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Section 1: 8-K (YUM BRANDS, INC. FORM 8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

February 8, 2018

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
 
 
 
Former name or former address, if changed since last report:   N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). [ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 






Section 2 – Financial Information

Item 2.02      Results of Operations and Financial Condition

On February 8, 2018, YUM! Brands, Inc. issued a press release announcing financial results for the quarter and year ended December 31, 2017.  A copy of the press release is attached hereto as Exhibit 99.1.


Section 9 – Financial Statements and Exhibits

Item 9.01      Financial Statements and Exhibits

 
(c)
Exhibits
 
99.1
 
 
 





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
YUM! BRANDS, INC.
 
 
 
 
(Registrant)
 



Date:
February 8, 2018
 
/s/ David E. Russell
 
 
 
 
Sr. Vice President, Finance and Corporate Controller
 
 
 
 
(Principal Accounting Officer)
 


(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
392105704_yumlogo10.jpg
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports Fourth-Quarter GAAP Operating Profit Growth of 134%;
Fourth-Quarter Core Operating Profit Decline of (6)%;
On Track with Strategic Transformation to Accelerate Growth

Louisville, KY (February 8, 2018) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2017. Fourth-quarter GAAP EPS was $1.26, an increase of 53%. Full-year GAAP EPS was $3.77, an increase of 48%. Fourth-quarter EPS excluding Special Items was $0.96, an increase of 20%. Full-year EPS excluding Special Items was $2.96, an increase of 20%.


GREG CREED & DAVID GIBBS COMMENTS
Greg Creed, CEO, said “As we close the first full year of our transformation, I am very proud of the progress we are making towards becoming a more focused, more franchised and more efficient company that generates more growth.  During 2017, system sales grew a healthy 5% excluding the impact of lapping the 53rd week in 2016, with same-store sales growth of 2% and net new unit growth of 3%.  As we move forward into 2018, we are particularly excited about our investment in ‘Easy’ with our new partnership with Grubhub. We are confident that the continued focus on our four key growth drivers supports our vision for a ‘World with More Yum!’ and maximizes the creation of value for all Yum! stakeholders.”

David Gibbs, President and CFO, continued “The fourth quarter was a solid ending to a year where Yum! Brands met or exceeded each component of our full-year guidance.  Despite headwinds from refranchising dilution and lapping a 53rd week, we delivered full-year core operating profit growth of 7%.  We are on track with our strategic transformation to accelerate growth and made significant progress towards achieving these objectives in 2017. We look forward to updating you as we continue on our journey to build the world’s most loved, trusted and fastest-growing restaurant brands.”


SUMMARY FINANCIAL TABLE
 
Fourth Quarter
Full Year
 
2017
2016
% Change
2017
2016
% Change
GAAP EPS
$1.26
$0.83
+53
$3.77
$2.54
+48
Special Items EPS1
$0.30
$0.03
NM
$0.81
$0.08
NM
EPS Excluding Special Items
$0.96
$0.80
+20
$2.96
$2.46
+20
1See Reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Special Items.
 

All comparisons are versus the same period a year ago. Effective January 2017, we removed the reporting lags from our international subsidiary fiscal calendars. To accommodate these changes, Yum! Brands now reports on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 four-week periods in each quarter, respectively. Prior year figures in this earnings release have been restated to present comparable results. An 8-K was filed on April 13, 2017 with restated quarterly and full-year 2016 results.

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.

Unless otherwise noted, all results include the impact of lapping the 53rd week in 2016.

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




FOURTH-QUARTER HIGHLIGHTS
Worldwide system sales grew 4%, with KFC at 6%, Taco Bell at 3% and Pizza Hut at 1%, excluding the 53rd week.
We opened 730 net new units for 3% net unit growth.
We refranchised 896 restaurants, including 685 KFC, 144 Pizza Hut and 67 Taco Bell units, for pre-tax proceeds of $1.1 billion. We recorded net refranchising gains of $752 million in Special Items. As of quarter end, our global franchise ownership mix increased to 97%.
.
We repurchased 7.5 million shares totaling $588 million at an average price of $79.
Foreign currency translation favorably impacted divisional operating profit by $9 million.
 
