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RBC Capital Markets, LLC
David Palmer (Analyst)
(212) 905-5998
david.palmer@rbccm.com
Eric Gonzalez (Associate)
(212) 905-5970
eric.gonzalez@rbccm.com
Jack Kindregan, CFA
(Associate)
(212) 618-7716
jack.kindregan@rbccm.com
Top Pick
NYSE: YUM; USD 69.00
Price Target USD 85.00 94.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
Downside
Scenario
63.00
7%
Current
Price
69.00
Price
Target
85.00
25%
Upside
Scenario
103.00
51%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 461.0
Dividend: 1.38
Market Cap (MM): 31,809
Yield: 2.0%
3-Yr. Est. EPS Growth: NA
RBC Estimates
FY Dec 2012A 2013A 2014E 2015E
Revenue 13,633.0 13,084.0 14,091.2 15,604.0
Prev. 14,318.6 15,889.6
EPS, Ops Diluted 3.25 2.97 3.38 3.96
Prev. 3.67 4.34
P/E 21.2x 23.2x 20.4x 17.4x
Revenue Q1 Q2 Q3 Q4
2013 2,535.0A 2,904.0A 3,466.0A 4,179.0A
2014 2,724.0A 3,204.0A 3,654.3E 4,508.9E
Prev. 3,807.9E 4,582.6E
2015 2,969.7E 3,530.7E 4,139.3E 4,964.3E
Prev. 2,992.0E 3,549.5E 4,256.9E 5,090.8E
EPS, Ops Diluted
2013 0.70A 0.56A 0.84A 0.86A
2014 0.88A 0.73A 0.85E 0.95E
Prev. 1.06E 1.00E
2015 0.99E 0.82E 1.09E 1.06E
Prev. 1.02E 0.85E 1.26E 1.21E
All values in USD unless otherwise noted.
July 31, 2014
Yum! Brands, Inc.
Contemplating scenarios for Yum China
Our view: We are lowering our estimates and Price Target following
consumer reaction from meat supplier headlines in China. Our new base
cases assuming a 6-8 week negative hit to sales, while our downside case
foresees an initial 20% hit to sales, with lingering effects for 6-12 months.
Key points:
Lowering estimates and Price Target following food safety incident:
While it may be too early to know what the exact impact will be following
consumer reaction from meat supplier headlines in China, we are lowering
our 2014 and 2015 EPS estimates from $3.67 and $4.34 to $3.38 (+14%
YOY) and $3.96 (+17% YOY), respectively. Our base case assumes Yum
China SSS growth of 0.5% for 2H/14 and 4% SSS growth next year as the
brand's recovery period gets pushed out further. We view this incident as
bad luck for Yum and it seems to be the result of illegal activity by a minor
supplier. While this ultimately has little to do with Yum Brands food safety,
this incident does alert us to the aggressiveness of the Chinese press and
the strong public reaction (and potential overreaction) to perceived food
safety issues. Our one-year $85 price target equates to 22x our 2015 EPS
estimate.
Looking at potential scenarios for Yum China: Our base case assumes
the negative publicity surrounding the incident would cause a 6-8 week
negative hit to sales in the 10-15% range. Such an impact is similar to
what has been seen in previous sales shocks including last year's antibiotic
chicken scandal, Avian Flu, SARS, and the Sudan Red scare. In a downside
scenario, we foresee a 6-12 month hit to sales, which begins with a
~20% initial sales decline with lingering effects due to lowered brand
trust and intense press scrutiny. We used profit margin deleverage from
previous sales shocks (e.g. 2012) to help us forecast profit. Our upside
scenario assumes that Yum quickly regains momentum with only modest
impact (3pp) to 2014 EPS growth. We remain confident that the company
has taken the right steps in minimizing the negative impacts to the
brand. However, the number of brands linked to the scandal seems to be
magnifying the situation, in spite of Yum Brand's limited menu exposure
to the supplier. We note that Yum Brands no longer does business with OSI
across the globe, and Yum's swift reaction has helped in part to improve
sentiment for the brands on social media in recent days.
