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

Document


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

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported)

February 7, 2019

Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

North Carolina
 
13-3951308
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1441 Gardiner Lane, Louisville, Kentucky
 
40213
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code:  (502) 874-8300
 
 
 
Former name or former address, if changed since last report:   N/A

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

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

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

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

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

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

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

 






Section 2 – Financial Information

Item 2.02      Results of Operations and Financial Condition

On February 7, 2019, YUM! Brands, Inc. issued a press release announcing financial results for the quarter and year ended December 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:
February 7, 2019
 
/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
396655389_yumlogo11.jpg
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports Fourth-Quarter GAAP Operating Profit Decline of (39)%;
Fourth-Quarter Core Operating Profit Growth of +5%;
On Track with Strategic Transformation to Accelerate Growth

Louisville, KY (February 7, 2019) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth-quarter and year ended December 31, 2018. Fourth-quarter GAAP EPS was $1.04, a decrease of (17)%. Full-year GAAP EPS was $4.69, an increase of 24%. Fourth-quarter EPS excluding Special Items was $0.40, a decrease of (58)%. Full-year EPS excluding Special Items was $3.17, an increase of 7%.

GREG CREED & DAVID GIBBS COMMENTS
Greg Creed, CEO, said “I am very proud of what we have been able to accomplish in just two short years since we announced the transformation of Yum!. In 2018, our diverse portfolio of iconic brands generated over $49 billion in system sales and ended the year with over 48,000 restaurants. Focus on our four growth drivers, increased collaboration and a new mindset are fueling strong results. During 2018, system sales grew 5% with same store sales growth of 2%, and net unit growth of 4%, excluding the impact of Telepizza. Combined across our brands and led by over 2,000 world-class franchisees, we opened a record 8 gross new restaurants per day across the globe in 2018. As we move into 2019, we will continue to pursue even more growth, leverage our unprecedented scale, and maximize value for all Yum! stakeholders.”
David Gibbs, President, COO and CFO, continued “Fourth-quarter results were a strong finish to a solid year, and serve as a healthy foundation for our 2019 guidance. I am also pleased that we made significant progress on our transformation commitments in 2018, having achieved our goal of becoming at least 98% franchised. Our commitment to being more focused, more franchised and more efficient is strengthening our enviable business model. Yum! is well positioned to leverage our massive scale and expand our capabilities in order to improve franchise unit economics and accelerate growth.”

SUMMARY FINANCIAL TABLE
 
Fourth Quarter
Full Year
 
2018
2017
% Change
2018
2017
% Change
GAAP EPS
$1.04
$1.26
(17)
$4.69
$3.77
+24
Special Items EPS1
$0.64
$0.30
NM
$1.52
$0.81
NM
EPS Excluding Special Items
$0.40
$0.96
(58)
$3.17
$2.96
+7
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
Tel 502 874-8300 • Website www.yum.com/investors




FOURTH-QUARTER HIGHLIGHTS
Worldwide system sales excluding foreign currency translation grew 6%, with Taco Bell at 9%, KFC at 7% and Pizza Hut at 2%.
We opened 865 net new units and added 1,282 Telepizza units for 7% net unit growth.
We refranchised 331 restaurants, including 227 KFC and 104 Taco Bell units, for pre-tax proceeds of $380 million. We recorded net refranchising gains of $255 million in Special Items. As of quarter end, our global franchise ownership mix increased to 98%.
We repurchased 7.8 million shares totaling $696 million at an average price of $90.
We reflected the change in fair value of our investment in Grubhub by recording $171 million of pre-tax investment expense, resulting in a negative ($0.41) impact to EPS on the quarter.
Foreign currency translation unfavorably impacted divisional operating profit by $14 million.
 
% Change
 
System Sales
Ex F/X
Same-Store Sales
Net New Units
GAAP
Operating Profit
Core
Operating Profit
KFC Division
+7
+3
+5
(6)
(1)
Pizza Hut Division1
+2
Even
+10
Even
+3
Taco Bell Division
+9
+6
+3
+7
+7
Worldwide1
+6
+3
+7
(39)
+5
1Pizza Hut Division and Worldwide net new units include Telepizza units.



