Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
false--12-31Q120192019-03-310001041061YesfalseLarge Accelerated FilerYUM BRANDS INCfalse456000000000007500000007500000003060000003060000002020-06-122019-02-232021-07-272025-03-2900P11Y7M2D03P11Y8M4D100000033000000390000001000000322065 0001041061 2019-01-01 2019-03-31 0001041061 2018-01-01 2018-12-31 0001041061 yum:RefranchisinggainlossMember 2019-01-01 2019-03-31 0001041061 2019-04-30 0001041061 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember 2018-01-01 2018-03-31 0001041061 2019-03-31 0001041061 2018-12-31 0001041061 2018-01-01 0001041061 2017-12-31 0001041061 yum:IncludingNoncontrollingInterestMember 2019-01-01 2019-03-31 0001041061 yum:IncludingNoncontrollingInterestMember 2018-01-01 2018-03-31 0001041061 us-gaap:RetainedEarningsMember 2019-03-31 0001041061 us-gaap:CommonStockMember 2017-12-31 0001041061 us-gaap:CommonStockMember 2018-03-31 0001041061 us-gaap:RetainedEarningsMember 2017-12-31 0001041061 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001041061 us-gaap:CommonStockMember 2018-12-31 0001041061 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-03-31 0001041061 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001041061 yum:IncludingNoncontrollingInterestMember 2018-12-31 0001041061 yum:BalanceswithAdoptionofTopic842Member 2019-03-31 0001041061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0001041061 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001041061 us-gaap:ShareholdersEquityMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 0001041061 us-gaap:CommonStockMember 2019-03-31 0001041061 yum:IncludingNoncontrollingInterestMember 2018-03-31 0001041061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001041061 us-gaap:CommonStockMember 2018-01-01 2018-03-31 0001041061 yum:IncludingNoncontrollingInterestMember 2019-03-31 0001041061 yum:IncludingNoncontrollingInterestMember 2017-12-31 0001041061 2018-03-31 0001041061 us-gaap:RetainedEarningsMember 2018-12-31 0001041061 us-gaap:RetainedEarningsMember 2018-03-31 0001041061 us-gaap:ShareholdersEquityMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-01-01 0001041061 country:US 2019-03-31 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-01-01 2019-03-31 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-03-31 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-03-31 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-03-31 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-03-31 0001041061 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-12-31 0001041061 us-gaap:AccumulatedTranslationAdjustmentMember 2019-03-31 0001041061 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0001041061 yum:August2018Member 2018-01-01 2018-03-31 0001041061 yum:November2017Member 2019-01-01 2019-03-31 0001041061 yum:November2017Member 2018-01-01 2018-03-31 0001041061 yum:August2018Member 2019-01-01 2019-03-31 0001041061 yum:November2017Member 2019-03-31 0001041061 yum:August2018Member 2019-03-31 0001041061 yum:PresentValueofOperatingLeasePaymentsMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001041061 yum:LeaseRightofUseAssetMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain 2019-01-01 2019-03-31 0001041061 yum:KFCGlobalDivisionMember yum:A2015to2018Domain yum:IncrementalAdvertisingMember 2015-01-01 2018-12-31 0001041061 yum:WriteoffimpactofrecognizingrentexpenseonstraightlinebasisMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001041061 yum:FranchiseandpropertyexpensesMember us-gaap:EquipmentMember 2015-01-01 2019-03-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain 2017-01-01 2017-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-03-31 0001041061 yum:FranchiseandpropertyexpensesMember 2018-01-01 2018-03-31 0001041061 yum:WriteoffofprepaidrentrecordedunderLegacyGAAPMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001041061 yum:GainlossondispositionofassetsMember 2018-01-01 2018-03-31 0001041061 yum:KFCGlobalDivisionMember yum:IncrementalAdvertisingMember 2018-01-01 2018-03-31 0001041061 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain yum:A2017to2019Domain 2019-01-01 2019-03-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain 2018-01-01 2018-12-31 0001041061 yum:TerminationofMasterServicesAgreementMember 2019-03-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:A2015to2019Member us-gaap:EquipmentMember 2019-01-01 2019-03-31 0001041061 yum:GainlossondispositionofassetsMember 2019-01-01 2019-03-31 0001041061 yum:UnallocatedandGeneralandadministrativeexpensesDomain yum:CapitalInvestmentsMember 2017-01-01 2017-12-31 0001041061 yum:FranchiseandpropertyexpensesMember us-gaap:EquipmentMember 2019-01-01 2019-03-31 0001041061 yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 srt:ScenarioPreviouslyReportedMember 2018-12-31 0001041061 yum:BalanceswithAdoptionofTopic842Member 2019-01-01 0001041061 yum:InvestmentclosingdateMember 2019-03-31 0001041061 yum:FranchiseandpropertyexpensesMember yum:UnallocatedandGeneralandadministrativeexpensesDomain 2018-01-01 2018-03-31 0001041061 yum:FranchiseandpropertyexpensesMember us-gaap:EquipmentMember 2018-01-01 2018-03-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-03-31 0001041061 us-gaap:OtherAssetsMember 2018-12-31 0001041061 us-gaap:OtherAssetsMember 2019-03-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2018-12-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember country:US yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 country:US 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:US yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember country:US yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:US yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 country:US yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 country:US yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember country:US 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember country:US yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:US yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:KFCGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember country:US 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 country:US yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:US 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:CN 2019-01-01 2019-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:PizzaHutGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:TacoBellGlobalDivisionMember 2019-01-01 2019-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 country:US 2018-01-01 2018-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember country:US 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-03-31 0001041061 yum:OtherOutsidetheU.S.andChinaMember yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember yum:OtherOutsidetheU.S.andChinaMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember country:US 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:CN yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember yum:OtherOutsidetheU.S.andChinaMember yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:AdvertisingMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:US 2018-01-01 2018-03-31 0001041061 us-gaap:ProductMember country:US yum:TacoBellGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:CN 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember yum:OtherOutsidetheU.S.andChinaMember yum:KFCGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 us-gaap:FranchiseMember country:US yum:PizzaHutGlobalDivisionMember 2018-01-01 2018-03-31 0001041061 yum:A5yearsMember 2019-03-31 0001041061 yum:A2yearsMember 2019-03-31 0001041061 yum:A1yearMember 2019-03-31 0001041061 yum:Thereafter5yearsMember 2019-03-31 0001041061 yum:A3yearsMember 2019-03-31 0001041061 yum:A4yearsMember 2019-03-31 0001041061 us-gaap:CorporateAndOtherMember 2018-01-01 2018-03-31 0001041061 us-gaap:CorporateAndOtherMember 2019-01-01 2019-03-31 0001041061 yum:OtherpensionincomeexpenseMember country:US 2018-01-01 2018-03-31 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2018-01-01 2018-03-31 0001041061 country:US 2019-01-01 2019-03-31 0001041061 yum:OtherpensionincomeexpenseMember country:US 2019-01-01 2019-03-31 0001041061 country:US 2018-01-01 2018-03-31 0001041061 us-gaap:GeneralAndAdministrativeExpenseMember country:US 2019-01-01 2019-03-31 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:UnsecuredDebtMember 2018-12-31 0001041061 yum:ExistingMember us-gaap:UnsecuredDebtMember 2019-03-31 0001041061 yum:TermLoanAFacilityMember us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:ExistingMember us-gaap:UnsecuredDebtMember 2018-12-31 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:UnsecuredDebtMember 2019-03-31 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:TermLoanBFacilityMember us-gaap:SecuredDebtMember 2018-12-31 0001041061 us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:TermLoanAFacilityMember us-gaap:SecuredDebtMember 2018-12-31 0001041061 us-gaap:SecuredDebtMember 2018-12-31 0001041061 us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 us-gaap:CashFlowHedgingMember 2018-01-01 2018-03-31 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2018-01-01 2018-03-31 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2018-01-01 2018-03-31 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember yum:IntercompanyreceivablesandpayablesDomain 2019-03-31 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2019-03-31 0001041061 yum:ForwardstartinginterestrateswapMember us-gaap:CashFlowHedgingMember 2019-03-31 0001041061 srt:MaximumMember us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 yum:ForwardstartinginterestrateswapMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 srt:MinimumMember us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-03-31 0001041061 yum:ForwardstartinginterestrateswapMember us-gaap:CashFlowHedgingMember 2018-12-31 0001041061 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2018-12-31 0001041061 us-gaap:ForeignExchangeContractMember us-gaap:CashFlowHedgingMember yum:IntercompanyreceivablesandpayablesDomain 2018-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:UnsecuredDebtMember 2019-03-31 0001041061 yum:TermLoanBFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-12-31 0001041061 yum:SecuritizationNotesMember us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:TermLoanAFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:SecuritizationNotesMember us-gaap:SecuredDebtMember 2018-12-31 0001041061 yum:SecuritizationNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-12-31 0001041061 yum:TermLoanBFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2019-03-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:UnsecuredDebtMember 2018-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2019-03-31 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2018-12-31 0001041061 yum:YUMSeniorUnsecuredNotesMemberDomain us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2018-12-31 0001041061 yum:SubsidiarySeniorUnsecuredNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:UnsecuredDebtMember 2019-03-31 0001041061 yum:TermLoanAFacilityMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2018-12-31 0001041061 yum:SecuritizationNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:SecuredDebtMember 2019-03-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:OtherAssetsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-03-31 0001041061 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:OtherAssetsMember us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001041061 us-gaap:PropertyLeaseGuaranteeMember 2019-03-31 0001041061 us-gaap:PropertyLeaseGuaranteeMember 2019-01-01 2019-03-31 yum:days yum:weeks xbrli:shares yum:Months yum:operating_segments yum:Years yum:restaurants yum:countries_and_territiories iso4217:USD iso4217:USD xbrli:shares utreg:Rate


