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Yum! Brands Reports Fourth-Quarter GAAP Operating Profit Growth of 134%

Fourth-Quarter Core Operating Profit Decline of (6)%; On Track with Strategic Transformation to Accelerate Growth

Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2017. Fourth-quarter GAAP EPS was $1.26, an increase of 53%. Full-year GAAP EPS was $3.77, an increase of 48%. Fourth-quarter EPS excluding Special Items was $0.96, an increase of 20%. Full-year EPS excluding Special Items was $2.96, an increase of 20%.

GREG CREED & DAVID GIBBS COMMENTS

Greg Creed, CEO, said “As we close the first full year of our transformation, I am very proud of the progress we are making towards becoming a more focused, more franchised and more efficient company that generates more growth. During 2017, system sales grew a healthy 5% excluding the impact of lapping the 53rd week in 2016, with same-store sales growth of 2% and net new unit growth of 3%. As we move forward into 2018, we are particularly excited about our investment in ‘Easy’ with our new partnership with Grubhub. We are confident that the continued focus on our four key growth drivers supports our vision for a ‘World with More Yum!’ and maximizes the creation of value for all Yum! stakeholders.”

David Gibbs, President and CFO, continued “The fourth quarter was a solid ending to a year where Yum! Brands met or exceeded each component of our full-year guidance. Despite headwinds from refranchising dilution and lapping a 53rd week, we delivered full-year core operating profit growth of 7%. We are on track with our strategic transformation to accelerate growth and made significant progress towards achieving these objectives in 2017. We look forward to updating you as we continue on our journey to build the world’s most loved, trusted and fastest-growing restaurant brands.”

SUMMARY FINANCIAL TABLE

         
    Fourth Quarter   Full Year
    2017   2016   % Change   2017   2016   % Change
GAAP EPS   $1.26   $0.83   +53   $3.77   $2.54   +48
Special Items EPS1   $0.30   $0.03   NM   $0.81   $0.08   NM
EPS Excluding Special Items   $0.96   $0.80   +20   $2.96   $2.46   +20
1See Reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Special Items.
All comparisons are versus the same period a year ago. Effective January 2017, we removed the reporting lags from our international subsidiary fiscal calendars. To accommodate these changes, Yum! Brands now reports on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 four-week periods in each quarter, respectively. Prior year figures in this earnings release have been restated to present comparable results. An 8-K was filed on April 13, 2017 with restated quarterly and full-year 2016 results.
 
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.
 
Unless otherwise noted, all results include the impact of lapping the 53rd week in 2016.

FOURTH-QUARTER HIGHLIGHTS

Worldwide system sales grew 4%, with KFC at 6%, Taco Bell at 3% and Pizza Hut at 1%, excluding the 53rd week.
We opened 730 net new units for 3% net unit growth.

We refranchised 896 restaurants, including 685 KFC, 144 Pizza Hut and 67 Taco Bell units, for pre-tax proceeds of $1.1 billion. We recorded net refranchising gains of $752 million in Special Items. As of quarter end, our global franchise ownership mix increased to 97%.

We repurchased 7.5 million shares totaling $588 million at an average price of $79.
Foreign currency translation favorably impacted divisional operating profit by $9 million.
     
    % Change
    System Sales  

Same-Store
Sales

  Net New Units  

GAAP
Operating Profit

 

Core
Operating Profit

KFC Division   +4   +3   +4   +7   +4
Pizza Hut Division   (2)   +1   +2   (18)   (19)
Taco Bell Division   (2)   +2   +4   (8)   (8)
Worldwide   +1   +2   +3   +134   (6)
     
    Results Excluding 53rd Week (% Change)
    System Sales   Core
Operating Profit
KFC Division   +6   +8
Pizza Hut Division   +1   (14)
Taco Bell Division   +3   (2)
Worldwide   +4   (1)

FULL-YEAR HIGHLIGHTS

Worldwide system sales grew 5%, with Taco Bell at 7%, KFC at 6% and Pizza Hut at 2%, excluding the 53rd week.
We opened 1,407 net new units for 3% net unit growth.
We refranchised 1,470 restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell units, for pre-tax proceeds of $1.8 billion, recording net refranchising gains of $1.1 billion in Special Items.
We repurchased 26.6 million shares totaling $1.9 billion at an average price of $72.
     
