------------- ----------------------------------
International Division 9/11/2006 International Division 10/9/2006
China Division 9/30/2006 China Division 10/31/2006
U.S. Business 10/7/2006 U.S. Business 11/4/2006
- --------------------------------- ----------------------------------
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the
company's financial performance and strategies at 2 p.m. EDT Thursday,
October 12, 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 at 5 p.m.
Eastern Time Thursday, October 12, through 5 p.m. Friday, October 20.
To access the playback, dial 800/642-1687 in the United States and
706/645-9291 internationally. The playback pass code is 6927073.
The call and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site, www.yum.com, and selecting
"3rd-Quarter Earnings Webcast."
New! For your added convenience . . . A podcast will be available
within 24 hours of the end of the call at www.yum.com/investors.
2006 Annual Conference for Investors & Analysts
Please note, Tuesday, December 5, Yum! Brands will host the
company's Annual Conference for Investors and Analysts from
approximately 8 a.m. to 1 p.m. EST, at The St. Regis Hotel in New
York. Online registration is required before 5 p.m. EST Friday,
December 1. To register, please access the link to the conference
online registration at www.yum.com. Click on "Register Now" under
"Analyst/Investor Upcoming Events."
If you have questions, call Yum! Brands Investor Relations at
888/298-6986
ADDITIONAL INFORMATION ONLINE
-- For third-quarter restaurant-count details and definitions of
terms used, go to http://media.corporate-ir.net
/media_files/irol/11/117941/YumQ306Earnings.pdf.(Due to its
length, this URL may need to be copied/pasted into your
Internet browser's address field. Remove the extra space if
one exists.)
-- For segment-results reconciliation, go to
http://investors.yum.com
/phoenix.zhtml?c=117941&p=irol-newsEarnings. (Due to its
length, this URL may need to be copied/pasted into your
Internet browser's address field. Remove the extra space if
one exists.)
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, which includes over 2,000 licensed 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 3,400 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 four 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 "40 Best Companies
for Diversity" by Black Enterprise Magazine for the past two years,
one of Black Enterprise Magazine's "30 Hottest Franchises for 2006,
one of the "Corporate 100 Companies Providing Opportunities for
Hispanics" by Hispanic Magazine, one of the "Top 50 Corporations for
Supplier Diversity" by Hispanic Trends Magazine and by BusinessWeek as
one of the "Top 15 Companies for In-Kind Corporate Philanthropy."
Analysts are invited to contact
Tim Jerzyk, Vice President Investor Relations, at 888/298-6986
Quan Nghe, Director Investor Relations, at 888/298-6986
Members of the media are invited to contact
Amy Sherwood, Vice President Public Relations, at 502/874-8200
Yum! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter % Change Year to date % Change
----------------- -----------------
9/9/06 9/3/05 B/(W) 9/9/06 9/3/05 B/(W)
-------- -------- ----------------- -------- ---------
Company sales $1,989 $1,975 1 $5,720 $5,687 1
Franchise and
license fees 289 268 8 825 763 8
-------- -------- -------- --------
Total revenues 2,278 2,243 2 6,545 6,450 1
-------- -------- -------- --------
Costs and expenses
Food and paper 606 619 2 1,746 1,793 3
Payroll and
employee
benefits 492 501 2 1,461 1,493 2
Occupancy and
other
operating
expenses 570 561 (2) 1,607 1,582 (2)
-------- -------- -------- --------
Company
restaurant
expenses 1,668 1,681 1 4,814 4,868 1
General and
administrative
expenses 271 264 (3) 789 784 (1)
Franchise and
license
expenses 7 12 43 24 24 (1)
Closures and
impairment
expenses 1 17 NM 25 43 NM
Refranchising
(gain) loss 4 (10) NM (7) (21) NM
Other (income)
expense (17) (27) (37) (33) (66) (50)
Wrench
litigation
(income)
expense -- (2) NM -- (2) NM
AmeriServe and
other charges
(credits) -- -- NM -- -- NM
-------- -------- -------- --------
Total costs and
expenses 1,934 1,935 -- 5,612 5,630 --
-------- -------- -------- --------
Operating
profit 344 308 11 933 820 14
Interest
expense, net 34 28 (17) 105 86 (21)
-------- -------- -------- --------
Income before
income taxes 310 280 11 828 734 13
Income tax
provision 80 75 (7) 236 198 (19)
-------- -------- -------- --------
Net income $ 230 $ 205 12 $ 592 $ 536 10
======== ======== ======== ========
Effective tax
rate 25.8% 26.8% 28.5% 27.0%
- --------------- ======== ======== ======== ========
Basic EPS Data
- ---------------
EPS $ 0.86 $ 0.72 19 $ 2.18 $ 1.86 17
======== ======== ======== ========
Average shares
outstanding 268 285 6 272 288 6
======== ======== ======== ========
Diluted EPS
Data
- ---------------
EPS $ 0.83 $ 0.69 20 $ 2.10 $ 1.78 18
======== ======== ======== ========
Average shares
outstanding 277 298 7 282 301 7
======== ======== ======== ========
Dividends
declared per
common share $ -- $ -- $0.265 $0.215
======== ======== ======== ========
Please note that the results for all periods presented include the
negative impact of expensing stock options and stock appreciation
rights.
