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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)

May 2, 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 May 2, 2018, YUM! Brands, Inc. ("YUM") issued a press release announcing financial results for the quarter ended March 31, 2018.  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:
May 2, 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
393295616_yumlogo10.jpg
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports First-Quarter GAAP Operating Profit Growth of 14%;
Flat First-Quarter Core Operating Profit Growth;
Maintains All Aspects of Full-Year Guidance

Louisville, KY (May 2, 2018) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 31, 2018. First-quarter GAAP EPS was $1.27, an increase of 66%. First-quarter EPS excluding Special Items was $0.90, an increase of 38%.

GREG CREED COMMENTS
Greg Creed, CEO, said “As we begin the second full year of our transformation journey, I’m pleased with our progress towards becoming a more focused, more franchised and more efficient company. As a result of the timing mismatch between refranchising and associated G&A savings and the new revenue recognition accounting standard, core operating profit growth was flat, which is consistent with our expectations. We’re maintaining all aspects of our full-year 2018 guidance and remain confident that this transformation is building a strong foundation for long-term growth and will deliver increased returns for our stakeholders.”

FIRST-QUARTER HIGHLIGHTS
Worldwide system sales excluding foreign currency translation grew 4%, with KFC at 6%, Taco Bell at 4% and Pizza Hut at 2%.
We opened 239 net new units for 3% net new unit growth.
We refranchised 144 restaurants, including 52 KFC, 43 Pizza Hut and 49 Taco Bell units, for pre-tax proceeds of $205 million. We recorded net refranchising gains of $156 million in Special Items. As of quarter end, our global franchise ownership mix was 97%.
We repurchased 6.5 million shares totaling $528 million at an average price of $81.
We reflected the change in fair value of our investment in Grubhub by recording $66 million of pre-tax investment income, resulting in $0.16 in EPS.
Foreign currency translation favorably impacted divisional operating profit by $16 million.
 
% Change
 
System Sales
Ex F/X
Same-Store Sales
Net New Units
GAAP Operating Profit
Core
Operating Profit
KFC Division
+6
+2
+4
+7
Even
Pizza Hut Division
+2
+1
+2
+6
+2
Taco Bell Division
+4
+1
+4
(6)
(6)
Worldwide
+4
+1
+3
+14
Even
 
First Quarter
 
2018
2017
% Change
GAAP EPS
$1.27
$0.77
+66
Special Items EPS1
$0.37
$0.12
NM
EPS Excluding Special Items
$0.90
$0.65
+38
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. As required, we adopted a new accounting standard on revenue recognition effective January 1, 2018. Prior year results have not been restated for this change. See the Other Items section of this release for further details.

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.

Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213
P: 502 874-8300 • investors.yum.com




KFC DIVISION
 
First Quarter
 
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
Restaurants
21,644
20,716
+4
N/A
System Sales ($MM)
6,329
5,635
+12
+6
Same-Store Sales Growth (%)
+2
+2
NM
NM
Franchise and Property Revenues ($MM)
307
257
+19
+12
Operating Profit ($MM)
221
207
+7
Even
Operating Margin (%)
33.6
28.3
5.3
4.9

 
First Quarter (% Change)
 
International
U.S.
System Sales Growth (Ex F/X)
+7
(1)
Same-Store Sales Growth
+2
Even

KFC Division opened 262 new international restaurants in 42 countries.
Operating margin increased 5.3 percentage points driven by refranchising and same-store sales growth, partially offset by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard.
Foreign currency translation favorably impacted operating profit by $13 million.

KFC Markets1
Percent of KFC System Sales2
System Sales Growth (Ex F/X)
First Quarter
(% Change)
China
27%
+9
United States
18%
(1)
Asia
12%
+3
Australia
7%
+5
Russia & Eastern Europe
7%
+20
United Kingdom
6%
(9)
Latin America
5%
+15
Western Europe
5%
+14
Africa
4%
+4
Middle East / Turkey / North Africa
4%
+8
Canada
2%
+5
Thailand
2%
+5
India
1%
+19
 
1Refer to investors.yum.com/financial-reports for a list of the countries within each of the markets.
2Reflects Full Year 2017.
 

