Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
false--12-31Q320182018-09-300001041061YesfalseLarge Accelerated FilerYUM BRANDS INCfalse456000000007500000007500000003320000003130000002025-04-032020-06-122021-07-2700003322065 0001041061 2018-01-01 2018-09-30 0001041061 2018-07-01 2018-09-30 0001041061 2018-10-31 0001041061 us-gaap:FranchiseMember 2017-01-01 2017-09-30 0001041061 us-gaap:FranchiseMember 2018-01-01 2018-09-30 0001041061 2017-07-01 2017-09-30 0001041061 us-gaap:ProductMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember 2018-07-01 2018-09-30 0001041061 2017-01-01 2017-09-30 0001041061 us-gaap:ProductMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember 2017-07-01 2017-09-30 0001041061 us-gaap:AdvertisingMember 2017-01-01 2017-09-30 0001041061 us-gaap:AdvertisingMember 2017-07-01 2017-09-30 0001041061 us-gaap:ProductMember 2017-01-01 2017-09-30 0001041061 us-gaap:AdvertisingMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember 2017-07-01 2017-09-30 0001041061 us-gaap:FranchiseMember 2018-07-01 2018-09-30 0001041061 2018-09-30 0001041061 2016-12-31 0001041061 2018-01-01 0001041061 2017-09-30 0001041061 2017-12-31 0001041061 yum:AccountingStandardsUpdate201802Member 2018-01-01 0001041061 us-gaap:AccountingStandardsUpdate201616Member us-gaap:OtherAssetsMember 2018-01-01 0001041061 srt:MinimumMember 2018-09-30 0001041061 yum:MasterFranchiseAgreementMember 2018-09-30 0001041061 srt:MaximumMember 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:KFCGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:TacoBellGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember country:US 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:PizzaHutGlobalDivisionMember 2018-07-01 2018-09-30 0001041061 yum:A5yearsMember 2018-09-30 0001041061 yum:Thereafter5yearsMember 2018-09-30 0001041061 yum:A1yearMember 2018-09-30 0001041061 yum:A2yearsMember 2018-09-30 0001041061 yum:A4yearsMember 2018-09-30 0001041061 yum:A3yearsMember 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US 2018-01-01 2018-09-30 0001041061 yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember country:US 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:TacoBellGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember country:CN yum:KFCGlobalDivisionMember 2018-01-01 2018-09-30 0001041061 yum:ForeignCurrencyGainLossandRefranchisingGainLossMember 2018-01-01 2018-09-30 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-09-30 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-09-30 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2018-09-30 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-01-01 2018-09-30 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-09-30 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-09-30 0001041061 yum:BalanceswithAdoptionofTopic606Domain 2018-01-01 2018-09-30 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2017-12-31 0001041061 yum:August2018Member 2018-09-30 0001041061 2016-10-01 2016-12-31 0001041061 yum:November2016Member 2017-01-01 2017-09-30 0001041061 yum:November2016Member 2018-09-30 0001041061 yum:August2018Member 2018-01-01 2018-09-30 0001041061 yum:November2017Member 2017-01-01 2017-09-30 0001041061 yum:August2018Member 2017-01-01 2017-09-30 0001041061 yum:November2016Member 2018-01-01 2018-09-30 0001041061 yum:November2017Member 2018-01-01 2018-09-30 0001041061 yum:November2017Member 2018-09-30 0001041061 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:FranchiseMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:AdvertisingMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-09-30 0001041061 us-gaap:ProductMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-09-30 0001041061 srt:ScenarioPreviouslyReportedMember 2017-12-31 0001041061 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 0001041061 yum:BalanceswithAdoptionofTopic606Domain 2018-01-01 0001041061 yum:TacoBellGlobalDivisionMember 2017-07-01 2017-09-30 0001041061 yum:TacoBellGlobalDivisionMember 2017-01-01 2017-09-30 0001041061 yum:PizzaHutGlobalDivisionMember 2017-07-01 2017-09-30 0001041061 yum:KFCGlobalDivisionMember 2017-01-01 2017-09-30 0001041061 yum:PizzaHutGlobalDivisionMember 2017-01-01 2017-09-30 0001041061 yum:KFCGlobalDivisionMember 2017-07-01 2017-09-30 0001041061 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:ProductMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:FranchiseMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:AdvertisingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-07-01 2018-09-30 0001041061 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-09-30 0001041061 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-09-30 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain srt:ScenarioPreviouslyReportedMember us-gaap:EquipmentMember 2017-01-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember us-gaap:CorporateAndOtherMember 2017-07-01 2017-09-30 0001041061 yum:PizzaHutGlobalDivisionMember yum:A2018DomainMember yum:IncrementalAdvertisingMember 2018-07-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:A2018DomainMember yum:IncrementalAdvertisingMember 2018-10-01 2018-12-31 0001041061 us-gaap:AccountingStandardsUpdate201409Member us-gaap:OtherAssetsMember yum:KFCGlobalDivisionMember yum:FranchiseIncentiveMember 2015-01-01 2017-12-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain yum:A2017to2018Domain 2018-01-01 2018-09-30 0001041061 yum:CapitalInvestmentsMember 2018-07-01 2018-09-30 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain 2017-01-01 2017-12-31 0001041061 us-gaap:AccountingStandardsUpdate201409Member us-gaap:UpFrontPaymentArrangementMember 2018-01-01 0001041061 yum:GainlossondispositionofassetsMember 2017-01-01 2017-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2018-01-01 2018-09-30 0001041061 srt:ScenarioPreviouslyReportedMember yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain yum:FranchiseIncentiveMember 2017-01-01 2017-12-31 0001041061 yum:GainlossondispositionofassetsMember 2017-07-01 2017-09-30 0001041061 yum:FranchiseandpropertyrevenueMember yum:KFCGlobalDivisionMember yum:FranchiseIncentiveMember 2018-07-01 2018-09-30 0001041061 us-gaap:PropertyPlantAndEquipmentMember 2017-01-01 2017-12-31 0001041061 us-gaap:AccountingStandardsUpdate201409Member 2018-07-01 2018-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember us-gaap:CorporateAndOtherMember 2018-07-01 2018-09-30 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain srt:ScenarioPreviouslyReportedMember us-gaap:EquipmentMember 2017-07-01 2017-09-30 0001041061 us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 2018-09-30 0001041061 us-gaap:AccountingStandardsUpdate201409Member yum:FranchiseIncentiveMember 2018-01-01 0001041061 yum:PizzaHutGlobalDivisionMember yum:Secondhalfof2017to2018Domain yum:IncrementalAdvertisingMember 2017-07-01 2017-12-31 0001041061 yum:FranchiseandpropertyrevenueMember yum:KFCGlobalDivisionMember yum:FranchiseIncentiveMember 2018-01-01 2018-09-30 0001041061 us-gaap:AccountingStandardsUpdate201409Member 2018-01-01 0001041061 yum:CapitalInvestmentsMember 2018-01-01 2018-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember 2017-01-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember us-gaap:CorporateAndOtherMember 2017-01-01 2017-09-30 0001041061 yum:UnallocatedandGeneralandadministrativeexpensesDomain 2017-01-01 2017-12-31 0001041061 yum:PizzaHutGlobalDivisionMember yum:IncrementalAdvertisingMember 2018-07-01 2018-09-30 0001041061 us-gaap:AccountingStandardsUpdate201409Member us-gaap:OtherAssetsMember yum:KFCGlobalDivisionMember yum:FranchiseIncentiveAmortizationMemberMember 2015-01-01 