YUM! Brands Inc. (NYSE:YUM)

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YUM! Brands Inc., effective income tax rate (EITR) reconciliation

	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
U.S. federal statutory tax rate	35.00%	35.00%	35.00%	35.00%	35.00%
State income tax, net of federal tax benefit	0.70%	0.60%	0.20%	0.20%	0.10%
Statutory rate differential attributable to foreign operations	-11.80%	-11.70%	-11.40%	-7.70%	-13.10%
Adjustments to reserves and prior years	0.70%	-0.30%	3.10%	-2.20%	1.40%
Net benefit from LJS and A&W divestitures	0.00%	0.00%	0.00%	0.00%	-4.30%
Change in valuation allowances	3.00%	2.40%	1.50%	0.60%	1.30%
Other, net	-0.30%	2.50%	3.00%	-0.90%	-0.90%
Effective income tax rate	27.30%	28.50%	31.40%	25.00%	19.50%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

The effective income tax rate (EITR) exhibited significant volatility between 2011 and 2015, starting at 19.50% and peaking at 31.40% in 2013 before moderating to 27.30% by the end of 2015.

Statutory Rate Reconciliation: While the U.S. federal statutory tax rate remained constant at 35.00% throughout the period, the EITR consistently trended lower. This indicates a systemic reliance on tax attributes and geographic differentials to mitigate the total tax burden.
Impact of Foreign Operations: The statutory rate differential attributable to foreign operations served as the primary downward driver for the EITR. This benefit fluctuated between -7.70% in 2012 and -13.10% in 2011, concluding the period at -11.80% in 2015, which underscores the influence of international earnings on the global tax strategy.
Incremental Tax Pressures: Two consistent upward pressures on the EITR were identified: state income taxes and valuation allowances. State income taxes rose steadily from 0.10% in 2011 to 0.70% in 2015. Simultaneously, the change in valuation allowances increased from 1.30% in 2011 to 3.00% in 2015, contributing to the overall increase in the EITR over time.
Non-Recurring and Volatile Adjustments: The exceptionally low EITR in 2011 was supported by a one-time net benefit of -4.30% resulting from LJS and A&W divestitures. Additionally, adjustments to reserves and prior years showed significant volatility, ranging from a benefit of -2.20% in 2012 to a cost of 3.10% in 2013, which accounts for some of the year-over-year fluctuations in the final tax rate.

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YUM! Brands Inc., components of deferred tax assets and liabilities

US$ in millions

	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
Operating losses	239)	271)	310)	495)	590)
Tax credit carryforwards	282)	162)	—)	—)	—)
Employee benefits	154)	238)	182)	251)	259)
Share-based compensation	126)	119)	118)	108)	106)
Self-insured casualty claims	36)	42)	48)	50)	47)
Lease-related liabilities	112)	119)	120)	115)	137)
Various liabilities	82)	73)	88)	82)	72)
Property, plant and equipment	33)	39)	42)	39)	—)
Deferred income and other	86)	102)	58)	57)	49)
Gross deferred tax assets	1,150)	1,165)	966)	1,197)	1,260)
Deferred tax asset valuation allowances	(250)	(228)	(203)	(358)	(368)
Net deferred tax assets	900)	937)	763)	839)	892)
Intangible assets, including goodwill	(130)	(148)	(233)	(256)	(147)
Property, plant and equipment	(56)	(63)	(93)	(95)	(92)
Other	(70)	(104)	(55)	(48)	(53)
Gross deferred tax liabilities	(256)	(315)	(381)	(399)	(292)
Net deferred tax assets (liabilities)	644)	622)	382)	440)	600)

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

The net deferred tax asset position experienced notable volatility between 2011 and 2015. After starting at 600 million USD in 2011, the net position declined to a period low of 382 million USD in 2013, before recovering significantly to reach 644 million USD by the end of 2015.