% Change
 
System Sales
Same-Store Sales
Net New Units
GAAP
Operating Profit
Core
Operating Profit
KFC Division
+4
+3
+4
+7
+4
Pizza Hut Division
(2)
+1
+2
(18)
(19)
Taco Bell Division
(2)
+2
+4
(8)
(8)
Worldwide
+1
+2
+3
+134
(6)
 
Results Excluding 53rd Week (% Change)
 
System Sales
Core
Operating Profit
KFC Division
+6
+8
Pizza Hut Division
+1
(14)
Taco Bell Division
+3
(2)
Worldwide
+4
(1)





FULL-YEAR HIGHLIGHTS
Worldwide system sales grew 5%, with Taco Bell at 7%, KFC at 6% and Pizza Hut at 2%, excluding the 53rd week.
We opened 1,407 net new units for 3% net unit growth.
We refranchised 1,470 restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell units, for pre-tax proceeds of $1.8 billion, recording net refranchising gains of $1.1 billion in Special Items.
We repurchased 26.6 million shares totaling $1.9 billion at an average price of $72.
 
% Change
 
System Sales
Same-Store Sales
Net New Units
GAAP
Operating Profit
Core
Operating Profit
KFC Division
+6
+3
+4
+13
+12
Pizza Hut Division
+1
Even
+2
(7)
(6)
Taco Bell Division
+5
+4
+4
+4
+4
Worldwide
+4
+2
+3
+64
+7
 
Results Excluding 53rd Week (% Change)
 
System Sales
Core
Operating Profit
KFC Division
+6
+14
Pizza Hut Division
+2
(5)
Taco Bell Division
+7
+6
Worldwide
+5
+9

2


KFC DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
21,487
20,643
+4
NA
21,487
20,643
+4
NA
System Sales ($MM)
6,827
6,424
+6
+4
24,515
23,242
+5
+6
Same-Store Sales Growth (%)
+3
+2
NM
NM
+3
+2
NM
NM
Franchise & License Fees ($MM)
351
308
+13
+10
1,182
1,069
+11
+10
Restaurant Margin (%)
14.6
15.5
(0.9)
(1.0)
15.0
14.7
0.3
0.3
Operating Profit ($MM)
271
253
+7
+4
981
871
+13
+12
Operating Margin (%)
33.4
27.4
6.0
6.1
31.6
27.0
4.6
4.7
 
% Change
 
Int'l Emerging Markets
Int'l Developed Markets
U.S.
Fourth Quarter
Full Year
Fourth Quarter
Full Year
Fourth Quarter
Full Year
System Sales Growth (Ex F/X)
+9
+9
+2
+4
(7)
(1)
Same-Store Sales Growth
+5
+4
+3
+3
(1)
+1
KFC Division opened 539 new international restaurants during the quarter.
 
For the year, KFC Division opened 1,247 new international restaurants in 84 countries, including 1,042 units in emerging markets.
Operating margin increased 6.0 percentage points for the quarter and 4.6 percentage points for the year driven by refranchising and same-store sales growth.
For the quarter, the 53rd week negatively impacted system sales growth by 2 percentage points and core operating profit growth by 4 percentage points. For the year, the 53rd week negatively impacted core operating profit growth by 2 percentage points.
Foreign currency translation favorably impacted operating profit by $8 million for the quarter and $4 million for the year.
KFC Markets1
Percent of KFC System Sales2
System Sales Growth Ex F/X
Fourth Quarter (%)
Full Year (%)
Emerging Markets
 
 
 
China3
27%
+10
+9
Asia (e.g. Malaysia, Indonesia, Philippines)
5%
+8
+8
Latin America (e.g. Mexico, Peru)
5%
+11
+12
Africa
4%
(3)
+2
Middle East / Turkey / North Africa
4%
+6
+1
Russia
4%
+26
+24
Continental Europe (e.g. Poland)
2%
+14
+16
Thailand
2%
+8
+5
India
1%
+18
+9
Developed Markets
 
 
 
U.S.
18%
(7)
(1)
Australia
7%
Even
+5
Asia (e.g. Japan, Korea)
6%
Even
Even
U.K.
6%
+2
+5
Continental Europe (e.g. France, Germany)
6%
+12
+11
Canada
2%
Even
+3
Latin America (e.g. Puerto Rico)
1%
(20)
(6)
1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2Reflects full year 2017.
3Includes October, November and December; YUMC Q4 reported results include September, October, November and December.