Media mentions elevated early-on, but lower relative to other incidents
and subsiding for Yum's brands: While still only 10 days into this event,
our media mentions analysis implies coverage that is somewhat less that
previous food safety related situations. Our guess is that the lower level
of press reports, in addition to the less specific tie of these reports to Yum
Brands, should equate to a sales hit less than the 20%+ hits experienced
in other scenarios. Additionally, media mentions in the current week have
declined more for Pizza Hut and KFC as compared to Shanghai Husi or
McDonald's.
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Conflicts Disclosures, see Page 6.
Target/Upside/Downside Scenarios
Exhibit 1: Yum! Brands, Inc.
80m
60m
40m
20m
M A M J J A S O N
2012
D J F M A M J J A S O N
2013
D J F M A M J
2014
J
UPSIDE
103.00
TARGET
85.00
CURRENT
69.00
DOWNSIDE
63.00
Jul 2015
85
80
75
70
65
60
55
50
125 Weeks 09MAR12 - 30JUL14
YUM Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/ base case
Our base case assumes the negative publicity surrounding the
meat supplier incident would cause a 6-8 week negative hit to
sales in the 10-15% range. Such an impact is similar to what
has been seen in previous sales shocks including last year's
antibiotic chicken scandal, Avian Flu, SARS, and the Sudan Red
scare. Our 2014 and 2015 EPS estimates are $3.38 (+14% Y/Y)
and $3.96 (+17% Y/Y). Our one-year $85 price target equates
to 22x our 2015 EPS estimate.
Upside scenario
We assume Yum China quickly regains momentum in the near
term following negative press and consumer reaction to the
meat supplier incident. We also expect 2014 SSS growth of 2%
+ for KFC. We also anticipate increased profit contribution at
Taco Bell from a successful breakfast rollout and a return to
unit growth. Outside China, higher SSS growth will likely drive
increased appreciation for the segment as it proves to be a
stable earnings and cash flow contributor. Our $103 upside
case equates to 24x our upside case 2015 EPS estimate of
$4.25 (+19% Y/Y).
Downside scenario
In a downside scenario, we foresee a 6-12 month hit to
sales as a result of the meat supplier incident, which begins
with a ~20% initial sales decline with lingering effects due to
lowered brand trust and intense press scrutiny. Our downside
case assumes moderate profit growth outside China. We also
assume flat to low-single-digit Taco Bell SSS growth. Our
downside case valuation equates to 18x our downside case
2015 EPS estimate of $3.47 (+13% Y/Y).
Investment summary
We believe that Yum Brands' earnings growth can accelerate
over the next 12 months as China division sales and margins
recover from recent sales shocks. As China sales stabilize, we
believe investors will also come to appreciate Yum Brands' sum
of the parts value, which appears cheap to peers, particularly
when considering Yum Brands' improved global franchised
business.
We believe the market fundamentally undervalues Yum
Brands' sum of the parts value: Our $85 price target implies
peer multiples for the global franchised business and a 13x
forward EV/EBITDA multiple for Yum China (45% of profit).
Additionally, our base case implies a return to high-teens
China restaurant margin by 2015. We believe the vast majority
of Yum China declines over the last year have resulted from
temporary factors such as food safety concerns and cross-
price-elasticity from ill-timed pricing decisions.
First lever for upside China margin recovery: We believe Yum
China can return to a high-teens margin with a recovery in
sales over the next two to three years. This recovery, combined
with average performance outside of China, would mean
$4.53+ in EPS in 2016, 15% CAGR from 2013 EPS. Near-term,
we believe sales trends will recover in H1/15 as Yum China
benefits from: 1) food safety issue comparisons (beginning in
late December); 2) food safety advertising; and 3) innovation/
marketing. We also believe Yum China is taking important
steps to minimize future food safety risk.
Second lever for upside appreciation of Yum Brand's
non-China businesses: We believe the market fundamentally
undervalues Yum's non-China business for the following
reasons: 1) a more franchised mix outside China; 2) high mix
of faster-growth emerging markets 3) Yum US is on more
stable footing with Taco Bell and Pizza Hut; and 4) franchised
business valuations have risen significantly over the last 12-18
months.
