UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

February 6, 2012

Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

North Carolina
 
13-3951308
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1441 Gardiner Lane, Louisville, Kentucky
 
40213
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code:  (502) 874-8300
 
 
 
Former name or former address, if changed since last report:   N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Section 2 – Financial Information

Item 2.02      Results of Operations and Financial Condition

On February 6, 2012, YUM! Brands, Inc. issued a press release announcing financial results for the quarter and year ended December 31, 2011.  A copy of the press release is attached hereto as Exhibit 99.1.


Section 9 – Financial Statements and Exhibits

Item 9.01      Financial Statements and Exhibits

 
(c)
Exhibits
 
99.1
Press Release dated February 6, 2012 from YUM! Brands, Inc.
 
 
 





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
YUM! BRANDS, INC.
 
 
 
 
(Registrant)
 



Date:
February 6, 2012
 
/s/        David E. Russell
 
 
 
 
Vice President, Corporate Controller
 
 
 
 
(Principal Accounting Officer)
 




Yum! Brands Inc. Announces Full-Year EPS Growth of 14%, or $2.87 Per Share, Excluding Special Items; Marks 10th Consecutive Year of at least 13% EPS Growth;
China Opens a Record 656 New Units
  
Louisville, KY (February 6, 2012) - Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2011 including EPS of $0.75. Reported EPS for the full year was $2.74. Full year and fourth quarter results for Yum! Restaurants International (YRI) and the U.S. reflect the benefit of an additional week. This 53rd week did not impact China Division results.

FULL YEAR HIGHLIGHTS
Worldwide system sales grew 7%, prior to foreign currency translation, including 29% in China and 8% at YRI. System sales in the U.S. were even.
 
 
Same-store sales grew 19% in China, 3% at YRI and declined 1% in the U.S.
 
 
Record international development with 1,561 new restaurants, including 656 in China and 905 at YRI.
 
 
Worldwide operating profit grew 8%, including a positive impact from foreign currency translation of $77 million. Prior to foreign currency translation, operating profit grew 4%, including 15% in China and 9% at YRI, offsetting a 12% decline in the U.S.
 
 
Worldwide restaurant margin declined 0.9 points to 16.0%.
 
 
Increased annual dividend rate to $1.14 per share. This marked the seventh consecutive year we increased our dividend at a double-digit rate since initiating a dividend in 2004.
 
 
Repurchased 14.3 million shares totaling $733 million at an average price of $51.
 
 
Remained an industry leader with return on invested capital of over 22%.

FOURTH QUARTER HIGHLIGHTS
Worldwide system sales grew 11%, prior to foreign currency translation, including 33% in China, 10% at YRI and 6% in the U.S.
 
 
Same-store sales grew 21% in China, 3% at YRI and 1% in the U.S.
 
 
Operating profit grew 15% in China and 12% at YRI, prior to foreign currency translation. Operating profit grew 10% in the U.S.
 
 
Worldwide restaurant margin declined 1.1 percentage points to 14.3%.
 
Fourth Quarter
Full Year
 
2011
2010
% Change
2011
2010
% Change
EPS Excluding Special Items
$0.75
$0.63
20%
$2.87
$2.53
14%
Special Items Gain/(Loss)1
$(0.00)
$(0.07)
NM
$(0.13)
$(0.15)
NM
EPS
$0.75
$0.56
33%
$2.74
$2.38
15%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for 2011 are primarily related to Pizza Hut UK impairment and the divestitures of Long John Silver's and A&W All-American Restaurants brands.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

Yum! Brands, Inc. 1900 Colonel Sanders Lane Louisville, KY 40213
Tel 502 874-8006 Fax 502 874-2410 Web Site www.yum.com/investors





David C. Novak, Chairman and CEO said, “I'm pleased to report full-year EPS growth of 14%, making 2011 the tenth consecutive year we exceeded our annual target of at least 10%.

The highlight of 2011 was again the exceptional performance of our China business, which grew system sales by 29% and operating profit by 15%, prior to foreign currency translation. We opened a record 656 new restaurants and delivered extraordinary same-store sales growth of 19%. Clearly, our KFC and Pizza Hut brands in China continued to strengthen their category-leading positions. At the same time, Yum! Restaurants International opened 905 new units, including 622 in high-growth emerging markets. We are on the ground floor of growth in India, Russia and Africa, where system sales grew at strong double-digit rates. For the year, our emerging market businesses at Yum! Restaurants International grew system sales 13%, prior to foreign currency translation, including new-unit growth of 7%. Emerging markets contributed nearly 50% of operating profit at Yum! Restaurants International. The Yum! growth story is clearly about China and a whole lot more.