3


PIZZA HUT DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
16,748
16,420
+2
NA
16,748
16,420
+2
NA
System Sales ($MM)
3,369
3,390
(1)
(2)
12,034
12,019
Even
+1
Same-Store Sales Growth (%)
+1
(3)
NM
NM
Even
(2)
NM
NM
Franchise & License Fees ($MM)
175
182
(4)
(5)
608
615
(1)
(1)
Restaurant Margin (%)
2.4
9.3
(6.9)
(6.9)
5.3
8.3
(3.0)
(3.0)
Operating Profit ($MM)
91
111
(18)
(19)
341
367
(7)
(6)
Operating Margin (%)
38.8
35.9
2.9
3.1
38.2
33.1
5.1
5.4
 
% Change
 
Int'l Emerging Markets
Int'l Developed Markets1
U.S.
Fourth Quarter
Full Year
Fourth Quarter
Full Year
Fourth Quarter
Full Year
System Sales Growth (Ex F/X)
+6
+7
(6)
+2
(5)
(4)
Same-Store Sales Growth
+1
+1
(1)
+1
+2
(2)
Pizza Hut Division opened 340 new international restaurants during the quarter.
 
For the year, Pizza Hut Division opened 826 new international restaurants in 77 countries, including 592 units in emerging markets.
Operating margin increased 2.9 percentage points for the quarter and 5.1 percentage points for the year driven by refranchising partially offset by higher franchise and license expense due to incremental advertising spend associated with the U.S. Transformation Agreement.
For the quarter, the 53rd week negatively impacted system sales growth by 3 percentage points and core operating profit growth by 5 percentage points. For the year, the 53rd week negatively impacted system sales growth by 1 percentage point and core operating profit growth by 1 percentage point.
Foreign currency translation favorably impacted operating profit by $1 million for the quarter and negatively impacted operating profit by $4 million for the year.
Pizza Hut Markets2
Percent of Pizza Hut System Sales3
System Sales Growth Ex F/X
Fourth Quarter (%)
Full Year (%)
Emerging Markets
 
 
 
China4
17%
+6
+7
Latin America (e.g. Mexico, Peru)
5%
+1
+4
Asia (e.g. Malaysia, Indonesia, Philippines) 
5%
+12
+13
Middle East / Turkey / Africa
4%
+1
+2
India
1%
+18
+10
Continental Europe (e.g. Poland)
1%
+15
+12
Developed Markets
 
 
 
U.S.
46%
(5)
(4)
Asia (e.g. Japan, Korea)
7%
+6
+3
U.K.1
5%
(23)
(2)
Continental Europe (e.g. France, Germany)
4%
(1)
+3
Canada
2%
(3)
+1
Australia1
2%
(11)
+14
Latin America (e.g. Puerto Rico)
1%
(20)
(5)
1Pizza Hut U.K. and Pizza Hut Australia, both of which are International Developed Markets, transitioned from a periodic weekly calendar to a monthly calendar beginning in the first quarter of 2017. As a result, system sales growth for both markets was negatively impacted in the fourth quarter due to Q4 2017 results having approximately 13 weeks compared to Q4 2016 results having 17 weeks, including a 53rd week.  There was not a significant impact from this calendar change on full-year system sales growth for either market.
2Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
3Reflects full year 2017.
4Includes October, November and December; YUMC Q4 reported results include September, October, November and December.

4


TACO BELL DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2017
2016
Reported
Ex F/X
2017
2016
Reported
Ex F/X
Restaurants
6,849
6,612
+4
NA
6,849
6,612
+4
NA
System Sales ($MM)
3,087
3,137
(2)
(2)
10,145
9,660
+5
+5
Same-Store Sales Growth (%)
+2
+3
NM
NM
+4
+2
NM
NM
Franchise & License Fees ($MM)
163
158
+4
+4
521
485
+7
+7
Restaurant Margin (%)
23.1
23.4
(0.3)
(0.3)
22.4
22.2
0.2
0.2
Operating Profit ($MM)
179
195
(8)
(8)
619
595
+4
+4
Operating Margin (%)
33.6
29.8
3.8
3.8
32.9
29.4
3.5
3.5
Taco Bell Division opened 134 new restaurants during the quarter.
 
For the year, Taco Bell Division opened 314 new restaurants, including 77 international new restaurants.
Operating margin increased 3.8 percentage points for the quarter and 3.5 percentage points for the year driven by refranchising and same-store sales growth.
For the quarter, the 53rd week negatively impacted system sales growth by 5 percentage points and core operating profit growth by 6 percentage points. For the year, the 53rd week negatively impacted both system sales growth and core operating profit growth by 2 percentage points.
 

OTHER ITEMS
The Tax Cuts and Jobs Act of 2017 (“Tax Act”) that was enacted on December 22nd required that earnings repatriated from our foreign entities with a November 30 year-end for tax purposes be included in the Deemed Repatriation Tax on foreign earnings that was included in the Tax Act. Our fourth quarter and full year effective tax rates excluding Special Items were lower than anticipated because they did not include tax on those earnings repatriated after November 30. Instead, that tax was included in the one-time Special Items charge of $434 million that we recorded in the fourth quarter related to the Tax Act.

Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the Form 10-K.




5


CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time Thursday, February 8, 2018. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 4894878.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, February 8, 2018 through Thursday, March 15, 2018. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 4894878.

The webcast and playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors/events-presentations and selecting “Q4 2017 Earnings Conference Call.”

ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at www.yum.com/investors. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP results are included within this release.

FORWARD-LOOKING STATEMENTS
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,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/ or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; the success of our franchisees and licensees, and the success of our refranchising strategy generally; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our increasing dependence on digital commerce platforms and information technology systems; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; recent Tax Legislation (defined below) and other tax matters, including disagreements with taxing authorities; consumer preferences and perceptions of our brands; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; and risks relating to our significant amount of indebtedness. 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.

Information regarding the impact of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) consists of preliminary estimates which are forward-looking statements and are subject to change, possibly materially, as the company completes its financial statements. Information regarding the impact of Tax Legislation is based on our current calculations, as well our current interpretations, assumptions and expectations relating to Tax Legislation, which are subject to further change.

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. 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 most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 45,000 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America.  In 2018, Yum! Brands was recognized as part of the inaugural Bloomberg Gender-Equality Index. In 2017, Yum! Brands was named to the Dow Jones Sustainability North America Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. The company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are global leaders of the chicken, pizza and Mexican-style food categories.  Worldwide, the Yum! Brands system opens over seven 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 and Treasurer, at 888/298-6986
 
Kelly Knybel, Director, Investor Relations, at 888/298-6986
Members of the media are invited to contact:
 
Virginia Ferguson, Director, Public Relations, at 502/874-8200

6


YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
 
 
Year ended
 
 
 
12/31/17
 
12/31/16
(As Restated)
 
% Change
B/(W)
 
12/31/17
 
12/31/16
(As Restated)
 
% Change
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
890

 
$
1,238

 
(28)
 
$
3,572

 
$
4,189

 
(15)
Franchise and license fees and income
687

 
648

 
6
 
2,306

 
2,167

 
6
Total revenues
1,577

 
1,886

 
(16)
 
5,878

 
6,356

 
(8)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
   Food and paper
272

 
370

 
26
 
1,103

 
1,267

 
13
   Payroll and employee benefits
232

 
326

 
29
 
939

 
1,106

 
15
   Occupancy and other operating expenses
227

 
318

 
29
 
912

 
1,116

 
18
Company restaurant expenses
731

 
1,014

 
28
 
2,954

 
3,489

 
15
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
300

 
362

 
17
 
999

 
1,129

 
12
Franchise and license expenses
76

 
56

 
(35)
 
237

 
201

 
(18)
Closures and impairment (income) expenses

 
5

 
95
 
3

 
15

 
82
Refranchising (gain) loss
(752
)
 
(88
)
 
NM
 
(1,083
)
 
(163
)
 
NM
Other (income) expense
7

 
17

 
60
 
7

 
3

 
NM
Total costs and expenses, net
362

 
1,366

 
74
 
3,117

 
4,674

 
33
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
1,215

 
520

 
134
 
2,761

 
1,682

 
64
Interest expense, net
118

 
114

 
(4)
 
440

 
305

 
(44)
Other pension (income) expense
5

 
34

 
84
 
47

 
32

 
(45)
Income from continuing operations before income taxes
1,092

 
372

 
193
 
2,274

 
1,345

 
69
Income tax provision
656

 
64

 
NM
 
934

 
327

 
NM
Income from continuing operations
436

 
308

 
42
 
1,340

 
1,018

 
32
Income (loss) from discontinued operations, net of tax

 
(5
)
 
NM
 

 
625

 
NM
Net income
436

 
303

 
44
 
1,340

 
1,643

 
(18)
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate from Continuing Operations
60.1
%
 
17.2
%
 
(42.9) ppts.
 
41.1
%
 
24.3
%
 
(16.8) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.29

 
$
0.84

 
54
 
$
3.86

 
$
2.58

 
49
Average shares outstanding
337

 
366

 
8
 
347

 
394

 
12
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.26

 
$
0.83

 
53
 
$
3.77

 
$
2.54

 
48
Average shares outstanding
345

 
372

 
7
 
355

 
400

 
11
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
(0.01
)
 
NM
 
N/A

 
$
1.59

 
NM
Average shares outstanding
N/A

 
366

 
NM
 
N/A

 
394

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS from Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
EPS
N/A

 
$
(0.01
)
 
NM
 
N/A

 
$
1.56

 
NM
Average shares outstanding
N/A

 
372

 
NM
 
N/A

 
400

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.30

 
$
0.30

 
 
 
$
0.90

 
$
1.73

 
 
 
See accompanying notes.
 Percentages may not recompute due to rounding.