FULL-YEAR HIGHLIGHTS
Worldwide system sales excluding foreign currency translation grew 5%, with KFC at 6%, Taco Bell at 6% and Pizza Hut at 1%.
We opened 1,757 net new units and added 1,282 Telepizza units for 7% net unit growth.
We refranchised 660 restaurants, including 364 KFC, 97 Pizza Hut and 199 Taco Bell units, for pre-tax proceeds of $825 million, recording net refranchising gains of $540 million in Special Items.
We repurchased 28.2 million shares totaling $2.4 billion at an average price of $85.
We reflected the change in fair value of our investment in Grubhub by recording $14 million of pre-tax investment income, resulting in a positive $0.03 impact to EPS on the year.
Foreign currency translation favorably impacted divisional operating profit by $1 million.
 
% Change
 
System Sales
Ex F/X
Same-Store Sales
Net New Units
GAAP
Operating Profit
Core
Operating Profit
KFC Division
+6
+2
+5
(2)
(2)
Pizza Hut Division
+1
Even
+10
+2
+2
Taco Bell Division
+6
+4
+3
+2
+2
Worldwide1
+5
+2
+7
(17)
Even
1Pizza Hut Division and Worldwide net new units include Telepizza units.



2


KFC DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
2018
2017
Reported
Ex F/X
Restaurants
22,621
21,487
+5
NA
22,621
21,487
+5
NA
System Sales ($MM)
7,049
6,827
+3
+7
26,239
24,515
+7
+6
Same-Store Sales Growth (%)
+3
+3
NM
NM
+2
+3
NM
NM
Franchise & Property Revenues ($MM)
357
351
+2
+6
1,294
1,182
+10
+9
Operating Profit ($MM)
255
271
(6)
(1)
959
981
(2)
(2)
Operating Margin (%)
37.2
33.4
3.8
3.6
36.3
31.6
4.7
4.6

 
Fourth Quarter (% Change)
Year-to-Date (% Change)
 
International
U.S.
International
U.S.
System Sales Growth Ex F/X
+8
+2
+8
Even
Same-Store Sales Growth
+4
+1
+3
+1


KFC Division opened 650 new international restaurants during the quarter.
 
For the year, KFC Division opened 1,558 new international restaurants in 87 countries.
Operating margin increased 3.8 percentage points for the quarter and 4.7 percentage points for the year driven by refranchising and same-store sales growth, partially offset by the gross up of advertising and other franchise service revenues.
Foreign currency translation unfavorably impacted operating profit by $12 million for the quarter and had no impact for the year.


KFC Markets1
Percent of KFC System Sales2
System Sales Growth Ex F/X
Fourth Quarter
(% Change)
Year-to-Date
(% Change)
China
27%
+9
+7
United States
17%
+2
Even
Asia
12%
+4
+5
Russia & Eastern Europe
8%
+16
+20
Australia
7%
+6
+5
United Kingdom
6%
+1
(2)
Latin America
5%
+13
+12
Western Europe
5%
+11
+11
Africa
4%
+10
+8
Middle East / Turkey / North Africa
4%
+11
+12
Canada
2%
+1
+2
Thailand
2%
+11
+9
India
1%
+17
+20
1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2Reflects full year 2018.

3


PIZZA HUT DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
2018
2017
Reported
Ex F/X
Restaurants
18,431
16,748
+10
NA
18,431
16,748
+10
NA
System Sales ($MM)
3,357
3,369
Even
+2
12,212
12,034
+1
+1
Same-Store Sales Growth (%)
Even
+1
NM
NM
Even
Even
NM
NM
Franchise & Property Revenues ($MM)
166
175
(5)
(3)
598
608
(2)
(2)
Operating Profit ($MM)
91
91
Even
+3
348
341
+2
+2
Operating Margin (%)
33.1
38.8
(5.7)
(5.4)
35.3
38.2
(2.9)
(2.9)
 
Fourth Quarter (% Change)
Year-to-Date (% Change)
 
International
U.S.
International
U.S.
System Sales Growth Ex F/X
+3
+1
+2
Even
Same-Store Sales Growth
Even
+1
(2)
+2

Pizza Hut Division opened 352 new international restaurants during the quarter.
 
For the year, Pizza Hut Division opened 860 new international restaurants in 76 countries.
Pizza Hut Division added 1,282 Telepizza units during the quarter.
Operating margin decreased 5.7 percentage points for the quarter and 2.9 percentage points for the year driven by the gross up of advertising and other franchise service revenues partially offset by refranchising.
Foreign currency translation unfavorably impacted operating profit by $2 million for the quarter and favorably impacted operating profit by $1 million for the year.

Pizza Hut Markets1
Percent of Pizza Hut System Sales2
System Sales Growth Ex F/X
Fourth Quarter
(% Change)
Year-to-Date
(% Change)
United States
46%
+1
Even
China
17%
(2)
(1)
Asia
13%
+3
+4
Europe
10%
+6
+2
Latin America
6%
+5
+2
Middle East / Turkey / North Africa
4%
+4
+3
Canada
2%
+3
+2
India
1%
+14
+19
Africa
<1%
+60
+44
1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2Reflects full year 2018 and does not include any impact from Telepizza.