We continue to focus on three key elements that drive the value of our company: new-unit development, same-store sales growth, and high returns. Our new-unit potential in emerging markets is arguably the best in the restaurant industry. To put this in perspective, today we have fewer than two restaurants per million people in the top 10 emerging markets compared to nearly 60 restaurants per million people in the U.S. Clearly, we have a very long runway for growth. To fully maximize the value of our existing asset base of 37,000 restaurants, we are introducing sales layers like breakfast, expanded beverages and new product platforms. Finally, we continue to be disciplined with capital as we invest in high-return growth opportunities around the world, along with paying a meaningful dividend and making significant share repurchases. Our return on invested capital of over 22% is among industry leaders and has improved for eight consecutive years.

We are proud of our consistent track record of growth and are well-positioned to meet or exceed our annual target of at least 10% EPS growth in 2012.”



2



CHINA DIVISION
 
Fourth Quarter
Full Year
 
 
% Change
 
% Change
2011
2010
Reported
Ex F/X
2011
2010
Reported
Ex F/X
System Sales Growth
 
 
+40
+33
 
 
+35
+29
Same-Store Sales Growth (%)
+21
+8
NM
NM
+19
+6
NM
NM
Restaurant Margin (%)
15.8
18.2
(2.4)
(2.4)
19.7
22.1
(2.4)
(2.4)
Operating Profit ($MM)
210
173
+21
+15
908
755
+20
+15

China Division system sales increased 29% for the year and 33% in the fourth quarter, prior to foreign currency translation, driven by same-store sales growth and new-unit development.
 
 
KFC same-store sales grew 19% for the year and 22% in the fourth quarter.
Pizza Hut Casual Dining same-store sales grew 17% for the year and 15% in the fourth quarter.
Pizza Hut Home Service same-store sales grew 19% for the year and 25% in the fourth quarter.
China division same-store sales growth was driven by a 21% increase in same-store transactions for the year, including 20% in the fourth quarter.
 
 
China opened a record 656 new units during the year, including 327 in the fourth quarter.

China Units
Q4 2011
% Change1
Traditional Restaurants
4,493
+15
        KFC
3,701
+14
        Pizza Hut Casual Dining
626
+20
        Pizza Hut Home Service
135
+13
1 Annual Rate of Change

Total revenues for the year surpassed the $5 billion mark, at $5.6 billion.
 
 
Restaurant margin decreased 2.4 percentage points to 19.7% for the year, driven by commodity inflation of 8% and wage rate inflation of 20%. Consistent with expectations, restaurant margin decreased 2.4 percentage points to 15.8% in the fourth quarter. This decline was driven by 11% commodity inflation and 18% wage rate inflation.
 
 
Foreign currency translation positively impacted operating profit by $43 million for the year and $11 million in the fourth quarter.
 
 
 
Our China Division reports on a calendar year basis and was not impacted by the 53rd week.
 
 




3



YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
 
Fourth Quarter
Full Year
 
 
% Change
 
 
% Change
2011
2010
Reported
Ex F/X
2011
2010
Reported
Ex F/X
Traditional Restaurants¹
14,453
13,934
+4
NA
14,453
13,934
+4
NA
System Sales Growth
 
 
+11
+10
 
 
+13
+8
Franchise & License Fees ($MM)
275
242
+13
+13
868
741
+17
+12
Operating Profit ($MM)
207
184
+13
+12
673
589
+14
+9
Operating Margin (%)
19.7
18.6
1.1
1.3
20.6
19.1
1.5
1.4
¹ During the fourth quarter of 2011, we sold the Long John Silver's and A&W All-American Restaurants brands. The LJS and A&W international restaurants as of 2010 year-end have been removed from the 2010 balance to enhance comparability.

YRI Division system sales increased 8% for the year and 10% in the fourth quarter, prior to foreign currency translation. The system sales increases were driven by new-unit development and by same-store sales growth of 3% for both the quarter and the year.
 
 
Emerging markets system sales grew 13% for the year, prior to foreign currency translation.
 
 
Developed markets system sales grew 4% for the year, prior to foreign currency translation.
 
 
YRI opened 905 new units in 81 countries for the year. This included 452 new units in the fourth quarter.
 
 
For the year, 622 new units were opened in emerging markets.
 
 
Our franchise partners opened 91% of all new units for the year.
 
 
Restaurant margin increased 0.6 percentage points to 12.3% for the full year. In the fourth quarter, restaurant margin declined 0.6 percentage points to 11.6%.
 
 
Foreign currency translation positively impacted operating profit by $34 million for the year and $2 million in the fourth quarter.
 
 
Beginning in the first quarter of 2012, India will be reported as a separate business segment not included in YRI results. Yum! Restaurants India will also include franchise businesses in the neighboring countries of Bangladesh, Mauritius, Nepal and Sri Lanka.
 