7


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

 
Quarter ended
 
 
 
Year ended
 
 
 
12/31/17
 
12/31/16
(As Restated)
 
% Change
B/(W)
 
12/31/17
 
12/31/16
(As Restated)
 
% Change
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
463

 
$
615

 
(25)
 
$
1,928

 
$
2,156

 
(11)
Franchise and license fees and income
351

 
308

 
13
 
1,182

 
1,069

 
11
Total revenues
814

 
923

 
(12)
 
3,110

 
3,225

 
(4)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
160

 
207

 
23
 
664

 
733

 
9
Payroll and employee benefits
106

 
145

 
27
 
451

 
507

 
11
Occupancy and other operating expenses
129

 
167

 
23
 
524

 
599

 
13
Company restaurant expenses
395

 
519

 
24
 
1,639

 
1,839

 
11
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
111

 
120

 
7
 
370

 
396

 
7
Franchise and license expenses
37

 
26

 
(39)
 
117

 
108

 
(8)
Closures and impairment (income) expenses
(1
)
 
5

 
NM
 
2

 
11

 
81
Other (income) expense
1

 

 
NM
 
1

 

 
NM
Total costs and expenses, net
543

 
670

 
19
 
2,129

 
2,354

 
10
Operating Profit
$
271

 
$
253

 
7
 
$
981

 
$
871

 
13
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
34.7
%
 
33.9
%
 
(0.8) ppts.
 
34.4
%
 
34.0
%
 
(0.4) ppts.
Payroll and employee benefits
23.0
%
 
23.6
%
 
0.6 ppts.
 
23.4
%
 
23.5
%
 
0.1 ppts.
Occupancy and other operating expenses
27.7
%
 
27.0
%
 
(0.7) ppts.
 
27.2
%
 
27.8
%
 
0.6 ppts.
Restaurant margin
14.6
%
 
15.5
%
 
(0.9) ppts.
 
15.0
%
 
14.7
%
 
0.3 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.4
%
 
27.4
%
 
6.0 ppts.
 
31.6
%
 
27.0
%
 
4.6 ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



8


YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
 
 
Year ended
 
 
 
12/31/17

 
12/31/16
(As Restated)
 
% Change
B/(W)
 
12/31/17

 
12/31/16
(As Restated)
 
% Change
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
59

 
$
127

 
(54)
 
$
285

 
$
493

 
(42)
Franchise and license fees and income
175

 
182

 
(4)
 
608

 
615

 
(1)
Total revenues
234

 
309

 
(24)
 
893

 
1,108

 
(19)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
18

 
36

 
51
 
83

 
137

 
40
Payroll and employee benefits
20

 
40

 
51
 
94

 
156

 
40
Occupancy and other operating expenses
21

 
39

 
49
 
94

 
159

 
41
Company restaurant expenses
59

 
115

 
50
 
271

 
452

 
40
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
60

 
72

 
15
 
211

 
242

 
13
Franchise and license expenses
24

 
13

 
(81)
 
68

 
48

 
(42)
Closures and impairment (income) expenses
1

 
(2
)
 
NM
 
1

 
1

 
16
Other (income) expense
(1
)
 

 
NM
 
1

 
(2
)
 
NM
Total costs and expenses, net
143

 
198

 
28
 
552

 
741

 
26
Operating Profit
$
91

 
$
111

 
(18)
 
$
341

 
$
367

 
(7)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
29.8
%
 
28.0
%
 
(1.8) ppts.
 
28.9
%
 
27.7
%
 
(1.2) ppts.
Payroll and employee benefits
33.2
%
 
31.3
%
 
(1.9) ppts.
 
32.8
%
 
31.7
%
 
(1.1) ppts.
Occupancy and other operating expenses
34.6
%
 
31.4
%
 
(3.2) ppts.
 
33.0
%
 
32.3
%
 
(0.7) ppts.
 
2.4
%
 
9.3
%
 
(6.9) ppts.
 
5.3
%
 
8.3
%
 
(3.0) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
38.8
%
 
35.9
%
 
2.9 ppts.
 