See accompanying notes
Yum! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
----------------- -----------------
9/9/06 9/3/05 B/(W) 9/9/06 9/3/05 B/(W)
-------- -------- --------- -------- -------- ---------
Company sales $1,145 $1,239 (8) $3,515 $3,678 (4)
Franchise and
license fees 155 154 1 454 435 4
-------- -------- -------- --------
Revenues 1,300 1,393 (7) 3,969 4,113 (4)
-------- -------- -------- --------
Company
restaurants
Food and
paper 319 368 13 991 1,105 10
Payroll and
employee
benefits 346 367 6 1,055 1,105 5
Occupancy and
other
operating
expenses 319 332 4 940 960 2
-------- -------- -------- --------
984 1,067 8 2,986 3,170 6
General and
administrative
expenses 129 121 (6) 380 365 (4)
Franchise and
license
expenses 4 9 57 15 18 18
Closures and
impairment
expenses -- 13 NM 15 35 NM
Other (income)
expense -- -- NM 8 -- NM
-------- -------- -------- --------
1,117 1,210 8 3,404 3,588 5
-------- -------- -------- --------
Operating
profit $ 183 $ 183 1 $ 565 $ 525 8
======== ======== ======== ========
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
1.8 1.8
Food and paper 27.8 29.6 ppts. 28.2 30.0 ppts.
Payroll and
employee (0.5) 0.1
benefits 30.2 29.7 ppts. 30.0 30.1 ppts.
Occupancy and
other
operating (1.1) (0.6)
expenses 27.9 26.8 ppts. 26.7 26.1 ppts.
-------- -------- -------- --------
Restaurant 0.2 1.3
margin 14.1 % 13.9 % ppts. 15.1 % 13.8 % ppts.
======== ======== ======== ========
Operating 1.0 1.4
margin 14.2 % 13.2 % ppts. 14.2 % 12.8 % ppts.
======== ======== ======== ========
Please note that the results for all periods presented include the
negative impact of expensing stock options and stock appreciation
rights.
See accompanying notes
Yum! Brands, Inc.
INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
--------------- ---------------
9/9/06 9/3/05 B/(W) 9/9/06 9/3/05 B/(W)
------- ------- --------- ------- ------- ---------
Company sales $ 399 $ 387 3 $1,139 $1,165 (2)
Franchise and
license fees 119 103 15 337 301 12
------- ------- ------- -------
Revenues 518 490 6 1,476 1,466 1
------- ------- ------- -------
Company
restaurants
Food and paper 131 128 (3) 377 384 2
Payroll and
employee
benefits 95 92 (3) 273 280 2
Occupancy and
other operating
expenses 118 118 (1) 342 352 3
------- ------- ------- -------
344 338 (2) 992 1,016 2
General and
administrative
expenses 65 63 (7) 187 192 2
Franchise and
license expenses 3 3 (2) 9 6 (56)
Closures and
impairment
expenses 1 4 NM 8 6 NM
Other (income)
expense -- (4) (79) (8) (18) (51)
------- ------- ------- -------
413 404 (2) 1,188 1,202 1
------- ------- ------- -------
Operating profit $ 105 $ 86 22 $ 288 $ 264 9
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
0.1 (0.2)
Food and paper 33.0 33.1 ppts. 33.2 33.0 ppts.