Deferred Tax Asset Composition: A consistent downward trend is observed in operating losses, which decreased from 590 million USD in 2011 to 239 million USD in 2015. Tax credit carryforwards emerged as a significant component in the latter part of the period, appearing at 162 million USD in 2014 and increasing to 282 million USD in 2015. Employee benefit-related assets showed instability, peaking at 259 million USD in 2011 and ending at 154 million USD in 2015. Share-based compensation remained relatively stable with a slight upward trajectory, rising from 106 million USD to 126 million USD over the five-year span.
Valuation Allowances and Net Assets: Gross deferred tax assets peaked in 2011 at 1,260 million USD and reached a low in 2013 at 966 million USD. Concurrently, deferred tax asset valuation allowances decreased from 368 million USD in 2011 to 250 million USD in 2015, indicating an increased probability of realizing the tax benefits associated with these assets. This reduction in allowances contributed to the stabilization of net deferred tax assets at 900 million USD by 2015.
Deferred Tax Liability Trends: Gross deferred tax liabilities reached a peak of 399 million USD in 2012 before trending downward to 256 million USD by 2015. The primary driver of these liabilities was intangible assets, including goodwill, which peaked at 256 million USD in 2012 and contracted to 130 million USD by 2015. Liabilities related to property, plant, and equipment also saw a gradual reduction, moving from 92 million USD in 2011 to 56 million USD in 2015.

Overall, the financial trajectory indicates a shift in the composition of tax assets, moving away from a reliance on operating losses toward tax credit carryforwards, while simultaneously reducing the gross deferred tax liability burden.

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YUM! Brands Inc., deferred tax assets and liabilities, classification

US$ in millions

	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
Deferred income tax assets, current	—)	93)	123)	111)	112)
Deferred income tax assets, long-term	676)	571)	399)	481)	549)
Deferred income tax liabilities, current (included in Accounts payable and other current liabilities)	—)	2)	2)	5)	16)
Deferred income tax liabilities, long-term (included in Other liabilities and deferred credits)	32)	40)	138)	147)	45)

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

The deferred tax position is characterized by a consistent predominance of deferred tax assets over deferred tax liabilities from 2011 through 2015. While current assets and liabilities remained relatively low or decreased over the period, long-term deferred tax assets experienced significant growth, particularly in the latter years of the analysis.

Deferred Income Tax Assets: Current deferred tax assets remained relatively stable between 2011 and 2013, peaking at 123 million USD in 2013 before declining to 93 million USD in 2014. In contrast, long-term deferred tax assets exhibited greater volatility, decreasing from 549 million USD in 2011 to a low of 399 million USD in 2013. Following this trough, a substantial upward trend occurred, with values rising to 571 million USD in 2014 and reaching a peak of 676 million USD by December 26, 2015.
Deferred Income Tax Liabilities: Current deferred tax liabilities showed a sharp downward trend, falling from 16 million USD in 2011 to 2 million USD by 2013, remaining at that level through 2014. Long-term deferred tax liabilities experienced a period of temporary elevation, spiking from 45 million USD in 2011 to 147 million USD in 2012 and 138 million USD in 2013. This trend reversed sharply in 2014, with liabilities dropping to 40 million USD and further decreasing to 32 million USD by 2015.
Net Deferred Tax Classification: The overall balance shifts toward a stronger net deferred tax asset position over time. The divergence between the increasing long-term assets and the decreasing long-term liabilities indicates a growing future tax benefit. The concentration of these items in long-term classifications suggests that the timing differences driving these balances are not expected to reverse within the immediate current operating cycle.

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YUM! Brands Inc., Financial Data: Reported vs. Adjusted