 
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 March 31, 2019
 
 
 
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
Securities registered pursuant to Section 12(b) of the Act
 
 
 
 
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
 
Common Stock, no par value
YUM
New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files).  Yes [ü] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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: 
[  ]
 
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 April 30, 2019 was 305,975,118 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
 
 
 
 
Condensed Consolidated Statements of Shareholders' Deficit
 
 
 
 
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
Revenues
3/31/2019
 
3/31/2018
Company sales
$
333


$
512

Franchise and property revenues
612


584

Franchise contributions for advertising and other services
309

 
275

Total revenues
1,254

 
1,371

Costs and Expenses, Net
 
 
 
Company restaurant expenses
272

 
438

General and administrative expenses
211


219

Franchise and property expenses
43


47

Franchise advertising and other services expense
301

 
272

Refranchising (gain) loss
(6
)

(156
)
Other (income) expense


(2
)
Total costs and expenses, net
821


818

Operating Profit
433


553

Investment (income) expense, net
16

 
(66
)
Other pension (income) expense
3

 
3

Interest expense, net
115


107

Income before income taxes
299

 
509

Income tax provision
37


76

Net Income
$
262

 
$
433

 
 
 
 
Basic Earnings Per Common Share
$
0.85


$
1.30

 
 
 
 
Diluted Earnings Per Common Share
$
0.83


$
1.27

 
 
 
 
Dividends Declared Per Common Share
$
0.42

 
$
0.36

 
 
 
 
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
 
3/31/2019
 
3/31/2018
 
 
 
 
Net Income
$
262

 
$
433

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
34

 
46

 
34

 
46

Tax (expense) benefit
(4
)
 
(6
)
 
30

 
40

Changes in pension and post-retirement benefits
 
 
 
Reclassification of (gains) losses into Net Income
4

 
6

 
4

 
6

Tax (expense) benefit
(1
)
 
(1
)
 
3

 
5

Changes in derivative instruments
 
 
 
Unrealized gains (losses) arising during the period
(16
)
 
2

Reclassification of (gains) losses into Net Income
(15
)
 
11

 
(31
)
 
13

Tax (expense) benefit
8

 
(4
)
 
(23
)
 
9

 
 
 
 
Other comprehensive income (loss), net of tax
10

 
54

Comprehensive Income
$
272

 
$
487

 
 
 
 
  See accompanying Notes to Condensed Consolidated Financial Statements.


5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
Quarter ended
 
3/31/2019
 
3/31/2018
Cash Flows – Operating Activities
 
 
 
Net Income
$
262

 
$
433

Depreciation and amortization
26

 
37

Refranchising (gain) loss
(6
)

(156
)
Investment (income) expense, net
16

 
(66
)
Contributions to defined benefit pension plans
(9
)
 
(3
)
Deferred income taxes
(1
)
 
(1
)
Share-based compensation expense
17

 
17

Changes in accounts and notes receivable
14

 
4

Changes in prepaid expenses and other current assets
(13
)
 
(22
)
Changes in accounts payable and other current liabilities
(50
)
 
(99
)
Changes in income taxes payable
(5
)
 
13

Other, net
49

 
32

Net Cash Provided by Operating Activities
300

 
189

 
 
 
 
Cash Flows – Investing Activities
 
 
 
Capital spending
(44
)
 
(42
)
Proceeds from refranchising of restaurants
14

 
205

Other, net
(4
)
 
1

Net Cash Provided by (Used in) Investing Activities
(34
)
 
164

 
 
 
 
Cash Flows – Financing Activities
 
 
 
Proceeds from long-term debt

 

Repayments of long-term debt
(20
)
 
(332
)
Revolving credit facilities, three months or less, net

 

Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
58

 
12

More than three months - payments
(41
)
 
(7
)
Three months or less, net

 

Repurchase shares of Common Stock
(109
)
 
(498
)
Dividends paid on Common Stock
(129
)
 
(120
)
Other, net
(37
)
 
(31
)
Net Cash Used in Financing Activities
(278
)
 
(976
)
Effect of Exchange Rates on Cash and Cash Equivalents
12

 
38

Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

 
(585
)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
474

 
1,668

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
474

 
$
1,083

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 


6



CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
(Unaudited) 3/31/2019
 
12/31/2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
278


$
292

Accounts and notes receivable, net
543

 
561

Prepaid expenses and other current assets
365

 
354

Total Current Assets
1,186

 
1,207

 
 
 
 