2


PIZZA HUT DIVISION
 
First Quarter
 
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
Restaurants
16,796
16,454
+2
N/A
System Sales ($MM)
3,032
2,872
+6
+2
Same-Store Sales Growth (%)
+1
(3)
NM
NM
Franchise and Property Revenues ($MM)
149
144
+4
+1
Operating Profit ($MM)
88
83
+6
+2
Operating Margin (%)
35.0
35.6
(0.6)
(1.0)

 
First Quarter (% Change)
 
International
U.S.
System Sales Growth (Ex F/X)
+2
+2
Same-Store Sales Growth
(2)
+4

Pizza Hut Division opened 148 new international restaurants in 39 countries.
Operating margin decreased 0.6 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard, partially offset by refranchising.
Foreign currency translation favorably impacted operating profit by $3 million.

Pizza Hut Markets1
Percent of Pizza Hut System Sales2
System Sales Growth (Ex F/X)
First Quarter
(% Change)
United States
46%
+2
China
18%
(1)
Asia
13%
+6
Europe
10%
+3
Latin America
6%
+1
Middle East / Turkey / North Africa
4%
Even
Canada
2%
+1
India
1%
+21
Africa
<1%
+27
1Refer to investors.yum.com/financial-reports for a list of the countries within each of the markets.
2Reflects Full Year 2017.

3






TACO BELL DIVISION
 
First Quarter
 
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
Restaurants
6,883
6,648
+4
N/A
System Sales ($MM)
2,347
2,262
+4
+4
Same-Store Sales Growth (%)
+1
+8
NM
NM
Franchise and Property Revenues ($MM)
128
114
+12
+12
Operating Profit ($MM)
132
141
(6)
(6)
Operating Margin (%)
28.5
31.2
(2.7)
(2.7)
Taco Bell Division opened 56 new restaurants, including 11 new international restaurants.
Operating margin decreased 2.7 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard and higher restaurant-level costs, partially offset by refranchising and same-store sales growth.



OTHER ITEMS
Effective January 1, 2018, we adopted a new accounting standard on revenue recognition. As a result, we are now recognizing upfront fees, such as initial and renewal fees we receive from franchisees, as revenue over the term of the related franchise agreement. We are also now recording incentive payments we may make to franchisees (e.g., equipment funding provided under the KFC U.S. Acceleration Agreement) as a reduction of revenue over the period of expected cash flows from the franchise agreements to which the payment relates. Under our historical accounting, we recognized upfront fees from franchisees in full upon the commencement of the related franchise agreements and incentive payments made to franchisees when we were obligated to make the payment.

Additionally, the new accounting standard requires us to begin recording other revenues we receive from franchisees and the related expenses on a gross basis within our Income Statement. Previously, these revenues and expenses, the largest of which relate to franchisee contributions to and subsequent expenditures from advertising cooperatives we consolidate, have been reported on a net basis within our Income Statement. We have reported these revenues and expenses in our Income Statement on the two new line items of Franchise contributions for advertising and other services and Franchise advertising and other services expense.

Prior results have not been restated for the impact of this accounting change and therefore remain reported as they have been historically. However, the adoption was done on a modified retrospective basis resulting in the current year impact being reported as if the now-required accounting had been in place since the inception of currently active franchise agreements or when franchise incentive payments were originally made. On a full-year basis we anticipate that the non-cash impacts of adopting the new revenue recognition standard will negatively impact Core Operating Profit growth by 2 to 3 percentage points. Core Operating Profit growth was negatively impacted by less than one percentage point for the quarter ended March 31, 2018 as a result of the new standard. The lower first quarter impact was expected as the majority of our new unit development for which we receive upfront fees, which will now be spread versus recognized upfront, is expected to occur later in the year.
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the first-quarter Form 10-Q.