YUM! Brands Inc., adjustments to financial statements

US$ in millions

	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
Adjustment to Current Assets
Current assets (as reported)	1,688)	1,646)	1,691)	1,909)	2,321)
Less: Current deferred tax assets, net	—)	93)	123)	111)	112)
Current assets (adjusted)	1,688)	1,553)	1,568)	1,798)	2,209)
Adjustment to Total Assets
Total assets (as reported)	8,075)	8,345)	8,695)	9,011)	8,834)
Less: Current deferred tax assets, net	—)	93)	123)	111)	112)
Less: Noncurrent deferred tax assets, net	676)	571)	399)	481)	549)
Total assets (adjusted)	7,399)	7,681)	8,173)	8,419)	8,173)
Adjustment to Current Liabilities
Current liabilities (as reported)	3,088)	2,411)	2,265)	2,188)	2,450)
Less: Current deferred tax liabilities, net	—)	2)	2)	5)	16)
Current liabilities (adjusted)	3,088)	2,409)	2,263)	2,183)	2,434)
Adjustment to Total Liabilities
Total liabilities (as reported)	7,100)	6,732)	6,427)	6,699)	6,918)
Less: Current deferred tax liabilities, net	—)	2)	2)	5)	16)
Less: Noncurrent deferred tax liabilities, net	32)	40)	138)	147)	45)
Total liabilities (adjusted)	7,068)	6,690)	6,287)	6,547)	6,857)
Adjustment to Shareholders’ Equity, YUM! Brands, Inc.
Shareholders’ equity, YUM! Brands, Inc. (as reported)	911)	1,547)	2,166)	2,154)	1,823)
Less: Net deferred tax assets (liabilities)	644)	622)	382)	440)	600)
Shareholders’ equity, YUM! Brands, Inc. (adjusted)	267)	925)	1,784)	1,714)	1,223)
Adjustment to Net Income, YUM! Brands, Inc.
Net income, YUM! Brands, Inc. (as reported)	1,293)	1,051)	1,091)	1,597)	1,319)
Add: Deferred income tax expense (benefit)	(89)	(172)	(24)	28)	(137)
Net income, YUM! Brands, Inc. (adjusted)	1,204)	879)	1,067)	1,625)	1,182)

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

The financial data indicates a consistent divergence between reported and adjusted figures resulting from the removal of deferred taxes. This adjustment leads to a systematic reduction in total assets and shareholders' equity over the five-year period from 2011 to 2015, suggesting that deferred tax assets constitute a substantial portion of the reported balance sheet.

Asset Valuation Impact: A downward trend is observed in both reported and adjusted assets. Total assets decreased from a reported 8,834 million USD in 2011 to 8,075 million USD in 2015. However, the adjusted total assets show a more pronounced decline, ending at 7,399 million USD in 2015. The gap between reported and adjusted total assets remained significant throughout the period, averaging approximately 600 million USD, which reflects the persistent value of deferred tax assets being removed for the adjusted analysis.
Liability and Equity Compression: While total liabilities increased from 6,918 million USD in 2011 to 7,100 million USD in 2015, the adjusted liabilities remained slightly lower than reported figures. The most critical impact is observed in shareholders' equity. Reported equity fell from 1,823 million USD in 2011 to 911 million USD in 2015. When adjusted for deferred taxes, this erosion is accelerated, with adjusted equity dropping to 267 million USD by December 2015. This indicates that a significant percentage of the reported equity is derived from deferred tax accounts rather than tangible capital or retained earnings.
Net Income Variance: Adjusted net income generally tracks the volatility of reported net income, though the relationship is non-linear. In 2012, adjusted net income was higher than reported (1,625 million USD vs 1,597 million USD), whereas in 2014, a notable discrepancy occurred where adjusted net income (879 million USD) was significantly lower than reported net income (1,051 million USD). By 2015, adjusted net income reached 1,204 million USD, remaining slightly below the reported figure of 1,293 million USD.
Liquidity and Current Ratio Shifts: Current assets show a steady decline from 2,321 million USD in 2011 to 1,688 million USD in 2015. The adjustment for deferred taxes reduced current assets in the earlier years of the period, though by 2015, reported and adjusted current assets converged at 1,688 million USD. Conversely, current liabilities increased significantly, rising from 2,450 million USD in 2011 to 3,088 million USD in 2015, further tightening the adjusted liquidity position of the entity.

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YUM! Brands Inc., Financial Ratios: Reported vs. Adjusted

YUM! Brands Inc., adjusted financial ratios

	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
Current Ratio
Reported current ratio	0.55	0.68	0.75	0.87	0.95
Adjusted current ratio	0.55	0.64	0.69	0.82	0.91
Net Profit Margin
Reported net profit margin	9.87%	7.91%	8.34%	11.71%	10.45%
Adjusted net profit margin	9.19%	6.62%	8.15%	11.92%	9.36%
Total Asset Turnover
Reported total asset turnover	1.62	1.59	1.50	1.51	1.43
Adjusted total asset turnover	1.77	1.73	1.60	1.62	1.54
Financial Leverage
Reported financial leverage	8.86	5.39	4.01	4.18	4.85
Adjusted financial leverage	27.71	8.30	4.58	4.91	6.68
Return on Equity (ROE)
Reported ROE	141.93%	67.94%	50.37%	74.14%	72.35%
Adjusted ROE	450.94%	95.03%	59.81%	94.81%	96.65%
Return on Assets (ROA)
Reported ROA	16.01%	12.59%	12.55%	17.72%	14.93%
Adjusted ROA	16.27%	11.44%	13.06%	19.30%	14.46%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

