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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)

August 1, 2019
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

Commission file number 1-13163

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

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 August 1, 2019, YUM! Brands, Inc. ("YUM") issued a press release announcing financial results for the quarter ended June 30, 2019.  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:
August 1, 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
399001555_yumlogo11.jpg
NEWS
Keith Siegner
Vice President, Investor Relations, Corporate Strategy and Treasurer

Yum! Brands Reports Strong Second-Quarter
System Sales Growth of 10%; Same-Store Sales Growth of 5%
GAAP Operating Profit Growth of 5%; Core Operating Profit Growth of 18%

Louisville, KY (August 1, 2019) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second-quarter ended June 30, 2019. Worldwide system sales excluding foreign currency translation grew 10%, with 7% net-new units and 5% same-store sales growth. Second-quarter GAAP EPS was $0.92, a decrease of (5)%. Second-quarter EPS excluding Special Items was $0.93, an increase of 15%.

GREG CREED COMMENTS
Greg Creed, CEO, said “Second-quarter results maintained early year momentum and helped us to exceed our already high expectations for a strong first half of 2019. I’m especially pleased to report that we delivered 10% system sales growth in the quarter, supported by broad based strength at KFC International and Taco Bell. Our commitment to being a more focused, more franchised, and more efficient growth company positions us well for long-term success. Through the lens of our four growth drivers, we continue to leverage our unprecedented scale and expand our capabilities with the goal of enhancing franchise economics, accelerating growth and maximizing shareholder value.”
SECOND-QUARTER HIGHLIGHTS
Worldwide system sales excluding foreign currency translation grew 10%, with KFC, Pizza Hut and Taco Bell each at 10%. Adjusting the prior year base to include Telepizza, system sales growth excluding foreign currency translation would have been 9% worldwide and 4% for the Pizza Hut Division.
We opened 312 net units in the quarter. On a year-over-year basis, which takes into account the strategic alliance with Telepizza in the fourth-quarter 2018, net new unit growth was 7%.
We repurchased 1.9 million shares totaling $196 million at an average price per share of $104.
We reflected the change in fair value of our investment in Grubhub by recording pre-tax investment income of $24 million in the second quarter of 2019 and $25 million in the second quarter of 2018, which resulted in $0.06 in EPS during each respective quarter.
Foreign currency translation unfavorably impacted divisional operating profit by $17 million.
 
% Change
 
System Sales
Ex F/X
Same-Store Sales
Net New Units
GAAP Operating Profit
Core
Operating Profit2
KFC Division
+10
+6
+6
+11
+17
Pizza Hut Division1
+10
+2
+10
+18
+21
Taco Bell Division
+10
+7
+3
+7
+7
Worldwide1
+10
+5
+7
+5
+18
 
Second-Quarter
Year-to-Date
 
2019
2018
% Change
2019
2018
% Change
GAAP EPS
$0.92
$0.97
(5)
$1.75
$2.25
(22)
Special Items EPS2
$(0.01)
$0.15
NM
$(0.01)
$0.54
NM
EPS Excluding Special Items
$0.93
$0.82
+15
$1.76
$1.71
+2
1 Pizza Hut Division and Worldwide system sales ex F/X and net new units include the benefit of our strategic alliance with Telepizza in the fourth-quarter 2018. Same-store sales reflects the inclusion of Telepizza in the prior year base.
2 See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Core Operating Profit and Special Items.
All comparisons are versus the same period a year ago.
System sales growth figures exclude foreign currency translation ("F/X") and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further details.

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




KFC DIVISION
 
Second-Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2019
2018
Reported
Ex F/X
2019
2018
Reported
Ex F/X
Restaurants
23,118
21,838
+6
N/A
23,118
21,838
+6
N/A
System Sales ($MM)
6,648
6,306
+5
+10
13,195
12,635
+4
+10
Same-Store Sales Growth (%)
+6
+2
NM
NM
+5
+2
NM
NM
Franchise and Property Revenues ($MM)
332
310
+7
+12
655
617
+6
+12
Operating Profit ($MM)
261
235
+11
+17
497
456
+9
+16
Operating Margin (%)
44.7
36.1
8.6
8.5
43.2
34.8
8.4
8.2

 
Second-Quarter (% Change)
Year-to-Date (% Change)
 
International
U.S.
International
U.S.
System Sales Growth Ex F/X
+12
+2
+12
+2
Same-Store Sales Growth
+6
+2
+6
+2

Second-Quarter Highlights
KFC Division opened 331 gross new restaurants in 54 countries.
Operating margin increased 8.6 percentage points driven by refranchising, same-store sales growth and net new unit growth.
Foreign currency translation unfavorably impacted operating profit by $14 million.