4


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 Wednesday, May 2, 2018. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 6087438.
The call will be available for playback beginning at 11:00 a.m. Eastern Time Wednesday, May 2, 2018 through Wednesday, June 13, 2018. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 6087438.
The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting “Q1 2018 Yum! Brands, Inc. Earnings Call.”
ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures 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 transformation initiatives, including our refranchising strategy; our significant exposure to the Chinese market; 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. 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 ongoing 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

5


YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
3/31/18
 
3/31/17
 
B/(W)
Revenues
 
 
 
 
 
Company sales
$
512

 
$
902

 
(43)
Franchise and property revenues
584

 
515

 
13
Franchise contributions for advertising and other services
275

 

 
N/A
Total revenues
1,371

 
1,417

 
(3)
 
 
 
 
 
 
Costs and Expenses, Net
 
 
 
 
 
Company restaurant expenses
438

 
758

 
42
General and administrative expenses
219

 
237

 
8
Franchise and property expenses
47

 
46

 
Franchise advertising and other services expense
272

 

 
N/A
Refranchising (gain) loss
(156
)
 
(111
)
 
40
Other (income) expense
(2
)
 
3

 
NM
Total costs and expenses, net
818

 
933

 
12
 
 
 
 
 
 
Operating Profit
553

 
484

 
14
Investment (income) expense, net
(66
)
 
(1
)
 
NM
Other pension (income) expense
3

 
28

 
88
Interest expense, net
107

 
110

 
3
Income before income taxes
509

 
347

 
47
Income tax provision
76

 
67

 
(14)
Net Income
$
433

 
$
280

 
55
 
 
 
 
 
 
Effective tax rate
15.0
%
 
19.4
%
 
4.4 ppts.
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
EPS
$
1.30

 
$
0.78

 
66
Average shares outstanding
332


357

 
7
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
EPS
$
1.27

 
$
0.77

 
66
Average shares outstanding
340

 
364

 
7
 
 
 
 
 
 
Dividends declared per common share
$
0.36

 
$
0.30

 
 

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

6


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

 
Quarter ended
 
% Change
 
3/31/18
 
3/31/17
 
B/(W)
 
 
 
 
 
 
Company sales
$
245

 
$
475

 
(48)
Franchise and property revenues
307

 
257

 
19
Franchise contributions for advertising and other services
106

 

 
N/A
Total revenues
658

 
732

 
(10)
 
 
 
 
 
 
Company restaurant expenses
220

 
410

 
46
General and administrative expenses
85

 
89

 
5
Franchise and property expenses
29

 
25

 
(14)
Franchise advertising and other services expense
104

 

 
N/A
Other (income) expense
(1
)
 
1

 
NM
Total costs and expenses, net
437

 
525

 
17
Operating Profit
$
221

 
$
207

 
7
 
 
 
 
 
 
Restaurant margin
10.5
%
 
13.7
%
 
(3.2) ppts.
 
 
 
 
 
 
Operating margin
33.6
%
 
28.3
%
 
5.3 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



7


YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
3/31/18
 
3/31/17
 
B/(W)
 
 
 
 
 
 
Company sales
$
24

 
$
90

 
(73)
Franchise and property revenues
149

 
144

 
4
Franchise contributions for advertising and other services
78

 

 
N/A
Total revenues
251

 
234

 
8
 
 
 
 
 
 
Company restaurant expenses
24

 
85

 
71
General and administrative expenses
50

 
53

 
6
Franchise and property expenses
11

 
13

 
19
Franchise advertising and other services expense
78

 

 
N/A
Other (income) expense

 

 
NM
Total costs and expenses, net
163

 
151

 
(8)
Operating Profit
$
88

 
$
83

 
6
 
 
 
 
 
 
Restaurant margin
(0.1
)%
 
6.3
%
 
(6.4) ppts.
 
