EX-99.1 2 a8kex99110516.htm EXHIBIT 99.1 Exhibit
yumlogoa02a04a09.jpg
NEWS
Keith Siegner
Vice President, Investor Relations & Corporate Strategy

Yum! Brands Reports Third-Quarter GAAP Operating Profit Growth of 8%;
Delivers Core Operating Profit Growth of 11%;
Raises Full-Year Core Operating Profit Growth Guidance to At Least 15%

Louisville, KY (October 5, 2016) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 3, 2016, including GAAP EPS of $1.56 and EPS excluding Special Items of $1.09.

System sales growth figures exclude foreign currency translation ("F/X") and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of non-GAAP measurements to GAAP results within this release for further details.

THIRD-QUARTER HIGHLIGHTS
●
KFC Division same-store sales increased 4%, with U.S. same-store sales growing 6%; system sales increased 7%.
●
Taco Bell Division same-store sales increased 3% and system sales increased 5%, while achieving a 21.7% restaurant margin.
●
Worldwide core operating profit grew 11%, with the brand divisions excluding China delivering 11% core operating profit growth in aggregate, ahead of expectations.
●
China core operating profit grew 14%.
●
Opened 475 new restaurants worldwide; 78% of international development occurred in emerging markets.
●
On track to finalize China separation with Yum China Holdings, Inc. expected to begin trading on November 1, 2016 on the NYSE under the ticker symbol "YUMC."
●
Foreign currency translation negatively impacted operating profit by $34 million.
 
% Change
 
System Sales
Same-Store Sales
Net New Units
GAAP Operating Profit
Core
Operating Profit
China Division
+3
(1)
+7
+7
+14
KFC Division
+7
+4
+3
+11
+19
Pizza Hut Division
Even
(1)
+1
(6)
(5)
Taco Bell Division
+5
+3
+3
+9
+9
Worldwide
+4
+1
+3
+8
+11
 
Third Quarter
Year-to-Date
 
2016
2015
% Change
2016
2015
% Change
EPS Excluding Special Items
$1.09
$1.00
9%
$2.79
$2.50
12%
Special Items Gain/(Loss)1
$0.47
$(0.05)
NM
$0.49
$(0.21)
NM
EPS
$1.56
$0.95
64%
$3.28
$2.29
43%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2016 are primarily related to a U.S. tax benefit related to previously recognized Little Sheep impairment losses, gains associated with Pizza Hut and Taco Bell U.S. refranchising and costs associated with the planned separation of our China business, U.S. voluntary retirement packages and the agreement reached in 2015 with KFC U.S. franchisees. Special Items in 2015 are primarily related to a non-cash charge associated with refranchising our Mexico business and costs associated with the agreement reached in 2015 with KFC U.S. franchisees, partially offset by U.S. refranchising gains.

Note: All comparisons are versus the same period a year ago. Effective January 2016, the Company’s India business integrated its three restaurant brands into our global KFC, Pizza Hut and Taco Bell Divisions. Prior year figures have been restated to present comparable results.

Full-year GAAP operating profit growth guidance is not provided due to our inability to forecast when gains and losses related to refranchising transactions classified as Special Items will occur, as the timing of these transactions is often outside our control, and the resulting gains and losses are dependent upon future market conditions. 2016 core operating profit growth guidance assumes the China business remains part of the Company through the end of 2016.

Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213
Tel 502 874-8300 • Website www.yum.com/investors



GREG CREED COMMENTS
Greg Creed, CEO, said “Yum! Brands delivered third-quarter core operating profit growth of 11% and EPS growth, excluding Special Items, of 9%. For the full year, we are raising our core operating profit growth guidance from at least 14% to at least 15%.

In the third quarter, I was pleased with both KFC’s and Taco Bell’s performance, each of which returned to a focus on core menu items, but in ways that were distinctive, disruptive and relevant. Both brands had accelerating same-store sales growth, despite sluggish QSR industry trends, especially in the U.S. Excluding China, our brand divisions in aggregate delivered core operating profit growth of 11%, which was ahead of our expectations. System sales for the brand divisions excluding China grew 5% in constant currency, driven by KFC where system sales grew 7% with international emerging markets up an impressive 12%. We are excited about the momentum we are seeing in our base business as we embark on the next chapter of growth at our company.

Sales were off to a good start in the first six weeks of the quarter in the China Division. However, anticipated tougher laps in the second half of the third quarter were compounded by an international court ruling on claims regarding the South China Sea, which triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands. If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth. The good news is the incident was short-lived and the sales impact continued to dissipate through August and September. Despite the protests, Pizza Hut Casual Dining continued its trend of quarterly sequential improvement.

2016 marks the beginning of a massive transformation for Yum! Brands. Step one is the formal separation of our China business, which will become one of China’s largest publicly-traded retail companies with meaningful growth opportunities supported by U.S. governance. New Yum! Brands will become a unique and focused world-class franchisor with consistent, stable cash flow generation and an efficient cost structure that encourages growth. We look forward to sharing the details of our strategic plans for both companies at our New York investor conference on Tuesday, October 11."