2017-12-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:A2015to2018Domain us-gaap:EquipmentMember 2018-07-01 2018-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember 2017-07-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember 2018-01-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2017-07-01 2017-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2017-01-01 2017-12-31 0001041061 yum:GainlossondispositionofassetsMember 2018-07-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:A2015to2018Domain yum:IncrementalAdvertisingMember 2018-07-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2017-01-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember us-gaap:CorporateAndOtherMember 2018-01-01 2018-09-30 0001041061 yum:GainlossondispositionofassetsMember 2018-01-01 2018-09-30 0001041061 yum:OtherpensionincomeexpenseMember country:US 2017-01-01 2017-03-31 0001041061 yum:TerminationofMasterServicesAgreementMember 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2018-07-01 2018-09-30 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2015-01-01 2017-12-31 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember 2018-07-01 2018-09-30 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain us-gaap:EquipmentMember 2015-01-01 2017-12-31 0001041061 yum:PizzaHutGlobalDivisionMember yum:IncrementalAdvertisingMember 2018-01-01 2018-09-30 0001041061 yum:PizzaHutGlobalDivisionMember yum:Secondhalfof2017to2018Domain yum:IncrementalAdvertisingMember 2018-07-01 2018-09-30 0001041061 yum:InvestmentclosingdateMember 2018-09-30 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2017-12-31 0001041061 srt:ScenarioPreviouslyReportedMember 2017-12-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2018-09-30 0001041061 us-gaap:OtherAssetsMember 2018-09-30 0001041061 us-gaap:OtherAssetsMember 2017-12-31 0001041061 us-gaap:AccountingStandardsUpdate201409Member yum:AdvertisingcooperativeassetsrestrictedMember 2018-01-01 0001041061 yum:KFCGlobalDivisionMember 2018-09-30 0001041061 yum:TacoBellGlobalDivisionMember 2018-09-30 0001041061 us-gaap:CashAndCashEquivalentsMember 2018-09-30 0001041061 yum:TaxCutsandJobsActMember 2018-01-01 2018-09-30 0001041061 yum:TaxCutsandJobsActMember 2017-10-01 2017-12-31 0001041061 yum:TaxCutsandJobsActMember 2018-07-01 2018-09-30 0001041061 us-gaap:TaxYear2018Member 2018-01-01 2018-09-30 0001041061 us-gaap:TaxYear2017Member 2018-01-01 2018-09-30 0001041061 us-gaap:CorporateAndOtherMember 2018-01-01 2018-09-30 0001041061 us-gaap:CorporateAndOtherMember 2018-07-01 2018-09-30 0001041061 us-gaap:CorporateAndOtherMember 2017-07-01 2017-09-30 0001041061 us-gaap:CorporateAndOtherMember 2017-01-01 2017-09-30 0001041061 yum:OtherpensionincomeexpenseMember country:US 2018-01-01 2018-09-30 0001041061 yum:OtherpensionincomeexpenseMember country:US 2017-01-01 2017-09-30 0001041061 yum:OtherpensionincomeexpenseMember country:US 2017-07-01 2017-09-30 0001041061 country:US 2018-07-01 2018-09-30 0001041061 country:US 2017-01-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2017-07-01 2017-09-30 0001041061 yum:OtherpensionincomeexpenseMember country:US 2018-07-01 2018-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2018-01-01 2018-09-30 0001041061 country:US 2017-07-01 2017-09-30 0001041061 country:US 2018-01-01 2018-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2017-01-01 2017-09-30 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2018-07-01 2018-09-30 0001041061 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredDebtMember 2017-12-31 0001041061 us-gaap:SecuredDebtMember 2017-12-31 0001041061 us-gaap:RevolvingCreditFacilityMember us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:ExistingMember us-gaap:UnsecuredDebtMember 2018-09-30 0001041061 us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:UnsecuredDebtMember 2017-12-31 0001041061 yum:TermLoanAFacilityMember us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:TermLoanAFacilityMember us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:UnsecuredDebtMember 2018-09-30 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:ExistingMember us-gaap:UnsecuredDebtMember 2017-12-31 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember us-gaap:BaseRateMember 2018-07-01 2018-09-30 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-07-01 2018-09-30 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2018-04-03 0001041061 yum:ExistingMember us-gaap:UnsecuredDebtMember 2018-01-01 2018-03-31 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2018-07-01 2018-09-30 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2017-01-01 2017-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2017-01-01 2017-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2018-07-01 2018-09-30 0001041061 us-gaap:CashFlowHedgingMember 2018-01-01 2018-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2018-01-01 2018-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2017-07-01 2017-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2017-01-01 2017-09-30 0001041061 us-gaap:CashFlowHedgingMember 2018-07-01 2018-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2018-07-01 2018-09-30 0001041061 us-gaap:CashFlowHedgingMember 2017-07-01 2017-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2018-01-01 2018-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2017-07-01 2017-09-30 0001041061 us-gaap:CashFlowHedgingMember 2017-01-01 2017-09-30 0001041061 yum:ForwardstartinginterestrateswapMember us-gaap:CashFlowHedgingMember 2018-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2018-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember yum:IntercompanyreceivablesandpayablesDomain 2018-09-30 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:FixedIncomeInterestRateMember yum:July2021throughMarch2025Member 2018-09-30 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember yum:IntercompanyreceivablesandpayablesDomain 2017-12-31 0001041061 srt:MaximumMember us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2018-07-01 2018-09-30 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:OtherAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:OtherAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-09-30 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0001041061 yum:TermLoanBFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:UnsecuredDebtMember 2017-12-31 0001041061 yum:SecuritizationNotesMember us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:TermLoanAFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:TermLoanBFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2018-09-30 0001041061 yum:SecuritizationNotesMember us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:UnsecuredDebtMember 2018-09-30 0001041061 yum:TermLoanAFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:SecuritizationNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2017-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2017-12-31 0001041061 yum:SecuritizationNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-09-30 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2018-09-30 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2017-12-31 0001041061 us-gaap:GuaranteeOfIndebtednessOfOthersMember yum:FranchiseLoanPoolGuaranteesMember 2018-09-30 0001041061 us-gaap:PerformanceGuaranteeMember 2018-09-30 0001041061 us-gaap:GuaranteeOfIndebtednessOfOthersMember 2018-09-30 0001041061 us-gaap:PropertyLeaseGuaranteeMember 2018-09-30 0001041061 us-gaap:PropertyLeaseGuaranteeMember 2018-07-01 2018-09-30 yum:days yum:restaurants xbrli:shares xbrli:pure yum:operating_segments yum:Months yum:weeks yum:countries_and_territiories iso4217:USD iso4217:USD xbrli:shares utreg:Rate yum:Years