The 53rd week had a positive impact on YRI's fourth quarter which included benefits of 3 percentage points to system sales growth, $35 million to total revenue, 0.3 percentage points to restaurant margin, $8 million to operating profit, and 0.1 percentage point to operating margin.

For the full year, the positive impact of the 53rd week included benefits of 1 percentage point to system sales growth and 0.1 percentage point to restaurant margin.
 
 

4




YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

YRI MARKETS
System Sales Ex F/X and Ex 53rd week
Percent of YRI1
Fourth Quarter Growth (%)
Full Year
Growth (%)
Franchise*
 
 
 
     Asia2 
27%
+6
+5
     Latin America
11%
+6
+7
     Middle East
8%
+14
+12
     Continental Europe³
7%
+5
+5
     Canada
6%
(5)
(4)
Combined Company/Franchise**
 
 
 
     UK4
12%
+3
+3
     Australia/New Zealand
11%
+1
+1
     Thailand
2%
+17
+20
     Korea
1%
(7)
+2
Key Growth***
 
 
 
     Africa
6%
+21
+15
     France
4%
+13
+20
     Germany/Netherlands
2%
+9
+13
     Russia
2%
+33
+27
     India
1%
+39
+41

* These markets are 100% franchise owned and operated.
** YRI owns 38% of these restaurants.
*** YRI owns 19% of these restaurants.

1
Percentage of Total YRI System Sales for Full Year 2011.
2
Excludes China, India, Thailand, and Korea.
3
Excludes “Key Growth Markets” of France, Germany, Netherlands, and Russia.
4
KFC UK system sales grew 6% for the year and in the quarter; Pizza Hut UK system sales declined 3% for the year and 2% in the quarter.


5



U.S. DIVISION
 
Fourth Quarter
Full Year
 
2011
2010
% Change
2011
2010
% Change
Same-Store Sales Growth (%)
+1
+5
NM
(1)
+1
NM
Restaurant Margin (%)
13.4
14.1
(0.7)
12.1
14.2
(2.1)
Franchise and License Fees ($MM)
252
233
+9
786
765
+3
Operating Profit ($MM)
191
173
+10
589
668
(12)
Operating Margin (%)
16.1
14.1
2.0
15.5
16.2
(0.7)

U.S. Division same-store sales declined 1% for the year, including declines of 2% at Taco Bell and 2% at KFC. Pizza Hut was even for the year. In the fourth quarter, same-store sales increased 1%, driven by growth of 6% at Pizza Hut and offset by declines of 2% at Taco Bell and 1% at KFC.
 
 
Restaurant margin declined 2.1 percentage points for the year, driven by commodity inflation of 6% and sales deleverage. In the fourth quarter, restaurant margin decreased 0.7 percentage points, driven by 7% commodity inflation.
 
 
 
 
The 53rd week had a positive impact on U.S. fourth quarter results which included benefits of 6 percentage points to system sales growth, $56 million to total revenue, 0.5 percentage points to restaurant margin, $18 million to operating profit, and 0.8 percentage points to operating margin.

For the full year, the positive impact of the 53rd week included benefits of 2 percentage points to system sales growth and 0.2 percentage points to restaurant margin.


6




OWNERSHIP UPDATE

On February 1, 2012, we acquired a controlling interest in Little Sheep Group, Ltd., the leading hot-pot concept based in China. This included approximately 450 system units.
 
During the fourth quarter, we divested our Long John Silver's and A&W All-American Restaurants brands. LJS was sold on December 16th and A&W was sold on December 19th. These divestitures included 349 franchise units at YRI and 1,232 franchise units in the U.S. The U.S. franchise restaurants provided 5 percent of franchise revenue in the U.S. in 2011. We do not expect these divestitures to have a material impact to ongoing earnings.

Our company ownership in the U.S. dropped to 13% from 15% last year. We refranchised 404 restaurants, including 264 KFCs, 74 Taco Bells and 66 Pizza Huts in 2011. Our target for Pizza Hut and KFC is about 5% company ownership. We also announced in December our decision to reduce company ownership in Taco Bell from 23% to about 16% over the next two years.


OTHER ITEMS UPDATE

Our fiscal year ends on the last Saturday in December and, as a result, a 53rd week is added every five or six years. In 2011, this 53rd week benefited the U.S. and a portion of YRI markets by providing an additional week in their reporting calendars. This yielded a $26 million benefit to YRI and U.S. operating profit in the fourth quarter. As a result, the operating profit growth rate in the fourth quarter of 2012 will be negatively impacted by this overlap. This benefit was offset throughout 2011 by investments, including franchise development incentives, as well as higher-than-normal spending, such as restaurant closures in the U.S. and YRI.