Risks to our investment thesis
Potential risks include but are not limited to: 1) high valuation;
2) slowing economic activity; 3) food safety and quality;
4) highly competitive fast food segment; 5) food and labor
inflation; 6) obesity concerns and government regulation; and
7) foreign currency risk.
Yum! Brands, Inc.
July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 2
Media mentions are elevated early-on, but lower relative to other
incidents and subsiding for Yum's brands.
While still only 10 days into this event, our media mentions analysis implies coverage that is
somewhat less that previous food safety related situations. Our guess is that the lower level
of press reports, in addition to the less specific tie of these reports to Yum Brands, should
equate to a sales hit less than the 20%+ hits experienced in other scenarios. Additionally,
media mentions per day in the current week have declined more significantly for both Pizza
Hut and KFC as compared to Shanghai Husi or McDonald's.
Exhibit 3: Media mentions per day by keyword
"Shanghai Husi" "KFC" "Pizza Hut" "McDonald"
Jun 30 -Jul 6 0 2 1 12
Jul 7-13 0 2 1 8
Jul 14-20 5 23 21 23
Jul-20-27 238 289 228 372
Jul-28-30 165 136 69 233
Change in per day mentions -31% -53% -70% -37%

Note: Media mentions includes number of stories in the greater-china media when searching on the category header for each time period.
Source: www.factiva.com

Yum! Brands, Inc.
July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 3
Valuation
Our price target is based on two methods: 1) DCF analysis, which yields an $94 value based
upon a terminal growth rate of 1.6% and a WACC of 8.7%; and 2) a sum-of-the-parts analysis.
Our 2014 and 2015 EPS estimates are $3.38 (+14% Y/Y) and $3.96 (+17% Y/Y). Our one-year
$85 price target equates to ~22x our 2015 EPS estimate.
Price target impediments
High valuation: Yum's stock trades at a significant premium to the market. Such an elevated
valuation increases the stock's volatility. In the case of Yum! Brands, its stock is particularly
sensitive to changes in SSS growth and investor perception surrounding the sustainability of
its growth.
Slowing economic activity: Restaurant meal occasions are highly discretionary in nature.
Therefore, Yum's customers may be influenced by various macroeconomic factors (domestic
and international), including employment, gas prices, personal savings, discretionary income,
housing, consumer confidence, etc.
Food safety and quality: The strength of the company's brands relies upon its reputation for
quality. As with other fast food competitors, issues concerning the safety of its products could
have a negative impact on in-store traffic and potentially damage the brand.
Highly competitive fast food segment: Yum competes in a highly competitive segment
comprised of direct competitors, including: 1) national fast food chains (e.g., Burger King,
McDonald's); 2) regional players (e.g., Jack in the Box, Carl's Jr, Hardee's); and 3) emerging fast
casual brands (e.g., Five Guys and Smashburger).
Food and labor inflation: Food inflation historically has correlated positively to fast food
traffic. However, franchisee profitability may be pressured if such costs cannot be passed on to
consumers. Wage increases, whether statutory minimum wage increases or voluntary, would
also affect franchisee profitability.
Obesity concerns and government regulation: In the past, headlines related to the obesity
epidemic have resulted in negative publicity for fast food restaurants. Increasing demand
for healthier meal options might result in reduced demand for Yum's core menu items.
Additionally, new regulations (e.g., mandated calorie counts, elimination of trans fats, etc.)
could have a negative impact on margins.
Foreign currency risk: Yum! Brands owns or franchises more than 21,000 stores outside of the
US. Therefore, the company has exposure to several different currencies. Fluctuations in such
currencies may affect the company's earnings growth.
Company description
Yum! Brands and its franchisees and affiliates operate more than 37,000 quick-service
restaurants in approximately 125 countries worldwide. The company's domestic brands
include KFC, Pizza Hut, and Taco Bell. However, the company also owns the brands Little Sheep
and East Dawning in China. Approximately 75% of the company's profit is generated abroad,
with almost half of total profit generated in China's 6,000+ restaurants. Approximately 90% of
the US and 92% of the international segment (YRI) are owned by franchisees, while 80% of its
stores in China are owned and operated by the company.