    % Change
    System Sales  

Same-Store
Sales

  Net New Units  

GAAP
Operating Profit

 

Core
Operating Profit

KFC Division   +6   +3   +4   +13   +12
Pizza Hut Division   +1   Even   +2   (7)   (6)
Taco Bell Division   +5   +4   +4   +4   +4
Worldwide   +4   +2   +3   +64   +7
     
    Results Excluding 53rd Week (% Change)
    System Sales   Core
Operating Profit
KFC Division   +6   +14
Pizza Hut Division   +2   (5)
Taco Bell Division   +7   +6
Worldwide   +5   +9

KFC DIVISION

         
    Fourth Quarter   Full Year
            %/ppts Change           %/ppts Change
    2017   2016   Reported   Ex F/X   2017   2016   Reported   Ex F/X
Restaurants   21,487   20,643   +4   NA   21,487   20,643   +4   NA
System Sales ($MM)   6,827   6,424   +6   +4   24,515   23,242   +5   +6
Same-Store Sales Growth (%)   +3   +2   NM   NM   +3   +2   NM   NM
Franchise & License Fees ($MM)   351   308   +13   +10   1,182   1,069   +11   +10
Restaurant Margin (%)   14.6   15.5   (0.9)   (1.0)   15.0   14.7   0.3   0.3
Operating Profit ($MM)   271   253   +7   +4   981   871   +13   +12
Operating Margin (%)   33.4   27.4   6.0   6.1   31.6   27.0   4.6   4.7
     
    % Change
    Int’l Emerging Markets   Int’l Developed Markets   U.S.
 

Fourth
Quarter

  Full Year  

Fourth
Quarter

  Full Year  

Fourth
Quarter

  Full Year
System Sales Growth (Ex F/X)   +9   +9   +2  

+4

  (7)   (1)
Same-Store Sales Growth   +5   +4   +3  

+3

  (1)   +1
   
KFC Division opened 539 new international restaurants during the quarter.
  For the year, KFC Division opened 1,247 new international restaurants in 84 countries, including 1,042 units in emerging markets.
Operating margin increased 6.0 percentage points for the quarter and 4.6 percentage points for the year driven by refranchising and same-store sales growth.
For the quarter, the 53rd week negatively impacted system sales growth by 2 percentage points and core operating profit growth by 4 percentage points. For the year, the 53rd week negatively impacted core operating profit growth by 2 percentage points.
Foreign currency translation favorably impacted operating profit by $8 million for the quarter and $4 million for the year.
         
KFC Markets1  

Percent of KFC
System Sales2

  System Sales Growth Ex F/X
    Fourth Quarter (%)   Full Year (%)
Emerging Markets            
China3   27%   +10   +9
Asia (e.g. Malaysia, Indonesia, Philippines)   5%   +8   +8
Latin America (e.g. Mexico, Peru)   5%   +11   +12
Africa   4%   (3)   +2
Middle East / Turkey / North Africa   4%   +6   +1
Russia   4%   +26   +24
Continental Europe (e.g. Poland)   2%   +14   +16
Thailand   2%   +8   +5
India   1%   +18   +9
Developed Markets            
U.S.   18%   (7)   (1)
Australia   7%   Even   +5
Asia (e.g. Japan, Korea)   6%   Even   Even
U.K.   6%   +2   +5
Continental Europe (e.g. France, Germany)   6%   +12   +11
Canada   2%   Even   +3
Latin America (e.g. Puerto Rico)   1%   (20)   (6)

1Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.

2Reflects full year 2017.
3Includes October, November and December; YUMC Q4 reported results include September, October, November and December.

PIZZA HUT DIVISION

         
    Fourth Quarter   Full Year
            %/ppts Change           %/ppts Change
    2017   2016   Reported   Ex F/X   2017   2016   Reported   Ex F/X
Restaurants   16,748   16,420   +2   NA   16,748   16,420   +2   NA
System Sales ($MM)   3,369   3,390   (1)   (2)   12,034   12,019   Even   +1
Same-Store Sales Growth (%)   +1   (3)   NM   NM   Even   (2)   NM   NM
Franchise & License Fees ($MM)   175   182   (4)   (5)   608   615   (1)   (1)
Restaurant Margin (%)   2.4   9.3   (6.9)   (6.9)   5.3   8.3   (3.0)   (3.0)
Operating Profit ($MM)   91   111   (18)   (19)   341   367   (7)   (6)
Operating Margin (%)   38.8   35.9   2.9   3.1   38.2   33.1   5.1   5.4
     
    % Change
    Int’l Emerging Markets   Int’l Developed Markets1   U.S.
 

Fourth
Quarter

  Full Year  

Fourth
Quarter

  Full Year  

Fourth
Quarter

  Full Year
System Sales Growth (Ex F/X)   +6   +7   (6)   +2   (5)   (4)
Same-Store Sales Growth   +1   +1   (1)   +1   +2   (2)
   
Pizza Hut Division opened 340 new international restaurants during the quarter.
  For the year, Pizza Hut Division opened 826 new international restaurants in 77 countries, including 592 units in emerging markets.
Operating margin increased 2.9 percentage points for the quarter and 5.1 percentage points for the year driven by refranchising partially offset by higher franchise and license expense due to incremental advertising spend associated with the U.S. Transformation Agreement.
For the quarter, the 53rd week negatively impacted system sales growth by 3 percentage points and core operating profit growth by 5 percentage points. For the year, the 53rd week negatively impacted system sales growth by 1 percentage point and core operating profit growth by 1 percentage point.
Foreign currency translation favorably impacted operating profit by $1 million for the quarter and negatively impacted operating profit by $4 million for the year.
         