38.2
%
 
33.1
%
 
5.1 ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



9


YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
 
 
Year ended
 
 
 
12/31/17

 
12/31/16
(As Restated)
 
% Change
B/(W)
 
12/31/17

 
12/31/16
(As Restated)
 
% Change
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
368

 
$
496

 
(26)
 
$
1,359

 
$
1,540

 
(12)
Franchise and license fees and income
163

 
158

 
4
 
521

 
485

 
7
Total revenues
531

 
654

 
(19)
 
1,880

 
2,025

 
(7)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
 
 
 
 
 
 
 
 
 
 
 
Food and paper
94

 
127

 
25
 
356

 
397

 
10
Payroll and employee benefits
106

 
141

 
25
 
394

 
443

 
11
Occupancy and other operating expenses
82

 
112

 
27
 
304

 
358

 
15
Company restaurant expenses
282

 
380

 
26
 
1,054

 
1,198

 
12
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
66

 
70

 
7
 
188

 
211

 
11
Franchise and license expenses
6

 
8

 
30
 
22

 
21

 
(6)
Closures and impairment (income) expenses

 
2

 
80
 

 
3

 
NM
Other (income) expense
(2
)
 
(1
)
 
47
 
(3
)
 
(3
)
 
(19)
Total costs and expenses, net
352

 
459

 
23
 
1,261

 
1,430

 
12
Operating Profit
$
179

 
$
195

 
(8)
 
$
619

 
$
595

 
4
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
Food and paper
25.7
%
 
25.5
%
 
(0.2) ppts.
 
26.2
%
 
25.7
%
 
(0.5) ppts.
Payroll and employee benefits
28.9
%
 
28.5
%
 
(0.4) ppts.
 
29.0
%
 
28.8
%
 
(0.2) ppts.
Occupancy and other operating expenses
22.3
%
 
22.6
%
 
0.3 ppts.
 
22.4
%
 
23.3
%
 
0.9 ppts.
 
23.1
%
 
23.4
%
 
(0.3) ppts.
 
22.4
%
 
22.2
%
 
0.2 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.6
%
 
29.8
%
 
3.8 ppts.
 
32.9
%
 
29.4
%
 
3.5 ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



10


YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)
(unaudited)

 
12/31/2017
 
12/31/16
(As Restated)
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,522

 
$
725

Accounts and notes receivable, less allowance: $19 in 2017 and $14 in 2016
400

 
370

Inventories
13

 
37

Prepaid expenses and other current assets
371

 
236

Advertising cooperative assets, restricted
201

 
137

Total Current Assets
2,507

 
1,505

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,480 in
1,697

 
2,113

2017 and $1,995 in 2016
 
 
 
Goodwill
512

 
536

Intangible assets, net
110

 
151

Other assets
346

 
376

Deferred income taxes
139

 
772

Total Assets
$
5,311

 
$
5,453

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
813

 
$
1,067

Income taxes payable
123

 
36

Short-term borrowings
375

 
66

Advertising cooperative liabilities
201

 
137

Total Current Liabilities
1,512

 
1,306

 
 
 
 
Long-term debt
9,429

 
9,059

Other liabilities and deferred credits
704

 
703

Total Liabilities
11,645

 
11,068

 
 
 
 
Shareholders' Deficit
 
 
 
Common stock, no par value, 750 shares authorized; 332 shares and 355 shares issued in 2017 and 2016, respectively

 

Accumulated deficit
(6,063
)
 
(5,157
)
Accumulated other comprehensive loss
(271
)
 
(458
)
Total Shareholders' Deficit
(6,334
)
 
(5,615
)
Total Liabilities and Shareholders' Deficit
$
5,311

 
$
5,453


 See accompanying notes.



11


YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year ended
 
12/31/17
 
12/31/16
(As Restated)
Cash Flows - Operating Activities from Continuing Operations
 
 
 
Income from continuing operations
$
1,340

 
$
1,643

Income from discontinued operations, net of tax

 
(625
)
Depreciation and amortization
253

 
310

Closures and impairment (income) expenses
3

 
15

Refranchising (gain) loss
(1,083
)
 
(163
)
Contributions to defined benefit pension plans
(55
)
 
(41
)
Deferred income taxes
634

 
28

Share-based compensation expense
65

 
80

Changes in accounts and notes receivable
(19
)
 
(23
)
Changes in inventories
3

 
1

Changes in prepaid expenses and other current assets
(13
)
 
12

Changes in accounts payable and other current liabilities
(173
)
 
(53
)
Changes in income taxes payable
(55
)
 
20

Other, net
130

 
44

Net Cash Provided by Operating Activities from Continuing Operations
1,030

 
1,248

 
 
 
 
Cash Flows - Investing Activities from Continuing Operations
 
 
 
Capital spending
(318
)
 