Yum! Brands, Inc.
July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 4
Yum Brands $3.25 $2.97 $0.88 $0.73 $0.85 $0.92 $3.38 $0.99 $0.82 $1.09 $1.06 $3.96
Income Statement $3.25 $2.97 $0.88 $0.73 $0.85 $0.92 $3.38 $0.99 $0.82 $1.09 $1.06 $3.96
David Palmer $3.25 $2.96 $0.88 $0.73 $0.85 $0.92 $3.38 $0.99 $0.82 $1.09 $1.06 $3.96
Group Columns for Annual I/S
Post-Stock Options Post-Stock Options
YUM Full Year Full Year 2014E Full Year 2015E Full Year
(in millions, except per share data) 2012 2013 1Q14 2Q14 3Q14E 4Q14E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E
2012 2013 Mar-13 Jun-14 Sep-14E Dec-14E 2014E Mar-15E Jun-15E Sep-15E Dec-15E 2015E
Income Statement
Revenues
Company sales $11,833.0 $11,184.0 $2,292.0 $2,758.0 $3,196.8 $3,896.5 $12,143.3 $2,515.3 $3,066.2 $3,652.9 $4,315.2 $13,549.6
YOY Chg 8.6% (5.5%) 9.2% 11.5% 5.8% 8.5% 8.6% 9.7% 11.2% 14.3% 10.7% 11.6%
Franchise and license fees 1,800.0 1,900.0 432.0 446.0 457.6 612.4 1,948.0 454.4 464.5 486.4 649.1 2,054.4
YOY Chg. 3.9% 5.6% (0.9%) 3.7% 2.8% 4.0% 2.5% 5.2% 4.2% 6.3% 6.0% 5.5%
Total operating revenues $13,633.0 $13,084.0 $2,724.0 $3,204.0 $3,654.3 $4,508.9 $14,091.2 $2,969.7 $3,530.7 $4,139.3 $4,964.3 $15,604.0
YOY Chg. 8.0% (4.0%) 7.5% 10.3% 5.4% 7.9% 7.7% 9.0% 10.2% 13.3% 10.1% 10.7%
Operating Costs and Expenses
Company restaurants
Food and Paper $3,874.0 $3,669.0 $725.0 $886.0 $1,071.3 $1,293.1 $3,975.4 $795.9 $985.4 $1,227.8 $1,437.9 $4,447.0
YOY Chg. 6.6% -5.3% 6.6% 10.1% 7.6% 8.8% 8.4% 9.8% 11.2% 14.6% 11.2% 11.9%
% of Retail Sales 32.7% 32.8% 31.6% 32.1% 33.5% 33.2% 32.7% 31.6% 32.1% 33.6% 33.3% 32.8%
Margin Change (61) bp 7 bp (76) bp (41) bp 54 bp 9 bp (7) bp 1 bp 1 bp 10 bp 14 bp 8 bp
Payroll and Employee Benefits 2,620.0 2,499.0 493.0 620.0 694.1 860.8 2,667.8 535.4 681.0 755.9 950.8 2,923.2
YOY Chg. 8% -5% 1% 5% 12% 8% 7% 9% 10% 9% 10% 10%
% of Retail Sales 22.1% 22.3% 21.5% 22.5% 21.7% 22.1% 22.0% 21.3% 22.2% 20.7% 22.0% 21.6%
Margin Change (6) bp 20 bp (183) bp (137) bp 116 bp (14) bp (37) bp (22) bp (27) bp (102) bp (6) bp (40) bp
Company cost of sales $6,494.0 $6,168.0 $1,218.0 $1,506.0 $1,765.4 $2,153.9 $6,643.2 $1,331.3 $1,666.5 $1,983.7 $2,388.7 $7,370.1
YOY Chg. 7% -5% 4% 8% 9% 8% 8% 9% 11% 12% 11% 11%
% of Retail Sales 54.9% 55.2% 53.1% 54.6% 55.2% 55.3% 54.7% 52.9% 54.4% 54.3% 55.4% 54.4%
Margin Change (67) bp 27 bp (260) bp (178) bp 170 bp (4) bp (44) bp (21) bp (25) bp (92) bp 8 bp (31) bp
Occupancy and other operating expenses 3,358.0 3,333.0 633.0 824.0 951.1 1,192.7 3,600.8 690.0 909.2 1,043.8 1,312.0 3,955.0
YOY Chg. 9% -1% 6% 7% 9% 9% 8% 9% 10% 10% 10% 10%
% of Retail Sales 28.4% 29.8% 27.6% 29.9% 29.8% 30.6% 29.7% 27.4% 29.7% 28.6% 30.4% 29.2%