Worldwide effective tax rate, prior to Special Items, declined to 24.2% from 25.3% for the year, but increased to 26.7% from 23.8% in the fourth quarter of last year.



7






CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. Eastern Time Tuesday, February 7, 2012. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at noon Eastern Time Tuesday, February 7, through midnight Tuesday, February 21, 2012. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 42233114.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting “Q4 2011 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.


ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant-count details, and definitions of terms are available online at www.yum.com under “Investors”.

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food borne-illness or food safety issues; economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with over 37,000 restaurants in more than 110 countries and territories. Yum! is ranked #214 on the Fortune 500 List and generated revenues of more than $12 billion in 2011. The Company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opened approximately four new restaurants each day of the year, making it a leader in international retail development.

Analysts are invited to contact
 
Tim Jerzyk, Senior Vice President Investor Relations, at 888/298-6986
 
Steve Schmitt, 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



8



YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter
 
% Change
 
Year
 
% Change
 
12/31/11
 
12/25/10
 
B/(W)
 
12/31/11
 
12/25/10
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
3,557

 
$
3,071

 
16
 
$
10,893

 
$
9,783

 
11
Franchise and license fees and income
554

 
491

 
13
 
1,733

 
1,560

 
11
Total revenues
4,111

 
3,562

 
15
 
12,626

 
11,343

 
11
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses, net
 
 
 
 
 
 
 
 
 
 
 
Food and paper
1,209

 
979

 
(23)
 
3,633

 
3,091

 
(18)
Payroll and employee benefits
809

 
692

 
(17)
 
2,418

 
2,172

 
(11)
Occupancy and other operating expenses
1,026

 
922

 
(11)
 
3,089

 
2,857

 
(8)
Company restaurant expenses
3,044

 
2,593

 
(17)
 
9,140

 
8,120

 
(13)
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
499

 
464

 
(8)
 
1,372

 
1,277

 
(7)
Franchise and license expenses
41

 
39

 
(4)
 
145

 
110

 
(32)
Closures and impairment (income) expenses
22

 
26

 
14
 
135

 
47

 
NM
Refranchising (gain) loss
3

 
12

 
73
 
72

 
63

 
(15)
Other (income) expense
(5
)
 
(12
)
 
(54)
 
(53
)
 
(43
)
 
25
Total costs and expenses, net
3,604

 
3,122

 
(15)
 
10,811

 
9,574

 
(13)
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
507

 
440

 
15
 
1,815

 
1,769

 
3
Interest expense, net
46

 
54

 
16
 
156

 
175

 
11
Income before income taxes
461

 
386

 
20
 
1,659

 
1,594

 
4
Income tax provision
104

 
109

 
4
 
324

 
416

 
22
Net income - including noncontrolling interests
357

 
277

 
29
 
1,335

 
1,178

 
13
Net income - noncontrolling interests
1

 
3

 
45
 
16

 
20

 
18
Net income - YUM! Brands, Inc.
$
356

 
$
274

 
30
 
$
1,319

 
$
1,158

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
22.6
%
 
28.1
%
 
5.5 ppts.
 
19.5
%
 
26.1
%
 
6.6 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.77

 
$
0.58

 
33
 
$
2.81

 
$
2.44

 
15
Average shares outstanding
465

 
474

 
2
 
469

 
474

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.75

 
$
0.56

 
33
 
$
2.74

 
$
2.38

 
15
Average shares outstanding
477

 
488

 
2
 
481

 
486

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.57

 
$
0.50

 
 
 
$
1.07

 
$
0.92

 
 
 
See accompanying notes.

 Percentages may not recompute due to rounding.

9



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

 
Quarter
 
% Change
 
Year
 
% Change
 
12/31/11
 
12/25/10
 
B/(W)
 
12/31/11
 
12/25/10
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
1,853

 
$
1,336

 
39
 
$
5,487

 
$
4,081

 
34
Franchise and license fees and income
27

 
16

 
66
 
79

 
54

 
45
Total revenues
1,880

 
1,352

 
39
 
5,566

 
4,135

 
35
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses, net
 
 
 
 
 
 
 
 
 
 
 
Food and paper
673

 
453

 
(48)
 
1,947

 
1,362

 
(43)
Payroll and employee benefits
334

 
215

 
(56)
 
890

 
587

 
(52)
Occupancy and other operating expenses
553

 
425

 
(30)
 
1,568

 
1,231

 
(27)
 
1,560

 
1,093

 
(43)
 
4,405

 
3,180

 
(38)
General and administrative expenses
104

 
80

 
(31)
 
275

 
216

 
(27)
Franchise and license expenses
1

 

 
NM
 
4

 
1

 
NM
Closures and impairment (income) expenses
9

 
11

 
15
 
12

 
16

 
24
Other (income) expense
(4
)
 
(5
)
 
 
(38
)
 
(33
)
 
16
 
1,670

 
1,179

 
(42)
 
4,658

 
3,380

 
(38)
Operating Profit
$
210

 
$
173

 
21
 
$
908

 
$
755

 
20
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
36.3

 
33.9

 
(2.4) ppts.
 