4


TACO BELL DIVISION
 
Fourth Quarter
Full Year
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2018
2017
Reported
Ex F/X
2018
2017
Reported
Ex F/X
Restaurants
7,072
6,849
+3
NA
7,072
6,849
+3
NA
System Sales ($MM)
3,346
3,087
+8
+9
10,786
10,145
+6
+6
Same-Store Sales Growth (%)
+6
+2
NM
NM
+4
+4
NM
NM
Franchise & Property Revenues ($MM)
186
163
+14
+14
590
521
+13
+13
Operating Profit ($MM)
191
179
+7
+7
633
619
+2
+2
Operating Margin (%)
31.9
33.6
(1.7)
(1.7)
30.8
32.9
(2.1)
(2.1)
Taco Bell Division opened 151 new restaurants during the quarter.
 
For the year, Taco Bell Division opened 309 new restaurants, including 94 international new restaurants.
Operating margin decreased 1.7 percentage points for the quarter and 2.1 percentage points for the year driven by the gross up of advertising and other franchise service revenues offset by refranchising and same-store sales growth.
 

OTHER ITEMS

Effective January 1, 2018, we adopted the new accounting standard on revenue recognition. As a result, we are now required to recognize upfront fees, such as initial and renewal fees we receive from franchisees, as revenue over the term of the related franchise agreement. We also record 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 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, were 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.  As a result of the new standard, core operating profit growth was negatively impacted by six percentage points during the fourth quarter and two percentage points on a full-year basis.
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the 2018 Form 10-K.
Our Effective Tax Rate and Effective Tax Rate Before Special Items were negatively impacted due to a reserve of approximately $20 million we recorded in the quarter ended December 31, 2018. The reserve related to a dispute concerning the income tax rate to be applied to our 2018 income in a foreign market.
During the fourth quarter of 2018 a subsidiary of Taco Bell Corp. issued $1.45 billion of Securitization Notes. Proceeds were used to repay $0.8 billion of existing securitization notes issued in 2016, repay the then $0.3 billion outstanding balance on the Revolving Facility and for general corporate purposes including capital return to shareholders.




5


CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time Thursday, February 7, 2019. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 6587363.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, February 7, 2019 through Thursday, April 11, 2019. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 6587363.

The webcast and playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors/events-presentations and selecting “Q4 2018 Earnings Conference Call.”

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

FORWARD-LOOKING STATEMENTS
This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/ or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; the success of our franchisees and licensees, and the success of our 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 48,000 restaurants in more than 140 countries. 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 eight new restaurants per day on average, making it a leader in global retail development. In 2018, 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. In 2019, Yum! Brands was named to the Bloomberg Gender-Equality Index for the second consecutive year.

Analysts are invited to contact:
 
Keith Siegner, Vice President, Investor Relations, Corporate Strategy and Treasurer, at 888/298-6986
 
Kelly Knybel, Director, Investor Relations, at 888/298-6986
Members of the media are invited to contact:
 
Virginia Ferguson, Director, Public Relations, at 502/874-8200

6


YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
B/(W)
 
Year ended
 
% Change
B/(W)
 
12/31/18

12/31/17
 
 
12/31/18

12/31/17
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
477

 
$
890

 
(46)
 
$
2,000

 
$
3,572

 
(44)
Franchise and property revenues
709

 
687

 
3
 
2,482

 
2,306

 
8
Franchise contributions for advertising and other services
372

 

 
N/A
 
1,206

 

 
N/A
Total revenues
1,558

 
1,577

 
(1)
 
5,688

 
5,878

 
(3)
 
 
 
 
 
 
 
 
 
 
 
 
Costs and Expenses, Net
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
376

 
731

 
49
 
1,634

 
2,954

 
45
General and administrative expenses
264

 
300

 
12
 
895

 
999

 
10
Franchise and property expenses
61

 
76

 
20
 
188

 
237

 
21
Franchise advertising and other services expense
374

 

 
N/A
 
1,208

 

 
N/A
Refranchising (gain) loss
(255
)
 
(752
)
 
(66)
 
(540
)
 
(1,083
)
 
(50)
Other (income) expense
(3
)
 
7

 
NM
 
7

 
10

 
NM
Total costs and expenses, net
817

 
362

 
NM
 
3,392

 
3,117

 
(9)
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
741

 
1,215

 
(39)
 