New Global Yum! Core Operating Profit Growth
After the spin-off of our China business, we will reclassify China Division’s historical results and related tax expense, including the first ten months of 2016, to Discontinued Operations within our Income Statement. The China Division's results presented in Discontinued Operations will include an incremental license fee expense similar to what will be paid by China to Yum! going forward. Likewise, Yum!'s historical results for our KFC and Pizza Hut Divisions, including the first ten months of 2016, will include incremental license fee income from our China business such that recast total net income, including Discontinued Operations, is the same as previously reported results. While we expect to spin-off our China business on October 31, 2016, our operating profit growth targets assume China will remain part of Yum! through the end of 2016.



2





CHINA DIVISION
 
Third Quarter
Year-to-Date
 
 
%/ppts Change
 
 
%/ppts Change
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
System Sales Growth
 
 
(3)
+3
 
 
Even
+5
Same-Store Sales Growth (%)
(1)
+2
NM
NM
+1
(6)
NM
NM
Franchise & License Fees ($MM)
35
34
+2
+9
90
83
+8
+14
Restaurant Margin (%)
22.2
19.6
2.6
2.6
20.1
17.7
2.4
2.4
Operating Profit ($MM)
348
327
+7
+14
751
661
+14
+20
Operating Margin (%)
18.5
16.6
1.9
2.0
15.7
13.6
2.1
2.2
●
China Division system sales increased 3%, excluding foreign currency translation.
○
Same-store sales decreased 1%, with declines of 1% at KFC and 4% at Pizza Hut Casual Dining.
●
China Division opened 133 new units during the quarter.
China Units
Q3 2016
% Change2
Restaurants1
7,330
+7
KFC
5,087
+4
Pizza Hut
 
 
Casual Dining
1,643
+16
Home Service
350
+23
1 Total includes East Dawning and Little Sheep units.
2 Represents year-over-year change.

●
Operating profit increased as a result of recent value-added tax reform in China and new-unit development, partially offset by higher labor costs, increased G&A and sales deleverage.
●
Foreign currency translation negatively impacted operating profit by $23 million.
●
Consistent with prior years, China Division's third quarter includes June, July and August results.



3

KFC DIVISION
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
15,065
14,694
+3
N/A
15,065
14,694
+3
N/A
System Sales Growth
 
 
+3
+7
 
 
+1
+6
Same-Store Sales Growth (%)
+4
+3
NM
NM
+2
+3
NM
NM
Franchise & License Fees ($MM)
202
195
+4
+8
591
584
+1
+6
Restaurant Margin (%)
14.5
12.9
1.6
1.6
14.6
13.9
0.7
0.6
Operating Profit ($MM)
160
144
+11
+19
469
459
+2
+9
Operating Margin (%)
22.2
20.0
2.2
2.3
22.8
21.8
1.0
1.0
●
KFC Division system sales increased 7%, excluding foreign currency translation.
 
Third Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+12
+4
+4
Same-Store Sales Growth
+5
+1
+6
●
KFC Division opened 138 new international restaurants in 42 countries, including 96 units in emerging markets.
●
Operating margin increased 2.2 percentage points driven by same-store sales growth.
●
Foreign currency translation negatively impacted operating profit by $11 million, as approximately 90% of division profits are generated outside the U.S.
KFC MARKETS1
Percent of KFC System Sales 2
SYSTEM Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
Asia (e.g. Malaysia, Indonesia, Philippines)
7%
+7
+9
Africa
6%
+11
+9
Latin America (e.g. Mexico, Peru)
6%
+10
+7
Middle East / North Africa
6%
+5
+4
Russia
5%
+35
+33
Thailand
3%
+12
+8
Continental Europe (e.g. Poland)
3%
+16
+17
India
1%
+13
+4
 
 
 
 
Developed Markets
 
 
 
U.S.
24%
+4
+1
Australia
10%
+4
+4
Asia (e.g. Japan, Korea, Taiwan)
9%
(1)
+4
U.K.
9%
+5
+2
Continental Europe (e.g. France, Germany)
7%
+9
+9
Canada
3%
+4
+5
Latin America (e.g. Puerto Rico)
1%
+5
(1)
1 See website www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2015.
     

4

PIZZA HUT DIVISION
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
14,179
14,042
+1
N/A
14,179
14,042
+1
N/A
System Sales Growth
 
 
(2)
Even
 
 
Even
+2
Same-Store Sales Growth (%)
(1)
+1
NM
NM
+1
Even
NM
NM
Franchise & License Fees ($MM)
124
123
+1
+3
378
372
+2
+4
Restaurant Margin (%)
3.1
7.8
(4.7)
(4.8)
8.2
9.8
(1.6)
(1.9)
Operating Profit ($MM)
61
65
(6)
(5)
212
206
+3
+4
Operating Margin (%)
26.7
24.7
2.0
1.8
28.6
25.7
2.9
2.6
●
Pizza Hut Division system sales were even, excluding foreign currency translation.
 