KFC Markets1
Percent of KFC System Sales2
System Sales Growth Ex F/X
Second-Quarter
(% Change)
Year-to-Date
(% Change)
China
27%
+12
+12
United States
17%
+2
+2
Asia
12%
+10
+9
Russia & Eastern Europe
8%
+19
+19
Australia
7%
+8
+7
United Kingdom
6%
+17
+18
Latin America
5%
+13
+12
Western Europe
5%
+15
+12
Africa
4%
+14
+13
Middle East / Turkey / North Africa
4%
+8
+7
Canada
2%
+1
(1)
Thailand
2%
+10
+9
India
1%
+22
+24
 
1Refer to investors.yum.com under Financial Reports for a list of the countries within each of the markets.
2Reflects Full Year 2018.
 

2


PIZZA HUT DIVISION
 
Second-Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2019
2018
Reported
Ex F/X
2019
2018
Reported
Ex F/X
Restaurants
18,515
16,823
+10
N/A
18,515
16,823
+10
N/A
System Sales ($MM)1
3,098
2,894
+7
+10
6,229
5,926
+5
+8
Same-Store Sales Growth (%)1
+2
(1)
NM
NM
+1
Even
NM
NM
Franchise and Property Revenues ($MM)
143
140
+3
+5
288
289
Even
+2
Operating Profit ($MM)
96
81
+18
+21
193
169
+14
+18
Operating Margin (%)
38.7
34.6
4.1
4.5
39.4
34.8
4.6
5.0

 
Second-Quarter (% Change)
Year-to-Date (% Change)
 
International
U.S.
International
U.S.
System Sales Growth Ex F/X1
+15
+4
+14
+1
Same-Store Sales Growth1
+2
+2
+1
+1

Second-Quarter Highlights
Pizza Hut Division opened 221 gross new restaurants in 42 countries.
Operating margin increased 4.1 percentage points driven by refranchising, same-store sales growth and lower advertising spend associated with the U.S. Transformation Agreement.
Foreign currency translation unfavorably impacted operating profit by $3 million.

Pizza Hut Markets2
Percent of Pizza Hut System Sales3
System Sales Growth Ex F/X 1
Second-Quarter
(% Change)
Year-to-Date
(% Change)
United States
46%
+4
+1
China
17%
+4
+3
Asia
13%
+3
+4
Europe (excluding Spain & Portugal)
9%
+6
+4
Latin America / Spain / Portugal
7%
+92
+88
Middle East / Turkey / North Africa
4%
+7
+7
Canada
2%
+5
+3
India
1%
+9
+10
Africa
<1%
+24
+30
1System sales ex F/X includes the benefit of our strategic alliance with Telepizza in the fourth-quarter 2018. Same-store sales reflects the inclusion of Telepizza in the prior year base. 
2Refer to investors.yum.com under Financial Reports for a list of the countries within each of the markets.
3Reflects Full Year 2018. Europe and Latin America adjusted for transfer of reporting responsibility of Spain and Portugal Pizza Hut units from Europe to Latin America as a result of the Telepizza alliance.
 



3






TACO BELL DIVISION
 
Second-Quarter
Year-to-Date
 
 
 
%/ppts Change
 
 
%/ppts Change
 
2019
2018
Reported
Ex F/X
2019
2018
Reported
Ex F/X
Restaurants
7,136
6,905
+3
N/A
7,136
6,905
+3
N/A
System Sales ($MM)
2,727
2,489
+10
+10
5,233
4,836
+8
+8
Same-Store Sales Growth (%)
+7
+2
NM
NM
+6
+1
NM
NM
Franchise and Property Revenues ($MM)
158
134
+18
+18
302
262
+15
+15
Operating Profit ($MM)
159
149
+7
+7
297
281
+6
+6
Operating Margin (%)
33.2
30.8
2.4
2.4
32.1
29.7
2.4
2.4

Second-Quarter Highlights
Taco Bell Division opened 55 gross new restaurants in 12 countries.
Operating margin increased 2.4 percentage points driven by same-store sales growth and refranchising, partially offset by higher restaurant level costs.

