Yum! Brands Inc. Raises Full Year 2010 EPS Growth Forecast to 14% from 12%;
Reports Third Quarter 2010 EPS of $0.73, Excluding Special Items;
Operating Profit Increased 14% Led by Strong Growth in China.
Louisville, KY (October 5, 2010) — Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 4, 2010, including EPS growth of 5%, prior to special items.
THIRD-QUARTER HIGHLIGHTS
● | Worldwide operating profit grew 14% prior to foreign currency translation, including +23% in China, +16% in Yum Restaurants International (“YRI”), and a decline of 2% in the U.S. |
● | Worldwide system sales growth prior to foreign currency translation of 5%, including +18% in China, +5% in YRI, and +1% in the U.S. |
● | Same-store-sales growth in each division including +6% in China, +1% in YRI, and +1% in the U.S. |
● | Worldwide restaurant margin improvement of 1.6 percentage points including increases in China, YRI, and the U.S. |
● | Significantly higher tax rate of 27.4% versus 19.9% in the third quarter of 2009. |
● | Announced a 19% increase in the Company’s quarterly dividend. The quarterly cash dividend will increase from $0.21 to $0.25 per share. |
● | Issued a 10-year, $350 million bond at 3.875%, which is the lowest coupon ever for a BBB- corporate name. |
Third Quarter | Year-to-Date | |||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |
EPS Excluding Special Items | $0.73 | $0.70 | 5% | $1.90 | $1.67 | 14% |
Special Items Gain/(Loss)1 | $0.01 | ($0.01) | NM | ($0.08) | $0.10 | NM |
EPS | $0.74 | $0.69 | 7% | $1.82 | $1.77 | 3% |
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items.
Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.
FULL YEAR OUTLOOK
The Company raised its full-year 2010 EPS forecast from $2.43 to $2.48 per share, or from 12% to 14% growth prior to special items, based on strong year-to-date operating profit performance. |
Yum! Brands, Inc. • 1900 Colonel Sanders Lane • Louisville, KY 40213
Tel 502 874-8006 • Fax 502 874-2410 • Web Site www.yum.com/investors
David C. Novak, Chairman and CEO said, “I’m pleased to report we are raising our full year EPS growth forecast to 14%, which will make 2010 the 9th consecutive year we meet or exceed our annual target of at least 10%. We take satisfaction that our year-to-date operating profit has increased 15%, excluding special items and the impact of foreign currency translation, and is driving our strong EPS growth this year. A key driver of our overall growth continues to be new unit development in China and Yum! Restaurants International. We expect to open about 1,400 international new units this year. This new unit growth positions us well for another su ccessful year in 2011.
“We continue to make progress at all three divisions and are especially pleased with the continued strong results from our China business. The combination of high return new unit development, same-store-sales growth, and increasing margins drove operating profit growth of 23% in China for the quarter, excluding the impact of foreign currency translation. At Yum! Restaurants International, we increased system sales by 5% and grew operating profit 16%, prior to foreign currency translation benefit. Our U.S. business modestly improved same-store-sales growth and margin but operating profit declined slightly. We expect sales momentum to continue in the fourth quarter.
“Overall, we are encouraged with our strong performance. We continue to drive aggressive, international expansion while maintaining our industry-leading return on invested capital. Our intent is to continue to build shareholder value and return cash to shareholders through dividends and share repurchases.”