Margin Change 2 bp 142 bp (78) bp (121) bp 85 bp 11 bp (15) bp (19) bp (23) bp (118) bp (21) bp (46) bp
Company restaurant costs $9,852.0 $9,501.0 $1,851.0 $2,330.0 $2,716.5 $3,346.6 $10,244.1 $2,021.3 $2,575.6 $3,027.5 $3,700.7 $11,325.1
YOY Chg. 8% -4% 5% 8% 9% 9% 8% 9% 11% 11% 11% 11%
% of Retail Sales 83.3% 85.0% 80.8% 84.5% 85.0% 85.9% 84.4% 80.4% 84.0% 82.9% 85.8% 83.6%
Margin Change (65) bp 169 bp (338) bp (299) bp 255 bp 7 bp (59) bp (40) bp (48) bp (210) bp (13) bp (78) bp
Worldwide Company-Restaurant Margin 16.7% 15.0% 19.2% 15.5% 15.0% 14.1% 15.6% 19.6% 16.0% 17.1% 14.2% 16.4%
Margin Change 65 bp (169) bp 338 bp 299 bp (255) bp (7) bp 59 bp 40 bp 48 bp 210 bp 13 bp 78 bp
General & administrative expenses $1,426.0 $1,397.0 $271.0 $352.0 $326.2 $493.6 $1,442.8 $284.3 $372.8 $350.1 $524.1 $1,531.2
YOY Chg. 5.6% (2.0%) -1% 6% 3% 4% 3.3% 5% 6% 7% 6% 6.1%
$ Chg $75.0 ($29.0) ($2.0) $19.0 $8.2 $20.6 $45.8 $13.3 $20.8 $23.8 $30.5 $88.3
% of Total Revenue 10.5% 10.7% 9.9% 11.0% 8.9% 10.9% 10.2% 9.6% 10.6% 8.5% 10.6% 9.8%
Margin Change (24) bp 22 bp (82) bp (48) bp (25) bp (37) bp (44) bp (38) bp (43) bp (47) bp (39) bp (43) bp
Franchise and license expenses 133.0 158.0 33.0 34.0 37.0 45.0 149.0 33.0 35.0 38.0 44.0 150.0
YOY Chg. -8% 19% 10% 0% -16% -10% -6% 0% 3% 3% -2% 1%
Closure and Impairment 37.0 36.0 3.0 21.0 6.0 19.0 49.0 5.0 8.0 7.0 13.0 33.0
YOY Chg. -29% -3% -25% 250% 20% -10% 36% 67% -62% 17% -32% -33%
Refranchising net loss (gain) (26.0) (9.0) (3.0) (4.0) 2.0 (2.0) (7.0) (2.0) 0.0 5.0 0.0 3.0
YOY Chg. 136% -65% #DIV/0! 0% -300% -50% -22% -33% -100% 150% -100% -143%
Other (income) expense (25.0) (19.0) (2.0) (8.0) (14.4) (12.1) (36.6) (13.3) 8.2 (15.7) (13.2) (33.9)
YOY Chg. -53% -24% -10% -10% -10% -10% 93% -10% -10% -10% -10% -7%
Total Operating Costs and Expenses $11,397.0 $11,064.0 $2,153.0 $2,725.0 $3,073.3 $3,890.0 $11,841.3 $2,328.3 $2,999.6 $3,411.9 $4,268.6 $13,008.4
Operating Income $2,236.0 $2,020.0 $571.0 $479.0 $581.0 $618.9 $2,249.9 $641.4 $531.1 $727.5 $695.7 $2,595.6
YOY Chg. 11.7% -9.7% 21.5% 32.3% -5.8% 8.4% 11.4% 12.3% 10.9% 25.2% 12.4% 15.4%
Operating Margin 16.4% 15.4% 21.0% 15.0% 15.9% 13.7% 16.0% 21.6% 15.0% 17.6% 14.0% 16.6%
Margin Change 55 bp (96) bp 242 bp 248 bp (190) bp 6 bp 53 bp 64 bp 9 bp 167 bp 29 bp 67 bp
Interest expense (net) $149.0 $129.0 $33.0 $29.0 $35.6 $46.5 $144.1 $36.9 $34.4 $37.9 $43.1 $152.3
Percentage of net debt (annualized) 6.8% 5.7% 5.9% 5.2% 6.0% 5.5% 5.8% 6.0% 6.0% 6.5% 5.4% 5.9%
YOY Chg. -4% -13% 6% -9% 15% 33% 12% 12% 19% 7% -7% 6%
Pre-tax Income $2,087.0 $1,891.0 $538.0 $450.0 $545.5 $572.4 $2,105.8 $604.5 $496.6 $689.6 $652.5 $2,443.3
