UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ___________ FORM 10-Q (Mark One) [Ÿ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 19, 2016 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _________________ 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ü] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer: [ü] Accelerated filer: [ ] Non-accelerated filer: [ ] Smaller reporting company: [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ü] The number of shares outstanding of the Registrant’s Common Stock as of April 20, 2016 was 407,440,778 shares. YUM! BRANDS, INC. INDEX Page No. Part I. Financial Information Item 1 - Financial Statements Condensed Consolidated Statements of Income - Quarters ended March 19, 2016 and March 21, 2015 3 Condensed Consolidated Statements of Comprehensive Income - Quarters ended March 19, 2016 and March 21, 2015 4 Condensed Consolidated Statements of Cash Flows – Quarters ended March 19, 2016 and March 21, 2015 5 Condensed Consolidated Balance Sheets – March 19, 2016 and December 26, 2015 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 29 Item 4 – Controls and Procedures 29 Report of Independent Registered Public Accounting Firm 30 Part II. Other Information and Signatures Item 1 – Legal Proceedings 31 Item 1A – Risk Factors 31 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 31 Item 6 – Exhibits 32 Signatures 33 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions, except per share data) Quarter ended Revenues 3/19/2016 3/21/2015 Company sales $ 2,165 $ 2,179 Franchise and license fees and income 454 443 Total revenues 2,619 2,622 Costs and Expenses, Net Company restaurant expenses Food and paper 649 688 Payroll and employee benefits 486 493 Occupancy and other operating expenses 597 616 Company restaurant expenses 1,732 1,797 General and administrative expenses 286 295 Franchise and license expenses 48 34 Closures and impairment (income) expenses 3 3 Refranchising (gain) loss (7) (10) Other (income) expense (7) (3) Total costs and expenses, net 2,055 2,116 Operating Profit 564 506 Interest expense, net 37 34 Income Before Income Taxes 527 472 Income tax provision 132 111 Net income – including noncontrolling interests 395 361 Net income (loss) – noncontrolling interests 4 (1) Net Income – YUM! Brands, Inc. $ 391 $ 362 Basic Earnings Per Common Share $ 0.94 $ 0.83 Diluted Earnings Per Common Share $ 0.93 $ 0.81 Dividends Declared Per Common Share $ 0.46 $ — See accompanying Notes to Condensed Consolidated Financial Statements. 3 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) Quarter ended 3/19/2016 3/21/2015 Net Income - including noncontrolling interests $ 395 $ 361 Other comprehensive income (loss), net of tax Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature Adjustments and gains (losses) arising during the period (71) (91) (71) (91) Tax (expense) benefit 3 2 (68) (89) Changes in pension and post-retirement benefits Unrealized gains (losses) arising during the period 1 — Reclassification of (gains) losses into Net Income 3 11 4 11 Tax (expense) benefit (1) (4) 3 7 Changes in derivative instruments Unrealized gains (losses) arising during the period (5) 13 Reclassification of (gains) losses into Net Income 10 (13) 5 — Tax (expense) benefit (1) — 4 — Other comprehensive income (loss), net of tax (61) (82) Comprehensive Income - including noncontrolling interests 334 279 Comprehensive Income (loss) - noncontrolling interests 4 (2) Comprehensive Income - YUM! Brands, Inc. $ 330 $ 281 See accompanying Notes to Condensed Consolidated Financial Statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) Quarter ended 3/19/2016 3/21/2015 Cash Flows – Operating Activities Net Income – including noncontrolling interests $ 395 $ 361 Depreciation and amortization 136 139 Closures and impairment (income) expenses 3 3 Refranchising (gain) loss (7) (10) Contributions to defined benefit pension plans (2) (76) Deferred income taxes (25) (29) Equity income from investments in unconsolidated affiliates (16) (9) Excess tax benefits from share-based compensation (11) (19) Share-based compensation expense 13 15 Changes in accounts and notes receivable 33 3 Changes in inventories 17 21 Changes in prepaid expenses and other current assets — (27) Changes in accounts payable and other current liabilities 66 113 Changes in income taxes payable 95 51 Other, net (38) (20) Net Cash Provided by Operating Activities 659 516 Cash Flows – Investing Activities Capital spending (160) (227) Changes in short-term investments, net (51) (24) Proceeds from refranchising of restaurants 9 22 Other, net 1 33 Net Cash Used in Investing Activities (201) (196) Cash Flows – Financing Activities Repayments of long-term debt (2) (3) Short-term borrowings by original maturity More than three months - proceeds 1,400 — More than three months - payments — — Three months or less, net — — Revolving credit facilities, three months or less, net (524) 53 Repurchase shares of Common Stock (925) (124) Excess tax benefits from share-based compensation 11 19 Employee stock option proceeds 1 10 Dividends paid on Common Stock (192) (178) Other, net (12) (23) Net Cash Used in Financing Activities (243) (246) Effect of Exchange Rates on Cash and Cash Equivalents (18) 23 Net Increase in Cash and Cash Equivalents 197 97 Cash and Cash Equivalents - Beginning of Period 737 578 Cash and Cash Equivalents - End of Period $ 934 $ 675 See accompanying Notes to Condensed Consolidated Financial Statements. 5 CONDENSED CONSOLIDATED BALANCE SHEETS YUM! BRANDS, INC. AND SUBSIDIARIES (in millions) (Unaudited) 3/19/2016 12/26/2015 ASSETS Current Assets Cash and cash equivalents $ 934 $ 737 Accounts and notes receivable, net 418 377 Inventories 210 229 Prepaid expenses and other current assets 279 241 Advertising cooperative assets, restricted 122 103 Total Current Assets 1,963 1,687 Property, plant and equipment, net 4,111 4,189 Goodwill 644 656 Intangible assets, net 265 271 Investments in unconsolidated affiliates 36 61 Other assets 500 521 Deferred income taxes 702 676 Total Assets $ 8,221 $ 8,061 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable and other current liabilities $ 2,055 $ 1,985 Income taxes payable 150 77 Short-term borrowings 2,321 922 Advertising cooperative liabilities 122 103 Total Current Liabilities 4,648 3,087 Long-term debt 2,510 3,041 Other liabilities and deferred credits 846 958 Total Liabilities 8,004 7,086 Redeemable noncontrolling interest 7 6 Shareholders’ Equity Common Stock, no par value, 750 shares authorized; 407 and 420 shares issued in 2016 and 2015, respectively 2 — Retained earnings 454 1,150 Accumulated other comprehensive income (loss) (300) (239) Total Shareholders’ Equity – YUM! Brands, Inc. 156 911 Noncontrolling interests 54 58 Total Shareholders’ Equity 210 969 Total Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity $ 8,221 $ 8,061 See accompanying Notes to Condensed Consolidated Financial Statements. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tabular amounts in millions, except per share data) Note 1 - Financial Statement Presentation We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information