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CHINA DIVISION
Third Quarter | Year-to-Date | |||||||
% Change | % Change | |||||||
2010 | 2009 | Reported | Ex F/X | 2010 | 2009 | Reported | Ex F/X | |
System Sales Growth | +19 | +18 | +16 | +16 | ||||
Same-Store-Sales Growth | +6 | Even | NM | NM | +5 | (1) | NM | NM |
Restaurant Margin (%) | 25.2 | 24.3 | 0.9 | 0.9 | 24.0 | 22.4 | 1.6 | 1.6 |
Operating Profit ($MM) | 267 | 216 | +24 | +23 | 582 | 449 | +30 | +29 |
● | China Division system sales growth of 18%, prior to the benefit of foreign currency translation, was driven by new unit development of 12% and same-store-sales growth of 6%. | |
○ | China opened 90 new restaurants in the third quarter and 245 year-to-date, further strengthening the company’s leadership position. |
China Units | Q3 2010 | % Change |
Traditional Restaurants | 3,664 | +12 |
KFC | 3,054 | +12 |
Pizza Hut Casual Dining | 479 | +8 |
Pizza Hut Home Service | 106 | +22 |
● | Restaurant margin increased 0.9 percentage points driven primarily by strong same-store-sales growth and commodity deflation, offsetting labor inflation. While we continue to expect full year margin improvement, labor and commodity inflation will negatively impact margins in the fourth quarter. |
● | Operating profit benefited about $10 million in the quarter from our brands’ participation in the World Expo in Shanghai. This benefit will not occur in 2011. |
● | China Division includes solely the results of our operations in mainland China. |
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YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
Third Quarter | Year-to-Date | |||||||
% Change | % Change | |||||||
2010 | 2009 | Reported | Ex F/X | 2010 | 2009 | Reported | Ex F/X | |
Traditional Restaurants | 14,001 | 13,486 | +4 | NA | 14,001 | 13,486 | +4 | NA |
System Sales Growth | +7 | +5 | +10 | +3 | ||||
Franchise & License Fees | 171 | 157 | +8 | +6 | 499 | 445 | +12 | +4 |
Operating Profit ($MM) | 142 | 120 | +18 | +16 | 405 | 346 | +17 | +8 |
Operating Margin (%) | 20.1 | 16.4 | 3.7 | 2.9 | 19.3 | 17.2 | 2.1 | 1.7 |
● | YRI system sales grew 5% prior to the benefit of foreign currency, driven primarily by new unit development and same-store-sales growth of 1%. Our emerging markets led the way with 9% system sales growth while developed markets grew 3%. |
● | We opened 194 new units, with the majority across 34 emerging markets. |
● | Restaurant margins increased 1.6 percentage points to 12.5% driven primarily by the impact of refranchising. |
● | Operating profit grew 16% prior to foreign currency translation, primarily driven by new unit development. Additionally, general & administrative and franchise & license expenses were lower than last year. |
● | Foreign currency translation positively impacted operating profit by $3 million in the third quarter and $31 million year-to-date. |
Key YRI Markets | System-Sales Growth Ex F/X (%) | |
Third Quarter | Year-to-Date | |
Franchise Only Markets | ||
Asia (ex Mainland China) | +8 | +4 |
Continental Europe1 | +3 | (3) |
Middle East | +9 | +9 |
Latin America | +8 | +7 |
Company/Franchise Markets | ||
Australia | +2 | Even |
UK | Even | +2 |
New Growth Markets (France, Russia, and India) | +21 | +16 |
1 Continental Europe year-to-date system sales growth was negatively impacted by a 99 unit franchisee in Spain exiting the Pizza Hut system in the third quarter of 2009 (equivalent to 7 percentage points based on units).
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U.S. DIVISION
Third Quarter | Year-to-Date | |||||
2010 | 2009 | % Change | 2010 | 2009 | % Change | |
Same-Store-Sales Growth (%) | +1 | (6) | NM | Even | (3) | NM |
Restaurant Margin (%) | 14.4 | 14.1 | +0.3 | 14.3 | 14.0 | +0.3 |
Operating Profit ($MM) | 168 | 171 | (2) | 495 | 497 | - |
Operating Margin (%) | 17.4 | 16.2 | +1.2 | 17.1 | 15.5 | +1.6 |
● | Same-store-sales increased 1% driven by growth of 8% at Pizza Hut and 3% at Taco Bell, offset by a decline of 8% at KFC. |
● | Restaurant margin increased 0.3 percentage points primarily due to refranchising. |
● | Operating profit decreased $3 million primarily due to the timing of employee costs and legal expenses. |
REFRANCHISING UPDATE
U.S. DIVISION | |
● | We continue to pursue the refranchising of a substantial portion of our U.S. businesses, principally Pizza Hut and KFC. Year-to-date we have sold 98 restaurants. Since the inception of our refranchising program in late 2007, we have sold over 1,300 units across all the brands. We continue to expect to complete our U.S. refranchising efforts during 2011. |
YRI DIVISION | |
● | Subsequent to the end of our third quarter we agreed to refranchise all of our company owned restaurants in Mexico, which includes 224 KFCs and 123 Pizza Huts. The buyer is an existing Latin American franchise partner, who will also serve as the master franchisor for the Mexico market. We expect the transaction to close by the end of October. In the fourth quarter we anticipate recording a pre-tax refranchising loss of approximately $50 million in special items as a result of this transaction. |
REMINDER - DIVISION REPORTING REALIGNMENT
Beginning in the first quarter of 2010, Thailand and KFC Taiwan, previously part of China Division, are being reported as part of YRI. The China Division includes solely the results of our mainland China business. While our consolidated results are not impacted, our historical segment financial information for YRI and China Division has been restated for 2009 for consistent presentation.
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. ET Wednesday, October 6, 2010. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.
The call will be available for playback beginning at noon Eastern Time Wednesday, October 6, through midnight Wednesday, October 20, 2010. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 14416434.