 
 
 
 
 
Operating margin
35.0
 %
 
35.6
%
 
(0.6) ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



8


YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
3/31/18
 
3/31/17
 
B/(W)
 
 
 
 
 
 
Company sales
$
243

 
$
337

 
(28)
Franchise and property revenues
128

 
114

 
12
Franchise contributions for advertising and other services
91

 

 
N/A
Total revenues
462

 
451

 
2
 
 
 
 
 
 
Company restaurant expenses
194

 
263

 
26
General and administrative expenses
40

 
42

 
6
Franchise and property expenses
6

 
5

 
(18)
Franchise advertising and other services expense
90

 

 
N/A
Other (income) expense

 

 
NM
Total costs and expenses, net
330

 
310

 
(6)
Operating Profit
$
132

 
$
141

 
(6)
 
 
 
 
 
 
Restaurant margin
19.6
%
 
21.8
%
 
(2.2) ppts.
 
 
 
 
 
 
Operating margin
28.5
%
 
31.2
%
 
(2.7) ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



9


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

 
(unaudited) 3/31/18
 
12/31/17
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
982

 
$
1,522

Accounts and notes receivable, less allowance: $26 in 2018 and $19 in 2017
501

 
400

Prepaid expenses and other current assets
406

 
384

Advertising cooperative assets, restricted

 
201

Total Current Assets
1,889

 
2,507

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,467 in
 
 
 
2018 and $1,480 in 2017
1,651

 
1,697

Goodwill
514

 
512

Intangible assets, net
105

 
110

Other assets
490

 
346

Deferred income taxes
187

 
139

Total Assets
$
4,836

 
$
5,311

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
924

 
$
813

Income taxes payable
124

 
123

Short-term borrowings
61

 
375

Advertising cooperative liabilities

 
201

Total Current Liabilities
1,109

 
1,512

 
 
 
 
Long-term debt
9,419

 
9,429

Other liabilities and deferred credits
1,062

 
704

Total Liabilities
11,590

 
11,645

 
 
 
 
Shareholders' Deficit
 
 
 
Common stock, no par value, 750 shares authorized; 327 shares and 332 shares issued in 2018 and 2017, respectively

 

Accumulated deficit
(6,539
)
 
(6,063
)
Accumulated other comprehensive loss
(215
)
 
(271
)
Total Shareholders' Deficit
(6,754
)
 
(6,334
)
Total Liabilities and Shareholders' Deficit
$
4,836

 
$
5,311

 See accompanying notes.



10


YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Quarter ended
 
3/31/18

3/31/17
Cash Flows - Operating Activities
 
 
 
Net income
$
433

 
$
280

Depreciation and amortization
37

 
70

Refranchising (gain) loss
(156
)
 
(111
)
Investment (income) expense
(66
)
 
(1
)
Contributions to defined benefit pension plans
(3
)
 
(7
)
Deferred income taxes
(1
)
 
20

Share-based compensation expense
17

 
17

Changes in accounts and notes receivable
4

 
18

Changes in prepaid expenses and other current assets
(22
)
 
(1
)
Changes in accounts payable and other current liabilities
(99
)
 
(48
)
Changes in income taxes payable
13

 
12

Other, net
32

 
39

Net Cash Provided by Operating Activities
189

 
288

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(42
)
 
(76
)
Proceeds from refranchising of restaurants
205

 
185

Other, net
1

 
(5
)
Net Cash Provided by Investing Activities
164

 
104

 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt

 
192

Repayments of long-term debt
(332
)
 
(200
)
Revolving credit facilities, three months or less, net

 

Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
12

 

More than three months - payments
(7
)
 

Three months or less, net

 

Repurchase shares of Common Stock
(498
)
 
(461
)
Dividends paid on Common Stock
(120
)
 
(106
)
Debt issuance costs

 
(18
)
Other, net
(31
)
 
(36
)
Net Cash Used in Financing Activities
(976
)
 
(629
)
Effect of Exchange Rate on Cash and Cash Equivalents
38

 
17

Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
(585
)
 
(220
)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
1,599

 
831

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Topic 606 Adoption
69

 

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
1,083

 
$
611

 
 
 
 
 
 
 
 
See accompanying notes.