2,296

 
2,761

 
(17)
Investment (income) expense, net
176

 
(2
)
 
NM
 
(9
)
 
(5
)
 
88
Other pension (income) expense
4

 
5

 
22
 
14

 
47

 
70
Interest expense, net
122

 
120

 
(2)
 
452

 
445

 
(1)
Income before income taxes
439

 
1,092

 
(60)
 
1,839

 
2,274

 
(19)
Income tax provision
105

 
656

 
84
 
297

 
934

 
68
Net income
334

 
436

 
(23)
 
1,542

 
1,340

 
15
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
24.0
%
 
60.1
%
 
36.1 ppts.
 
16.2
%
 
41.1
%
 
24.9 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.07

 
$
1.29

 
(17)
 
$
4.80

 
$
3.86

 
24
Average shares outstanding
313

 
337

 
7
 
322

 
347

 
7
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
EPS
$
1.04

 
$
1.26

 
(17)
 
$
4.69

 
$
3.77

 
24
Average shares outstanding
320

 
345

 
7
 
329

 
355

 
7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.36

 
$
0.30

 
 
 
$
1.44

 
$
0.90

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

7


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

 
Quarter ended
 
% Change
B/(W)
 
Year ended
 
% Change
B/(W)
 
12/31/18
 
12/31/17
 
 
12/31/18
 
12/31/17
 
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
187

 
$
463

 
(60)
 
$
894

 
$
1,928

 
(54)
Franchise and property revenues
357

 
351

 
2
 
1,294

 
1,182

 
10
Franchise contributions for advertising and other services
142

 

 
N/A
 
456

 

 
N/A
Total revenues
686

 
814

 
(16)
 
2,644

 
3,110

 
(15)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
158

 
395

 
60
 
775

 
1,639

 
53
General and administrative expenses
103

 
111

 
7
 
350

 
370

 
5
Franchise and property expenses
29

 
37

 
19
 
107

 
117

 
8
Franchise advertising and other services expenses
140

 

 
N/A
 
452

 

 
N/A
Other (income) expense
1

 

 
NM
 
1

 
3

 
NM
Total costs and expenses, net
431

 
543

 
21
 
1,685

 
2,129

 
21
Operating Profit
$
255

 
$
271

 
(6)
 
$
959

 
$
981

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
15.6
%
 
14.6
%
 
1.0 ppts.
 
13.3
%
 
15.0
%
 
(1.7) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
37.2
%
 
33.4
%
 
3.8 ppts.
 
36.3
%
 
31.6
%
 
4.7 ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



8


YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
B/(W)
 
Year ended
 
% Change
B/(W)
 
12/31/18

 
12/31/17
 
 
12/31/18

 
12/31/17
 
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
14

 
$
59

 
(76)
 
$
69

 
$
285

 
(76)
Franchise and property revenues
166

 
175

 
(5)
 
598

 
608

 
(2)
Franchise contributions for advertising and other services
95

 

 
N/A
 
321

 

 
N/A
Total revenues
275

 
234

 
18
 
988

 
893

 
11
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
13

 
59

 
77
 
69

 
271

 
74
General and administrative expenses
56

 
60

 
8
 
197

 
211

 
7
Franchise and property expenses
17

 
24

 
32
 
45

 
68

 
35
Franchise advertising and other services expenses
99

 

 
N/A
 
328

 

 
N/A
Other (income) expense
(1
)
 

 
NM
 
1

 
2

 
NM
Total costs and expenses, net
184

 
143

 
(29)
 
640

 
552

 
(16)
Operating Profit
$
91

 
$
91

 
Even
 
$
348

 
$
341

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
4.7
%
 
2.4
%
 
2.3 ppts.
 
(0.1
)%
 
5.3
%
 
(5.4) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.1
%
 
38.8
%
 
(5.7) ppts.
 
35.3
 %
 
38.2
%
 
(2.9) ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



9


YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
B/(W)
 
Year ended
 
% Change
B/(W)
 
12/31/18

 
12/31/17
 
 
12/31/18

 
12/31/17
 
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
276

 
$
368

 
(25)
 
$
1,037

 
$
1,359

 
(24)
Franchise and property revenues
186

 
163

 
14
 
590

 
521

 
13
Franchise contributions for advertising and other services
135

 

 
N/A
 
429

 

 
N/A
Total revenues
597

 
531

 
12
 
2,056

 
1,880

 
9
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
206

 
282

 
27
 
793

 
1,054

 
25
General and administrative expenses
56

 
66

 
14
 
177

 
188

 
6
Franchise and property expenses
11

 
6

 
(87)
 
28

 
22

 
(31)
Franchise advertising and other services expenses
135

 

 
N/A
 
428

 

 
N/A
Other (income) expense
(2
)
 
(2
)
 
NM
 
(3
)
 
(3
)
 
NM
Total costs and expenses, net
406

 
352

 
(15)
 
1,423

 
1,261

 
(13)
Operating Profit
$
191

 
$
179

 
7
 
$
633

 
$
619

 
2
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
25.2
%
 
23.1
%
 
2.1 ppts.
 