Pizza Hut Markets2  

Percent of Pizza Hut
System Sales3

  System Sales Growth Ex F/X
    Fourth Quarter (%)   Full Year (%)
Emerging Markets            
China4   17%   +6   +7
Latin America (e.g. Mexico, Peru)   5%   +1   +4
Asia (e.g. Malaysia, Indonesia, Philippines)   5%   +12   +13
Middle East / Turkey / Africa   4%   +1   +2
India   1%   +18   +10
Continental Europe (e.g. Poland)   1%   +15   +12
Developed Markets            
U.S.   46%   (5)   (4)
Asia (e.g. Japan, Korea)   7%   +6   +3
U.K.1   5%   (23)   (2)
Continental Europe (e.g. France, Germany)   4%   (1)   +3
Canada   2%   (3)   +1
Australia1   2%   (11)   +14
Latin America (e.g. Puerto Rico)   1%   (20)   (5)

1Pizza Hut U.K. and Pizza Hut Australia, both of which are International Developed Markets, transitioned from a periodic weekly calendar to a monthly calendar beginning in the first quarter of 2017. As a result, system sales growth for both markets was negatively impacted in the fourth quarter due to Q4 2017 results having approximately 13 weeks compared to Q4 2016 results having 17 weeks, including a 53rd week. There was not a significant impact from this calendar change on full-year system sales growth for either market.

2Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.

3Reflects full year 2017.
4Includes October, November and December; YUMC Q4 reported results include September, October, November and December.

TACO BELL DIVISION

         
    Fourth Quarter   Full Year
            %/ppts Change           %/ppts Change
    2017   2016   Reported   Ex F/X   2017   2016   Reported   Ex F/X
Restaurants   6,849   6,612   +4   NA   6,849   6,612   +4   NA
System Sales ($MM)   3,087   3,137   (2)   (2)   10,145   9,660   +5   +5
Same-Store Sales Growth (%)   +2   +3   NM   NM   +4   +2   NM   NM
Franchise & License Fees ($MM)   163   158   +4   +4   521   485   +7   +7
Restaurant Margin (%)   23.1   23.4   (0.3)   (0.3)   22.4   22.2   0.2   0.2
Operating Profit ($MM)   179   195   (8)   (8)   619   595   +4   +4
Operating Margin (%)   33.6   29.8   3.8   3.8   32.9   29.4   3.5   3.5
   
Taco Bell Division opened 134 new restaurants during the quarter.
  For the year, Taco Bell Division opened 314 new restaurants, including 77 international new restaurants.
Operating margin increased 3.8 percentage points for the quarter and 3.5 percentage points for the year driven by refranchising and same-store sales growth.
For the quarter, the 53rd week negatively impacted system sales growth by 5 percentage points and core operating profit growth by 6 percentage points. For the year, the 53rd week negatively impacted both system sales growth and core operating profit growth by 2 percentage points.

OTHER ITEMS

The Tax Cuts and Jobs Act of 2017 (“Tax Act”) that was enacted on December 22nd required that earnings repatriated from our foreign entities with a November 30 year-end for tax purposes be included in the Deemed Repatriation Tax on foreign earnings that was included in the Tax Act. Our fourth quarter and full year effective tax rates excluding Special Items were lower than anticipated because they did not include tax on those earnings repatriated after November 30. Instead, that tax was included in the one-time Special Items charge of $434 million that we recorded in the fourth quarter related to the Tax Act.
Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the Form 10-K.
                         

YUM! Brands, Inc.

Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

                         
      Quarter ended           Year ended      
      12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

    12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

                                     
Company sales     $ 890       $ 1,238       (28)     $ 3,572       $ 4,189       (15)
Franchise and license fees and income     687       648       6     2,306       2,167       6
Total revenues     1,577       1,886       (16)     5,878       6,356       (8)
                                     
Company restaurant expenses                                    
Food and paper     272       370       26     1,103       1,267       13
Payroll and employee benefits     232       326       29     939       1,106       15
Occupancy and other operating expenses     227       318       29     912       1,116       18
Company restaurant expenses     731       1,014       28     2,954       3,489       15
                                     
General and administrative expenses     300       362       17     999       1,129       12
Franchise and license expenses     76       56       (35)     237       201       (18)
Closures and impairment (income) expenses           5       95     3       15       82
Refranchising (gain) loss     (752 )     (88 )     NM     (1,083 )     (163 )     NM
Other (income) expense     7       17       60     7       3       NM
Total costs and expenses, net     362       1,366       74     3,117       4,674       33
                                     
Operating Profit     1,215       520       134     2,761       1,682       64
Interest expense, net     118       114       (4)     440       305       (44)
Other pension (income) expense     5       34       84     47       32       (45)
Income from continuing operations before income taxes     1,092       372      

193

    2,274       1,345       69
Income tax provision     656       64       NM     934       327       NM
Income from continuing operations     436       308       42     1,340       1,018       32
Income (loss) from discontinued operations, net of tax           (5 )     NM           625       NM
Net income     436       303       44     1,340       1,643       (18)
                                     