(427
)
Proceeds from refranchising of restaurants
1,773

 
370

Other, net
17

 
53

Net Cash Provided by (Used in) Investing Activities from Continuing Operations
1,472

 
(4
)
 
 
 
 
Cash Flows - Financing Activities from Continuing Operations
 
 
 
Proceeds from long-term debt
1,088

 
6,900

Repayments of long-term debt
(385
)
 
(323
)
Revolving credit facilities, three months or less, net

 
(685
)
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

 

Repurchase shares of Common Stock
(1,960
)
 
(5,403
)
Dividends paid on Common Stock
(416
)
 
(744
)
Debt issuance costs
(32
)
 
(86
)
Net transfers from discontinued operations

 
289

Other, net
(90
)
 
(92
)
Net Cash Used in Financing Activities from Continuing Operations
(1,795
)
 
(744
)
Effect of Exchange Rate on Cash and Cash Equivalents
61

 
(34
)
Net Increase in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Continuing Operations
768

 
466

 
 
 
 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
831

 
365

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
1,599

 
$
831

 
 
 
 
Cash Provided by Operating Activities from Discontinued Operations

 
829

Cash Used in Investing Activities from Discontinued Operations

 
(287
)
Cash Used in Financing Activities from Discontinued Operations

 
(292
)
See accompanying notes.


12


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 Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items, System sales, System sales excluding the impact of foreign currency translation ("FX"), System sales excluding the impact of FX and 53rd week, Core Operating Profit and Core Operating Profit excluding 53rd week. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally. We provide Core Operating Profit and System sales excluding 53rd week to further enhance the comparability with the lapping of the 53rd week that was part of our fiscal calendar in 2016. Special Items are not included in any of our Division segment results, and we believe the elimination of FX provides better year-to-year comparability without the distortion of foreign currency fluctuations. The Special Items are described in (b), (c), (d), (e), (f), (g) and (h) in the accompanying notes.   

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 Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items, Core Operating Profit and Core Operating Profit excluding 53rd week provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years ended December 31, 2017 and December 31, 2016 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. System sales and System sales growth include the results of all restaurants regardless of ownership, including company-owned and franchise restaurants that operate our Concepts. Sales of franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees are included in the Company’s revenues. We believe System sales and System sales growth are useful to investors as significant indicators of the overall strength of our business as they incorporate all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
 
Quarter ended
 
Year ended
 
12/31/17
 
12/31/16
(As Restated)
 
12/31/17

 
12/31/16
(As Restated)
Detail of Special Items
 
 
 
 
 
 
 
Refranchising gain (loss)(b)
$
752

 
$
88

 
$
1,083

 
$
163

YUM's Strategic Transformation initiatives(c)
(8
)
 
(33
)
 
(23
)
 
(67
)
Costs associated with Pizza Hut U.S. Transformation Agreement(d)
(11
)
 

 
(31
)
 

Costs associated with KFC U.S. Acceleration Agreement(e)
(5
)
 
(9
)
 
(17
)
 
(26
)
Non-cash charges associated with share-based compensation(f)

 
(30
)
 
(18
)
 
(30
)
Other Special Items Income (Expense)
4

 
(2
)
 
7

 
(5
)
Special Items Income - Operating Profit
732

 
14

 
1,001

 
35

Special Items - Other Pension Income (Expense)(g)

 
(26
)
 
(23
)
 
(26
)
Special Items Income (Expense) from Continuing Operations before Income Taxes
732

 
(12
)
 
978

 
9

Tax Benefit (Expense) on Special Items
(192
)
 
24

 
(256
)
 
24

Tax (Expense) - U.S. Tax Act(h)
(434
)
 

 
(434
)
 

Special Items Income, net of tax
$
106

 
$
12

 
$
288

 
$
33

Average diluted shares outstanding
345

 
372

 
355

 
400

Special Items diluted EPS
$
0.30

 
$
0.03

 
$
0.81

 
$
0.08

 
 
 
 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating Profit, excluding 53rd Week
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
GAAP Operating Profit
$
1,215

 
$
520

 
$
2,761

 
$
1,682

Special Items Income
732

 
14

 
1,001

 
35

Foreign Currency Impact on Divisional Operating Profit
9

 
N/A

 

 
N/A

Core Operating Profit
474

 
506

 
1,760

 
1,647

Impact of 53rd Week
N/A

 
28

 
N/A

 
28

Core Operating Profit, excluding 53rd Week
$
474

 
$
478

 
$
1,760

 
$
1,619

 
 
 
 
 
 
 
 

13


 
Quarter ended
 
Year ended
 
12/31/17
 
12/31/16
(As Restated)
 