Third Quarter (% Change)
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+4
+2
(3)
Same-Store Sales Growth
(1)
+1
(2)
●
Pizza Hut Division opened 105 new international restaurants in 40 countries, including 71 units in emerging markets.
●
Restaurant margin was 3.1%, a decrease of 4.7 percentage points, driven by refranchising and higher property and casualty insurance costs.
●
Foreign currency translation negatively impacted operating profit by less than $1 million.
PIZZA HUT MARKETS1
Percent of Pizza Hut System Sales2
SYSTEM Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%)
Emerging Markets
 
 
 
Latin America (e.g. Mexico, Peru)
7%
+5
+7
Asia (e.g. Malaysia, Indonesia, Philippines)
5%
+6
+4
Middle East / North Africa
5%
(3)
(1)
Continental Europe (e.g. Poland)
1%
+11
+11
India
1%
+6
(2)
 
 
 
 
Developed Markets
 
 
 
U.S.
55%
(3)
+1
Asia (e.g. Japan, Korea, Taiwan)
8%
(3)
(6)
U.K.
7%
+2
+4
Continental Europe (e.g. France, Germany)
5%
+8
+8
Canada
3%
+6
+9
Australia
2%
+3
(4)
Latin America (e.g. Puerto Rico)
1%
+5
Even
1 See website www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2015.
 


5





TACO BELL DIVISION
 
Third Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
6,511
6,321
+3
N/A
6,511
6,321
+3
N/A
System Sales Growth
 
 
+5
+5
 
 
+4
+4
Same-Store Sales Growth (%)
+3
+4
NM
NM
+1
+5
NM
NM
Franchise & License Fees ($MM)
115
107
+8
+8
326
309
+6
+6
Restaurant Margin (%)
21.7
22.1
(0.4)
(0.4)
21.6
21.6
-
-
Operating Profit ($MM)
143
132
+9
+9
401
386
+4
+4
Operating Margin (%)
29.8
27.8
2.0
2.0
29.3
27.9
1.4
1.4
●
Taco Bell Division system sales increased 5%, excluding foreign currency translation.
●
Taco Bell Division opened 63 new restaurants.
●
Restaurant margin was 21.7%, a decrease of 0.4 percentage points, driven by higher labor costs, partially offset by same-store sales growth and lower commodity costs.
●
Operating margin increased 2.0 percentage points driven by same-store sales growth.



SPECIAL ITEMS / SHARE REPURCHASE / RECAPITALIZATION UPDATE
●
During the quarter, we recorded a tax benefit of $198 million in Special Items due to our ability to now realize tax benefits associated with previous impairment losses related to Little Sheep that were recognized as Special Items in 2013 and 2014.
●
During the quarter, we incurred a Special Items charge of $20 million for restructuring costs related to U.S. voluntary retirement packages.
●
During the quarter, we incurred a Special Items charge of $10 million for costs related to the planned separation of our China business.
●
During the quarter, we refranchised 94 units outside of China, more than half of which were Pizza Hut units, for proceeds of $61 million. We recorded refranchising gains of $21 million in Special Items.
●
To complete our recapitalization strategy, $4.6 billion of new debt was issued in the third quarter.
●
Year-to-date through October 4, 2016, we repurchased 54.5 million shares totaling $4.5 billion at an average price of $82. Since we announced our intention to separate the China business, we have repurchased approximately $5.3 billion in shares at an average price of $81, reducing our share count by approximately 15%. We expect to repurchase an additional $0.9 billion in shares before the end of 2016 to achieve our previously announced plan to return $6.2 billion of capital to shareholders (excluding dividends) in connection with the separation of our China business.

6

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 Thursday, October 6, 2016. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 69624826.

The call will be available for playback beginning at 12:30 p.m. Eastern Time Thursday, October 6, 2016 through midnight Wednesday, November 2, 2016. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 69624826.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q3 2016 Earnings Conference Call” under “Events & Presentations.”

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

This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding the intended capital return to shareholders, the planned separation of the Yum! Brands and Yum China businesses, the timing of any such separation, the future earnings and performance as well as capital structure of Yum! Brands, Inc. or any of its businesses, including the Yum! Brands and Yum China businesses on a standalone basis if the separation is completed. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to return capital to shareholders at the times and in the amounts currently anticipated, if at all; whether the separation of the Yum! Brands and Yum China businesses is completed, as expected or at all, and the timing of any such separation; whether the operational and strategic benefits of the separation can be achieved; whether the costs and expenses of the separation can be controlled within expectations, including potential tax costs; as well as other risks. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 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 or Form 10-K) for additional detail about factors that could affect our financial and other results. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

Yum! Brands, Inc., based in Louisville, Kentucky, has more than 43,000 restaurants in almost 140 countries and territories.  Yum! Brands is ranked #218 on the Fortune 500 List with revenues of over $13 billion in 2015 and is one of the Aon Hewitt Top Companies for Leaders in North America.  The Company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories.  Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development.