Property, plant and equipment, net
1,212


1,237

Goodwill
529

 
525

Intangible assets, net
243

 
242

Other assets
1,372

 
724

Deferred income taxes
202

 
195

Total Assets
$
4,744

 
$
4,130

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
918

 
$
911

Income taxes payable
71

 
69

Short-term borrowings
338

 
321

Total Current Liabilities
1,327

 
1,301

 
 
 
 
Long-term debt
9,736

 
9,751

Other liabilities and deferred credits
1,585

 
1,004

Total Liabilities
12,648

 
12,056

 
 
 
 
Shareholders’ Deficit
 
 
 
Common Stock, no par value, 750 shares authorized; 306 shares issued in both 2019 and 2018

 

Accumulated deficit
(7,580
)
 
(7,592
)
Accumulated other comprehensive loss
(324
)

(334
)
Total Shareholders’ Deficit
(7,904
)
 
(7,926
)
Total Liabilities and Shareholders’ Deficit
$
4,744

 
$
4,130

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 

7



CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
 
 
 
 
 
 
 
Quarters ended March 31, 2019 and 2018
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Yum! Brands, Inc.
 
 
 
 
Issued Common Stock
 
Accumulated Deficit
 
Accumulated
Other Comprehensive Income(Loss)
 
Total Shareholders' Deficit
 
 
Shares
 
Amount
 
 
 
Balance at December 31, 2018
 
306

 
$

 
$
(7,592
)
 
$
(334
)
 
$
(7,926
)
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
262

 
 
 
262

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $4 million)
 
 
 
 
 
 
 
30

 
30

Pension and post-retirement benefit plans (net of tax impact of $1 million)
 
 
 
 
 
 
 
3

 
3

Net loss on derivative instruments (net of tax impact of $8 million)
 
 
 
 
 
 
 
(23
)
 
(23
)
Comprehensive Income
 
 
 
 
 
 
 
 
 
272

Dividends declared
 
 
 
 
 
(129
)
 
 
 
(129
)
Repurchase of shares of Common Stock
 
(1
)
 
 
 
(106
)
 
 
 
(106
)
Employee share-based award exercises
 
1

 
(25
)
 
(13
)
 
 
 
(38
)
Share-based compensation events
 
 
 
25

 
 
 
 
 
25

Adoption of accounting standard
 
 
 
 
 
(2
)
 


 
(2
)
Balance at March 31, 2019
 
306

 
$

 
$
(7,580
)
 
$
(324
)
 
$
(7,904
)
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
332

 
$

 
$
(6,063
)
 
$
(271
)
 
$
(6,334
)
Net Income
 
 
 
 
 
433

 
 
 
433

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $6 million)
 
 
 
 
 
 
 
40

 
40

Pension and post-retirement benefit plans (net of tax impact of $1 million)
 
 
 
 
 
 
 
5

 
5

Net gain on derivative instruments (net of tax impact of $4 million)
 
 
 
 
 
 
 
9

 
9

Comprehensive Income
 
 
 
 
 
 
 
 
 
487

Dividends declared
 
 
 
 
 
(121
)
 
 
 
(121
)
Repurchase of shares of Common Stock
 
(7
)
 
 
 
(528
)
 
 
 
(528
)
Employee share-based award exercises
 
2

 
(23
)
 
(4
)
 
 
 
(27
)
Share-based compensation events
 
 
 
23

 
 
 
 
 
23

Adoption of accounting standards
 
 
 
 
 
(256
)
 
2

 
(254
)
Balance at March 31, 2018
 
327

 
$

 
$
(6,539
)
 
$
(215
)
 
$
(6,754
)
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.


8



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, 2018 (“2018 Form 10-K”).  

YUM! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchises or operates a system of over 48,000 quick service restaurants in more than 145 countries and territories.  At March 31, 2019, 98% of these restaurants were owned and operated by franchisees.  The company’s KFC, Pizza Hut and Taco Bell brands (collectively the “Concepts”) are global leaders of the chicken, pizza and Mexican-style food categories.

As of March 31, 2019, 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. For our subsidiaries that operate on this weekly periodic calendar, 2019 will include a 53rd week. 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 2018 Form 10-K, the results of the interim periods presented. Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit 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.

We have reclassified certain other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter ended March 31, 2019. These reclassifications had no effect on previously reported Net Income.


9



Note 2 - Lease Accounting

Starting in February 2016 and continuing into 2019, the Financial Accounting Standards Board ("FASB") issued standards on the recognition and measurement of leases ("Topic 842"). We adopted these standards beginning with the quarter ended March 31, 2019, using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of 2019 and have not recast the comparative periods presented in the Condensed Consolidated Financial Statements. The standards provide a number of optional practical expedients and policy elections in transition. We elected the ‘package of practical expedients’ under which we did not reassess under the standards our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements. Refer to Note 5 for information regarding the adjustments recorded to our Condensed Consolidated Balance Sheet as of the beginning of the quarter ended March 31, 2019 to reflect the adoption of Topic 842. Below is information about the nature of our leases, accounting policies and assumptions subsequent to adopting Topic 842 and other required disclosures.