OTHER ITEMS
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the second-quarter Form 10-Q.

4


CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time August 1, 2019. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 3973379.
The call will be available for playback beginning at 11:00 a.m. Eastern Time August 1, 2019 through September 6, 2019. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 3973379.
The webcast and the playback can be accessed via the website by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting “Q2 2019 Yum! Brands, Inc. Earnings Call.”
ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.
FORWARD-LOOKING STATEMENTS
This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.
Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; the success of our franchisees and licensees; 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 ability to successfully implement technology initiatives; 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; tax matters, including changes in tax laws or 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.
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 145 countries and territories primarily operating the company’s brands -- KFC, Pizza Hut and Taco Bell -- 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
Members of the media are invited to contact:
 
Virginia Ferguson, Senior Director, Public Relations, at 502/874-8200

5


YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/19
 
6/30/18
 
B/(W)
 
6/30/19
 
6/30/18
 
B/(W)
Revenues
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
359

 
$
512

 
(30)
 
$
692

 
$
1,024

 
(32)
Franchise and property revenues
633

 
584

 
8
 
1,245

 
1,168

 
7
Franchise contributions for advertising and other services
318

 
272

 
17
 
627

 
547

 
15
Total revenues
1,310

 
1,368

 
(4)
 
2,564

 
2,739

 
(6)
 
 
 
 
 
 
 
 
 
 
 
 
Costs and Expenses, Net
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
286

 
421

 
32
 
558

 
859

 
35
General and administrative expenses
198

 
208

 
5
 
409

 
427

 
4
Franchise and property expenses
38

 
40

 
9
 
81

 
87

 
8
Franchise advertising and other services expense
315

 
274

 
(15)
 
616

 
546

 
(13)
Refranchising (gain) loss
(4
)
 
(29
)
 
(85)
 
(10
)
 
(185
)
 
(95)
Other (income) expense
6

 
5

 
NM
 
6

 
3

 
NM
Total costs and expenses, net
839

 
919

 
9
 
1,660

 
1,737

 
4
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit
471

 
449

 
5
 
904

 
1,002

 
(10)
Investment (income) expense, net
(25
)
 
(23
)
 
11
 
(9
)
 
(89
)
 
(89)
Other pension (income) expense

 
3

 
71
 
3

 
6

 
41
Interest expense, net
119

 
112

 
(5)
 
234

 
219

 
(7)
Income before income taxes
377

 
357

 
6
 
676

 
866

 
(22)
Income tax provision
88

 
36

 
NM
 
125

 
112

 
(12)
Net Income
$
289

 
$
321

 
(10)
 
$
551

 
$
754

 
(27)
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
23.3
%
 
9.9
%
 
(13.4) ppts.
 
18.5
%
 
12.9
%
 
(5.6) ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.94

 
$
0.99

 
(5)
 
$
1.79

 
$
2.30

 
(22)
Average shares outstanding
307


324

 
5
 
307

 
328

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
EPS
$
0.92

 
$
0.97

 
(5)
 
$
1.75

 
$
2.25

 
(22)
Average shares outstanding
314

 
331

 
5
 
314

 
336

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.42

 
$
0.36

 
 
 
$
0.84

 
$
0.72

 
 

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

6


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

 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/19
 
6/30/18
 
B/(W)
 
6/30/19
 
6/30/18
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
135

 
$
241

 
(44)
 
$
260

 
$
486

 
(47)
Franchise and property revenues
332

 
310

 
7
 
655

 
617

 
6
Franchise contributions for advertising and other services
117

 
100

 
18
 
235

 
206

 
14
Total revenues
584

 
651

 
(10)
 
1,150

 
1,309

 
(12)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
113

 
210

 
46
 
221

 
430

 
49
General and administrative expenses
75

 
81

 
6
 
153

 
166

 
7
Franchise and property expenses
19

 
25

 
25
 
47

 
54

 
13
Franchise advertising and other services expense
116

 
101

 
(15)
 
232

 
205

 
(13)
Other (income) expense

 
(1
)
 
NM
 

 
(2
)
 
NM
Total costs and expenses, net
323

 
416

 
22
 
653

 
853

 
23
Operating Profit
$
261

 
$
235

 
11
 
$
497

 
$
456

 
9
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
15.8
%
 
12.5
%
 
3.3 ppts.
 