The removal of deferred taxes results in significant adjustments to the financial profile of the entity between 2011 and 2015, most notably impacting solvency and equity returns. While operational efficiency and asset utilization improved over the period, there is a clear trend of declining liquidity and sharply increasing financial leverage.

Liquidity Analysis: A consistent downward trend is observed in the current ratio. Both reported and adjusted metrics declined annually, with the reported ratio falling from 0.95 in 2011 to 0.55 in 2015. The adjusted current ratio followed a near-identical trajectory, indicating a systemic reduction in the ability to cover short-term obligations.
Profitability and Margins: Net profit margins exhibited volatility throughout the period. Reported margins peaked in 2012 at 11.71% before reaching a low of 7.91% in 2014 and recovering to 9.87% in 2015. Adjusted margins generally mirrored this volatility but showed a more pronounced dip in 2014, descending to 6.62%.
Asset Utilization: Total asset turnover demonstrated steady growth, signaling increased efficiency in generating revenue from assets. Reported turnover rose from 1.43 in 2011 to 1.62 in 2015, while adjusted turnover consistently remained higher, increasing from 1.54 to 1.77 over the same timeframe.
Solvency and Return on Investment: The most dramatic shifts occurred in financial leverage and Return on Equity (ROE). Reported financial leverage grew from 4.85 to 8.86, but the adjusted leverage surged exponentially to 27.71 by 2015. This escalation in leverage corresponds with an extraordinary increase in adjusted ROE, which rose from 96.65% in 2011 to 450.94% in 2015. Conversely, Return on Assets (ROA) remained relatively stable, with adjusted ROA moving from 14.46% to 16.27%, suggesting that the massive growth in ROE was driven primarily by capital structure changes rather than underlying asset profitability.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Current assets	1,688)	1,646)	1,691)	1,909)	2,321)
Current liabilities	3,088)	2,411)	2,265)	2,188)	2,450)
Liquidity Ratio
Current ratio¹	0.55	0.68	0.75	0.87	0.95
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets	1,688)	1,553)	1,568)	1,798)	2,209)
Adjusted current liabilities	3,088)	2,409)	2,263)	2,183)	2,434)
Liquidity Ratio
Adjusted current ratio²	0.55	0.64	0.69	0.82	0.91

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 1,688 ÷ 3,088 = 0.55

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 1,688 ÷ 3,088 = 0.55

A consistent decline in short-term liquidity is observed from 2011 through 2015. This deterioration is driven by a simultaneous contraction in current assets and a steady increase in current liabilities, resulting in a significant reduction in the company's ability to cover short-term obligations with short-term assets.

Current Asset Trends: Reported current assets decreased from 2,321 million USD in 2011 to 1,688 million USD in 2015. Adjusted current assets mirrored this downward trajectory, falling from 2,209 million USD to 1,688 million USD. The most significant declines occurred between 2011 and 2013, followed by a period of relative stabilization between 2014 and 2015.
Current Liability Trends: Current liabilities exhibited a sustained upward trend over the five-year period. Reported current liabilities rose from 2,450 million USD in 2011 to 3,088 million USD in 2015. Adjusted current liabilities followed a nearly identical path, increasing from 2,434 million USD to 3,088 million USD, indicating a growing volume of short-term debt or obligations.
Current Ratio Analysis: The reported current ratio declined steadily from 0.95 in 2011 to 0.55 in 2015. The adjusted current ratio showed an even more pronounced decrease, starting at 0.91 in 2011 and ending at 0.55 in 2015. This downward trend signifies a weakening liquidity position, as the ratio moved further below the 1.0 threshold, meaning current liabilities consistently exceeded current assets throughout the period.
Impact of Adjustments: Between 2011 and 2014, the adjusted current ratio was consistently lower than the reported current ratio, suggesting that the adjustments to assets and liabilities negatively impacted the liquidity profile. However, by 2015, the reported and adjusted figures converged at 0.55, indicating that the impact of these adjustments became negligible by the end of the observed period.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income, YUM! Brands, Inc.	1,293)	1,051)	1,091)	1,597)	1,319)
Revenues	13,105)	13,279)	13,084)	13,633)	12,626)
Profitability Ratio
Net profit margin¹	9.87%	7.91%	8.34%	11.71%	10.45%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income, YUM! Brands, Inc.	1,204)	879)	1,067)	1,625)	1,182)
Revenues	13,105)	13,279)	13,084)	13,633)	12,626)
Profitability Ratio
Adjusted net profit margin²	9.19%	6.62%	8.15%	11.92%	9.36%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Net profit margin = 100 × Net income, YUM! Brands, Inc. ÷ Revenues
= 100 × 1,293 ÷ 13,105 = 9.87%