Analysts are invited to contact:
 
Keith Siegner, Vice President, Investor Relations & Corporate Strategy, at 888/298-6986
 
Elizabeth Grenfell, Director, Investor Relations, at 888/298-6986
Members of the media are invited to contact:
 
Virginia Ferguson, Director, Public Relations, at 502/874-8200

7

YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/3/16
 
9/5/15
 
B/(W)
 
9/3/16
 
9/5/15
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
2,841

 
$
2,968

 
(4)
 
$
7,560

 
$
7,806

 
(3)
Franchise and license fees and income
475

 
459

 
4
 
1,383

 
1,348

 
3
Total revenues
3,316

 
3,427

 
(3)
 
8,943

 
9,154

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
817

 
933

 
12
 
2,230

 
2,462

 
9
   Payroll and employee benefits
638

 
625

 
(2)
 
1,727

 
1,720

 
—
   Occupancy and other operating expenses
816

 
871

 
6
 
2,192

 
2,292

 
4
Company restaurant expenses
2,271

 
2,429

 
6
 
6,149

 
6,474

 
5
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
377

 
328

 
(15)
 
1,028

 
976

 
(5)
Franchise and license expenses
47

 
65

 
27
 
145

 
146

 
1
Closures and impairment (income) expenses
7

 
3

 
(99)
 
47

 
30

 
(58)
Refranchising (gain) loss
(25
)
 
2

 
NM
 
(85
)
 
60

 
NM
Other (income) expense
(15
)
 
(3
)
 
NM
 
(50
)
 
(12
)
 
NM
Total costs and expenses, net
2,662

 
2,824

 
6
 
7,234

 
7,674

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
654

 
603

 
8
 
1,709

 
1,480

 
15
Interest expense, net
87

 
32

 
NM
 
164

 
99

 
(67)
Income before income taxes
567

 
571

 
(1)
 
1,545

 
1,381

 
12
Income tax (benefit) provision
(65
)
 
145

 
NM
 
183

 
358

 
49
Net income - including noncontrolling interests
632

 
426

 
48
 
1,362

 
1,023

 
33
Net income (loss) - noncontrolling interests
10

 
5

 
(81)
 
10

 
5

 
(81)
Net income - YUM! Brands, Inc.
$
622

 
$
421

 
48
 
$
1,352

 
$
1,018

 
33
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
(11.6
)%
 
25.3
%
 
36.9 ppts.
 
11.8
%
 
25.9
%
 
14.1 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.59

 
$
0.97

 
64
 
$
3.33

 
$
2.33

 
43
Average shares outstanding
392

 
436

 
10
 
406

 
437

 
7
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS Data
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.56

 
$
0.95

 
64
 
$
3.28

 
$
2.29

 
43
Average shares outstanding
398

 
444

 
10
 
412

 
445

 
7
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
—

 
$
—

 
 
 
$
0.92

 
$
0.82

 
 
 
See accompanying notes.

 Percentages may not recompute due to rounding.


8

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

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/3/16
 
9/5/15
 
B/(W)
 
9/3/16
 
9/5/15
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
1,848

 
$
1,935

 
(4)
 
$
4,684

 
$
4,778

 
(2)
Franchise and license fees and income
35

 
34

 
2
 
90

 
83

 
8
Total revenues
1,883

 
1,969

 
(4)
 
4,774

 
4,861

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
514

 
611

 
16
 
1,361

 
1,518

 
10
Payroll and employee benefits
376

 
356

 
(6)
 
963

 
933

 
(3)
Occupancy and other operating expenses
547

 
589

 
7
 
1,420

 
1,481

 
4
Company restaurant expenses
1,437

 
1,556

 
8
 
3,744

 
3,932

 
5
General and administrative expenses
102

 
90

 
(14)
 
270

 
258

 
(5)
Franchise and license expenses
6

 
6

 
(5)
 
15

 
15

 
—
Closures and impairment (income) expenses
5

 
3

 
(42)
 
36

 
22

 
(65)
Other (income) expense
(15
)
 
(13
)
 
33
 
(42
)
 
(27
)
 
61
Total costs and expenses, net
1,535

 
1,642

 
7
 
4,023

 
4,200

 
4
Operating Profit
$
348

 
$
327

 
7
 
$
751

 
$
661

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
27.8

 
31.6

 
3.8 ppts.
 
29.1

 
31.8

 
2.7 ppts.
Payroll and employee benefits
20.4

 
18.4

 
(2.0 ppts.)
 
20.5

 
19.5

 
(1.0 ppts.)
Occupancy and other operating expenses
29.6

 
30.4

 
0.8 ppts.
 
30.3

 
31.0

 
0.7 ppts.
Restaurant margin
22.2
%
 
19.6
%
 
2.6 ppts.
 
20.1
%
 
17.7
%
 
2.4 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
18.5
%
 
16.6
%
 
1.9 ppts.
 
15.7
%
 
13.6
%
 
2.1 ppts.
 
See accompanying notes.
  
Percentages may not recompute due to rounding.