15.0
%
 
11.5
%
 
3.5 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
44.7
%
 
36.1
%
 
8.6 ppts.
 
43.2
%
 
34.8
%
 
8.4 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



7


YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/19
 
6/30/18
 
B/(W)
 
6/30/19
 
6/30/18
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
11

 
$
18

 
(38)
 
$
22

 
$
42

 
(47)
Franchise and property revenues
143

 
140

 
3
 
288

 
289

 
Franchise contributions for advertising and other services
92

 
75

 
21
 
179

 
153

 
17
Total revenues
246

 
233

 
6
 
489

 
484

 
1
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
10

 
19

 
40
 
21

 
43

 
49
General and administrative expenses
44

 
46

 
6
 
91

 
96

 
6
Franchise and property expenses
9

 
8

 
 
14

 
19

 
30
Franchise advertising and other services expense
89

 
77

 
(16)
 
172

 
155

 
(11)
Other (income) expense
(2
)
 
2

 
NM
 
(2
)
 
2

 
NM
Total costs and expenses, net
150

 
152

 
1
 
296

 
315

 
6
Operating Profit
$
96

 
$
81

 
18
 
$
193

 
$
169

 
14
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
1.6
%
 
(2.4
)%
 
4.0 ppts.
 
2.7
%
 
(1.0
)%
 
3.7 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
38.7
%
 
34.6
 %
 
4.1 ppts.
 
39.4
%
 
34.8
 %
 
4.6 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



8


YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
 
 
Quarter ended
 
% Change
 
Year to date
 
% Change
 
6/30/19
 
6/30/18
 
B/(W)
 
6/30/19
 
6/30/18
 
B/(W)
 
 
 
 
 
 
 
 
 
 
 
 
Company sales
$
213

 
$
253

 
(16)
 
$
410

 
$
496

 
(17)
Franchise and property revenues
158

 
134

 
18
 
302

 
262

 
15
Franchise contributions for advertising and other services
109

 
97

 
13
 
213

 
188

 
14
Total revenues
480

 
484

 
(1)
 
925

 
946

 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
163

 
193

 
16
 
316

 
387

 
18
General and administrative expenses
41

 
41

 
 
84

 
81

 
(4)
Franchise and property expenses
8

 
6

 
(30)
 
17

 
12

 
(41)
Franchise advertising and other services expense
110

 
96

 
(14)
 
212

 
186

 
(14)
Other (income) expense
(1
)
 
(1
)
 
NM
 
(1
)
 
(1
)
 
NM
Total costs and expenses, net
321

 
335

 
4
 
628

 
665

 
6
Operating Profit
$
159

 
$
149

 
7
 
$
297

 
$
281

 
6
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant margin
23.6
%
 
24.1
%
 
(0.5) ppts.
 
22.8
%
 
21.9
%
 
0.9 ppts.
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
33.2
%
 
30.8
%
 
2.4 ppts.
 
32.1
%
 
29.7
%
 
2.4 ppts.
 
See accompanying notes.

Percentages may not recompute due to rounding.



9


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

 
(unaudited) 6/30/19
 
12/31/18
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
252

 
$
292

Accounts and notes receivable, less allowance: $45 in 2019 and $31 in 2018
535

 
561

Prepaid expenses and other current assets
335

 
354

Total Current Assets
1,122

 
1,207

 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $1,135 in 2019
 
 
 
and $1,116 in 2018
1,193

 
1,237

Goodwill
526

 
525

Intangible assets, net
243

 
242

Other assets
1,378

 
724

Deferred income taxes
212

 
195

Total Assets
$
4,674

 
$
4,130

 
 
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
798

 
$
911

Income taxes payable
63

 
69

Short-term borrowings
325

 
321

Total Current Liabilities
1,186

 
1,301

 
 
 
 
Long-term debt
9,869

 
9,751

Other liabilities and deferred credits
1,613

 
1,004

Total Liabilities
12,668

 
12,056

 
 
 
 
Shareholders' Deficit
 
 
 
Common Stock, no par value, 750 shares authorized; 304 shares issued in 2019 and 306 issued in 2018

 

Accumulated deficit
(7,614
)
 
(7,592
)
Accumulated other comprehensive loss
(380
)
 
(334
)
Total Shareholders' Deficit
(7,994
)
 
(7,926
)
Total Liabilities and Shareholders' Deficit
$
4,674

 
$
4,130

 See accompanying notes.