Effective tax rate from Continuing Operations

    60.1 %     17.2 %     (42.9) ppts.     41.1 %     24.3 %     (16.8) ppts.
                                     

Basic EPS from Continuing Operations

                                   
EPS     $ 1.29       $ 0.84       54     $ 3.86       $ 2.58       49
Average shares outstanding     337       366       8     347       394       12
                                     

Diluted EPS from Continuing Operations

                                   
EPS     $ 1.26       $ 0.83       53     $ 3.77       $ 2.54       48
Average shares outstanding     345       372       7     355       400       11
                                     

Basic EPS from Discontinued Operations

                                   
EPS     N/A     $ (0.01 )     NM     N/A     $ 1.59       NM
Average shares outstanding     N/A     366       NM     N/A     394       NM
                                     

Diluted EPS from Discontinued Operations

                                   
EPS     N/A     $ (0.01 )     NM     N/A     $ 1.56       NM
Average shares outstanding     N/A     372       NM     N/A     400       NM
                                     
Dividends declared per common share     $ 0.30       $ 0.30             $ 0.90       $ 1.73        
                                                     

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

                                                     
                         

YUM! Brands, Inc.

KFC DIVISION Operating Results

(amounts in millions)

(unaudited)

                         
      Quarter ended           Year ended      
      12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

    12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

                                     
Company sales     $ 463       $ 615       (25)     $ 1,928       $ 2,156       (11)
Franchise and license fees and income     351       308       13     1,182       1,069       11
Total revenues     814       923       (12)     3,110       3,225       (4)
                                     
Company restaurant expenses                                    
Food and paper     160       207       23     664       733       9
Payroll and employee benefits     106       145       27     451       507       11
Occupancy and other operating expenses     129       167       23     524       599       13
Company restaurant expenses     395       519       24     1,639       1,839       11
                                     
General and administrative expenses     111       120       7     370       396       7
Franchise and license expenses     37       26       (39)     117       108       (8)
Closures and impairment (income) expenses     (1 )     5       NM     2       11       81
Other (income) expense     1             NM     1             NM
Total costs and expenses, net     543       670       19     2,129       2,354       10
Operating Profit     $ 271       $ 253       7     $ 981       $ 871       13
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     34.7 %     33.9 %     (0.8) ppts.     34.4 %     34.0 %     (0.4) ppts.
Payroll and employee benefits     23.0 %     23.6 %     0.6 ppts.     23.4 %     23.5 %     0.1 ppts.
Occupancy and other operating expenses     27.7 %     27.0 %     (0.7) ppts.     27.2 %     27.8 %     0.6 ppts.
Restaurant margin     14.6 %     15.5 %     (0.9) ppts.     15.0 %     14.7 %     0.3 ppts.
                                     
Operating margin     33.4 %     27.4 %     6.0 ppts.     31.6 %     27.0 %     4.6 ppts.
                                             

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

                                             
                         

YUM! Brands, Inc.

PIZZA HUT DIVISION Operating Results

(amounts in millions)

(unaudited)

                         
      Quarter ended           Year ended      
      12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

    12/31/17    

12/31/16
(As Restated)

   

% Change
B/(W)

                                     
Company sales     $ 59       $ 127       (54)     $ 285       $ 493       (42)
Franchise and license fees and income     175       182       (4)     608       615       (1)
Total revenues     234       309       (24)     893       1,108       (19)
                                     
Company restaurant expenses                                    
Food and paper     18       36       51     83       137       40
Payroll and employee benefits     20       40       51     94       156       40
Occupancy and other operating expenses     21       39       49     94       159       41
Company restaurant expenses     59       115       50     271       452       40
                                     
General and administrative expenses     60       72       15     211       242       13
Franchise and license expenses     24       13       (81)     68       48       (42)
Closures and impairment (income) expenses     1       (2 )     NM     1       1       16
Other (income) expense     (1 )           NM     1       (2 )     NM
Total costs and expenses, net     143       198       28     552       741       26
Operating Profit     $ 91       $ 111       (18)     $ 341       $ 367       (7)
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     29.8 %     28.0 %     (1.8) ppts.     28.9 %     27.7 %     (1.2) ppts.
Payroll and employee benefits     33.2 %     31.3 %     (1.9) ppts.     32.8 %     31.7 %     (1.1) ppts.
Occupancy and other operating expenses     34.6 %     31.4 %     (3.2) ppts.     33.0 %     32.3 %     (0.7) ppts.
      2.4 %     9.3 %     (6.9) ppts.     5.3 %     8.3 %     (3.0) ppts.
                                     
Operating margin     38.8 %     35.9 %     2.9 ppts.     38.2 %     33.1 %     5.1 ppts.
                                             

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

                                             
                         

YUM! Brands, Inc.