In certain instances, we lease or sublease certain restaurants to franchisees. Our lessor and sublease portfolio primarily consists of stores that have been leased to franchisees subsequent to refranchising transactions. Our most significant leases with lease and non-lease components are leases with our franchisees that include both the right to use a restaurant as well a license of the intellectual property associated with our Concepts’ brands. For these leases, which are primarily classified as operating leases, we account for the lease and non-lease components separately. Revenues from rental agreements with franchisees are presented within Franchise and property revenues in our Condensed Consolidated Statements of Income and related expenses (e.g. depreciation and rent expense) are presented within Franchise and property expenses. The impact of Topic 842 on the accounting for our lessor and sublease portfolio was not significant.

We lease land, buildings or both for certain of our restaurants and restaurant support centers worldwide. Rental expense for leased restaurants is presented in our Condensed Consolidated Statements of Income as Company restaurant expenses and rental expense for restaurant support centers is presented as General and administrative expenses. The length of our lease terms, which vary by country and often include renewal options, are an important factor in determining the appropriate accounting for leases including the initial classification of the lease as finance (referred to as “capital” leases prior to the adoption of Topic 842) or operating and the timing of recognition of rent expense over the duration of the lease. We include renewal option periods in determining the term of our leases when failure to renew the lease would impose a penalty on the Company in such an amount that a renewal appears to be reasonably certain at the commencement of the lease. The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements that might be impaired if we choose not to continue the use of the leased property. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term. We generally do not receive leasehold improvement incentives from the landlord upon opening a store that is subject to a lease. Our leasing activity for other assets, including equipment, is not significant. We determine if an arrangement is a lease at inception.

Prior to the adoption of Topic 842 (“Legacy GAAP”) liabilities for future rental payments under operating leases were not recognized on the balance sheet of the Company except when recognizing a liability was necessary to reflect the impact of recognizing rent expense on a straight-line basis. Upon the adoption of Topic 842, right-of-use assets and liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. Such assets and liabilities have historically been recorded for finance leases. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Subsequent amortization of the right-of-use asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight-line basis, over the lease term. For finance leases, the right-of-use asset is depreciated on a straight-line basis over the lesser of the useful life of the leased asset or lease term. Interest on each finance lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability. As most of our leases do not provide an implicit discount rate, we use our incremental secured borrowing rate based on the information available at commencement date, including the lease term and currency, in determining the present value of lease payments for both operating and finance leases. Leases with an initial term of 12 months or less are not recorded in the Condensed Consolidated Balance Sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Right-of-use assets are assessed for impairment in accordance with our long-lived asset impairment policy, which is performed annually or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We reassess lease classification and remeasure right-of-use assets and lease liabilities when a lease is modified and that modification is not accounted for as a separate new lease or upon certain other events that require reassessment in accordance with Topic 842. Operating lease right-of-use assets are included in Other Assets and operating lease liabilities are included in Accounts payable and other current liabilities and Other liabilities and deferred credits in our Condensed Consolidated Balance Sheets. Finance lease right-of-use assets are included in Property, plant and equipment, net, while future rent obligations are included in Short-term borrowings and Long-term debt in our Condensed Consolidated Balance Sheets. The difference between operating lease rental

10



expense recognized in our Condensed Consolidated Statements of Income and cash payments for operating leases is recognized within Other, net within Net Cash Provided by Operating Activities in our Condensed Consolidated Statements of Cash Flows.

From time-to-time, our lease agreements include rental payments based on a percentage of restaurant sales in excess of stipulated amounts. Such amounts are recognized as variable lease expense when they are incurred. Additionally, certain of our lease agreements include rental payments adjusted periodically for inflation. Liabilities for such leases are not remeasured as a result of changes in the inflation index and, instead, changes in the inflation index are treated as variable lease payments and recognized as lease expense in the period in which the obligation for those payments is incurred. Variable lease payments based on a percentage of restaurant sales or resulting from changes in the inflation index are not significant.