10


YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
 
Year to date
 
6/30/19

6/30/18
Cash Flows - Operating Activities
 
 
 
Net Income
$
551

 
$
754

Depreciation and amortization
54

 
71

Refranchising (gain) loss
(10
)
 
(185
)
Investment (income) expense, net
(9
)
 
(89
)
Contributions to defined benefit pension plans
(11
)
 
(5
)
Deferred income taxes

 
(23
)
Share-based compensation expense
31

 
27

Changes in accounts and notes receivable
7

 
(15
)
Changes in prepaid expenses and other current assets
(24
)
 
4

Changes in accounts payable and other current liabilities
(171
)
 
(160
)
Changes in income taxes payable
(36
)
 
(15
)
Other, net
79

 
17

Net Cash Provided by Operating Activities
461

 
381

 
 
 
 
Cash Flows - Investing Activities
 
 
 
Capital spending
(76
)
 
(85
)
Investment in Grubhub Inc. common stock

 
(200
)
Proceeds from refranchising of restaurants
25

 
252

Other, net
(1
)
 
(9
)
Net Cash Used in Investing Activities
(52
)
 
(42
)
 
 
 
 
Cash Flows - Financing Activities
 
 
 
Proceeds from long-term debt

 
106

Repayments of long-term debt
(40
)
 
(449
)
Revolving credit facilities, three months or less, net
157

 
202

Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
48

 
51

More than three months - payments
(44
)
 
(43
)
Three months or less, net

 

Repurchase shares of Common Stock
(305
)
 
(1,168
)
Dividends paid on Common Stock
(257
)
 
(236
)
Other, net
(51
)
 
(42
)
Net Cash Used in Financing Activities
(492
)
 
(1,579
)
Effect of Exchange Rate on Cash and Cash Equivalents
(2
)
 
(19
)
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
(85
)
 
(1,259
)
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
$
389

 
$
409

 
 
 
 
 
 
 
 
See accompanying notes.


11


Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
 
In addition to the results provided in accordance with 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. Sales at 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 Condensed 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) and (e) 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 to date
 
 
6/30/19
 
6/30/18
 
6/30/19
 
6/30/18
Detail of Special Items
 
 
 
 
 
 
 
 
Refranchising gain (loss)(b)
 
$
4

 
$
29

 
$
10

 
$
185

Other Special Items Expense(c)
 
(9
)
 

 
(11
)

(3
)
Special Items Income (Expense) - Operating Profit
 
(5
)
 
29

 
(1
)
 
182

Interest expense, net(c)
 
(2
)
 

 
(2
)
 

Special Items Income (Expense) before Income Taxes
 
(7
)
 
29

 
(3
)
 
182

Tax Benefit (Expense) on Special Items(d)
 
3

 
(18
)
 
2


(37
)
Tax Benefit - U.S. Tax Act(e)
 

 
40

 


34

Special Items Income (Expense), net of tax
 
(4
)
 
51

 
(1
)
 
179

Average diluted shares outstanding
 
314

 
331

 
314

 
336

Special Items diluted EPS
 
$
(0.01
)
 
$
0.15

 
$
(0.01
)
 
$
0.54

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
471

 
$
449

 
$
904

 
$
1,002

Special Items Income (Expense)
 
(5
)
 
29

 
(1
)
 
182

Foreign Currency Impact on Divisional Operating Profit
 
(17
)
 
N/A

 
(36
)
 
N/A

Core Operating Profit
 
$
493

 
$
420

 
$
941

 
$
820

 
 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
261

 
$
235

 
$
497

 
$
456

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

 
(30
)
 
N/A

Core Operating Profit
 
$
275

 
$
235

 
$
527

 
$
456

 
 
 
 
 
 
 
 
 

12


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

 
 
Quarter ended
 
Year to date
 
 
6/30/19
 
6/30/18
 
6/30/19
 
6/30/18
Pizza Hut Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
96

 
$
81

 
$
193

 
$
169

Foreign Currency Impact on Divisional Operating Profit
 
(3
)
 
N/A

 
(6
)
 
N/A

Core Operating Profit
 
$
99

 
$
81

 
$
199

 
$
169

 
 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
 
GAAP Operating Profit
 
$
159

 
$
149

 
$
297

 
$
281

Foreign Currency Impact on Divisional Operating Profit
 

 
N/A

 