23.5
%
 
22.4
%
 
1.1 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
31.9
%
 
33.6
%
 
(1.7) ppts.
 
30.8
%
 
32.9
%
 
(2.1) ppts.
 
See accompanying notes.
Percentages may not recompute due to rounding.



10


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

 
12/31/2018
 
12/31/2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
292

 
$
1,522

Accounts and notes receivable, less allowance: $31 in 2018 and $19 in 2017
561

 
400

Prepaid expenses and other current assets
354

 
384

Advertising cooperative assets, restricted

 
201

Total Current Assets
1,207

 
2,507

 
 
 
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,116 in
1,237

 
1,594

2018 and $1,342 in 2017
 
 
 
Goodwill
525

 
512

Intangible assets, net
242

 
214

Other assets
724

 
345

Deferred income taxes
195

 
139

Total Assets
$
4,130

 
$
5,311

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
911

 
$
813

Income taxes payable
69

 
123

Short-term borrowings
321

 
375

Advertising cooperative liabilities

 
201

Total Current Liabilities
1,301

 
1,512

 
 
 
 
Long-term debt
9,751

 
9,429

Other liabilities and deferred credits
1,004

 
704

Total Liabilities
12,056

 
11,645

 
 
 
 
Shareholders' Deficit
 
 
 
Common stock, no par value, 750 shares authorized; 306 shares and 332 shares issued in 2018 and 2017, respectively

 

Accumulated deficit
(7,592
)
 
(6,063
)
Accumulated other comprehensive loss
(334
)
 
(271
)
Total Shareholders' Deficit
(7,926
)
 
(6,334
)
Total Liabilities and Shareholders' Deficit
$
4,130

 
$
5,311


 See accompanying notes.



11


YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year ended
 
12/31/18
 
12/31/17
Cash Flows - Operating Activities
 
 
 
Net income
$
1,542

 
$
1,340

Depreciation and amortization
137

 
253

Refranchising (gain) loss
(540
)
 
(1,083
)
Investment (income) expense, net
(9
)
 
(5
)
Contributions to defined benefit pension plans
(16
)
 
(55
)
Deferred income taxes
(11
)
 
634

Share-based compensation expense
50

 
65

Changes in accounts and notes receivable
(66
)
 
(19
)
Changes in prepaid expenses and other current assets

 
(10
)
Changes in accounts payable and other current liabilities
(68
)
 
(173
)
Changes in income taxes payable
65

 
(55
)
Other, net
92

 
138

Net Cash Provided by Operating Activities
1,176

 
1,030

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(234
)
 
(318
)
QuikOrder acquisition, net of cash acquired
(66
)
 

Investment in Grubhub Inc. common stock
(200
)
 

Proceeds from refranchising of restaurants
825

 
1,773

Other, net
(12
)
 
17

Net Cash Provided by Investing Activities
313

 
1,472

 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt
1,556

 
1,088

Repayments of long-term debt
(1,264
)
 
(385
)
Revolving credit facilities, three months or less, net

 

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
(2,390
)
 
(1,960
)
Dividends paid on Common Stock
(462
)
 
(416
)
Debt issuance costs
(13
)
 
(32
)
Other, net
(47
)
 
(90
)
Net Cash Used in Financing Activities
(2,620
)
 
(1,795
)
Effect of Exchange Rate on Cash and Cash Equivalents
(63
)
 
61

Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
(1,194
)
 
768

 
 
 
 
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
$
474

 
$
1,599

 
 
 
 
See accompanying notes.


12


Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
 
In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"), the Company provides the following non-GAAP measurements.

System sales and System sales excluding the impacts of foreign currency translation ("FX"). System sales include the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants that operate our Concepts. Sales of franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees are included in the Company’s revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.

Diluted Earnings Per Share ("EPS") excluding Special Items (as defined below);

Effective Tax Rate excluding Special Items;

Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally.