² Adjusted net profit margin = 100 × Adjusted net income, YUM! Brands, Inc. ÷ Revenues
= 100 × 1,204 ÷ 13,105 = 9.19%

The financial performance from 2011 to 2015 is characterized by significant volatility in both net income and profit margins, marked by a peak in 2012 and a subsequent trough in 2014 before a recovery in 2015.

Adjusted Net Profit Margin Trends: The adjusted net profit margin exhibited a sharp increase from 9.36% in 2011 to a period peak of 11.92% in 2012. This growth was followed by a sustained two-year decline, falling to 8.15% in 2013 and reaching a low of 6.62% in 2014. A strong recovery occurred in 2015, with the margin rising to 9.19%, nearly returning to 2011 levels.
Comparison of Reported and Adjusted Margins: A divergence between reported and adjusted margins is observable throughout the period. In four of the five years analyzed, the adjusted net profit margin remained lower than the reported net profit margin. The sole exception occurred in 2012, when the adjusted margin of 11.92% surpassed the reported margin of 11.71%. This indicates that adjustments generally exerted downward pressure on the profitability ratios, except during the peak performance year of 2012.
Net Income Correlation: The trends in adjusted net income closely align with the adjusted net profit margin movements. The maximum value for adjusted net income was reached in 2012 at US$ 1,625 million, coinciding with the highest margin. Conversely, the lowest adjusted net income of US$ 879 million was recorded in 2014, matching the lowest observed margin of 6.62%. The 2015 recovery is further evidenced by adjusted net income increasing to US$ 1,204 million.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Revenues	13,105)	13,279)	13,084)	13,633)	12,626)
Total assets	8,075)	8,345)	8,695)	9,011)	8,834)
Activity Ratio
Total asset turnover¹	1.62	1.59	1.50	1.51	1.43
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Revenues	13,105)	13,279)	13,084)	13,633)	12,626)
Adjusted total assets	7,399)	7,681)	8,173)	8,419)	8,173)
Activity Ratio
Adjusted total asset turnover²	1.77	1.73	1.60	1.62	1.54

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= 13,105 ÷ 8,075 = 1.62

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 13,105 ÷ 7,399 = 1.77

Between 2011 and 2015, a distinct inverse relationship is observed between the total asset base and the asset turnover ratios. While the company experienced a general contraction in its asset levels after 2012, the efficiency with which those assets were utilized to generate revenue increased steadily throughout the period.