The components of lease expense were as follows:
 
Quarter Ended
3/31/2019
Operating lease cost
 
$
29

Finance lease cost
 
 
Amortization of right-of-use assets
 
1

Interest on lease liabilities
 
1

Total finance lease cost
 
2

Sublease income
 
(18
)


Supplemental cash flow information related to leases was as follows:
 
Quarter Ended
3/31/2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
25

Operating cash flows from finance leases
 
1

Financing cash flows from finance leases
 
1

Right-of-use assets obtained in exchange for lease obligations
 
 
Operating leases
 
2

Finance leases
 
3




11



Supplemental balance sheet information related to leases was as follows:

 
 
3/31/2019
 
Condensed Consolidated Balance Sheet
Assets
 
 
 
 
Operating lease right-of-use assets
 
$
661

 
Other assets
Finance lease right-of-use assets
 
36

 
Property, plant and equipment, net
Total right-of-use assets(a)
 
$
697

 
 
 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Operating
 
$
78

 
Accounts payable and other current liabilities
Finance
 
6

 
Short-term borrowings
Non-current
 
 
 
 
Operating
 
643

 
Other liabilities and deferred credits
Finance
 
65

 
Long-term debt
Total lease liabilities(a)
 
$
792

 
 
 
 
 
 
 
Weighted-average Remaining Lease Term (in years)
 
 
 
 
Operating leases
 
11.7

 
 
Finance leases
 
11.6

 
 
 
 
 
 
 
Weighted-average Discount Rate
 
 
 
 
Operating leases
 
5.5
%
 
 
Finance leases
 
5.7
%
 
 

(a)
U.S. operating lease right-of-use assets and liabilities totaled $281 million and $330 million, respectively, as of March 31, 2019 and primarily related to Taco Bell U.S.


12



Future minimum lease payments as of March 31, 2019, including rental payments for lease renewal options we are reasonably certain to exercise were as follows:
 
 
Commitments
 
 
Finance
 
Operating
Less than 1 year
 
$
10

 
$
107

1-2 years
 
10

 
103

2-3 years
 
9

 
95

3-4 years
 
8

 
86

4-5 years
 
8

 
78

Thereafter
 
54

 
546

Total lease payments
 
99

 
1,015

Less imputed interest
 
(28
)
 
(294
)
Total lease liabilities
 
$
71

 
$
721



Future minimum lease payments under the non-cancellable term of leases as of December 31, 2018 as required to be disclosed under Legacy GAAP were as follows:
 
 
Commitments
 
 
Capital
 
Operating
2019
 
$
10

 
$
103

2020
 
10

 
89

2021
 
9

 
78

2022
 
8

 
71

2023
 
8

 
61

Thereafter
 
58

 
384

Total lease payments
 
$
103

 
$
786




Note 3 - Earnings Per Common Share (“EPS”)
 
 
Quarter ended
 
 
2019
 
2018
Net Income
 
$
262

 
$
433

 
 
 
 
 
Weighted-average common shares outstanding (for basic calculation)
 
308


332

Effect of dilutive share-based employee compensation
 
7

 
8

Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)
 
315


340

 
 
 
 
 
Basic EPS
 
$
0.85

 
$
1.30

 
 
 
 
 
Diluted EPS
 
$
0.83

 
$
1.27

Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
 
1.3

 
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.



13



Note 4 - Shareholders’ Deficit

Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the quarters ended March 31, 2019 and 2018 as indicated below.  All amounts exclude applicable transaction fees.

 
 
 
Shares Repurchased (thousands)
 
Dollar Value of Shares Repurchased
 
Remaining Dollar Value of Shares that may be Repurchased
 
 
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
November 2017 Authorization
 

 
 
6,507

 
 

 
 
528

 
 

 
 
 
August 2018 Authorization
 
1,127

 
 

 
 
106

 
 

 
 
1,000

 
 
 
Total
 
1,127

(a) 
 
6,507

(b) 
 
$
106

(a) 
 
$
528

(b) 
 
$
1,000

 
 
 
 
 
 
 

(a)
Includes the effect of $2 million in share repurchases (0.02 million shares) with trade dates prior to March 31, 2019, but cash settlement dates subsequent to March 31, 2019 and excludes the effect of $5 million in share repurchases (0.05 million shares) with trade dates on, or prior to, December 31, 2018, but cash settlement dates subsequent to December 31, 2018.

(b)
Includes the effect of $30 million in share repurchases (0.4 million shares) with trade dates prior to March 31, 2018, but cash settlement dates subsequent to March 31, 2018.

Changes in Accumulated other comprehensive (income) loss ("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, 2018, net of tax
 
$
(245
)
 
$
(82
)
 
$
(7
)
 
$
(334
)
 
 
 
 
 
 
 
 
 
OCI, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) arising during the period classified into AOCI, net of tax
 
30

 

 
(11
)
 
19

 
 
 
 
 
 
 
 
 
(Gains) losses reclassified from AOCI, net of tax
 

 
3

 
(12
)
 
(9
)
 
 
 
 
 
 
 
 
 
 
 
30

 
3

 
(23
)
 
10

 
 
 
 
 
 
 
 
 
Balance at March 31, 2019, net of tax
$
(215
)
 
$
(79
)
 
$
(30
)
 
$
(324
)



14



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

Refranchising (Gain) Loss

The Refranchising (gain) loss by our Divisional reportable segments 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 Divisional segment performance. As such, we do not allocate such gains and losses to our Divisional segments for performance reporting purposes.