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 these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. The Special Items are described in (b), (c), (d), (e), (f), (g), (h) and (i) in the accompanying notes.

Certain non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
 
Quarter ended
 
Year ended
 
12/31/18
 
12/31/17
 
12/31/18

 
12/31/17
Detail of Special Items
 
 
 
 
 
 
 
Refranchising gain (loss)(b)
$
255

 
$
752

 
$
540

 
$
1,083

YUM's Strategic Transformation initiatives(c)
(6
)
 
(8
)
 
(8
)
 
(23
)
Costs associated with Pizza Hut U.S. Transformation Agreement(d)
(3
)
 
(11
)
 
(6
)
 
(31
)
Costs associated with KFC U.S. Acceleration Agreement(e)

 
(5
)
 
(2
)
 
(17
)
Non-cash credits (charges) associated with share-based compensation(f)

 

 
3

 
(18
)
Other Special Items Income
2

 
4

 
3

 
7

Special Items Income - Operating Profit
248

 
732

 
530

 
1,001

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

 

 

 
(23
)
Special Items Income before Income Taxes
248

 
732

 
530

 
978

Tax Benefit (Expense) on Special Items(h)
(47
)
 
(192
)
 
(96
)
 
(256
)
Tax Benefit (Expense) - U.S. Tax Act(i)
4

 
(434
)
 
66

 
(434
)
Special Items Income, net of tax
$
205

 
$
106

 
$
500

 
$
288

Average diluted shares outstanding
320

 
345

 
329

 
355

Special Items diluted EPS
$
0.64

 
$
0.30

 
$
1.52

 
$
0.81

 
 
 
 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
GAAP Operating Profit
$
741

 
$
1,215

 
$
2,296

 
$
2,761

Special Items Income
248

 
732

 
530

 
1,001

Foreign Currency Impact on Divisional Operating Profit
(14
)
 
N/A

 
1

 
N/A

Core Operating Profit
$
507

 
$
483

 
$
1,765

 
$
1,760

 
 
 
 
 
 
 
 

13


 
Quarter ended
 
Year ended
 
12/31/18
 
12/31/17
 
12/31/18

 
12/31/17
KFC Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
255

 
$
271

 
$
959

 
$
981

Foreign Currency Impact on Divisional Operating Profit
(12
)
 
N/A

 

 
N/A

Core Operating Profit
$
267

 
$
271

 
$
959

 
$
981

 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
91

 
$
91

 
$
348

 
$
341

Foreign Currency Impact on Divisional Operating Profit
(2
)
 
N/A

 
1

 
N/A

Core Operating Profit
$
93

 
$
91

 
$
347

 
$
341

 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
GAAP Operating Profit
$
191

 
$
179

 
$
633

 
$
619

Foreign Currency Impact on Divisional Operating Profit

 
N/A

 

 
N/A

Core Operating Profit
$
191

 
$
179

 
$
633

 
$
619

 
 
 
 
 
 
 
 
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
 
 
 
 
 
 
 
Diluted EPS
$
1.04

 
$
1.26

 
$
4.69

 
$
3.77

Special Items Diluted EPS
0.64

 
0.30

 
1.52

 
0.81

Diluted EPS excluding Special Items
$
0.40

 
$
0.96

 
$
3.17

 
$
2.96

 
 
 
 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
 
 
 
GAAP Effective Tax Rate
24.0
 %
 
60.1
%
 
16.2
 %
 
41.1
%
Impact on Tax Rate as a result of Special Items
(8.5
)%
 
51.8
%
 
(4.2
)%
 
22.3
%
Effective Tax Rate excluding Special Items
32.5
 %
 
8.3
%
 
20.4
 %
 
18.8
%
 
 
 
 
 
 
 
 
Reconciliation of Company sales to System sales
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
GAAP Company sales
$
477

 
$
890

 
$
2,000

 
$
3,572

Franchise sales
13,275

 
12,393

 
47,237

 
43,122

System sales
13,752

 
13,283

 
49,237

 
46,694

Foreign Currency Impact on System sales
(340
)
 
N/A

 
186

 
N/A

System sales, excluding FX
$
14,092

 
$
13,283

 
$
49,051

 
$
46,694

 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
GAAP Company sales
$
187

 
$
463

 
$
894

 
$
1,928

Franchise sales
6,862

 
6,364

 
25,345

 
22,587

System sales
7,049

 
6,827

 
26,239

 
24,515

Foreign Currency Impact on System sales
(266
)
 
N/A

 
142

 
N/A

System sales, excluding FX
$
7,315

 
$
6,827

 
$
26,097

 
$
24,515

 
 