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

FORM 10-Q

(Mark One)
[Ÿ]
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
 
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2018
 
 
 
OR
 
 
 
[  ]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to _________________
 
 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ü]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ü] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer:
[ü]
 
Accelerated filer:
[  ]
 
 
 
 
 
Non-accelerated filer: 
[  ]
(Do not check if a smaller reporting company)
Smaller reporting company: 
[  ]
 
 
 
 
 
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. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [ü]

The number of shares outstanding of the Registrant’s Common Stock as of October 31, 2018 was 312,301,824 shares.
 




YUM! BRANDS, INC.

INDEX
 
 
 
Page
 
 
No.
Part I.
Financial Information
 
 
 
 
 
Item 1 - Financial Statements
 
 
 
 
 
Condensed Consolidated Statements of Income
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
Item 2 - Management’s Discussion and Analysis of Financial Condition
              and Results of Operations
 
 
 
 
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
Item 4 – Controls and Procedures
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
Part II.
Other Information and Signatures
 
 
 
 
 
Item 1 – Legal Proceedings
 
 
 
 
Item 1A – Risk Factors
 
 
 
 
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 6 – Exhibits
 
 
 
 
Signatures


2



PART I - FINANCIAL INFORMATION

Item 1.
Financial Statements
 

3



CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)
 
 
 
 
 
 
 
 
Quarter ended
 
Year to date
Revenues
9/30/2018
 
9/30/2017
 
9/30/2018
 
9/30/2017
Company sales
$
499


$
871


$
1,523


$
2,682

Franchise and property revenues
605


565


1,773


1,619

Franchise contributions for advertising and other services
287

 

 
834

 

Total revenues
1,391

 
1,436


4,130


4,301

Costs and Expenses, Net
 
 
 
 
 
 
 
Company restaurant expenses
399

 
717


1,258


2,223

General and administrative expenses
204


215


631


699

Franchise and property expenses
40


61


127


161

Franchise advertising and other services expense
288

 

 
834

 

Refranchising (gain) loss
(100
)

(201
)

(285
)

(331
)
Other (income) expense
7


1


10


3

Total costs and expenses, net
838


793


2,575


2,755

Operating Profit
553


643


1,555


1,546

Investment (income) expense, net
(96
)
 
(1
)
 
(185
)
 
(3
)
Other pension (income) expense
4

 
10

 
10

 
42

Interest expense, net
111


110


330


325

Income before income taxes
534

 
524


1,400


1,182

Income tax provision
80


106


192


278

Net Income
$
454

 
$
418


$
1,208


$
904

 
 
 
 
 
 
 
 
Basic Earnings Per Common Share
$
1.43


$
1.21


$
3.72


$
2.58

 
 
 
 
 
 
 
 
Diluted Earnings Per Common Share
$
1.40


$
1.18


$
3.64


$
2.52

 
 
 
 
 
 
 
 
Dividends Declared Per Common Share
$
0.36

 
$

 
$
1.08

 
$
0.60

 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 


4



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
Quarter ended
 
Year to date
 
9/30/2018
 
9/30/2017
 
9/30/2018
 
9/30/2017
 
 
 
 
 
 
 
 
Net Income
$
454

 
$
418

 
$
1,208

 
$
904

Other comprehensive income (loss), net of tax
 
 
 
 

 

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
 
 
 
 
 
 
 
Adjustments and gains (losses) arising during the period
(47
)
 
38

 
(77
)
 
95

Reclassification of adjustments and (gains) losses into Net Income
(4
)
 
42

 
(4
)
 
37

 
(51
)
 
80

 
(81
)
 
132

Tax (expense) benefit
5

 
(1
)
 
5

 
(5
)
 
(46
)
 
79

 
(76
)
 
127

Changes in pension and post-retirement benefits
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
1

 
8

 
1

 
(5
)
Reclassification of (gains) losses into Net Income
5

 
10

 
16

 
46

 
6

 
18

 
17

 
41

Tax (expense) benefit
(1
)
 
(7
)
 
(4
)
 
(15
)
 
5

 
11

 
13

 
26

Changes in derivative instruments
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
16

 
(17
)
 
43

 
(57
)
Reclassification of (gains) losses into Net Income
(8
)
 
15

 
(23
)
 
52

 
8

 
(2
)
 
20

 
(5
)
Tax (expense) benefit
(2
)
 

 
(5
)
 
2

 
6

 
(2
)
 
15

 
(3
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
(35
)
 
88

 
(48
)
 
150

Comprehensive Income
$
419

 
$
506

 
$
1,160

 
$
1,054

 
 
 
 
 
 
 
 
  See accompanying Notes to Condensed Consolidated Financial Statements.
 