During the quarter ended March 31, 2019, we refranchised 6 restaurants and sold certain restaurant assets associated with existing franchise restaurants. Pre-tax proceeds related to these sales totaled $14 million. During the quarter ended March 31, 2018, we refranchised 144 restaurants and received $205 million in pre-tax proceeds.

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

 
 
Quarter ended
 
 
2019
 
2018
KFC Division
 
(2
)
 
$
(57
)
Pizza Hut Division
 

 
(2
)
Taco Bell Division
 
(4
)
 
(97
)
Worldwide
 
$
(6
)
 
$
(156
)


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 included 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 from 2017 to 2019 to upgrade restaurant equipment to improve operations, fund improvements in restaurant technology and enhance digital and e-commerce capabilities. As of March 31, 2019, we have invested $76 million since the inception of the agreement.

We have invested $8 million and $7 million in the quarters ended March 31, 2019 and 2018, respectively, related to the Transformation Agreement. These amounts primarily consisted of capital investments and franchisee incentive payments that were capitalized. Also included are operating investments in both the quarter ended March 31, 2019 and March 31, 2018 of $1 million.

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. As such, these operating investments are not being 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 capitalized franchisee incentive payments is being allocated to Pizza Hut Division operating segment results.

In addition to the investments above, we funded $37.5 million of incremental system advertising from the second half of 2017 through 2018, including $3 million we incurred during the quarter ended March 31, 2018. These advertising amounts were recorded primarily in Franchise and property expenses and were included in the Pizza Hut Division segment operating results.

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

15



and to provide incentives to accelerate franchisee store remodels. We invested $1 million in both the quarters ended March 31, 2019 and 2018 and $122 million since the inception of the agreement.

In addition to the investments above, we funded $60 million of incremental system advertising from 2015 through 2018, including $2 million incurred during the quarter ended March 31, 2018. These advertising amounts were recorded primarily in Franchise and property expenses and were included in the KFC Division segment operating results.

Investment in Grubhub, Inc. ("Grubhub")

On February 7, 2018, certain of our subsidiaries entered into a master services agreement with a subsidiary of Grubhub, the leading online and mobile takeout food-ordering company in the U.S., which is intended to provide dedicated support for the KFC and Taco Bell branded online delivery channels in the U.S. through Grubhub’s online ordering platform, logistics and last-mile support for delivery orders, as well as point-of-sale integration to streamline operations. Concurrently with the master services agreement, one of our subsidiaries entered into an investment agreement with Grubhub to invest $200 million in exchange for approximately 2.8 million shares of Grubhub common stock, subject to customary closing conditions. The terms of the investment agreement constituted a forward contract to purchase Grubhub common stock that represented a derivative and was required to be recorded at fair value, which was $66 million as of March 31, 2018. As a result, in the quarter ended March 31, 2018 we recognized income of $66 million related to the mark-to-market of this investment agreement. In April 2018, all necessary regulatory approvals were obtained and the purchase of Grubhub shares was consummated. Shares acquired as part of this purchase are restricted from being transferred until the earlier of the two-year anniversary of closing the investment agreement or 30 days following the termination of our master services agreement with Grubhub. In the quarter ended March 31, 2019 we recognized pre-tax expense of $20 million related to the mark-to-market of these shares, which includes the depreciation in the market price of Grubhub common stock and valuation adjustments related to the transfer restrictions. Changes in the fair value of our forward contract to purchase shares in Grubhub in 2018 and our investment in Grubhub common stock in 2019 are presented as Investment (income) expense, net within our Condensed Consolidated Statements of Income.

Impact of Adopting New Lease Standards

As discussed in Note 2, we adopted Topic 842 beginning with the quarter ended March 31, 2019, using a modified retrospective method. Topic 842 was applied to all leases existing at, or entered into after, the beginning of 2019. As a result of adopting Topic 842, the following adjustments were made to the Condensed Consolidated Balance Sheet as of the beginning of the quarter ended March 31, 2019:

16



CONDENSED CONSOLIDATED BALANCE SHEET
 
As Reported 12/31/2018
 
Adjustments
 
Balances with Adoption of Topic 842 1/1/2019
ASSETS
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and cash equivalents
$
292

 
$

 
$
292

Accounts and notes receivable, net
561

 

 
561

Prepaid expenses and other current assets
354

 
(10
)
 
344

Total Current Assets
1,207

 
(10
)
 
1,197

 
 
 
 
 
 
Property, plant and equipment, net
1,237

 

 
1,237

Goodwill
525

 

 
525

Intangible assets, net
242

 

 
242

Other assets
724

 
689

 
1,413

Deferred income taxes
195

 

 
195

Total Assets
$
4,130

 
$
679

 
$
4,809

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

 
$
76

 
$
987

Income taxes payable
69

 