Total Asset Trends: Reported total assets reached a peak of 9,011 million US$ in 2012 before entering a period of steady decline, ending at 8,075 million US$ in 2015. Adjusted total assets followed a near-identical trajectory, peaking at 8,419 million US$ in 2012 and decreasing to 7,399 million US$ by 2015. The adjusted asset values remained consistently lower than the reported figures, indicating a systematic exclusion of certain asset components to better reflect core operational capacity.
Asset Turnover Performance: An upward trend is evident in both reported and adjusted turnover ratios. Reported total asset turnover rose from 1.43 in 2011 to 1.62 in 2015. The adjusted total asset turnover exhibited a more significant increase, climbing from 1.54 in 2011 to 1.77 in 2015, despite a slight dip in 2013. The adjusted ratio consistently outperformed the reported ratio, reinforcing the impact of the asset adjustments on the perceived efficiency.
Operational Efficiency Analysis: The convergence of decreasing adjusted assets and increasing adjusted turnover ratios suggests a successful shift toward a more asset-light operational model. The increase in the adjusted turnover ratio from 1.54 to 1.77 signifies that the company became more effective at generating revenue per unit of adjusted asset. This indicates that the reduction in the asset base did not impede revenue generation but instead improved the overall productivity of the remaining assets.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Total assets	8,075)	8,345)	8,695)	9,011)	8,834)
Shareholders’ equity, YUM! Brands, Inc.	911)	1,547)	2,166)	2,154)	1,823)
Solvency Ratio
Financial leverage¹	8.86	5.39	4.01	4.18	4.85
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	7,399)	7,681)	8,173)	8,419)	8,173)
Adjusted shareholders’ equity, YUM! Brands, Inc.	267)	925)	1,784)	1,714)	1,223)
Solvency Ratio
Adjusted financial leverage²	27.71	8.30	4.58	4.91	6.68

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity, YUM! Brands, Inc.
= 8,075 ÷ 911 = 8.86

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity, YUM! Brands, Inc.
= 7,399 ÷ 267 = 27.71

Between 2011 and 2015, a consistent decline in both total assets and shareholders' equity is observed, leading to a significant escalation in financial leverage. The divergence between reported and adjusted figures suggests substantial adjustments that disproportionately impacted the equity base over the five-year period.

Total Asset Trends: Reported total assets peaked in 2012 at 9,011 million USD before declining to 8,075 million USD by 2015. Adjusted total assets followed a similar downward trajectory, decreasing from 8,173 million USD in 2011 to 7,399 million USD in 2015. The adjusted asset values remained consistently lower than the reported values throughout the period analyzed.
Shareholders' Equity Erosion: Both reported and adjusted equity showed an initial increase from 2011 to 2013, with reported equity peaking at 2,166 million USD and adjusted equity at 1,784 million USD. A sharp contraction occurred between 2013 and 2015, where reported equity fell to 911 million USD. Adjusted equity experienced a more severe reduction during this timeframe, plummeting to 267 million USD by December 26, 2015.
Financial Leverage Analysis: Reported financial leverage remained relatively stable between 2011 and 2013, ranging from 4.01 to 4.85, before rising to 8.86 in 2015. In contrast, adjusted financial leverage exhibited extreme growth in the final two years. While it reached a low of 4.58 in 2013, it surged to 27.71 by 2015. This indicates that the adjustments reduced the equity base far more aggressively than the asset base, resulting in a significantly higher adjusted leverage ratio compared to the reported figures.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income, YUM! Brands, Inc.	1,293)	1,051)	1,091)	1,597)	1,319)
Shareholders’ equity, YUM! Brands, Inc.	911)	1,547)	2,166)	2,154)	1,823)
Profitability Ratio
ROE¹	141.93%	67.94%	50.37%	74.14%	72.35%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income, YUM! Brands, Inc.	1,204)	879)	1,067)	1,625)	1,182)
Adjusted shareholders’ equity, YUM! Brands, Inc.	267)	925)	1,784)	1,714)	1,223)
Profitability Ratio
Adjusted ROE²	450.94%	95.03%	59.81%	94.81%	96.65%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROE = 100 × Net income, YUM! Brands, Inc. ÷ Shareholders’ equity, YUM! Brands, Inc.
= 100 × 1,293 ÷ 911 = 141.93%

² Adjusted ROE = 100 × Adjusted net income, YUM! Brands, Inc. ÷ Adjusted shareholders’ equity, YUM! Brands, Inc.
= 100 × 1,204 ÷ 267 = 450.94%

The financial performance between 2011 and 2015 is characterized by fluctuating net income levels and a significant contraction in shareholders' equity, which has resulted in an exponential increase in return on equity (ROE) metrics.