11


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 excluding Special Items, our Effective Tax Rate excluding Special Items, System Sales and Core Operating Profit. Core Operating Profit excludes Special Items and foreign currency translation ("FX") and we use Core Operating Profit for the purposes of evaluating performance internally. 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) and (g) 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 excluding Special Items, our Effective Tax Rate excluding Special Items and Core Operating Profit provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters ended March 31, 2018 and March 31, 2017 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 fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Condensed Consolidated Statements of Income; however, the franchise 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 our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.
 
 
Quarter ended
 
 
3/31/18
 
3/31/17
Detail of Special Items
 
 
 
 
Refranchising gain (loss)(b)
 
$
156

 
$
111

YUM's Strategic Transformation Initiatives(c)
 
(1
)
 
(7
)
Costs associated with Pizza Hut U.S. Transformation Agreement(d)
 
(1
)
 

Costs associated with KFC U.S. Acceleration Agreement(e)
 

 
(3
)
Other Special Items Income (Expense)
 
(1
)
 
(2
)
Special Items Income - Operating Profit
 
153

 
99

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

 
(22
)
Special Items Income before Income Taxes
 
153

 
77

Tax Expense on Special Items
 
(19
)
 
(34
)
Tax Expense - U.S. Tax Act(g)
 
(6
)
 

Special Items Income, net of tax
 
128

 
43

Average diluted shares outstanding
 
340

 
364

Special Items diluted EPS
 
$
0.37

 
$
0.12

 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
GAAP Operating Profit
 
$
553

 
$
484

Special Items Income
 
153

 
99

Foreign Currency Impact on Divisional Operating Profit
 
16

 
N/A

Core Operating Profit
 
$
384

 
$
385

 
 
 
 
 
KFC Division
 
 
 
 
GAAP Operating Profit
 
$
221

 
$
207

Foreign Currency Impact on Divisional Operating Profit
 
13

 
N/A

Core Operating Profit
 
$
208

 
$
207

 
 
 
 
 
Pizza Hut Division
 
 
 
 
GAAP Operating Profit
 
$
88

 
$
83

Foreign Currency Impact on Divisional Operating Profit
 
3

 
N/A

Core Operating Profit
 
$
85

 
$
83

 
 
 
 
 
Taco Bell Division
 
 
 
 
GAAP Operating Profit
 
$
132

 
$
141

Foreign Currency Impact on Divisional Operating Profit
 

 
N/A

Core Operating Profit
 
$
132

 
$
141

 
 
 
 
 
 
 
 
 
 

12


Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(amounts in millions, except per share amounts)
(unaudited)

 
 
Quarter ended
 
 
3/31/18
 
3/31/17
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
 
 
 
 
Diluted EPS
 
$
1.27

 
$
0.77

Special Items Diluted EPS
 
0.37

 
0.12

Diluted EPS excluding Special Items
 
$
0.90

 
$
0.65

 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
GAAP Effective Tax Rate
 
15.0
%
 
19.4
%
Impact on Tax Rate as a result of Special Items
 
0.6
%
 
6.9
%
Effective Tax Rate excluding Special Items
 
14.4
%
 
12.5
%
 
 
 
 
 
Reconciliation of Company sales to System sales
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
GAAP Company sales
 
$
512

 
$
902

Franchise sales
 
11,196

 
9,867

System sales
 
11,708

 
10,769

Foreign Currency Impact on System sales
 
466

 
N/A

System sales, excluding FX
 
$
11,242

 
$
10,769

 
 
 
 
 
KFC Division
 
 
 
 
GAAP Company sales
 
$
245

 
$
475

Franchise sales
 
6,084

 
5,160

System sales
 
6,329

 
5,635

Foreign Currency Impact on System sales
 
363

 
N/A

System sales, excluding FX
 
$
5,966

 
$
5,635

 
 
 
 
 
Pizza Hut Division
 
 
 
 
GAAP Company sales
 
$
24

 
$
90

Franchise sales
 
3,008

 
2,782

System sales
 
3,032

 
2,872

Foreign Currency Impact on System sales
 
100

 
N/A

System sales, excluding FX
 
$
2,932

 
$
2,872

 
 
 
 
 
Taco Bell Division
 
 
 