 
69

Short-term borrowings
321

 

 
321

Total Current Liabilities
1,301

 
76

 
1,377

 
 
 
 
 
 
Long-term debt
9,751

 

 
9,751

Other liabilities and deferred credits
1,004

 
605

 
1,609

Total Liabilities
12,056

 
681

 
12,737

 
 
 
 
 
 
Shareholders’ Deficit
 
 
 
 
 
Accumulated deficit
(7,592
)
 
(2
)
 
(7,594
)
Accumulated other comprehensive loss
(334
)
 

 
(334
)
Total Shareholders’ Deficit
(7,926
)
 
(2
)
 
(7,928
)
Total Liabilities and Shareholders’ Deficit
$
4,130

 
$
679

 
$
4,809



We recorded lease liabilities within Accounts payable and other current liabilities and Other liabilities and deferred credits of $83 million and $661 million, respectively, related to the present value of the remaining operating lease payments. These adjustments were partially offset by reductions to Accounts payable and other current liabilities and Other liabilities and deferred credits of $7 million and $56 million, respectively, primarily related to the write offs of liabilities previously recorded to reflect the impact of recognizing rent expense on a straight-line basis when lease payments were escalating under Legacy GAAP. Additionally, lease liabilities recognized upon adoption were offset by the write-off of prepaid rent of $11 million that was recorded under Legacy GAAP resulting in a decrease within Prepaid expenses and other current assets and Other assets of $10 million and $1 million, respectively.

We recorded a corresponding right-of-use asset within Other Assets of $690 million. This right-of-use asset reflected a $2 million impairment charge that would have been recorded before adoption of Topic 842 had the right-of-use asset been recognized under Legacy GAAP. A related increase was recorded in Accumulated deficit.

Note 6 - Other (Income) Expense

Other (income) expense primarily includes net foreign exchange (gains) losses and store closure and impairment expenses.



17



Note 7 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

The Company’s receivables are primarily generated as a result of ongoing business relationships with our franchisees as a result of franchise and lease agreements.  Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets.  Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.
 
3/31/2019
 
12/31/2018
Accounts and notes receivable, gross
$
584

 
$
592

Allowance for doubtful accounts
(41
)
 
(31
)
Accounts and notes receivable, net
$
543

 
$
561


Property, Plant and Equipment, net
 
3/31/2019
 
12/31/2018
Property, plant and equipment, gross
$
2,338

 
$
2,353

Accumulated depreciation and amortization
(1,126
)
 
(1,116
)
Property, plant and equipment, net
$
1,212

 
$
1,237



Assets held-for-sale totaled $24 million as of both March 31, 2019 and December 31, 2018 and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Reconciliation of Cash and cash equivalents for Condensed Consolidated Statements of Cash Flows
 
3/31/2019
 
12/31/2018
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets
$
278

 
$
292

Restricted cash included in Prepaid expenses and other current assets(a)
170

 
151

Restricted cash and restricted cash equivalents included in Other assets(b)
26

 
31

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows
$
474

 
$
474


(a)
Restricted cash within Prepaid expenses and other current assets reflects the cash related to advertising cooperatives that we consolidate that can only be used to settle obligations of the respective cooperatives and Taco Bell Securitization interest reserves.

(b)
Primarily trust accounts related to our self-insurance program.

Note 8 - Income Taxes
 
Quarter ended
 
2019
 
2018
Income tax provision
$
37


$
76

Effective tax rate
12.3
%
 
15.0
%


Our first quarter effective tax rate was lower than prior year primarily due to a larger favorable impact of excess tax benefits associated with share-based compensation than the prior year and lapping a prior year charge related to the mandatory one-time deemed repatriation tax on accumulated foreign earnings resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). These items were partially offset by the unfavorable impact of the global intangible low-taxed income provisions of the Tax Act in the current year and lapping the favorable impact related to prior year refranchising transactions.

18



  
Note 9 - Revenue Recognition

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 3/31/2019
 
 
KFC Division
 
Pizza Hut Division
 
Taco Bell Division
 
Total
U.S.
 
 
 
 
 
 
 
 
Company sales
 
$
16

 
$
5

 
$
196

 
$
217

Franchise revenues
 
38

 
67

 
128

 
233

Property revenues
 
6

 
2

 
10

 
18

Franchise contributions for advertising and other services
 
2

 
74

 
104

 
180

 
 
 
 
 
 
 
 
 
China
 
 
 
 
 
 
 
 
Franchise revenues
 
56

 
15

 

 
71

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Company sales
 
109

 
6

 
1

 
116

Franchise revenues
 
205

 
60

 
6

 
271

Property revenues
 
18

 
1

 

 
19

Franchise contributions for advertising and other services
 
116

 
13

 

 
129

 
 
$
566

 
$
243

 
$
445