12/31/17

 
12/31/16
(As Restated)
KFC Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
271

 
$
253

 
$
981

 
$
871

Foreign Currency Impact on Divisional Operating Profit
8

 
N/A

 
4

 
N/A

Core Operating Profit
263

 
253

 
977

 
871

Impact of 53rd Week
N/A

 
11

 
N/A

 
11

Core Operating Profit, excluding 53rd Week
$
263

 
$
242

 
$
977

 
$
860

 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
91

 
$
111

 
$
341

 
$
367

Foreign Currency Impact on Divisional Operating Profit
1

 
N/A

 
(4
)
 
N/A

Core Operating Profit
90

 
111

 
345

 
367

Impact of 53rd Week
N/A

 
5

 
N/A

 
5

Core Operating Profit, excluding 53rd Week
$
90

 
$
106

 
$
345

 
$
362

 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
179

 
$
195

 
$
619

 
$
595

Foreign Currency Impact on Divisional Operating Profit

 
N/A

 

 
N/A

Core Operating Profit
179

 
195

 
619

 
595

Impact of 53rd Week
N/A

 
12

 
N/A

 
12

Core Operating Profit, excluding 53rd Week
$
179

 
$
183

 
$
619

 
$
583

 
 
 
 
 
 
 
 
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations excluding Special Items
 
 
 
 
 
 
 
Diluted EPS from Continuing Operations
$
1.26

 
$
0.83

 
$
3.77

 
$
2.54

Special Items Diluted EPS
0.30

 
0.03

 
0.81

 
0.08

Diluted EPS from Continuing Operations excluding Special Items
$
0.96

 
$
0.80

 
$
2.96

 
$
2.46

 
 
 
 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
 
 
 
GAAP Effective Tax Rate
60.1
%
 
17.2
 %
 
41.1
%
 
24.3
 %
Impact on Tax Rate as a result of Special Items
51.8
%
 
(5.8
)%
 
22.3
%
 
(2.0
)%
Effective Tax Rate excluding Special Items
8.3
%
 
23.0
 %
 
18.8
%
 
26.3
 %
 
 
 
 
 
 
 
 
Reconciliation of GAAP Company Sales to System Sales, System Sales excluding FX and System Sales excluding FX and 53rd Week
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
GAAP Company sales
$
890

 
$
1,238

 
$
3,572

 
$
4,189

Franchise sales
12,393

 
11,713

 
43,122

 
40,732

System sales
13,283

 
12,951

 
46,694

 
44,921

Foreign Currency Impact on System sales
225

 
N/A

 
(90
)
 
N/A

System sales, excluding FX
13,058

 
12,951

 
46,784

 
44,921

Impact of 53rd week
N/A

 
434

 
N/A

 
434

System sales, excluding FX and 53rd Week
$
13,058

 
$
12,517

 
$
46,784

 
$
44,487

 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
GAAP Company sales
$
463

 
$
615

 
$
1,928

 
$
2,156

Franchise sales
6,364

 
5,809

 
22,587

 
21,086

System sales
6,827

 
6,424

 
24,515

 
23,242

Foreign Currency Impact on System sales
178

 
N/A

 
(28
)
 
N/A

System sales, excluding FX
6,649

 
6,424

 
24,543

 
23,242

Impact of 53rd week
N/A

 
165

 
N/A

 
165

System sales, excluding FX and 53rd Week
$
6,649

 
$
6,259

 
$
24,543

 
$
23,077

 
 
 
 
 
 
 
 

14


 
 
 
 
 
 
 
 
 
Quarter ended
 
Year ended
 
12/31/17
 
12/31/16
(As Restated)
 
12/31/17

 
12/31/16
(As Restated)
Pizza Hut Division
 
 
 
 
 
 
 
GAAP Company sales
$
59

 
$
127

 
$
285

 
$
493

Franchise sales
3,310

 
3,263

 
11,749

 
11,526

System sales
3,369

 
3,390

 
12,034

 
12,019

Foreign Currency Impact on System sales
45

 
N/A

 
(66
)
 
N/A

System sales, excluding FX
3,324

 
3,390

 
12,100

 
12,019

Impact of 53rd week
N/A

 
113

 
N/A

 
113

System sales, excluding FX and 53rd Week
$
3,324

 
$
3,277

 
$
12,100

 
$
11,906

 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
GAAP Company sales
$
368

 
$
496

 
$
1,359

 
$
1,540

Franchise sales
2,719

 
2,641

 
8,786

 
8,120

System sales
3,087

 
3,137

 
10,145

 
9,660

Foreign Currency Impact on System sales