35.5

 
33.4

 
(2.1) ppts.
Payroll and employee benefits
18.1

 
16.1

 
(2.0) ppts.
 
16.2

 
14.4

 
(1.8) ppts.
Occupancy and other operating expenses
29.8

 
31.8

 
2.0 ppts.
 
28.6

 
30.1

 
1.5 ppts.
Restaurant margin
15.8
%
 
18.2
%
 
(2.4) ppts.
 
19.7
%
 
22.1
%
 
(2.4) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
11.2
%
 
12.8
%
 
(1.6) ppts.
 
16.3
%
 
18.3
%
 
(2.0) ppts.
 
See accompanying notes.
  
Percentages may not recompute due to rounding.

10



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

 
Quarter
 
% Change
 
Year
 
% Change
 
12/31/11
 
12/25/10
 
B/(W)
 
12/31/11
 
12/25/10
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
779

 
$
745

 
4
 
$
2,406

 
$
2,347

 
2
Franchise and license fees and income
275

 
242

 
13
 
868

 
741

 
17
Total revenues
1,054

 
987

 
7
 
3,274

 
3,088

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses, net
 
 
 
 
 
 
 
 
 
 
 
Food and paper
253

 
237

 
(6)
 
769

 
753

 
(2)
Payroll and employee benefits
198

 
187

 
(6)
 
616

 
591

 
(4)
Occupancy and other operating expenses
237

 
229

 
(3)
 
726

 
727

 
 
688

 
653

 
(5)
 
2,111

 
2,071

 
(2)
General and administrative expenses
145

 
130

 
(12)
 
422

 
378

 
(12)
Franchise and license expenses
15

 
12

 
(7)
 
51

 
36

 
(41)
Closures and impairment (income) expenses
4

 
8

 
40
 
22

 
14

 
(62)
Other (income) expense
(5
)
 

 
NM
 
(5
)
 

 
NM
 
847

 
803

 
(5)
 
2,601

 
2,499

 
(4)
Operating Profit
$
207

 
$
184

 
13
 
$
673

 
$
589

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
32.5

 
31.9

 
(0.6) ppts.
 
31.9

 
32.1

 
0.2 ppts.
Payroll and employee benefits
25.5

 
25.1

 
(0.4) ppts.
 
25.6

 
25.2

 
(0.4) ppts.
Occupancy and other operating expenses
30.4

 
30.8

 
0.4 ppts.
 
30.2

 
31.0

 
0.8 ppts.
Restaurant margin
11.6
%
 
12.2
%
 
(0.6) ppts.
 
12.3
%
 
11.7
%
 
0.6 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
19.7
%
 
18.6
%
 
1.1 ppts.
 
20.6
%
 
19.1
%
 
1.5 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.


11



YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter
 
% Change
 
Year
 
% Change
 
12/31/11
 
12/25/10
 
B/(W)
 
12/31/11
 
12/25/10
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
925

 
$
990

 
(7)
 
$
3,000

 
$
3,355

 
(11)
Franchise and license fees and income
252

 
233

 
9
 
786

 
765

 
3
Total revenues
1,177

 
1,223

 
(4)
 
3,786

 
4,120

 
(8)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses, net
 
 
 
 
 
 
 
 
 
 
 
Food and paper
283

 
289

 
2
 
917

 
976

 
6
Payroll and employee benefits
277

 
290

 
5
 
912

 
994

 
8
Occupancy and other operating expenses
242

 
272

 
11
 
809

 
908

 
11
 
802

 
851

 
6
 
2,638

 
2,878

 
8
General and administrative expenses
148

 
169

 
12
 
450

 
492

 
8
Franchise and license expenses
26

 
24

 
(12)
 
92

 
70

 
(32)
Closures and impairment (income) expenses
11

 
7

 
(42)
 
21

 
17

 
(19)
Other (income) expense
(1
)
 
(1
)
 
(48)
 
(4
)
 
(5
)
 
(29)
 
986

 
1,050

 
6
 
3,197

 
3,452

 
7
Operating Profit
$
191

 
$
173

 
10
 
$
589

 
$
668

 
(12)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
30.5

 
29.1

 
(1.4) ppts.
 