9

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

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/3/16
 
9/5/15
 
B/(W)
 
9/3/16
 
9/5/15
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
521

 
$
526

 
(1)
 
$
1,469

 
$
1,525

 
(4)
Franchise and license fees and income
202

 
195

 
4
 
591

 
584

 
1
Total revenues
723

 
721

 
—
 
2,060

 
2,109

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
178

 
182

 
2
 
499

 
526

 
5
Payroll and employee benefits
121

 
124

 
2
 
346

 
354

 
2
Occupancy and other operating expenses
146

 
152

 
4
 
409

 
432

 
5
Company restaurant expenses
445

 
458

 
3
 
1,254

 
1,312

 
4
General and administrative expenses
89

 
96

 
7
 
259

 
275

 
6
Franchise and license expenses
27

 
23

 
(17)
 
71

 
61

 
(16)
Closures and impairment (income) expenses
2

 
—

 
NM
 
7

 
3

 
NM
Other (income) expense
—

 
—

 
24
 
—

 
(1
)
 
(97)
Total costs and expenses, net
563

 
577

 
2
 
1,591

 
1,650

 
4
Operating Profit
$
160

 
$
144

 
11
 
$
469

 
$
459

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
34.2

 
34.5

 
0.3 ppts.
 
34.0

 
34.5

 
0.5 ppts.
Payroll and employee benefits
23.4

 
23.6

 
0.2 ppts.
 
23.6

 
23.2

 
(0.4 ppts.)
Occupancy and other operating expenses
27.9

 
29.0

 
1.1 ppts.
 
27.8

 
28.4

 
0.6 ppts.
Restaurant margin
14.5
%
 
12.9
%
 
1.6 ppts.
 
14.6
%
 
13.9
%
 
0.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
22.2
%
 
20.0
%
 
2.2 ppts.
 
22.8
%
 
21.8
%
 
1.0 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



10

YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/3/16
 
9/5/15
 
B/(W)
 
9/3/16
 
9/5/15
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
106

 
$
141

 
(25)
 
$
363

 
$
430

 
(16)
Franchise and license fees and income
124

 
123

 
1
 
378

 
372

 
2
Total revenues
230

 
264

 
(13)
 
741

 
802

 
(8)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
29

 
40

 
25
 
100

 
120

 
16
Payroll and employee benefits
36

 
44

 
21
 
116

 
133

 
13
Occupancy and other operating expenses
37

 
46

 
19
 
117

 
135

 
13
Company restaurant expenses
102

 
130

 
21
 
333

 
388

 
14
General and administrative expenses
57

 
60

 
7
 
163

 
180

 
10
Franchise and license expenses
12

 
10

 
(15)
 
32

 
28

 
(14)
Closures and impairment (income) expenses
—

 
(1
)
 
NM
 
3

 
2

 
(51)
Other (income) expense
(2
)
 
—

 
NM
 
(2
)
 
(2
)
 
(20)
Total costs and expenses, net
169

 
199

 
15
 
529

 
596

 
11
Operating Profit
$
61

 
$
65

 
(6)
 
$
212

 
$
206

 
3
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
28.0

 
28.0

 
—
 
27.6

 
27.8

 
0.2 ppts.
Payroll and employee benefits
33.2

 
31.4

 
(1.8 ppts.)
 
31.8

 
31.0

 
(0.8 ppts.)
Occupancy and other operating expenses
35.7

 
32.8

 
(2.9 ppts.)
 
32.4

 
31.4

 
(1.0 ppts.)
Restaurant margin
3.1
%
 
7.8
%
 
(4.7 ppts.)
 
8.2
%
 
9.8
%
 
(1.6 ppts.)
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
26.7
%
 
24.7
%
 
2.0 ppts.
 
28.6
%
 
25.7
%
 
2.9 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



11

YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
9/3/16
 
9/5/15
 
B/(W)
 
9/3/16
 
9/5/15
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
366

 
$
366

 
—
 
$
1,044

 
$
1,073

 
(3)
Franchise and license fees and income
115

 
107

 
8
 
326

 
309

 
6
Total revenues
481

 
473

 
2
 
1,370

 
1,382

 
(1)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
96

 
100

 
5
 
270

 
298

 
9
Payroll and employee benefits
105

 
101

 
(4)
 
302

 
300

 
(1)
Occupancy and other operating expenses
86

 
84

 
(1)
 
246

 
244

 
(1)
Company restaurant expenses
287

 
285

 
—
 
818

 
842

 
3
General and administrative expenses
49

 
50

 
4
 
140

 
141

 
1
Franchise and license expenses
3

 
5

 
42
 
12

 
11

 
(6)
Closures and impairment (income) expenses
—

 
1

 
56
 
1

 
3

 
60
Other (income) expense
(1
)
 
—

 
NM
 
(2
)
 
(1
)
 
53
Total costs and expenses, net
338

 
341

 
1
 
969

 
996

 
3
Operating Profit
$
143

 
$
132

 
9
 
$
401

 
$
386

 
4
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
26.1

 
27.3

 
1.2 ppts.
 
25.9

 
27.8

 
1.9 ppts.
Payroll and employee benefits
28.6

 
27.5

 
(1.1 ppts.)
 
28.9

 
27.9

 
(1.0 ppts.)
Occupancy and other operating expenses
23.6

 
23.1

 
(0.5 ppts.)
 
23.6

 
22.7

 
(0.9 ppts.)
Restaurant margin
21.7
%
 
22.1
%
 
(0.4 ppts.)
 
21.6
%
 
21.6
%
 
—
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
29.8
%
 
27.8
%
 
2.0 ppts.
 