Payroll and -- --
employee benefits 23.8 23.8 ppts. 24.0 24.0 ppts.
Occupancy and
other operating 0.7 0.2
expenses 29.8 30.5 ppts. 30.0 30.2 ppts.
------- ------- ------- -------
0.8 --
Restaurant margin 13.4% 12.6% ppts. 12.8 % 12.8 % ppts.
======= ======= ======= =======
2.7 1.5
Operating margin 20.2% 17.5% ppts. 19.5 % 18.0 % ppts.
======= ======= ======= =======
Please note that the results for all periods presented include the
negative impact of expensing stock options and stock appreciation
rights.
See accompanying notes
Yum! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
----------------- -----------------
9/9/06 9/3/05 B/(W) 9/9/06 9/3/05 B/(W)
-------- -------- --------- -------- -------- ---------
Company sales $ 445 $ 349 28 $1,066 $ 844 26
Franchise and
license fees 15 11 27 34 27 24
-------- -------- -------- --------
Revenues 460 360 28 1,100 871 26
-------- -------- -------- --------
Company
restaurants
Food and
paper 156 123 (27) 378 304 (24)
Payroll and
employee
benefits 51 42 (21) 133 108 (23)
Occupancy and
other
operating
expenses 133 111 (19) 325 270 (20)
-------- -------- -------- --------
340 276 (23) 836 682 (23)
General and
administrative
expenses 30 25 (25) 71 60 (17)
Franchise and
license
expenses -- -- NM -- -- NM
Closures and
impairment
expenses -- -- NM 2 2 NM
Other (income)
expense (15) (24) (36) (29) (33) (13)
-------- -------- -------- --------
355 277 (28) 880 711 (24)
-------- -------- -------- --------
Operating
profit $ 105 $ 83 26 $ 220 $ 160 38
======== ======== ======== ========
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
0.4 0.6
Food and paper 35.0 35.4 ppts. 35.4 36.0 ppts.
Payroll and
employee 0.6 0.4
benefits 11.4 12.0 ppts. 12.5 12.9 ppts.
Occupancy and
other
operating 2.1 1.5
expenses 29.9 32.0 ppts. 30.5 32.0 ppts.
-------- -------- -------- --------
Restaurant 3.1 2.5
margin 23.7 % 20.6 % ppts. 21.6 % 19.1 % ppts.
======== ======== ======== ========
Please note that the results for all periods presented include the
negative impact of expensing stock options and stock appreciation
rights.
See accompanying notes
China Division includes mainland China, Thailand and KFC Taiwan
Yum! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
9/9/06 12/31/05
----------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 271 $ 158
Short-term investments 123 43
Accounts and notes receivable, less allowance:
$16 in 2006 and $23 in 2005 223 236
Inventories 80 85
Prepaid expenses and other current assets 90 75
Deferred income taxes 150 163
Advertising cooperative assets, restricted 99 77
----------- ---------
Total Current Assets 1,036 837
Property, plant and equipment, net of
accumulated depreciation and amortization of
$2,994 in 2006 and $2,830 in 2005 3,276 3,356
Goodwill 546 538
Intangible assets, net 338 330
Investments in unconsolidated affiliates 190 173
Other assets 515 464
----------- ---------
Total Assets $5,901 $5,698
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,212 $1,238
Income taxes payable 103 79
Short-term borrowings 173 211
Advertising cooperative liabilities 99 77
----------- ---------
Total Current Liabilities 1,587 1,605
Long-term debt 1,932 1,649
Other liabilities and deferred credits 1,054 995
----------- ---------
Total Liabilities 4,573 4,249
----------- ---------
Shareholders' Equity
Preferred stock, no par value, 250 shares
authorized; no shares issued -- --
Common stock, no par value, 750 shares
authorized; 265 shares and 278 shares issued
in 2006 and 2005, respectively -- --
Retained earnings 1,462 1,619
Accumulated other comprehensive loss (134) (170)
----------- ---------
Total Shareholders' Equity 1,328 1,449
----------- ---------
Total Liabilities and Shareholders' Equity $5,901 $5,698
=========== =========
See accompanying notes
Yum! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to date
----------------
9/9/06 9/3/05
------- -------
Cash Flows - Operating Activities
Net income $ 592 $ 536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 319 319
Closures and impairment expenses 25 43