 


5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
Year to date
 
9/30/2018
 
9/30/2017
Cash Flows – Operating Activities
 
 
 
Net Income
$
1,208

 
$
904

Depreciation and amortization
103

 
195

Refranchising (gain) loss
(285
)

(331
)
Investment (income) expense, net
(185
)
 
(3
)
Contributions to defined benefit pension plans
(9
)
 
(47
)
Deferred income taxes
32

 
122

Share-based compensation expense
36

 
53

Changes in accounts and notes receivable
(35
)
 
17

Changes in prepaid expenses and other current assets
10

 
(7
)
Changes in accounts payable and other current liabilities
(81
)
 
(168
)
Changes in income taxes payable
(47
)
 
(125
)
Other, net
49

 
108

Net Cash Provided by Operating Activities
796

 
718

 
 
 
 
Cash Flows – Investing Activities
 
 
 
Capital spending
(147
)
 
(228
)
Investment in Grubhub Inc. common stock
(200
)
 

Proceeds from refranchising of restaurants
445

 
716

Other, net
(9
)
 
1

Net Cash Provided by Investing Activities
89

 
489

 
 
 
 
Cash Flows – Financing Activities
 
 
 
Proceeds from long-term debt
106

 
1,088

Repayments of long-term debt
(462
)
 
(372
)
Revolving credit facilities, three months or less, net
273

 
35

Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
59

 

More than three months - payments
(59
)
 

Three months or less, net

 

Repurchase shares of Common Stock
(1,684
)
 
(1,348
)
Dividends paid on Common Stock
(349
)
 
(315
)
Debt issuance costs

 
(32
)
Other, net
(45
)
 
(85
)
Net Cash Used in Financing Activities
(2,161
)
 
(1,029
)
Effect of Exchange Rates on Cash and Cash Equivalents
(55
)
 
42

Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
(1,331
)
 
220

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
1,668

 
831

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
337

 
$
1,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 


6



CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
(Unaudited) 9/30/2018
 
12/31/2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
198


$
1,522

Accounts and notes receivable, net
528

 
400

Prepaid expenses and other current assets
443

 
384

Advertising cooperative assets, restricted

 
201

Total Current Assets
1,169

 
2,507

 
 
 
 
Property, plant and equipment, net
1,378


1,697

Goodwill
489

 
512

Intangible assets, net
84

 
110

Other assets
886

 
346

Deferred income taxes
149

 
139

Total Assets
$
4,155

 
$
5,311

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
885

 
$
813

Income taxes payable
14

 
123

Short-term borrowings
295

 
375

Advertising cooperative liabilities

 
201

Total Current Liabilities
1,194

 
1,512

 
 
 
 
Long-term debt
9,405

 
9,429

Other liabilities and deferred credits
1,014

 
704

Total Liabilities
11,613

 
11,645

 
 
 
 
Shareholders’ Deficit
 
 
 
Common Stock, no par value, 750 shares authorized; 313 and 332 shares issued in 2018 and 2017, respectively

 

Accumulated deficit
(7,141
)
 
(6,063
)
Accumulated other comprehensive loss
(317
)

(271
)
Total Shareholders’ Deficit
(7,458
)
 
(6,334
)
Total Liabilities and Shareholders’ Deficit
$
4,155

 
$
5,311

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 

7



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Tabular amounts in millions, except per share data)

Note 1 - Financial Statement Presentation

We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles in the United States (“GAAP”) for complete financial statements.  Therefore, we suggest that the accompanying Financial Statements be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Form 10-K”).  

YUM! Brands, Inc. and its Subsidiaries (collectively referred to herein as “YUM” or the “Company”) comprise the worldwide operations of KFC, Pizza Hut and Taco Bell (collectively the “Concepts”).  YUM has over 45,000 units in more than 140 countries and territories, of which 61% are located outside the U.S.  YUM was created as an independent, publicly-owned company on October 6, 1997 via a tax-free distribution by our former parent, PepsiCo, Inc., of our Common Stock to its shareholders.  References to YUM throughout these Financial Statements are made using the first person notations of “we,” “us” or “our.”

As of September 30, 2018, YUM consisted of three operating segments:  

The KFC Division which includes our worldwide operations of the KFC concept
The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
The Taco Bell Division which includes our worldwide operations of the Taco Bell concept

YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. Our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consists of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.

Our preparation of the accompanying Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2017 Form 10-K, our financial position as of September 30, 2018, our cash flows for the years to date ended September 30, 2018 and 2017 and the results of our operations and comprehensive income for the quarters and years to date ended September 30, 2018 and 2017. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year.

Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.

In January 2016, the Financial Accounting Standards Board ("FASB") issued a standard that updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted this standard beginning with the quarter ended March 31, 2018. While the adoption of this standard did not have a material impact on our Financial Statements the standard requires our investment in Grubhub Inc. ("Grubhub") common stock, which was consummated in April 2018 (see Note 5), to be remeasured to fair value in each future reporting period with corresponding changes recorded in our Condensed Consolidated Statement of Income.

In October 2016, the FASB issued a standard that requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. As required, we adopted this standard in the quarter ended March 31, 2018 and have recorded a cumulative adjustment to beginning retained earnings to write-off the unamortized tax consequences of certain historical intra-entity transfers of assets. As a result, we recognized a reduction in Other assets of $30 million with an offsetting increase to our Accumulated deficit.