29.3
%
 
27.9
%
 
1.4 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



12

YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
 
(unaudited)
 
 
 
9/3/16
 
12/26/15
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
2,885

 
$
737

Accounts and notes receivable, less allowance: $20 in 2016 and $16 in 2015
440

 
377

Inventories
255

 
229

Prepaid expenses and other current assets
287

 
241

Advertising cooperative assets, restricted
136

 
103

Total Current Assets
4,003

 
1,687

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $3,698 in
 
 
 
2016 and $3,643 in 2015
4,010

 
4,189

Goodwill
635

 
656

Intangible assets, net
258

 
271

Investments in unconsolidated affiliates
64

 
61

Other assets
562

 
521

Deferred income taxes
900

 
676

Total Assets
$
10,432

 
$
8,061

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
2,058

 
$
1,985

Income taxes payable
57

 
77

Short-term borrowings
48

 
922

Advertising cooperative liabilities
136

 
103

Total Current Liabilities
2,299

 
3,087

 
 
 
 
Long-term debt
9,119

 
3,041

Other liabilities and deferred credits
844

 
958

Total Liabilities
12,262

 
7,086

 
 
 
 
Redeemable noncontrolling interest
—

 
6

 
 
 
 
Shareholders' Equity (Deficit)
 
 
 
Common stock, no par value, 750 shares authorized; 376 shares and 420 shares issued in 2016 and 2015, respectively
—

 
—

Retained earnings (accumulated deficit)
(1,572
)
 
1,150

Accumulated other comprehensive income (loss)
(324
)
 
(239
)
Total Shareholders' Equity (Deficit) - YUM! Brands, Inc.
(1,896
)
 
911

Noncontrolling interests
66

 
58

Total Shareholders' Equity (Deficit)
(1,830
)
 
969

Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity (Deficit)
$
10,432

 
$
8,061

 See accompanying notes.



13

YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year to date
 
9/3/16

9/5/15
Cash Flows - Operating Activities
 
 
 
Net income - including noncontrolling interests
$
1,362

 
$
1,023

Depreciation and amortization
489

 
505

Closures and impairment (income) expenses
47

 
30

Refranchising (gain) loss
(85
)
 
60

Contributions to defined benefit pension plans
(4
)
 
(83
)
Deferred income taxes
(215
)
 
(42
)
Equity income from investments in unconsolidated affiliates
(44
)
 
(31
)
Distributions of income received from unconsolidated affiliates
18

 
9

Excess tax benefit from share-based compensation
(66
)
 
(46
)
Share-based compensation expense
41

 
40

Changes in accounts and notes receivable
(31
)
 
(15
)
Changes in inventories
(32
)
 
62

Changes in prepaid expenses and other current assets
5

 
(27
)
Changes in accounts payable and other current liabilities
146

 
201

Changes in income taxes payable
41

 
111

Changes in restricted cash
(82
)
 
(4
)
Other, net
(48
)
 
24

Net Cash Provided by Operating Activities
1,542

 
1,817

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(546
)
 
(642
)
Proceeds from refranchising of restaurants
165

 
72

Other, net
35

 
48

Net Cash Used in Investing Activities
(346
)
 
(522
)
 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt
6,900

 
—

Repayments of long-term debt
(308
)
 
(10
)
Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
1,400

 
—

More than three months - payments
(2,000
)
 
—

Three months or less, net
—

 
—

Revolving credit facilities, three months or less, net
(701
)
 
(116
)
Repurchase shares of Common Stock
(3,652
)
 
(370
)
Excess tax benefit from share-based compensation
66

 
46

Dividends paid on Common Stock
(559
)
 
(532
)
Debt establishment costs
(86
)
 
—

Other, net
(77
)
 
(37
)
Net Cash Provided by (Used in) Financing Activities
983

 
(1,019
)
Effect of Exchange Rate on Cash and Cash Equivalents
(31
)
 
7

Net Increase in Cash and Cash Equivalents
2,148

 
283

Cash and Cash Equivalents - Beginning of Period
737

 
578

Cash and Cash Equivalents - End of Period
$
2,885

 
$
861

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 earnings before Special Items, our effective tax rate before Special Items, and Operating profit on a basis before Special Items and foreign currency translation ("Core Operating Profit"). Included in Special Items are costs associated with the planned spin-off of the China business and YUM recapitalization, costs associated with a voluntary retirement program offered to U.S. employees, costs associated with the KFC U.S. Acceleration Agreement, certain refranchising initiatives, a U.S. tax benefit related to previous impairments of our Little Sheep investment, and the impact of the redemption of the Little Sheep noncontrolling interest. These amounts are described in (c), (d), (e), (f), (g) and (h) in the accompanying notes.   

The Company excludes Special Items and foreign currency translation impacts for the purposes of evaluating performance internally. Special Items are not included in any of our externally reported segment results.  Additionally, we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations, which is quantified by translating current year results at prior year average exchange rates. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP.  Rather, the Company believes that the presentation of earnings before Special Items, our effective tax rate before Special Items, and Core Operating Profit provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended September 3, 2016 and September 5, 2015 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. 
 