TACO BELL DIVISION Operating Results

(amounts in millions)

(unaudited)

                         
      Quarter ended           Year ended      
      12/31/17     12/31/16

(As Restated)

   

% Change
B/(W)

    12/31/17     12/31/16

(As Restated)

   

% Change
B/(W)

                                     
Company sales     $ 368       $ 496       (26)     $ 1,359       $ 1,540       (12)
Franchise and license fees and income     163       158       4     521       485       7
Total revenues     531       654       (19)     1,880       2,025       (7)
                                     
Company restaurant expenses                                    
Food and paper     94       127       25     356       397       10
Payroll and employee benefits     106       141       25     394       443       11
Occupancy and other operating expenses     82       112       27     304       358       15
Company restaurant expenses     282       380       26     1,054       1,198       12
                                     
General and administrative expenses     66       70       7     188       211       11
Franchise and license expenses     6       8       30     22       21       (6)
Closures and impairment (income) expenses           2       80           3       NM
Other (income) expense     (2 )     (1 )     47     (3 )     (3 )     (19)
Total costs and expenses, net     352       459       23     1,261       1,430       12
Operating Profit     $ 179       $ 195       (8)     $ 619       $ 595       4
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     25.7 %     25.5 %     (0.2) ppts.     26.2 %     25.7 %     (0.5) ppts.
Payroll and employee benefits     28.9 %     28.5 %     (0.4) ppts.     29.0 %     28.8 %     (0.2) ppts.
Occupancy and other operating expenses     22.3 %     22.6 %     0.3 ppts.     22.4 %     23.3 %     0.9 ppts.
      23.1 %     23.4 %     (0.3) ppts.     22.4 %     22.2 %     0.2 ppts.
                                     
Operating margin     33.6 %     29.8 %     3.8 ppts.     32.9 %     29.4 %     3.5 ppts.
                                             

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

                                             
 

YUM! Brands, Inc.

Consolidated Balance Sheets

(amounts in millions)

(unaudited)

 
      12/31/2017    

12/31/16
(As Restated)

ASSETS            
Current Assets            
Cash and cash equivalents     $ 1,522       $ 725  
Accounts and notes receivable, less allowance: $19 in 2017 and $14 in 2016     400       370  
Inventories     13       37  
Prepaid expenses and other current assets     371       236  
Advertising cooperative assets, restricted     201       137  
Total Current Assets     2,507       1,505  
             

Property, plant and equipment, net of accumulated depreciation and amortization of $1,480 in 2017 and $1,995 in 2016

    1,697       2,113  
Goodwill     512       536  
Intangible assets, net     110       151  
Other assets     346       376  
Deferred income taxes     139       772  
Total Assets     $ 5,311       $ 5,453  
             
LIABILITIES AND SHAREHOLDERS’ DEFICIT            
Current Liabilities            
Accounts payable and other current liabilities     $ 813       $ 1,067  
Income taxes payable     123       36  
Short-term borrowings     375       66  
Advertising cooperative liabilities     201       137  
Total Current Liabilities     1,512       1,306  
             
Long-term debt     9,429       9,059  
Other liabilities and deferred credits     704       703  
Total Liabilities     11,645       11,068  
             
Shareholders’ Deficit            
Common stock, no par value, 750 shares authorized; 332 shares and 355 shares issued in 2017 and 2016, respectively            
Accumulated deficit     (6,063 )     (5,157 )
Accumulated other comprehensive loss     (271 )     (458 )
Total Shareholders’ Deficit     (6,334 )     (5,615 )
Total Liabilities and Shareholders’ Deficit     $ 5,311       $ 5,453  
                     

See accompanying notes.

                     
       

YUM! Brands, Inc.

Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

       
      Year ended
      12/31/17    

12/31/16
(As Restated)

Cash Flows – Operating Activities from Continuing Operations            
Income from continuing operations     $ 1,340       $ 1,643  
Income from discontinued operations, net of tax           (625 )
Depreciation and amortization     253       310  
Closures and impairment (income) expenses     3       15  
Refranchising (gain) loss     (1,083 )     (163 )
Contributions to defined benefit pension plans     (55 )     (41 )
Deferred income taxes     634       28  
Share-based compensation expense     65       80  
Changes in accounts and notes receivable     (19 )     (23 )
Changes in inventories     3       1  
Changes in prepaid expenses and other current assets     (13 )     12  
Changes in accounts payable and other current liabilities     (173 )     (53 )
Changes in income taxes payable     (55 )     20  
Other, net     130       44  
Net Cash Provided by Operating Activities from Continuing Operations     1,030       1,248  
             
Cash Flows – Investing Activities from Continuing Operations            
Capital spending     (318 )     (427 )
Proceeds from refranchising of restaurants     1,773       370  
Other, net     17       53  
Net Cash Used in Investing Activities from Continuing Operations     1,472       (4 )
             
Cash Flows – Financing Activities from Continuing Operations            
Proceeds from long-term debt     1,088       6,900  
Repayments of long-term debt     (385 )     (323 )
Revolving credit facilities, three months or less, net           (685 )
Short-term borrowings, by original maturity    

 

       
More than three months – proceeds           1,400  
More than three months – payments           (2,000 )
Three months or less, net            
Repurchase shares of Common Stock     (1,960 )     (5,403 )
Dividends paid on Common Stock     (416 )     (744 )
Debt issuance costs     (32 )     (86 )
Net transfers from discontinued operations           289  
Other, net     (90 )     (92 )