 
N/A

Core Operating Profit
 
$
159

 
$
149

 
$
297

 
$
281

 
 
 
 
 
 
 
 
 
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
 
 
 
 
 
 
 
 
Diluted EPS
 
$
0.92

 
$
0.97

 
$
1.75

 
$
2.25

Special Items Diluted EPS
 
(0.01
)
 
0.15

 
(0.01
)
 
0.54

Diluted EPS excluding Special Items
 
$
0.93

 
$
0.82

 
$
1.76

 
$
1.71

 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
 
 
 
 
 
 
 
 
GAAP Effective Tax Rate
 
23.3
 %
 
9.9
 %
 
18.5
 %
 
12.9
 %
Impact on Tax Rate as a result of Special Items
 
(0.4
)%
 
(7.5
)%
 
(0.2
)%
 
(2.9
)%
Effective Tax Rate excluding Special Items
 
23.7
 %
 
17.4
 %
 
18.7
 %
 
15.8
 %
 
 
 
 
 
 
 
 
 
Reconciliation of Company sales to System sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
359

 
$
512

 
$
692

 
$
1,024

Franchise sales
 
12,114

 
11,177

 
23,965

 
22,373

System sales
 
12,473

 
11,689

 
24,657

 
23,397

Foreign Currency Impact on System sales
 
(410
)
 
N/A

 
(901
)
 
N/A

System sales, excluding FX
 
$
12,883

 
$
11,689

 
$
25,558

 
$
23,397

 
 
 
 
 
 
 
 
 
KFC Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
135

 
$
241

 
$
260

 
$
486

Franchise sales
 
6,513

 
6,065

 
12,935

 
12,149

System sales
 
6,648

 
6,306

 
13,195

 
12,635

Foreign Currency Impact on System sales
 
(317
)
 
N/A

 
(700
)
 
N/A

System sales, excluding FX
 
$
6,965

 
$
6,306

 
$
13,895

 
$
12,635

 
 
 
 
 
 
 
 
 
Pizza Hut Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
11

 
$
18

 
$
22

 
$
42

Franchise sales
 
3,087

 
2,876

 
6,207

 
5,884

System sales
 
3,098

 
2,894

 
6,229

 
5,926

Foreign Currency Impact on System sales
 
(89
)
 
N/A

 
(192
)
 
N/A

System sales, excluding FX
 
$
3,187

 
$
2,894

 
$
6,421

 
$
5,926

 
 
 
 
 
 
 
 
 
Taco Bell Division
 
 
 
 
 
 
 
 
GAAP Company sales
 
$
213

 
$
253

 
$
410

 
$
496

Franchise sales
 
2,514

 
2,236

 
4,823

 
4,340

System sales
 
2,727

 
2,489

 
5,233

 
4,836

Foreign Currency Impact on System sales
 
(4
)
 
N/A

 
(9
)
 
N/A

System sales, excluding FX
 
$
2,731

 
$
2,489

 
$
5,242

 
$
4,836

 
 
 
 
 
 
 
 
 

13



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 the remainder of 2019 beyond amounts already recognized through June 30, 2019. The full year forecasted impacts of FX and the 53rd week and actual year-to-date impacts of Special Items and Grubhub mark-to-market adjustments 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 $3.73

Foreign Currency Impact
0.08

Impact of 53rd Week
(0.06
)
Year-to-Date Special Items Expense through June 30, 2019
0.01

Year-to-Date Grubhub mark-to-market through June 30, 2019
(0.01
)
2019 Adjusted EPS Target
At least $3.75




14


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

Quarter Ended 6/30/2019
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
584

 
$
246

 
$
480

 
$

 
$
1,310

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
113

 
10

 
163

 

 
286

General and administrative expenses
75

 
44

 
41

 
38

 
198

Franchise and property expenses
19

 
9

 
8

 
2

 
38

Franchise advertising and other services expense
116

 
89

 
110

 

 
315

Refranchising (gain) loss

 

 

 
(4
)
 
(4
)
Other (income) expense

 
(2
)
 
(1
)
 
9

 
6

Total costs and expenses, net
323

 
150

 
321

 
45

 
839

Operating Profit
$
261

 
$
96

 
$
159

 
$
(45
)
 
$
471



Quarter Ended 6/30/2018
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
651