8



In August 2017, the FASB issued a standard that refines and expands existing hedge accounting guidance. We adopted this standard beginning with the quarter ended March 31, 2018. The adoption of this standard did not have a material impact on the Financial Statements.

In February 2018, the FASB issued a standard that allows a reclassification to retained earnings for tax effects that were stranded within accumulated other comprehensive (income) loss ("AOCI") subsequent to the accounting in the fourth quarter of 2017 necessary as a result of the enactment of the Tax Cuts and Jobs Act of 2017. We adopted this standard during the quarter ended March 31, 2018 and reclassified stranded tax effects of $19 million from AOCI with a corresponding decrease to Accumulated deficit at the beginning of our first quarter 2018. These stranded tax effects primarily related to the remeasurement of deferred tax assets associated with pension losses within AOCI. The Company's policy is to follow the specific identification approach for releasing stranded tax effects from AOCI.

From 2014 through 2017 the FASB issued standards to provide principles within a single framework for revenue recognition of transactions involving contracts with customers across all industries ("Topic 606"). We adopted these standards beginning with the quarter ended March 31, 2018, using the modified retrospective method. See Notes 2 and 5.

We have reclassified certain other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended September 30, 2018. These reclassifications had no effect on previously reported Net Income.


Note 2 - Revenue Recognition Accounting Policy

We adopted Topic 606 at the beginning of the quarter ended March 31, 2018. Below is a discussion of how our revenues are earned, our accounting policies pertaining to revenue recognition prior to the adoption of Topic 606 ("Legacy GAAP"), our accounting policies pertaining to revenue recognition subsequent to the adoption of Topic 606 and other required disclosures. Refer to Note 5 for information regarding the cumulative effect adjustment recorded to Accumulated deficit as of the beginning of the quarter ended March 31, 2018 to reflect the adoption of Topic 606. Also included in Note 5 is disclosure of the amount by which each balance sheet and income statement line item was impacted in the current reporting periods as compared to Legacy GAAP.

Company Sales

Revenues from the sale of food items by Company-owned restaurants are recognized as Company sales when a customer purchases the food, which is when our obligation to perform is satisfied. The timing and amount of revenue recognized related to Company sales was not impacted by the adoption of Topic 606.

Franchise and Property Revenues

Franchise Revenues

Our most significant source of revenues arises from the operation of our Concept stores by our franchisees. Franchise rights may be granted through a store-level franchise agreement or through a master franchise agreement. Our franchise agreements require that the franchisee remit continuing fees to us as a percentage of the applicable restaurant’s sales in exchange for the license of the intellectual property associated with our Concepts' brands (the “franchise right”). Our franchise agreements also typically require certain, less significant, upfront franchise fees such as initial fees paid upon opening of a store, fees paid to renew the term of the franchise right and fees paid in the event the franchise agreement is transferred to another franchisee.

Continuing fees represent the substantial majority of the consideration we receive under our franchise agreements. Continuing fees are typically billed and paid monthly and are usually 4%-6% for store-level franchise agreements. Master franchise agreements transfer exclusive master franchise rights and administrative obligations, including control of advertising contributions, to master franchisees in certain regions who in turn grant sub-franchising rights to sub-franchisees. As a result of transferring administrative obligations to a master franchisee the percentage of a master franchisee’s restaurants’ sales that we receive as a continuing fee (typically 3%) is less than the percentage we receive for restaurants operating under a store-level franchise agreement. Upfront franchise fees are typically billed and paid when a new franchise or sub-franchise agreement becomes effective or when an existing agreement is transferred to another franchisee or sub-franchisee.

Under Legacy GAAP, continuing fees were recognized as the related sales occurred. The timing and amount of revenue recognized related to continuing fees was not impacted by the adoption of Topic 606 based on the application of the sales-based royalty exception within Topic 606. Under Legacy GAAP, revenue related to initial fees was recognized upon store opening and renewal

9



and transfer fees were recognized when the related agreement became effective. Upon the adoption of Topic 606, we have determined that the services we provide in exchange for these upfront franchise fees are highly interrelated with the franchise right and are not individually distinct from the ongoing services we provide to our franchisees. As a result, upon the adoption of Topic 606, upfront franchise fees are recognized as revenue over the term of each respective franchise or sub-franchise agreement. Revenues for these upfront franchise fees are recognized on a straight-line basis, which is consistent with the franchisee’s or sub-franchisee's right to use and benefit from the intellectual property. Revenues from continuing fees and upfront franchise fees is presented within Franchise and property revenues in our Condensed Consolidated Statements of Income.

Additionally, from time-to-time we provide non-refundable consideration to franchisees in the form of cash or other incentives (e.g. cash payments to incent new unit openings, free or subsidized equipment, etc.). The Company’s intent in providing such consideration is to drive new unit development or same-store sales growth that will result in higher future revenues for the Company. Under Legacy GAAP, these payments were recognized when we were obligated to make the payment and were presented as either a reduction to Franchise and property revenues, if cash was provided directly to the franchisee, or as Franchise and property expenses, if cash was not provided directly to the franchisee. Due to the adoption of Topic 606, such payments are capitalized and presented within Prepaid expense and other current assets or Other assets. These capitalized balances are being amortized as a reduction in Franchise and property revenues over the period of expected cash flows from the franchise agreements to which the payment relates.

Property Revenues

From time to time, we enter into rental agreements with franchisees for the lease or sublease of restaurant locations. These rental agreements typically originate from refranchising transactions and revenues related to the agreements are recognized as they are earned. Amounts owed under the rental agreements are typically billed and paid on a monthly basis. Revenues from rental agreements with franchisees are presented within Franchise and property revenues within our Condensed Consolidated Statements of Income. Related expenses are presented as Franchise and property expenses within our Condensed Consolidated Statements of Income and primarily include depreciation or, in the case of a sublease, rental expense. The timing and amount of revenue and expenses recognized related to the rental of restaurants we lease or sublease was not impacted by the adoption of Topic 606.

