Yum Brands Financial Statement Analysis

Background Yum Brands Incorporated is the world’s largest fast-food, or quick-service restaurant (QSR), company in terms of restaurants, which numbered over 37,000 at the end of 2010. It currently operates five restaurant chains, but by the end of 2011, that number will decrease to three: KFC, Pizza Hut, and Taco Bell. The remaining two chains, A&W and Long John Silver’s, will be sold in the 4th quarter of 2011 to companies formed by their franchise holders. As of November, 2011, Yum is in the process of purchasing a Chinese hot pot chain, Little Sheep. It has received government approval and is awaiting shareholder approval. Yum started as the restaurant division of food and beverage giant PepsiCo. In 1997, facing increasing competitive pressures, PepsiCo decided to focus its business strategy on its core beverage and snacks portfolio, spinning off the restaurant division as Tricon Global Restaurants. In 2002, Tricon changed its name to Yum Brands and added A&W and Long John Silver’s to the portfolio.

Business Model Yum is organized as a cooperative multidivisional corporation. There are currently six operating segments: KFC (U.S.), Pizza Hut (U.S.), Taco Bell (U.S.), Long John Silver’s / A&W (U.S.), Yum Restaurants International (YRI) and Yum Restaurants China. On , Yum announced that it would be creating a new segment, Yum Restaurants India. For financial reporting purposes, Yum consolidates the four segments into a single reporting segment. As a result, data used for forecasting revenues will include the Long John Silver’s / A&W segment, although Yum has stated that the sale would not have a material effect on earnings or cash flow. Yum operates under the related constrained organizational strategy. Although the operating divisions are separate, a centralized corporate office controls centralized strategic planning, develops an operational framework for all the divisions, and marketing. This company structure easily allows joint