Net Cash Provided by (Used in) Financing Activities from Continuing Operations

    (1,795 )     (744 )
Effect of Exchange Rate on Cash and Cash Equivalents     61       (34 )

Net Increase in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents – Continuing Operations

    768       466  
             
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents – Beginning of Period     831       365  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents – End of Period     $ 1,599       $ 831  
             

Cash Provided by Operating Activities from Discontinued Operations

          829  

Cash Used in Investing Activities from Discontinued Operations

          (287 )

Cash Used in Financing Activities from Discontinued Operations

          (292 )
                 

See accompanying notes.

                 

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

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) throughout this document, the Company has provided non-GAAP measurements which present Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items, System sales, System sales excluding the impact of foreign currency translation (“FX”), System sales excluding the impact of FX and 53rd week, Core Operating Profit and Core Operating Profit excluding 53rd week. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally. We provide Core Operating Profit and System sales excluding 53rd week to further enhance the comparability with the lapping of the 53rd week that was part of our fiscal calendar in 2016. Special Items are not included in any of our Division segment results, and we believe the elimination of FX provides better year-to-year comparability without the distortion of foreign currency fluctuations. The Special Items are described in (b), (c), (d), (e), (f), (g) and (h) in the accompanying notes.

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items, Core Operating Profit and Core Operating Profit excluding 53rd week provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years ended December 31, 2017 and December 31, 2016 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. System sales and System sales growth include the results of all restaurants regardless of ownership, including company-owned and franchise restaurants that operate our Concepts. Sales of franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees are included in the Company’s revenues. We believe System sales and System sales growth are useful to investors as significant indicators of the overall strength of our business as they incorporate all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.

             
      Quarter ended     Year ended
      12/31/17    

12/31/16
(As Restated)

    12/31/17    

12/31/16
(As Restated)

Detail of Special Items                        
Refranchising gain (loss)(b)     $ 752       $ 88       $ 1,083       $ 163  
YUM’s Strategic Transformation initiatives(c)     (8 )     (33 )     (23 )     (67 )
Costs associated with Pizza Hut U.S. Transformation Agreement(d)     (11 )           (31 )      
Costs associated with KFC U.S. Acceleration Agreement(e)     (5 )     (9 )     (17 )     (26 )
Non-cash charges associated with share-based compensation(f)           (30 )     (18 )     (30 )
Other Special Items Income (Expense)     4       (2 )     7       (5 )
Special Items Income – Operating Profit     732       14       1,001       35  
Special Items – Other Pension Income (Expense)(g)           (26 )     (23 )     (26 )
Special Items Income (Expense) from Continuing Operations before Income Taxes     732       (12 )     978       9  
Tax Benefit (Expense) on Special Items     (192 )     24       (256 )     24  
Tax (Expense) – U.S. Tax Act(h)     (434 )           (434 )      
Special Items Income, net of tax     $ 106       $ 12       $ 288       $ 33  
Average diluted shares outstanding     345       372       355       400  
Special Items diluted EPS     $ 0.30       $ 0.03       $ 0.81       $ 0.08  
                         
Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating Profit, excluding 53rd Week                        

Consolidated

                       
GAAP Operating Profit     $ 1,215       $ 520       $ 2,761       $ 1,682  
Special Items Income     732       14       1,001       35  
Foreign Currency Impact on Divisional Operating Profit     9       N/A           N/A
Core Operating Profit     474       506       1,760       1,647  
Impact of 53rd Week     N/A     28       N/A     28  
Core Operating Profit, excluding 53rd Week     $ 474       $ 478       $ 1,760       $ 1,619  
                         
      Quarter ended    

Year ended

      12/31/17    

12/31/16
(As Restated)

    12/31/17    

12/31/16
(As Restated)

KFC Division

                       
GAAP Operating Profit     $ 271       $ 253       $ 981       $ 871  
Foreign Currency Impact on Divisional Operating Profit     8       N/A     4       N/A
Core Operating Profit     263       253       977       871  
Impact of 53rd Week     N/A     11       N/A     11  
Core Operating Profit, excluding 53rd Week     $ 263       $ 242       $ 977       $ 860  
                         

Pizza Hut Division

                       
GAAP Operating Profit     $ 91       $ 111       $ 341       $ 367  
Foreign Currency Impact on Divisional Operating Profit     1       N/A     (4 )     N/A
Core Operating Profit     90       111       345       367  
Impact of 53rd Week     N/A     5       N/A     5  
Core Operating Profit, excluding 53rd Week     $ 90       $ 106       $ 345       $ 362  
                         

Taco Bell Division

                       
GAAP Operating Profit     $ 179       $ 195       $ 619       $ 595  
Foreign Currency Impact on Divisional Operating Profit           N/A           N/A
Core Operating Profit     179       195       619       595  
Impact of 53rd Week     N/A     12       N/A     12  
Core Operating Profit, excluding 53rd Week     $ 179       $ 183       $ 619       $ 583  
                         