Franchise Contributions for Advertising and Other Services

Advertising Cooperatives

We participate in various advertising cooperatives with our franchisees, typically within a country where we have both Company-owned restaurants and franchise restaurants. These advertising cooperatives are established to collect and administer funds contributed for use in advertising and promotional programs designed to increase sales and enhance the reputation of the Company and its franchise owners. Contributions to the advertising cooperatives are required for both Company-owned and franchise restaurants and are generally based on a percentage of restaurant sales. Revenues for these services are typically billed and paid on a monthly basis. We are required to spend all funds collected by advertising cooperatives we consolidate on advertising and promotional programs. Under Legacy GAAP, receipts and expenditures related to advertising cooperatives we were required to consolidate were presented on a net basis in our Condensed Consolidated Statements of Income. In accordance with the provisions of Topic 606, we have determined we act as a principal in the transactions entered into by the advertising cooperatives we are required to consolidate based on our responsibility to define the nature of the goods or services provided and/or our responsibility to define which franchisees receive the benefit of the goods or services. Additionally, we have determined the advertising services provided to franchisees are highly interrelated with the franchise right and therefore not distinct. Franchisees remit to us a percentage of restaurant sales as consideration for providing the advertising services. As a result, revenues for advertising services are recognized when the related sales occur based on the application of the sales-based royalty exception within Topic 606. These revenues are presented as Franchise contributions for advertising and other services. Expenses incurred to provide these services are presented as Franchise advertising and other services expense.

Other Services

On a much more limited basis, we provide goods or services to certain franchisees that are individually distinct from the franchise right because they do not require integration with other goods or services we provide. Such arrangements typically relate to supply chain, quality assurance and information technology services. In instances where we rely on third parties to provide goods or services to franchisees at our direction, we have determined we act as a principal in these transactions. The extent to which we provide such goods or services varies by brand, geographic region and, in some instances, franchisee. Similar to advertising services, receipts and expenditures related to these other services were presented on a net basis under Legacy GAAP. Upon adoption of Topic 606, revenues from the goods or services described above are presented as Franchise contributions for advertising and other services within our Condensed Consolidated Statements of Income. Expenses related to the provisioning of these goods

10



and services are recorded in Franchise advertising and other services expense. These revenues are recognized as the goods or services are transferred to the franchisee and related expenses are recognized as incurred.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue transaction and collected from a customer are excluded from revenue under both Legacy GAAP and Topic 606.

Disaggregation of Total Revenues

The following table disaggregates revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.
 
Quarter ended 9/30/2018
 
 
KFC Division
 
Pizza Hut Division
 
Taco Bell Division
 
Total
U.S.
 
 
 
 
 
 
 
 
Company sales
 
$
17

 
$
6

 
$
265

 
$
288

Franchise and property revenues
 
46

 
66

 
136

 
248

Franchise contributions for advertising and other services
 
3

 
62

 
105

 
170

 
 
 
 
 
 
 
 
 
China
 
 
 
 
 
 
 
 
Franchise and property revenues
 
52

 
16

 

 
68

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Company sales
 
204

 
7

 

 
211

Franchise and property revenues
 
222

 
61

 
6

 
289

Franchise contributions for advertising and other services
 
105

 
11

 
1

 
117

 
 
$
649

 
$
229

 
$
513

 
$
1,391



 
Year to date ended 9/30/2018
 
 
KFC Division
 
Pizza Hut Division
 
Taco Bell Division
 
Total
U.S.
 
 
 
 
 
 
 
 
Company sales
 
$
50

 
$
31

 
$
759

 
$
840

Franchise and property revenues
 
135

 
200

 
387

 
722

Franchise contributions for advertising and other services
 
7

 
187

 
293

 
487

 
 
 
 
 
 
 
 
 
China
 
 
 
 
 
 
 
 
Franchise and property revenues
 
155

 
47

 

 
202

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Company sales
 
657

 
24

 
2

 
683

Franchise and property revenues
 
647

 
185

 
17

 
849

Franchise contributions for advertising and other services
 
307

 
39

 
1

 
347

 
 
$
1,958

 
$
713

 
1,459

 
$
4,130



Contract Liabilities

Our contract liabilities are comprised of unamortized upfront fees received from franchisees. A summary of significant changes to the contract liability balance during 2018 is presented below.


11



 
 
Deferred Franchise Fees
Balance at January 1, 2018
 
$
392

Revenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period
 
(47
)
Increase for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period
 
61

Other(a)
 
(11
)
Balance at September 30, 2018
 
$
395



(a)
Includes impact of foreign currency translation as well as the recognition of deferred franchise fees into Refranchising (gain) loss upon the modification of existing franchise agreements when entering into master franchise agreements.

We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:

Less than 1 year
$
58

 
1 - 2 years
53

 
2 - 3 years
49

 
3 - 4 years
45

 
4 - 5 years
40

 
Thereafter
150

 
Total
$
395

 


We have applied the optional exemption, as provided for under Topic 606, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

Note 3 - Earnings Per Common Share (“EPS”)
 
 
Quarter ended
 
Year to date
 
 
2018
 
2017
 
2018
 
2017
Net Income
 
$
454

 
$
418

 
$
1,208

 
$
904

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (for basic calculation)
 
318


345

 
325

 
351

Effect of dilutive share-based employee compensation
 
7

 
8

 
7

 
7

Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)
 
325


353

 
332


358

 
 
 
 
 
 
 
 
 
Basic EPS
 
$
1.43

 
$
1.21

 
$
3.72

 
$
2.58

 
 
 
 
 
 
 
 
 
Diluted EPS
 
$
1.40

 
$
1.18

 
$
3.64

 
$
2.52

Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
 
2.2

 
1.9

 
1.9

 
2.3


(a)
These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.


Note 4 - Shareholders’ Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years to date ended September 30, 2018 and 2017 as indicated below.  All amounts exclude applicable transaction fees.