Refranchising (gain) loss (7) (21)
Contributions to defined benefit pension plans (41) --
Other liabilities and deferred credits 71 37
Deferred income taxes (47) (80)
Equity income from investments in unconsolidated
affiliates (37) (39)
Distributions of income received from
unconsolidated affiliates 26 21
Excess tax benefit from share-based compensation (40) (67)
Share-based compensation expense 46 43
Other non-cash charges and credits, net 59 20
Changes in operating working capital, excluding
effects of acquisitions and dispositions:
Accounts and notes receivable 22 (22)
Inventories 7 7
Prepaid expenses and other current assets (10) 70
Accounts payable and other current liabilities (47) 42
Income taxes payable 69 86
------- -------
Net change in operating working capital 41 183
------- -------
Net Cash Provided by Operating Activities 1,007 995
------- -------
Cash Flows - Investing Activities
Capital spending (323) (362)
Proceeds from refranchising of restaurants 96 79
Acquisition of restaurants from franchisees (11) --
Short-term investments (79) (32)
Sales of property, plant and equipment 33 25
Other, net (16) 20
------- -------
Net Cash Used in Investing Activities (300) (270)
------- -------
Cash Flows - Financing Activities
Proceeds from Senior Unsecured Notes 300 --
Revolving Credit Facility activity
Three months or less, net (26) 78
Repayments of long-term debt (207) (11)
Short-term borrowings-three months or less, net 162 (32)
Repurchase shares of common stock (853) (678)
Excess tax benefit from share-based compensation 40 67
Employee stock option proceeds 93 113
Dividends paid on common shares (104) (91)
Other, net (2) --
------- -------
Net Cash Used in Financing Activities (597) (554)
------- -------
Effect of Exchange Rate on Cash and Cash Equivalents 3 (4)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 113 167
Net Increase in Cash and Cash Equivalents of Mainland
China for December 2004 -- 34
Cash and Cash Equivalents - Beginning of Period 158 62
------- -------
Cash and Cash Equivalents - End of Period $ 271 $ 263
======= =======
See accompanying notes
Notes to the Consolidated Summary of Results, Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)
(a)Percentages may not recompute due to rounding.
(b)All periods presented reflect the Company's adoption of Statement
of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment" (SFAS 123R) effective September 4, 2005. The
Company adopted SFAS 123R by applying the modified retrospective
application transition method to the beginning of 2005, and as
such the first three fiscal quarters of 2005 were adjusted to
recognize the compensation cost for stock options previously
reported only in the financial statement proforma footnote
disclosures as required by SFAS No. 123, "Accounting for Stock-
Based Compensation". Previously reported diluted EPS prior to the
adoption of SFAS 123R and this adjustment was $0.72 and $1.87 in
the quarter and year to date ended September 3, 2005,
respectively.
(c)Amounts presented as of and for the quarter and year to date ended
September 9, 2006 are preliminary.
(d)Other (income) expense includes equity income from investments in
unconsolidated affiliates. In the quarter ended March 25, 2006, we
also recorded an $8 million charge associated with the termination
of a beverage agreement in the United States segment as other
expense. In the quarter ended June 11, 2005, we recorded a $17
million gain associated with the IPO of our Poland/Czech Republic
business as other income. In the quarter ended September 3, 2005
we recorded a partial financial recovery of $14 million related to
a China supplier ingredient issue as other income.
(e)Income of $2 million was recorded in the quarter ended September 3,
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.
CONTACT: Yum! Brands Inc., Louisville
Analysts:
Vice President Investor Relations
Tim Jerzyk, 888-298-6986
or
Director Investor Relations
Quan Nghe, 888-298-6986
or
Media:
Vice President Public Relations
Amy Sherwood, 502-874-8200