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations excluding Special Items                        
Diluted EPS from Continuing Operations     $ 1.26       $ 0.83       $ 3.77       $ 2.54  
Special Items Diluted EPS     0.30       0.03       0.81       0.08  
Diluted EPS from Continuing Operations excluding Special Items     $ 0.96       $ 0.80       $ 2.96       $ 2.46  
                         
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items                        
GAAP Effective Tax Rate     60.1 %     17.2 %     41.1 %     24.3 %
Impact on Tax Rate as a result of Special Items     51.8 %     (5.8 )%     22.3 %     (2.0 )%
Effective Tax Rate excluding Special Items     8.3 %     23.0 %     18.8 %     26.3 %
                         
Reconciliation of GAAP Company Sales to System Sales, System Sales excluding FX and System Sales excluding FX and 53rd Week                        

Consolidated

                       

GAAP Company sales

    $ 890       $ 1,238       $ 3,572       $ 4,189  

Franchise sales

    12,393       11,713       43,122       40,732  

System sales

    13,283       12,951       46,694       44,921  

Foreign Currency Impact on System sales

    225       N/A     (90 )     N/A
System sales, excluding FX     13,058       12,951       46,784       44,921  
Impact of 53rd week     N/A     434       N/A     434  
System sales, excluding FX and 53rd Week     $ 13,058       $ 12,517       $ 46,784       $ 44,487  
                         

KFC Division

                       

GAAP Company sales

    $ 463       $ 615       $ 1,928       $ 2,156  

Franchise sales

    6,364       5,809       22,587       21,086  

System sales

    6,827       6,424       24,515       23,242  

Foreign Currency Impact on System sales

    178       N/A     (28 )     N/A
System sales, excluding FX     6,649       6,424       24,543       23,242  
Impact of 53rd week     N/A     165       N/A     165  
System sales, excluding FX and 53rd Week     $ 6,649       $ 6,259       $ 24,543       $ 23,077  
                         
                         
      Quarter ended     Year ended
      12/31/17    

12/31/16
(As Restated)

    12/31/17    

12/31/16
(As Restated)

Pizza Hut Division

                       

GAAP Company sales

    $ 59       $ 127       $ 285       $ 493  

Franchise sales

    3,310       3,263       11,749       11,526  

System sales

    3,369       3,390       12,034       12,019  

Foreign Currency Impact on System sales

    45       N/A     (66 )     N/A
System sales, excluding FX     3,324       3,390       12,100       12,019  
Impact of 53rd week     N/A     113       N/A     113  
System sales, excluding FX and 53rd Week     $ 3,324       $ 3,277       $ 12,100       $ 11,906  
                         

Taco Bell Division

                       

GAAP Company sales

    $ 368       $ 496       $ 1,359       $ 1,540  

Franchise sales

    2,719       2,641       8,786       8,120  

System sales

    3,087       3,137       10,145       9,660  

Foreign Currency Impact on System sales

    2       N/A     4       N/A
System sales, excluding FX     3,085       3,137       10,141       9,660  
Impact of 53rd week     N/A     156       N/A     156  
System sales, excluding FX and 53rd Week     $ 3,085       $ 2,981       $ 10,141       $ 9,504  
                                         

 

                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Quarter Ended 12/31/17     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 814       $ 234       $ 531       $ (2 )     $ 1,577  
                               
Company restaurant expenses     395       59       282       (5 )     731  
General and administrative expenses     111       60       66       63       300  
Franchise and license expenses     37       24       6       9       76  
Closures and impairment (income) expenses     (1 )     1                    
Refranchising (gain) loss                       (752 )     (752 )
Other (income) expense     1       (1 )     (2 )     9       7  
Total costs and expenses, net     543       143       352       (676 )     362  
Operating Profit (loss)     $ 271       $ 91       $ 179       $ 674       $ 1,215  
                                                   
                                                   
Quarter Ended 12/31/16 (As Restated)     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 923       $ 309       $ 654       $       $ 1,886  
                               
Company restaurant expenses     519       115       380             1,014  
General and administrative expenses     120       72       70       100       362  
Franchise and license expenses     26       13       8       9       56  
Closures and impairment (income) expenses     5       (2 )     2             5  
Refranchising (gain) loss                       (88 )     (88 )
Other (income) expense                 (1 )     18       17  
Total costs and expenses, net     670       198       459       39       1,366  
Operating Profit (loss)     $ 253       $ 111       $ 195       $ (39 )     $ 520  
                                                   

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

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

 

                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Year Ended 12/31/17     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 3,110       $ 893       $ 1,880       $ (5 )     $ 5,878  
                               
Company restaurant expenses     1,639       271       1,054       (10 )     2,954  
General and administrative expenses     370       211       188       230       999  
Franchise and license expenses     117       68       22       30       237  
Closures and impairment (income) expenses     2       1                   3  
Refranchising (gain) loss                       (1,083 )     (1,083 )
Other (income) expense     1       1       (3 )     8       7  
Total costs and expenses, net     2,129       552       1,261       (825 )     3,117  
Operating Profit (loss)     $ 981       $ 341       $ 619       $ 820       $ 2,761  
                                                   