Taxes 538.0 528.0 139.0 112.0 152.7 160.3 564.0 157.2 124.2 193.1 182.7 657.1
Tax Rate 25.8% 27.9% 25.8% 24.9% 28.0% 28.0% 26.8% 26.0% 25.0% 28.0% 28.0% 26.9%
Reported Net Income $1,549.0 $1,363.0 $399.0 $338.0 $392.7 $412.1 $1,541.9 $447.3 $372.5 $496.5 $469.8 $1,786.2
Minority interest (10.0) 6.0 0.0 (4.0) (5.0) 6.0 (3.0) 0.0 (4.0) (5.0) 6.0 (3.0)
Net Income (ex noncontrolling interest) $1,539.0 $1,369.0 $399.0 $334.0 $387.7 $418.1 $1,538.9 $447.3 $368.5 $491.5 $475.8 $1,783.2
Other Extraordinary Items - Post-tax
Cumulative effect of accounting change
Impact of 53rd week
EPS (Post Stock Options) $3.25 $2.97 $0.88 $0.73 $0.85 $0.92 $3.38 $0.99 $0.82 $1.09 $1.06 $3.96
YOY Chg. 13.2% -8.8% 25.6% 30.0% 1.3% 6.5% 14.0% 12.7% 11.2% 28.2% 15.6% 17.1%
3
Basic Shares Out 462 451 447 446 446 446 446 445 443 441 439 442
Diluted Shares Out 474 462 456 455 455 455 455 454 452 450 448 451
YOY Chg. -1.7% -2.6% -1.9% -1.9% -1.3% -0.7% -1.4% -0.5% -0.8% -1.1% -1.5% -1.0%
Dividend per share $1.1900 $1.38 $0.37 $0.37 $0.37 $0.41 $1.52 $0.41 $0.41 $0.41 $0.46 $1.71
% of EPS 37% 46% 42% 50% 43% 45% 45% 42% 51% 38% 44% 43%
% YOY 15% 16% 11% 12%
Source: Company documents; RBC Capital Markets estimates
IncStat
Yum! Brands, Inc.
July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 5
Required disclosures
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
RBC Capital Markets, LLC makes a market in the securities of Yum! Brands, Inc..
The author is employed by RBC Capital Markets, LLC, a securities broker-dealer with principal offices located in New York, USA.
Explanation of RBC Capital Markets Equity rating system
An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to
the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and
Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because
our ratings are determined on a relative basis.
Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Risk Rating
As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects
a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited
operating history that result in a higher expectation of financial and/or stock price volatility.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Jun-2014
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 845 53.24 299 35.38
HOLD [Sector Perform] 658 41.46 159 24.16
SELL [Underperform] 84 5.29 10 11.90

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July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 7
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July 31, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 8
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