30.5

 
29.1

 
(1.4) ppts.
Payroll and employee benefits
29.9

 
29.4

 
(0.5) ppts.
 
30.4

 
29.6

 
(0.8) ppts.
Occupancy and other operating expenses
26.2

 
27.4

 
1.2 ppts.
 
27.0

 
27.1

 
0.1 ppts.
 
13.4
%
 
14.1
%
 
(0.7) ppts.
 
12.1
%
 
14.2
%
 
(2.1) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
16.1
%
 
14.1
%
 
2.0 ppts.
 
15.5
%
 
16.2
%
 
(0.7) ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.


12



YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)

 
(unaudited)
 
 
 
12/31/11
 
12/25/10
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,198

 
$
1,426

Accounts and notes receivable, less allowance: $22 in 2011 and $33 in 2010
286

 
256

Inventories
273

 
189

Prepaid expenses and other current assets
338

 
269

Deferred income taxes
112

 
61

Advertising cooperative assets, restricted
114

 
112

Total Current Assets
2,321

 
2,313

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $3,225 in
 
 
 
2011 and $3,273 in 2010
4,042

 
3,830

Goodwill
681

 
659

Intangible assets, net
299

 
475

Investments in unconsolidated affiliates
167

 
154

Restricted cash
300

 

Other assets
475

 
519

Deferred income taxes
549

 
366

Total Assets
$
8,834

 
$
8,316

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
1,874

 
$
1,602

Income taxes payable
142

 
61

Short-term borrowings
320

 
673

Advertising cooperative liabilities
114

 
112

Total Current Liabilities
2,450

 
2,448

 
 
 
 
Long-term debt
2,997

 
2,915

Other liabilities and deferred credits
1,471

 
1,284

Total Liabilities
6,918

 
6,647

 
 
 
 
Shareholders' Equity
 
 
 
Common stock, no par value, 750 shares authorized; 460 shares and 469 shares issued in
 
 
 
2011 and 2010, respectively
18

 
86

Retained earnings
2,052

 
1,717

Accumulated other comprehensive income (loss)
(247
)
 
(227
)
Total Shareholders' Equity - YUM! Brands, Inc.
1,823

 
1,576

Noncontrolling interests
93

 
93

Total Shareholders' Equity
1,916

 
1,669

Total Liabilities and Shareholders' Equity
$
8,834

 
$
8,316

 See accompanying notes.

13



YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year
 
12/31/11
 
12/25/10
Cash Flows - Operating Activities
 
 
 
Net income - including noncontrolling interests
$
1,335

 
$
1,178

Depreciation and amortization
628

 
589

Closures and impairment (income) expenses
135

 
47

Refranchising (gain) loss
72

 
63

Contributions to defined benefit pension plans
(63
)
 
(52
)
Deferred income taxes
(137
)
 
(110
)
Equity income from investments in unconsolidated affiliates
(47
)
 
(42
)
Distributions of income received from unconsolidated affiliates
39

 
34

Excess tax benefit from share-based compensation
(66
)
 
(69
)
Share-based compensation expense
59

 
47

Changes in accounts and notes receivable
(39
)
 
(12
)
Changes in inventories
(75
)
 
(68
)
Changes in prepaid expenses and other current assets
(25
)
 
61

Changes in accounts payable and other current liabilities
144

 
61

Changes in income taxes payable
109

 
104

Other, net
101

 
137

Net Cash Provided by Operating Activities
2,170

 
1,968

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(940
)
 
(796
)
Proceeds from refranchising of restaurants
246

 
265

Acquisitions and investments
(81
)
 
(62
)
Sales of property, plant and equipment
30

 
33

Increase in restricted cash
(300
)
 

Other, net
39

 
(19
)
Net Cash Used in Investing Activities
(1,006
)
 
(579
)
 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt
404

 
350

Repayments of long-term debt
(666
)
 
(29
)
Revolving credit facilities, three months or less, net

 
(5
)
Short-term borrowings by original maturity
 
 
 
More than three months - proceeds

 

More than three months - payments

 

Three months or less, net

 
(3
)
Repurchase shares of Common Stock
(752
)
 
(371
)
Excess tax benefit from share-based compensation
66

 
69

Employee stock option proceeds
59

 
102

Dividends paid on Common Stock
(481
)
 
(412
)
Other, net
(43
)
 
(38
)
Net Cash Used in Financing Activities
(1,413
)
 
(337
)
Effect of Exchange Rate on Cash and Cash Equivalents
21

 
21

Net Increase (Decrease) in Cash and Cash Equivalents
(228
)
 
1,073

Cash and Cash Equivalents - Beginning of Year
$
1,426

 
$
353

Cash and Cash Equivalents - End of Year
$
1,198

 
$
1,426

See accompanying notes.