 
$
233

 
$
484

 
$

 
$
1,368

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
210

 
19

 
193

 
(1
)
 
421

General and administrative expenses
81

 
46

 
41

 
40

 
208

Franchise and property expenses
25

 
8

 
6

 
1

 
40

Franchise advertising and other services expense
101

 
77

 
96

 

 
274

Refranchising (gain) loss

 

 

 
(29
)
 
(29
)
Other (income) expense
(1
)
 
2

 
(1
)
 
5

 
5

Total costs and expenses, net
416

 
152

 
335

 
16

 
919

Operating Profit
$
235

 
$
81

 
$
149

 
$
(16
)
 
$
449



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

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



15


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

Year to Date 6/30/2019
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,150

 
$
489

 
$
925

 
$

 
$
2,564

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
221

 
21

 
316

 

 
558

General and administrative expenses
153

 
91

 
84

 
81

 
409

Franchise and property expenses
47

 
14

 
17

 
3

 
81

Franchise advertising and other services expense
232

 
172

 
212

 

 
616

Refranchising (gain) loss

 

 

 
(10
)
 
(10
)
Other (income) expense

 
(2
)
 
(1
)
 
9

 
6

Total costs and expenses, net
653

 
296

 
628

 
83

 
1,660

Operating Profit
$
497

 
$
193

 
$
297

 
$
(83
)
 
$
904



Year to Date 6/30/2018
KFC
 
Pizza Hut
 
Taco Bell
 
Corporate and Unallocated
 
Consolidated
Total revenues
$
1,309

 
$
484

 
$
946

 
$

 
$
2,739

 
 
 
 
 
 
 
 
 
 
Company restaurant expenses
430

 
43

 
387

 
(1
)
 
859

General and administrative expenses
166

 
96

 
81

 
84

 
427

Franchise and property expenses
54

 
19

 
12

 
2

 
87

Franchise advertising and other services expense
205

 
155

 
186

 

 
546

Refranchising (gain) loss

 

 

 
(185
)
 
(185
)
Other (income) expense
(2
)
 
2

 
(1
)
 
4

 
3

Total costs and expenses, net
853

 
315

 
665

 
(96
)
 
1,737

Operating Profit
$
456

 
$
169

 
$
281

 
$
96

 
$
1,002



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

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


16


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

(a)
Amounts presented as of and for the quarters and years to date ended June 30, 2019 and 2018 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 June 30, 2019 and 2018 of $4 million and $29 million, respectively, that have been reflected as Special Items. During the years to date ended June 30, 2019 and 2018, we recorded net refranchising gains of $10 million and $185 million, respectively, that have been reflected as Special Items.

The second quarter 2019 net refranchising gains related primarily to the sale of certain restaurant assets associated with existing franchise restaurants to the franchisee. The second quarter 2018 net refranchising gains related primarily to refranchising KFC restaurants in the UK.

(c)
During the quarter ended June 30, 2019 we recorded charges of $8 million and $2 million to Other (income) expense and Interest expense, net, respectively, related to cash payments in excess of our recorded liability to settle contingent consideration associated with our acquisition of the KFC Turkey and Pizza Hut Turkey businesses in 2013. Consistent with prior adjustments to the recorded contingent consideration we have reflected this as a Special Item.

(d)
Tax 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 quarter ended June 30, 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.

(e)
During the quarter and year to date ended June 30, 2018, we recorded $32 million and $16 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. We also recorded Special Items tax benefits of $8 million and $18 million, respectively, in the quarter and year to date ended June 30, 2018 related to 2018 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.

(f)
Effective January 1, 2019, we adopted the new lease accounting standard. As a result, we are now required to recognize right-of-use assets and lease liabilities upon lease commencement for operating leases based on the present value of lease payments over the lease term. Under our historical accounting, operating leases were not recognized on the balance sheet. Prior results have not been restated for the impact of this accounting change. Upon adoption we recognized right-of-use assets for leases in place at January 1, 2019 of $690 million, which are presented within Other Assets in our Condensed Consolidated Balance Sheets. Also upon adoption we recognized lease liabilities of $83 million and $661 million within Accounts payable and other current liabilities and Other liabilities and deferred credits, respectively, in our Condensed Consolidated Balance Sheets. The impact of the new operating lease accounting on our results of operations and cash flows is not expected to be significant.


17
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