 
GAAP Company sales
 
$
243

 
$
337

Franchise sales
 
2,104

 
1,925

System sales
 
2,347

 
2,262

Foreign Currency Impact on System sales
 
3

 
N/A

System sales, excluding FX
 
$
2,344

 
$
2,262

 
 
 
 
 


13


YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Quarter Ended 3/31/18
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
658

 
$
251

 
$
462

 
$

 
$
1,371

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
220

 
24

 
194

 

 
438

General and administrative expenses
85

 
50

 
40

 
44

 
219

Franchise and property expenses
29

 
11

 
6

 
1

 
47

Franchise advertising and other services expense
104

 
78

 
90

 

 
272

Refranchising (gain) loss

 

 

 
(156
)
 
(156
)
Other (income) expense
(1
)
 

 

 
(1
)
 
(2
)
Total costs and expenses, net
437

 
163

 
330

 
(112
)
 
818

Operating Profit
$
221

 
$
88

 
$
132

 
$
112

 
$
553



Quarter Ended 3/31/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
732

 
$
234

 
$
451

 
$

 
$
1,417

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
410

 
85

 
263

 

 
758

General and administrative expenses
89

 
53

 
42

 
53

 
237

Franchise and property expenses
25

 
13

 
5

 
3

 
46

Refranchising (gain) loss

 

 

 
(111
)
 
(111
)
Other (income) expense
1

 

 

 
2

 
3

Total costs and expenses, net
525

 
151

 
310

 
(53
)
 
933

Operating Profit
$
207

 
$
83

 
$
141

 
$
53

 
$
484



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results.  Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.



14


Notes to the Condensed Consolidated Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)


(a)
Amounts presented as of and for the quarters ended March 31, 2018 and 2017 are preliminary.

(b)
In connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018, we recorded net refranchising gains during the quarters ended March 31, 2018 and 2017 of $156 million and $111 million, respectively, that have been reflected as Special Items.

The first quarter 2018 net refranchising gains relate primarily to refranchising KFC restaurants in the UK and Taco Bell restaurants in the U.S. The first quarter of 2017 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S.

(c)
In the fourth quarter of 2016, we announced our plan to transform our business. Major features of the Company's strategic transformation plans involve being more focused on development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure (“YUM’s Strategic Transformation Initiatives”). During the quarters ended March 31, 2018 and 2017, we recognized Special Item charges of $1 million and $7 million, respectively, related to these initiatives. In the first quarter of 2017, these costs primarily related to severance and relocation costs that were recorded within G&A.

(d)
On May 1, 2017, we reached an agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising contributions by franchisees beginning in 2018. During the quarter ended March 31, 2018, we recorded Special Item charges of $1 million for these investments. These amounts were recorded as Franchise and property expenses.

(e)
During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement, we recognized Special Item charges of $3 million for the quarter ended March 31, 2017 within Franchise and property expenses.

(f)
We recorded a non-cash charge of $22 million related to the adjustment of certain historical deferred vested liability balances in our qualified U.S. plan during the first quarter of 2017. This charge was recorded in Other pension (income) expense.

(g)
During the first quarter of 2018, we recorded a $6 million increase to our provisional deemed repatriation tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act") as enacted by the U.S. government.

(h)
On February 7, 2018, certain of our subsidiaries entered into a master services agreement with a subsidiary of Grubhub Inc. (“Grubhub”). Concurrent with the master services agreement, one of our subsidiaries entered into an investment agreement to invest $200 million in exchange for approximately 2.8 million shares of Grubhub common stock, subject to customary closing conditions. The investment agreement represents a forward contract to purchase shares of Grubhub stock and is required to be accounted for under GAAP as a derivative as of March 31, 2018. As a result, we recorded a non-cash gain of $66 million in Investment (income) expense, net in our Condensed Consolidated Statements of Income related to the mark-to-market of the forward contract during the quarter ended March 31, 2018, which includes the appreciation of the underlying common shares since entering into the agreement less certain valuation adjustments. Subsequent to March 31, 2018, all conditions for closing were met and we purchased the Grubhub shares.   



15
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