14



Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
 
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present operating results in 2011 and 2010 on a basis before Special Items.  Included in Special Items are the U.S. refranchising gain (loss), the depreciation reduction from the KFC restaurants impaired upon our offer to refranchise in 2010 that remained Company stores for some or all of the quarter or year presented, charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources, the losses and other costs relating to the sales of Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") brands, the losses associated with refranchising equity markets outside the U.S. and the depreciation reduction from the Pizza Hut UK restaurants impaired upon our decision to refranchise these restaurants which remain company-owned as of December 31, 2011.   These amounts are described in (b), (c), (d) and (e) in the accompanying notes.
 
The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally.  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 earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in 2011 and 2010 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. 
 
Quarter
 
Year
 
12/31/11
 
12/25/10
 
12/31/11
 
12/25/10
Detail of Special Items
 
 
 
 
 
 
 
U.S. Refranchising gain (loss)
$
(14
)
 
$
33

 
$
(17
)
 
$
(18
)
Depreciation reduction from KFC restaurants impaired upon offer to sell
2

 
4

 
10

 
9

Charges relating to U.S. G&A productivity initiatives and realignment of resources
(19
)
 
(4
)
 
(21
)
 
(9
)
Losses and other costs relating to the sales of LJS and A&W

 

 
(86
)
 

Loss associated with refranchising equity markets outside the U.S.

 
(52
)
 
(76
)
 
(59
)
Depreciation reduction from Pizza Hut UK restaurants impaired upon decision to sell
3

 

 
3

 

Total Special Items Income (Expense)
(28
)
 
(19
)
 
(187
)
 
(77
)
Tax Benefit (Expense) on Special Items
27

 
(12
)
 
123

 
7

Special Items Income (Expense), net of tax
$
(1
)
 
$
(31
)
 
$
(64
)
 
$
(70
)
Average diluted shares outstanding
477

 
488

 
481

 
486

Special Items diluted EPS
$

 
$
(0.07
)
 
$
(0.13
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
 
 
 
 
 
 
 
OPERATING PROFIT BEFORE SPECIAL ITEMS
$
535

 
$
459

 
$
2,002

 
$
1,846

Special Items Income (Expense)
(28
)
 
(19
)
 
(187
)
 
(77
)
Reported Operating Profit
$
507

 
$
440

 
$
1,815

 
$
1,769

 
 
 
 
 
 
 
 
Reconciliation of EPS Before Special Items to Reported EPS
 
 
 
 
 
 
 
DILUTED EPS BEFORE SPECIAL ITEMS
$
0.75

 
$
0.63

 
$
2.87

 
$
2.53

Special Items EPS

 
(0.07
)
 
(0.13
)
 
(0.15
)
Reported EPS
$
0.75

 
$
0.56

 
$
2.74

 
$
2.38

 
 
 
 
 
 
 
 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
 
 
 
 
 
 
 
EFFECTIVE TAX RATE BEFORE SPECIAL ITEMS
26.7
 %
 
23.8
%
 
24.2
 %
 
25.3
%
Impact on Tax Rate as a result of Special Items
(4.1
)%
 
4.3
%
 
(4.7
)%
 
0.8
%
Reported Effective Tax Rate
22.6
 %
 
28.1
%
 
19.5
 %
 
26.1
%


15



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

Quarter Ended 12/31/11
China
 
YRI
 
United
States
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,880

 
$
1,054

 
$
1,177

 
$

 
$
4,111

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,560

 
688

 
802

 
(6
)
 
3,044

General and administrative expenses
104

 
145

 
148

 
102

 
499

Franchise and license expenses
1

 
15

 
26

 
(1
)
 
41

Closures and impairment (income) expenses
9

 
4

 
11

 
(2
)
 
22

Refranchising (gain) loss

 

 

 
3

 
3

Other (income) expense
(4
)
 
(5
)
 
(1
)
 
5

 
(5
)
 
1,670

 
847

 
986

 
101

 
3,604

Operating Profit (loss)
$
210

 
$
207

 
$
191

 
$
(101
)
 
$
507


Quarter Ended 12/25/10
China
 
YRI
 
United
States
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,352

 
$
987

 
$
1,223

 
$

 
$
3,562

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,093

 
653

 
851

 
(4
)
 
2,593

General and administrative expenses
80

 
130

 
169

 
85

 
464

Franchise and license expenses

 
12

 
24

 
3

 
39

Closures and impairment (income) expenses
11

 
8

 
7

 

 
26

Refranchising (gain) loss

 

 

 
12

 
12

Other (income) expense
(5
)
 

 
(1
)
 
(6
)
 
(12
)
 
1,179

 
803

 
1,050

 
90

 
3,122

Operating Profit (loss)
$
173

 
$
184

 
$
173

 
$
(90
)
 
$
440


The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.