 
 
 
 
 
 

14


 
 
 
 
 
 
 
 
 
Quarter ended
 
Year ended
 
12/31/18
 
12/31/17
 
12/31/18

 
12/31/17
Pizza Hut Division
 
 
 
 
 
 
 
GAAP Company sales
$
14

 
$
59

 
$
69

 
$
285

Franchise sales
3,343

 
3,310

 
12,143

 
11,749

System sales
3,357

 
3,369

 
12,212

 
12,034

Foreign Currency Impact on System sales
(69
)
 
N/A

 
47

 
N/A

System sales, excluding FX
$
3,426

 
$
3,369

 
$
12,165

 
$
12,034

 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
GAAP Company sales
$
276

 
$
368

 
$
1,037

 
$
1,359

Franchise sales
3,070

 
2,719

 
9,749

 
8,786

System sales
3,346

 
3,087

 
10,786

 
10,145

Foreign Currency Impact on System sales
(5
)
 
N/A

 
(3
)
 
N/A

System sales, excluding FX
$
3,351

 
$
3,087

 
$
10,789

 
$
10,145


2019 EPS GUIDANCE

We have also provided certain forward-looking guidance using non-GAAP measurements. Specifically, in connection with the announcement of our strategic transformation initiatives in 2016, we announced a 2019 Diluted EPS target of at least $3.75 (“2019 Adjusted EPS Target”). This 2019 Adjusted EPS Target was intended to exclude:

Any impact from changes in FX rates (i.e. FX rates were assumed not to change from those in place when we determined the 2019 Adjusted EPS Target in 2016)

Any Special Items; and

The impact of the 53rd week in 2019 for our U.S. businesses and certain international subsidiaries that report on a period calendar;

Additionally, we acquired an interest in Grubhub common stock subsequent to our original determination of the 2019 Adjusted EPS Target and thus are excluding any resulting mark-to-market adjustment for that investment from the 2019 Adjusted EPS target.

At this time, we are unable to forecast any Special Items or Grubhub mark-to-market adjustments for 2019, and therefore cannot provide an estimate of 2019 EPS on a GAAP basis. The forecasted impacts of FX and the 53rd week on our 2019 Adjusted EPS Target are shown below. This impact of FX has been determined as the difference in translating our current local currency forecasts for 2019 at current FX forward rates and FX rates at the time the 2019 Adjusted EPS target was determined in 2016.

Reconciliation of Non-GAAP Amounts - 2019 Adjusted EPS Target
 
 
2019 Diluted EPS with no forecasted impact of Special Items or Grubhub mark-to-market
 
At least $3.77

Foreign Currency Impact
 
0.04

Impact of 53rd Week
 
(0.06
)
2019 Adjusted EPS Target
 
At least $3.75





15


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

Quarter Ended 12/31/18
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
686

 
$
275

 
$
597

 
$

 
$
1,558

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
158

 
13

 
206

 
(1
)
 
376

General and administrative expenses
103

 
56

 
56

 
49

 
264

Franchise and property expenses
29

 
17

 
11

 
4

 
61

Franchise advertising and other services expense
140

 
99

 
135

 

 
374

Refranchising (gain) loss

 

 

 
(255
)
 
(255
)
Other (income) expense
1

 
(1
)
 
(2
)
 
(1
)
 
(3
)
 Total costs and expenses, net
431

 
184

 
406

 
(204
)
 
817

Operating Profit (loss)
$
255

 
$
91

 
$
191

 
$
204

 
$
741



Quarter Ended 12/31/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
814

 
$
234

 
$
531

 
$
(2
)
 
$
1,577

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
395

 
59

 
282

 
(5
)
 
731

General and administrative expenses
111

 
60

 
66

 
63

 
300

Franchise and property expenses
37

 
24

 
6

 
9

 
76

Refranchising (gain) loss

 

 

 
(752
)
 
(752
)
Other (income) expense

 

 
(2
)
 
9

 
7

 Total costs and expenses, net
543

 
143

 
352

 
(676
)
 
362

Operating Profit (loss)
$
271

 
$
91

 
$
179

 
$
674

 
$
1,215



The above tables reconcile segment information, which is based on management responsibility, with our 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.