 
Quarter ended
 
Year to date
 
 
9/3/16
 
9/5/15
 
9/3/16
 
9/5/15
Detail of Special Items
 
 
 
 
 
 
 
 
Costs associated with the planned spin-off of the China business and YUM recapitalization(c)
 
$
(10
)
 
$
—

 
$
(29
)
 
$
—

Voluntary Retirement Program costs(d)
 
(20
)
 
—

 
(20
)
 
—

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

 
(21
)
 
(17
)
 
(31
)
Refranchising initiatives(f)
 
21

 
(4
)
 
77

 
(69
)
Other Special Items Income (Expense)
 
(5
)
 
(1
)
 
(11
)
 
1

Special Items Income (Expense) - Operating Profit
 
(14
)
 
(26
)
 
—

 
(99
)
Tax Benefit (Expense) on Special Items(g)
 
202

 
4

 
193

 
5

Special Items Income (Expense), net of tax - including noncontrolling interests
 
188

 
(22
)
 
193

 
(94
)
Special Items Income (Expense), net of tax - noncontrolling interests(h)
 
—

 
—

 
(8
)
 
—

Special Items Income (Expense), net of tax - Yum! Brands, Inc.
 
$
188

 
$
(22
)
 
$
201

 
$
(94
)
Average diluted shares outstanding
 
398

 
444

 
412

 
445

Special Items diluted EPS
 
$
0.47

 
$
(0.05
)
 
$
0.49

 
$
(0.21
)
 
 
 
 
 
 
 
 
 
Reconciliation of Core Operating Profit to GAAP Operating Profit
 
 
 
 
 
 
 
 
Core Operating Profit
 
$
702

 
$
629

 
$
1,787

 
$
1,579

Special Items Income (Expense)
 
(14
)
 
(26
)
 
—

 
(99
)
Foreign Currency Impact on Reported Operating Profit
 
(34
)
 
N/A

 
(78
)
 
N/A

GAAP Operating Profit
 
$
654

 
$
603

 
$
1,709

 
$
1,480

 
 
 
 
 
 
 
 
 
Reconciliation of EPS Before Special Items to GAAP EPS
 
 
 
 
 
 
 
 
Diluted EPS Before Special Items
 
$
1.09

 
$
1.00

 
$
2.79

 
$
2.50

Special Items EPS
 
0.47

 
(0.05
)
 
0.49

 
(0.21
)
GAAP EPS
 
$
1.56

 
$
0.95

 
$
3.28

 
$
2.29

 
 
 
 
 
 
 
 
 
Reconciliation of Effective Tax Rate Before Special Items to GAAP Effective Tax Rate
 
 
 
 
 
 
 
 
Effective Tax Rate Before Special Items
 
23.5
 %
 
24.8
%
 
24.3
 %
 
24.6
%
Impact on Tax Rate as a result of Special Items
 
(35.1
)%
 
0.5
%
 
(12.5
)%
 
1.3
%
GAAP Effective Tax Rate
 
(11.6
)%
 
25.3
%
 
11.8
 %
 
25.9
%


15

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

Quarter Ended 9/3/16
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,883

 
$
723

 
$
230

 
$
481

 
$
(1
)
 
$
3,316

 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,437

 
445

 
102

 
287

 
—

 
2,271

General and administrative expenses
102

 
89

 
57

 
49

 
80

 
377

Franchise and license expenses
6

 
27

 
12

 
3

 
(1
)
 
47

Closures and impairment (income) expenses
5

 
2

 
—

 
—

 
—

 
7

Refranchising (gain) loss
—

 
—

 
—

 
—

 
(25
)
 
(25
)
Other (income) expense
(15
)
 
—

 
(2
)
 
(1
)
 
3

 
(15
)
 
1,535

 
563

 
169

 
338

 
57

 
2,662

Operating Profit (loss)
$
348

 
$
160

 
$
61

 
$
143

 
$
(58
)
 
$
654



Quarter Ended 9/5/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,969

 
$
721

 
$
264

 
$
473

 
$
—

 
$
3,427

 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,556

 
458

 
130

 
285

 
—

 
2,429

General and administrative expenses
90

 
96

 
60

 
50

 
32

 
328

Franchise and license expenses
6

 
23

 
10

 
5

 
21

 
65

Closures and impairment (income) expenses
3

 
—

 
(1
)
 
1

 
—

 
3

Refranchising (gain) loss
—

 
—

 
—

 
—

 
2

 
2

Other (income) expense
(13
)
 
—

 
—

 
—

 
10

 
(3
)
 
1,642

 
577

 
199

 
341

 
65

 
2,824

Operating Profit (loss)
$
327

 
$
144

 
$
65

 
$
132

 
$
(65
)
 
$
603



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

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

16

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

Year to Date 9/3/16
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
4,774

 
$
2,060

 
$
741

 
$
1,370

 
$
(2
)
 
$
8,943

 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
3,744

 
1,254

 
333

 
818

 
—

 
6,149

General and administrative expenses
270

 
259

 
163

 
140

 
196

 
1,028

Franchise and license expenses
15

 
71

 
32

 
12

 
15

 
145

Closures and impairment (income) expenses
36

 
7

 
3

 
1

 
—

 
47

Refranchising (gain) loss
—

 
—

 
—

 
—

 
(85
)
 