16




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

Year Ended 12/31/11
China
 
YRI
 
United
States
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
5,566

 
$
3,274

 
$
3,786

 
$

 
$
12,626

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
4,405

 
2,111

 
2,638

 
(14
)
 
9,140

General and administrative expenses
275

 
422

 
450

 
225

 
1,372

Franchise and license expenses
4

 
51

 
92

 
(2
)
 
145

Closures and impairment (income) expenses
12

 
22

 
21

 
80

 
135

Refranchising (gain) loss

 

 

 
72

 
72

Other (income) expense
(38
)
 
(5
)
 
(4
)
 
(6
)
 
(53
)
 
4,658

 
2,601

 
3,197

 
355

 
10,811

Operating Profit (loss)
$
908

 
$
673

 
$
589

 
$
(355
)
 
$
1,815


Year Ended 12/25/10
China
 
YRI
 
United
States
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
4,135

 
$
3,088

 
$
4,120

 
$

 
$
11,343

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
3,180

 
2,071

 
2,878

 
(9
)
 
8,120

General and administrative expenses
216

 
378

 
492

 
191

 
1,277

Franchise and license expenses
1

 
36

 
70

 
3

 
110

Closures and impairment (income) expenses
16

 
14

 
17

 

 
47

Refranchising (gain) loss

 

 

 
63

 
63

Other (income) expense
(33
)
 

 
(5
)
 
(5
)
 
(43
)
 
3,380

 
2,499

 
3,452

 
243

 
9,574

Operating Profit (loss)
$
755

 
$
589

 
$
668

 
$
(243
)
 
$
1,769


The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.




17



Notes to the Consolidated Summary of Results, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)

(a)
Amounts presented as of and for the quarter and year ended December 31, 2011 are preliminary.

(b)
As part of our plan to transform our U.S. business we took several measures ("the U.S. business transformation measures") in 2011 and 2010 including: continuation of our U.S. refranchising, potentially reducing our Company ownership in the U.S. to about 8%, including a reduction of Taco Bell Company ownership from 23% to 16%; and G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs).  We have traditionally not allocated refranchising (gains) losses for segment reporting purposes and also have not allocated the costs associated with the productivity initiatives and realignment of resources to the U.S. segment.  Additionally, these items have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results).  We recorded non-cash impairment charges, primarily in the first quarter of 2010, related to our offers to refranchise a substantial portion of our KFC restaurants in the U.S.  We have recorded the depreciation reduction resulting from the non-cash impairment charges related to these KFCs that remained Company stores for some or all of the periods presented as a Special Item, resulting in depreciation expense in the U.S. segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded for these KFCs while we continue to own the restaurants.

(c)
During the quarter ended December 31, 2011, we sold the LJS and A&W brands to key franchise leaders and strategic investors in separate transactions. During 2011, as a result of our decision to sell these brands, we recognized $86 million of net pre-tax losses and other costs, primarily in Closures and impairment (income) expenses. Additionally, we recognized $104 million of tax benefits primarily related to tax losses associated with the sales. These items were recorded as Special Items and have not been allocated to any segment for performance reporting purposes (see accompanying reconciliation to reported results).

(d)
During the quarter ended September 3, 2011, we recognized a pre-tax $76 million refranchising loss ($63 million net of tax) as a result of our decision to offer to refranchise all remaining company-owned Pizza Hut restaurants in the UK. This item was recorded as a Special Item and has not been allocated to any segment for performance reporting purposes (see accompanying reconciliation to reported results). During the quarter and year ended December 31, 2011, we recorded the depreciation reduction resulting from this non-cash impairment charge as a Special Item, resulting in depreciation expense in the YRI segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded while we continue to own these restaurants.

(e)
During the quarter ended March 20, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs.  We included in our March 20, 2010 financial statements a non-cash write off of $7 million of goodwill in determining the loss on refranchising of Taiwan.  This loss did not result in a related income tax benefit, was not allocated to any segment for performance reporting purposes and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results).

(f)
Other (income) expense for the China Division primarily consists of equity income from investments in unconsolidated affiliates.

(g)
Subsequent to year end on February 1, 2012, we completed our acquisition of an additional 66% of Little Sheep Group Limited ("Little Sheep") for $584 million. We owned 27% of the outstanding shares as of December 31, 2011, and had $300 million in an escrow account to demonstrate availability of funds to acquire additional shares in this business. The funds placed in escrow were restricted to the acquisition of Little Sheep and are included in Restricted cash in our Consolidated Balance Sheet as of December 31, 2011.

18