16


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

Year Ended 12/31/18
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
2,644

 
$
988

 
$
2,056

 
$

 
$
5,688

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
775

 
69

 
793

 
(3
)
 
1,634

General and administrative expenses
350

 
197

 
177

 
171

 
895

Franchise and property expenses
107

 
45

 
28

 
8

 
188

Franchise advertising and other services expense
452

 
328

 
428

 

 
1,208

Refranchising (gain) loss

 

 

 
(540
)
 
(540
)
Other (income) expense
1

 
1

 
(3
)
 
8

 
7

 Total costs and expenses, net
1,685

 
640

 
1,423

 
(356
)
 
3,392

Operating Profit (loss)
$
959

 
$
348

 
$
633

 
$
356

 
$
2,296



Year Ended 12/31/17
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
3,110

 
$
893

 
$
1,880

 
$
(5
)
 
$
5,878

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
1,639

 
271

 
1,054

 
(10
)
 
2,954

General and administrative expenses
370

 
211

 
188

 
230

 
999

Franchise and property expenses
117

 
68

 
22

 
30

 
237

Refranchising (gain) loss

 

 

 
(1,083
)
 
(1,083
)
Other (income) expense
3

 
2

 
(3
)
 
8

 
10

 Total costs and expenses, net
2,129

 
552

 
1,261

 
(825
)
 
3,117

Operating Profit (loss)
$
981

 
$
341

 
$
619

 
$
820

 
$
2,761



The above tables reconcile segment information, which is based on management responsibility, with our 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.



17


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

(a)
Amounts presented as of and for the quarters and years ended December 31, 2018 and December 31, 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 December 31, 2018 and 2017 of $255 million and $752 million, respectively, that have been reflected as Special Items. During the years ended December 31, 2018 and 2017, we recorded net refranchising gains of $540 million and $1.1 billion, respectively, that have been reflected as Special Items.

The fourth quarter 2018 net refranchising gains related primarily to refranchising Taco Bell restaurants in the U.S. and KFC restaurants in Russia. The fourth quarter 2017 net refranchising gains related primarily to refranchising KFC restaurants in Thailand, Australia and the UK, and the refranchising of Taco Bell, KFC and Pizza Hut 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 December 31, 2018 and 2017, we recognized Special Item charges of $6 million and $8 million, respectively, related to these initiatives. During the years ended December 31, 2018 and 2017, we recognized Special Item charges of $8 million and $23 million, respectively. In the fourth quarters of 2018 and 2017, these costs related primarily to contract termination costs that were recorded within G&A. During the remainder of 2018 and 2017, these costs related primarily to severance and relocation costs that were recorded within G&A.

(d)
On May 1, 2017, we reached an agreement with our 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. In connection with this agreement, we recognized Special Item charges of $3 million and $11 million for the quarters ended December 31, 2018 and December 31, 2017. During the years ended December 31, 2018 and December 31, 2017, we recognized Special Item charges of $6 million and $31 million, respectively. The majority of these costs were recorded within 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 less than $1 million and $5 million for the quarters ended December 31, 2018 and December 31, 2017. During the years ended December 31, 2018 and December 31, 2017, we recognized Special Item charges of $2 million and $17 million, respectively. The majority of these costs were recorded within Franchise and property expenses.

(f)
In connection with the separation of Yum China, we modified certain share-based compensation awards held as part of our Executive Income Deferral Plan in YUM stock to provide one Yum China share-based award for each outstanding YUM share-based award. Through October 31, 2018, these Yum China awards could be settled in cash, as opposed to stock, which requires recognition of the fair value of these awards within G&A in our Consolidated Income Statement. During both the quarters ended December 31, 2018 and 2017, we recorded a non-cash Special Item change of less than $1 million related to these awards. During the years ended December 31, 2018 and 2017, we recorded a non-cash Special Item credit of $3 million and a non-cash Special Item charge of $18 million, respectively, related to these awards.

(g)
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.  Additionally, during the fourth quarter of 2016 the Company allowed certain former employees with deferred vested balances in the YUM Retirement Plan an opportunity to voluntarily elect an early payout of their pension benefits.  In connection with this program we incurred an additional Special Items settlement charge of $1 million during the third quarter of 2017.  These charges are recorded in Other pension (income) expense.

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(h)
Tax Benefit (Expense) on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.  Additionally, during the second quarter of 2018, we recorded a $19 million increase to our Income tax provision for the correction of an error associated with the tax recorded on a prior year divestiture, the effects of which were previously recorded as a Special Item. 

(i)
During the quarter and year ended December 31, 2018, we recorded $4 million and $66 million decreases, respectively, related to our provisional tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act") that was reported as a Special Item.  These amounts included tax benefit in the quarter and year ended December 31, 2018 related to current year U.S. foreign tax credits that became realizable directly as a result of the impact of deemed repatriation tax expense associated with the Tax Act. 



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