(85
)
Other (income) expense
(42
)
 
—

 
(2
)
 
(2
)
 
(4
)
 
(50
)
 
4,023

 
1,591

 
529

 
969

 
122

 
7,234

Operating Profit (loss)
$
751

 
$
469

 
$
212

 
$
401

 
$
(124
)
 
$
1,709



Year to Date 9/5/15
China
 
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
4,861

 
$
2,109

 
$
802

 
$
1,382

 
$
—

 
$
9,154

 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
3,932

 
1,312

 
388

 
842

 
—

 
6,474

General and administrative expenses
258

 
275

 
180

 
141

 
122

 
976

Franchise and license expenses
15

 
61

 
28

 
11

 
31

 
146

Closures and impairment (income) expenses
22

 
3

 
2

 
3

 
—

 
30

Refranchising (gain) loss
—

 
—

 
—

 
—

 
60

 
60

Other (income) expense
(27
)
 
(1
)
 
(2
)
 
(1
)
 
19

 
(12
)
 
4,200

 
1,650

 
596

 
996

 
232

 
7,674

Operating Profit (loss)
$
661

 
$
459

 
$
206

 
$
386

 
$
(232
)
 
$
1,480



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

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


17

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


(a)
Amounts presented as of and for the quarter and year to date ended September 3, 2016 are preliminary.

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

(c)
In connection with our planned separation of the YUM China business into an independent, publicly-traded company and the related recapitalization of YUM, we incurred $10 million and $29 million of costs in the quarter and year to date ended September 3, 2016, respectively, which were recorded in General and administrative ("G&A") expenses.

(d)
During the quarter ended September 3, 2016, YUM offered a voluntary retirement program to certain U.S. employees. This program will provide separation pay and benefits to employees who elected to voluntarily separate from YUM. Based on the employees electing to terminate their employment, we recorded a Special Items charge of $20 million in G&A during the quarter ended September 3, 2016.

(e)
During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement we recognized Special Item charges of $21 million for the quarter ended September 5, 2015. During the years to date ended September 3, 2016 and September 5, 2015, we recognized Special Item charges of $17 million and $31 million, respectively. The majority of these costs were recorded in Franchise and license expense. These charges primarily related to the funding of investments for new back-of-house equipment for franchisees.

(f)
We have historically recorded refranchising gains and losses in the U.S. as Special Items due to the scope of our U.S. refranchising program and the volatility in associated gains and losses. Beginning in 2016, we are also including all international refranchising gains and losses, excluding China, in Special Items. The inclusion in Special Items of these additional international refranchising gains and losses is the result of the anticipated size and volatility of refranchising initiatives outside the U.S. that will take place in connection with our previously announced plans to have 96% franchise ownership by the end of 2017. During the quarters ended September 3, 2016 and September 5, 2015 we recorded net refranchising gains of $21 million and net refranchising losses of $4 million, respectively, that have been reflected as Special Items. During the years to date ended September 3, 2016 and September 5, 2015 we recorded net refranchising gains of $77 million and net refranchising losses of $69 million, respectively, that have been reflected as Special Items.

The third quarter and year to date 2016 net refranchising gains relate primarily to refranchising Pizza Hut and Taco Bell restaurants in the U.S.

In 2010 we refranchised our then remaining Company-operated restaurants in Mexico. To the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. During the quarter ended June 13, 2015 we initiated plans to sell this real estate and determined it was held for sale in accordance with GAAP. On September 28, 2015, subsequent to our quarter ended September 5, 2015, we sold the real estate for approximately $58 million. While these proceeds exceeded the book value of the real estate, the sale represented a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we were required to include accumulated translation losses associated with our Mexican business within our carrying value when performing impairment evaluations in the quarters subsequent to determining that the real estate was held for sale. We recorded charges of $12 million and $80 million in the quarter and year to date ended September 5, 2015, respectively, representing the excess of the sum of the book value of the real estate and other related assets and our accumulated translation losses over the then expected sales price. Consistent with the classification of the original market refranchising transaction, these charges were classified as Refranchising Loss within Special Items. We did not record any additional charges as a result of the consummation of the sale.

Additionally, during the quarter and year to date ended September 5, 2015 we recognized Special Items charges of $8 million and $13 million, respectively, within Refranchising (gain) loss associated with the decision to offer to refranchise our Pizza Hut Korea restaurants.


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(g)
During the quarter ended September 3, 2016, we recorded a tax benefit of $198 million in Special Items due to our ability to now realize tax benefits associated with previous impairment losses related to Little Sheep that were recognized as Special Items in 2013 and 2014.

(h)
During the quarter ended June 11, 2016, the Little Sheep founding shareholders exercised their redemption rights and sold their remaining 7% Little Sheep ownership interest to YUM. The difference between the purchase price and the carrying value of this redeemable noncontrolling interest was recorded as an $8 million loss attributable to noncontrolling interest, which was reflected as a Special Item consistent with the 2012 Little Sheep acquisition gain and subsequent impairments.



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