12



 
 
 
Shares Repurchased (thousands)
 
Dollar Value of Shares Repurchased
 
Remaining Dollar Value of Shares that may be Repurchased
 
 
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
 
November 2016 Authorization
 

 
 
19,110

 
 
$

 
 
$
1,327

 
 
$

 
 
 
November 2017 Authorization
 
18,240

 
 

 
 
1,500

 
 

 
 

 
 
 
August 2018 Authorization
 
2,244

 
 

 
 
198

 
 

 
 
1,802

 
 
 
Total
 
20,484

(a) 
 
19,110

(b) 
 
$
1,698

(a) 
 
$
1,327

(b) 
 
$
1,802

 
 
 
 
 
 
 

(a)
Includes the effect of $14 million in share repurchases (0.2 million shares) with trade dates prior to September 30, 2018, but cash settlement dates subsequent to September 30, 2018.

(b)
Includes the effect of $24 million in share repurchases (0.3 million shares) with trade dates on, or prior to, September 30, 2017, but cash settlement dates subsequent to September 30, 2017 and excludes the effect of $45 million in share purchases (0.7 million shares) with trades dates prior to December 31, 2016, but cash settlement dates subsequent to December 31, 2016.

On August 10, 2018 our Board of Directors authorized share repurchases through December 2019 of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock.

Changes in AOCI are presented below.
 
 
Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature
 
Pension and Post-Retirement Benefits
 
Derivative Instruments
 
Total
Balance at December 31, 2017, net of tax
 
$
(174
)
 
$
(106
)
 
$
9

 
$
(271
)
 
 
 
 
 
 
 
 
 
Adoption of accounting standards
 
21

(a) 
(17
)
(b) 
(2
)
(b) 
2

 
 
 
 
 
 
 
 
 
OCI, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) arising during the period classified into AOCI, net of tax
 
(72
)
 
1

 
35

 
(36
)
 
 
 
 
 
 
 
 
 
(Gains) losses reclassified from AOCI, net of tax
 
(4
)
 
12

 
(20
)
 
(12
)
 
 
 
 
 
 
 
 
 
 
 
(76
)
 
13

 
15

 
(48
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2018, net of tax
$
(229
)
 
$
(110
)
 
$
22

 
$
(317
)


(a)
Represents the impact of foreign currency translation from the adoption of Topic 606. See Notes 2 and 5.

(b)
During the quarter ended March 31, 2018, we adopted a standard that allows for the reclassification from AOCI to Accumulated deficit for stranded tax effects resulting from the Tax Act. See Note 1.


13



Note 5 - Items Affecting Comparability of Net Income, Financial Position and Cash Flows

Refranchising (Gain) Loss

The Refranchising (gain) loss by reportable segment is presented below. Given the size and volatility of refranchising initiatives, our chief operating decision maker ("CODM") does not consider the impact of Refranchising (gain) loss when assessing segment performance. As such, we do not allocate such gains and losses to our segments for performance reporting purposes.

During the quarter and year to date ended September 30, 2018, we refranchised 134 restaurants and 329 restaurants, respectively, and received $193 million and $445 million, respectively, in pre-tax proceeds. During the quarter and year to date ended September 30, 2017, we refranchised 209 restaurants and 574 restaurants, respectively, and received $395 million and $716 million, respectively, in pre-tax proceeds.

A summary of Refranchising (gain) loss is as follows:

 
 
Quarter ended
 
Year to date
 
 
2018
 
2017
 
2018
 
2017
KFC Division
 
$
(29
)
 
$
(50
)
 
$
(128
)
 
$
(8
)
Pizza Hut Division
 
3

 
27

 
14

 
40

Taco Bell Division
 
(74
)
 
(178
)
 
(171
)
 
(363
)
Worldwide
 
$
(100
)
 
$
(201
)
 
$
(285
)
 
$
(331
)


KFC U.S. Acceleration Agreement

During 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to expanded menu offerings, improved assets and enhanced customer experience. In connection with this agreement we are investing approximately $130 million from 2015 through 2019 primarily to fund new back-of-house equipment for franchisees and to provide incentives to accelerate franchisee store remodels. Under Legacy GAAP these amounts were expensed as incurred including $4 million and $12 million during the quarter and year to date ended September 30, 2017, respectively. We recorded total pre-tax charges for such amounts of $115 million, primarily as Franchise and property expenses, during the three year period ended December 31, 2017. Due to their size and unique and long-term brand building nature, as well as their non-recurring impact on KFC Division's results when expensed upfront, our CODM did not consider the impact of these investments when assessing segment performance from 2015 through 2017. As such, prior to 2018 the investments were not allocated to the KFC Division segment operating results for performance reporting purposes.

Upon adoption of Topic 606 in 2018, approximately $100 million of these incentives paid to franchisees from 2015 through 2017 were capitalized, which was net of amortization of $19 million. These capitalized amounts are now being amortized as a reduction to Franchise and property revenues over the period of expected cash flows from the franchise agreements to which the payment relates. Amortization related to both franchise incentive payments that were capitalized upon the adoption of Topic 606 and franchise incentive payments that will be capitalized going forward will be allocated to KFC segment operating results as the expense is recurring and is not expected to significantly impact the comparability of results in any given period. During the quarter and year to date ended September 30, 2018, we recorded a reduction to KFC Division Franchise and property revenues related to the amortization of these franchise incentive payments of $2 million and $7 million, respectively.

In addition to the investments above, we agreed to fund $60 million of incremental system advertising from 2015 through 2018. During the quarters ended September 30, 2018 and 2017, we incurred $2 million and $5 million, respectively, in incremental system advertising expense. During the years to date ended September 30, 2018 and 2017, we incurred $7 million and $14 million, respectively, in incremental system advertising expense. We funded approximately $50 million of such advertising during the three year period ended December 31, 2017, which included $20 million during 2017. We currently expect to fund approximately $10 million in 2018. These advertising amounts were recorded primarily in Franchise and property expenses and have been and continue to be included in the KFC Division segment operating results.