                                                   
Year Ended 12/31/16 (As Restated)     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 3,225       $ 1,108       $ 2,025       $ (2 )     $ 6,356  
                               
Company restaurant expenses     1,839       452       1,198             3,489  
General and administrative expenses     396       242       211       280       1,129  
Franchise and license expenses     108       48       21       24       201  
Closures and impairment (income) expenses     11       1       3             15  
Refranchising (gain) loss                       (163 )     (163 )
Other (income) expense           (2 )     (3 )     8       3  
Total costs and expenses, net     2,354       741       1,430       149       4,674  
Operating Profit (loss)     $ 871       $ 367       $ 595       $ (151 )     $ 1,682  
                                                   

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

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

Notes to the Consolidated Summary of Results, Consolidated Balance Sheets

and Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

 
(a) Amounts presented as of and for the quarters and years ended December 31, 2017 and December 31, 2016 are preliminary.
   
(b)

In connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018, we recorded net refranchising gains during the quarters ended December 31, 2017 and 2016 of $752 million and $88 million, respectively, that have been reflected as Special Items. During the years ended December 31, 2017 and 2016, we recorded net refranchising gains of $1.1 billion and $163 million, respectively, that have been reflected as Special Items. The fourth quarter 2017 net refranchising gains related primarily to refranchising KFC restaurants in Thailand, Australia and the UK, and the refranchising of Taco Bell, KFC and Pizza Hut restaurants in the U.S. The fourth quarter 2016 net refranchising gains related primarily to refranchising Taco Bell restaurants in the U.S. and KFC restaurants in Thailand and Germany.

   
(c)

In the fourth quarter of 2016, we announced our plan to transform our business. Major features of the Company’s strategic transformation plans involve being more focused on development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure (“YUM’s Strategic Transformation Initiatives”). During the quarters ended December 31, 2017 and 2016, we recognized Special Item charges of $8 million and $33 million, respectively, related to these initiatives. During the years ended December 31, 2017 and 2016, we recognized Special Item charges of $23 million and $67 million, respectively. In the fourth quarter of 2017, these costs primarily related to contract termination costs, that were recorded within G&A. During the remainder of 2017 and 2016, these costs related primarily to severance, a 2016 voluntary retirement program offered to certain U.S. employees and relocation costs that were recorded within G&A.

   
(d)

On May 1, 2017, we reached an agreement with our Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising contributions by franchisees beginning in 2018. During the quarter and year ended December 31, 2017, we recorded Special Item charges of $11 million and $31 million, respectively, for these investments. The majority of these amounts were recorded as Franchise and license expenses or G&A.

   
(e) During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement, we recognized Special Item charges of $5 million and $9 million for the quarters ended December 31, 2017 and December 31, 2016. During the years ended December 31, 2017 and December 31, 2016, we recognized Special Item charges of $17 million and $26 million, respectively. The majority of these costs were recorded as Franchise and license expenses.
   
(f) In connection with the separation of Yum China, we modified certain share-based compensation awards held as part of our Executive Income Deferral Plan in YUM stock to provide one Yum China share-based award for each outstanding YUM share-based award. These Yum China awards may now be settled in cash, as opposed to stock, which requires recognition of the fair value of these awards each quarter within G&A in our Consolidated Income Statement. During the quarter and year ended December 31, 2017, we recorded non-cash Special Item charges of less than $1 million and $18 million, respectively, related to these awards. In the fourth quarter of 2016, we recorded non-cash Special Item charges of $30 million related to these awards.
   
(g)

We recorded a non-cash charge of $22 million related to the adjustment of certain historical deferred vested liability balances in our qualified U.S. plan during the first quarter of 2017. Additionally, during the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the YUM Retirement Plan an opportunity to voluntarily elect an early payout of their pension benefits. As a result of payments made of $225 million related to this program exceeding the sum of service and interest costs within the Plan, we recorded a Special Items settlement charge of $24 million in G&A during the quarter and year ended December 31, 2016. In connection with this program, we incurred an additional Special Items settlement charge of $1 million during the third quarter of 2017. These charges are recorded in Other pension (income) expense.

   
(h)

During the fourth quarter of 2017, we recorded a one-time charge of $434 million related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”) as enacted by the United States government on December 22, 2017. This charge included a deemed repatriation tax expense of $170 million on undistributed foreign earnings, $75 million of expense associated with the remeasurement of net deferred tax assets to the new 21% U.S. corporate tax rate and $189 million of valuation allowances established against foreign tax credit carryforwards which we no longer expect to utilize under the territorial system that is part of the Tax Act. This one-time charge is based upon our current estimates and interpretations of the Tax Act, and could be subject to further change as additional guidance and accounting interpretation is issued.

 

 

Posted by on February 8, 2018.

Categories: Financial

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