Net Income Performance: Reported net income peaked in 2012 at 1,597 million US$, followed by a decline through 2014 before recovering to 1,293 million US$ in 2015. Adjusted net income followed a similar trajectory, although it exhibited a more pronounced dip in 2014, falling to 879 million US$. The variance between reported and adjusted net income remained relatively narrow throughout the period, suggesting that non-recurring items had a moderate impact on earnings.
Shareholders' Equity Contraction: A consistent downward trend is observed in both reported and adjusted shareholders' equity. Reported equity decreased from 1,823 million US$ in 2011 to 911 million US$ in 2015. This decline was even more aggressive in the adjusted equity figures, which plummeted from 1,223 million US$ in 2011 to 267 million US$ by the end of 2015. The sharp reduction in the equity base indicates a strategic shift in capital structure, potentially driven by significant share repurchases or dividend distributions.
Return on Equity (ROE) Analysis: The reported ROE showed volatility, starting at 72.35% in 2011 and spiking to 141.93% in 2015. However, the adjusted ROE demonstrates a far more extreme progression. After maintaining levels between 59.81% and 96.65% from 2011 to 2014, the adjusted ROE surged to 450.94% in 2015. This dramatic escalation is not attributable to a proportional increase in net income, but rather to the substantial erosion of the adjusted equity denominator.
Comparative Divergence: The gap between reported and adjusted ROE widened significantly over the five-year period. In 2011, the difference was approximately 24.3 percentage points; by 2015, this divergence expanded to 309 percentage points. This suggests that the adjustments applied to shareholders' equity had a compounding effect on the ROE calculation, magnifying the impact of the declining equity base on the final ratio.

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	Dec 26, 2015	Dec 27, 2014	Dec 28, 2013	Dec 29, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income, YUM! Brands, Inc.	1,293)	1,051)	1,091)	1,597)	1,319)
Total assets	8,075)	8,345)	8,695)	9,011)	8,834)
Profitability Ratio
ROA¹	16.01%	12.59%	12.55%	17.72%	14.93%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income, YUM! Brands, Inc.	1,204)	879)	1,067)	1,625)	1,182)
Adjusted total assets	7,399)	7,681)	8,173)	8,419)	8,173)
Profitability Ratio
Adjusted ROA²	16.27%	11.44%	13.06%	19.30%	14.46%

Based on: 10-K (reporting date: 2015-12-26), 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROA = 100 × Net income, YUM! Brands, Inc. ÷ Total assets
= 100 × 1,293 ÷ 8,075 = 16.01%

² Adjusted ROA = 100 × Adjusted net income, YUM! Brands, Inc. ÷ Adjusted total assets
= 100 × 1,204 ÷ 7,399 = 16.27%

The financial performance from 2011 to 2015 is characterized by fluctuations in net income and a consistent contraction of the asset base, which collectively influenced the Return on Assets (ROA) trajectory.

Net Income Trends: Net income exhibited significant volatility over the five-year period. Reported net income peaked in 2012 at 1,597 million US$, followed by a decline to a low of 1,051 million US$ in 2014, before recovering to 1,293 million US$ in 2015. Adjusted net income followed a similar pattern, though it reached a higher peak of 1,625 million US$ in 2012 and a deeper trough of 879 million US$ in 2014, indicating that adjustments had a more pronounced effect on the bottom line during those specific years.
Asset Base Evolution: A steady downward trend is observed in total assets. Reported total assets decreased from 8,834 million US$ in 2011 to 8,075 million US$ in 2015. This contraction is mirrored in the adjusted total assets, which fell from 8,173 million US$ in 2011 to 7,399 million US$ in 2015. The consistent reduction in the asset base suggests a strategy of asset optimization or divestiture over the period analyzed.
Adjusted ROA Analysis: The Adjusted ROA demonstrated a cyclical pattern, mirroring the fluctuations in net income while being influenced by the shrinking asset base. The ratio peaked in 2012 at 19.30%, significantly higher than the reported ROA of 17.72% for the same year. A subsequent decline occurred, reaching a minimum of 11.44% in 2014, before rebounding to 16.27% in 2015. The fact that Adjusted ROA remained higher than Reported ROA from 2012 through 2015 indicates that the adjustments to net income and assets generally enhanced the perceived efficiency of asset utilization.

In summary, while net income experienced a period of instability between 2012 and 2014, the concurrent reduction in total assets helped stabilize and eventually recover the ROA by 2015. The divergence between reported and adjusted figures highlights the impact of specific financial adjustments on the company's efficiency metrics.

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