14



YUM's Strategic Transformation Initiatives

In October 2016, we announced our strategic transformation plans to drive global expansion of the KFC, Pizza Hut and Taco Bell brands ("YUM's Strategic Transformation Initiatives") following the then anticipated separation of our China business on October 31, 2016. Major features of the Company’s strategic transformation plans involve being more focused on the development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure. During the quarters ended September 30, 2018 and 2017, we recognized pre-tax charges of $1 million and $4 million, respectively, primarily within G&A, related to these initiatives. During the years to date ended September 30, 2018 and 2017, we recognized pre-tax charges of $2 million and $15 million, respectively, primarily within G&A, related to these initiatives. These costs primarily related to severance and relocation costs. Due to the scope of the initiatives as well as the significance of YUM's Strategic Transformation Initiatives program, our CODM does not consider the impact of these initiatives when assessing segment performance. As such, costs associated with the initiatives are not being allocated to any segment for performance reporting purposes.

Pizza Hut U.S. Transformation Agreement

In May 2017, we reached an agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and that includes a permanent commitment to incremental advertising as well as digital and technology contributions by franchisees (the “Transformation Agreement”). In connection with the Transformation Agreement we anticipate investing approximately $90 million to upgrade restaurant equipment to improve operations, fund improvements in restaurant technology and enhance digital and e-commerce capabilities. We currently expect the majority of this investment, which will be a mix of both capital and operating investments, to be split between 2017 and 2018.

We invested $39 million related to the Transformation Agreement in 2017, which included $8 million of investments that we capitalized and $31 million that was expensed primarily as Franchise and property expenses or G&A. The $31 million expense amount included $5 million of franchisee incentive payments that under Legacy GAAP were expensed as incurred, but that upon adoption of Topic 606 in 2018 were capitalized. In 2018, both amounts capitalized upon adoption of Topic 606 and franchisee incentive payments capitalized thereafter are being amortized as a reduction to Franchise and property revenues over the period of expected cash flows from the franchise agreements to which the payments relate.

We have invested $5 million and $16 million in the quarter and year to date, respectively, related to the Transformation Agreement, primarily consisting of capital investments and franchisee incentive payments that were capitalized.

Due to their unique and long-term brand-building nature as well as their non-recurring impact on Pizza Hut’s Division results, the financial impact of operating investments that are part of the Transformation Agreement are not being considered by our CODM when assessing segment performance in 2017 or 2018. As such, these operating investments were not allocated to the Pizza Hut Division operating segment results for performance reporting purposes. Depreciation on capital investments made as part of the Transformation Agreement is being allocated to Pizza Hut segment results as the expense is recurring and is not expected to significantly impact the comparability of results in any given period. For the same reasons, the amortization related to franchisee incentive payments that were capitalized upon the adoption of Topic 606 and amortization related to franchisee incentive payments that are being capitalized going forward are being allocated to Pizza Hut Division operating segment results starting in 2018.

In addition to the investments above, we agreed to fund $37.5 million of incremental system advertising dollars from the second half of 2017 through 2018. During the quarter and year to date ended September 30, 2018, we incurred $4 million and $9 million, respectively, in related incremental system advertising expense. We funded approximately $25 million of such advertising during 2017, which was expensed in the third and fourth quarters of 2017. We currently expect to fund approximately $12.5 million in 2018. These advertising amounts have been and will continue to be recorded primarily in Franchise and property expenses and are included in Pizza Hut's segment operating results.

Modifications of Share-based Compensation Awards

In connection with the separation of our business in China, we modified certain share-based compensation awards held as part of our Executive Income Deferral ("EID") Plan in phantom shares of YUM Common Stock to provide one phantom Yum China share-based award for each outstanding phantom YUM share-based award. Through October 31, 2018, these Yum China awards could be settled in cash, as opposed to stock, which required recognition of the fair value of these awards within G&A in our Condensed Consolidated Income Statement. During the quarter and year to date ended September 30, 2018 we recorded pre-tax credits related to these awards of $2 million and $3 million, respectively, due to depreciation in the market price of Yum China's common stock. During the quarter and year to date ended September 30, 2017, we recorded pre-tax charges related to these awards of less than $1 million and $18 million, respectively, due to appreciation in the market price of Yum China common stock. Given

15



these adjustments were a direct result of the separation, our CODM did not consider their impact when assessing segment performance. As such, these amounts were not allocated to any of our segment operating results.

Subsequent to the quarter end, on October 31, 2018, deferrals in phantom shares of Yum China common stock are no longer an investment option within our EID Plan and any balances relating to these shares were moved to another available EID Plan investment option as selected by the participants.  Amounts directed into cash or phantom shares of a Stock Index Fund or a Bond Index Fund will remain classified as a liability and any appreciation or depreciation in these investments from the transfer date forward will be recognized as compensation expense and included in our segment operating results consistent with existing investments in these funds. Any balances directed into phantom shares of YUM Common Stock will be reclassified to Common Stock on our Consolidated Balance Sheet.  We do not recognize compensation expense for the appreciation or depreciation, if any, of investments in phantom shares of our Common Stock.

Impact of Adopting New Revenue Recognition Standards

As discussed in Note 1, we adopted Topic 606 beginning with the quarter ended March 31, 2018, using the modified retrospective method. Topic 606 was applied to all contracts with customers as of January 1, 2018 and the cumulative effective of this transition was recorded as an adjustment to Accumulated deficit as of this date. As a result, the following adjustments were made to the Condensed Consolidated Balance Sheet as of January 1, 2018:


16



CONDENSED CONSOLIDATED BALANCE SHEET
 
As Reported 12/31/2017
 
Adjustments
 
 
Balances with Adoption of Topic 606 1/1/2018
ASSETS
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash and cash equivalents
$
1,522

 
$
11

 
 
$
1,533

Accounts and notes receivable, net
400

 
112

 
 
512

Prepaid expenses and other current assets
384

 
76

(a) 
 
460

Advertising cooperative assets, restricted
201

 
(201
)
 
 

Total Current Assets
2,507

 
(2
)
 
 
2,505

 
 
 
 
 
 
 
Property, plant and equipment, net
1,697

 
11

 
 
1,708

Goodwill
512

 

 
 
512

Intangible assets, net
110

 

 
 
110

Other assets
346

 
118

 
 
464

Deferred income taxes
139

 
26

 
 
165

Total Assets
$
5,311

 
$
153

 
 
$
5,464

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