The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q3 2010 Earnings Conference Call” under “Investors: Presentations.” A podcast will be available within 24 hours.
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ADDITIONAL INFORMATION ONLINE
Third quarter end dates for each division, restaurant-count details, and definitions of terms including Key Markets are available online at www.yum.com under “Investors”.
This announcement, any related announcements and the related webcast 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 can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food borne-illness or food safety issues; economic and political conditions in the countries where w e operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. 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 Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.
Yum! Brands, Inc., based in Louisville, Kentucky, is the world’s largest restaurant company in terms of system restaurants, with more than 37,000 restaurants in over 110 countries and territories. The company is ranked #216 on the Fortune 500 List, with revenues of nearly $11 billion in 2009. Four of the company’s restaurant brands – KFC, Pizza Hut, Taco Bell and Long John Silver’s – are the global leaders of the chicken, pizza, Mexican–style food and quick–service seafood categories, respectively. Outside the United States in 2009, the Yum! Brands system opened more than four new restaurants each day of the year, making it a leader in international retail development.
Analysts are invited to contact | |
Tim Jerzyk, Senior Vice President Investor Relations, at 888/298-6986 | |
Steve Schmitt, Director Investor Relations, at 888/298-6986 | |
Members of the media are invited to contact | |
Amy Sherwood, Vice President Public Relations, at 502/874-8200 |
6
YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/4/10 | 9/5/09 | B/(W) | 9/4/10 | 9/5/09 | B/(W) | ||||||||||||||||
Company sales | $ | 2,496 | $ | 2,432 | 3 | $ | 6,712 | $ | 6,502 | 3 | |||||||||||
Franchise and license fees and income | 366 | 346 | 5 | 1,069 | 969 | 10 | |||||||||||||||
Total revenues | 2,862 | 2,778 | 3 | 7,781 | 7,471 | 4 | |||||||||||||||
Company restaurants | |||||||||||||||||||||
Food and paper | 788 | 777 | (2) | 2,112 | 2,081 | (1) | |||||||||||||||
Payroll and employee benefits | 516 | 523 | 1 | 1,480 | 1,485 | — | |||||||||||||||
Occupancy and other operating expenses | 713 | 707 | (1) | 1,935 | 1,879 | (3) | |||||||||||||||
Company restaurant expenses | 2,017 | 2,007 | (1) | 5,527 | 5,445 | (2) | |||||||||||||||
General and administrative expenses | 285 | 276 | (3) | 813 | 812 | — | |||||||||||||||
Franchise and license expenses | 24 | 29 | 18 | 71 | 74 | 4 | |||||||||||||||
Closures and impairment (income) expenses | 5 | 5 | (12) | 21 | 31 | 32 | |||||||||||||||
Refranchising (gain) loss | (2) | 4 | NM | 51 | (9) | NM | |||||||||||||||
Other (income) expense | (11) | (13) | (12) | (31) | (97) | (68) | |||||||||||||||
Total costs and expenses, net | 2,318 | 2,308 | — | 6,452 | 6,256 | (3) | |||||||||||||||
Operating Profit | 544 | 470 | 16 | 1,329 | 1,215 | 9 | |||||||||||||||
Interest expense, net | 38 | 42 | 10 | 121 | 138 | 12 | |||||||||||||||
Income before income taxes | 506 | 428 | 18 | 1,208 | 1,077 | 12 | |||||||||||||||
Income tax provision | 139 | 88 | (57) | 307 | 212 | (45) | |||||||||||||||
Net Income – including noncontrolling interest | 367 | 340 | 8 | 901 | 865 | 4 | |||||||||||||||
Net Income – noncontrolling interest | 10 | 6 | (57) | 17 | 10 | (65) | |||||||||||||||
Net Income – YUM! Brands, Inc. | $ | 357 | $ | 334 | 7 | $ | 884 | $ | 855 | 3 | |||||||||||
Effective tax rate | 27.5% | 20.6% | (6.9) ppts | 25.4% | 19.7% | (5.7) ppts | |||||||||||||||
Effective tax rate before special items | 27.4% | 19.9% | (7.5) ppts | 25.8% | 21.1% | (4.7) ppts | |||||||||||||||
Basic EPS Data | |||||||||||||||||||||
EPS | $ | 0.76 | $ | 0.71 | 7 | $ | 1.87 | $ | 1.82 | 3 | |||||||||||
Average shares outstanding | 473 | 472 | — | 473 | 469 | (1) | |||||||||||||||
Diluted EPS Data | |||||||||||||||||||||
EPS | $ | 0.74 | $ | 0.69 | 7 | $ | 1.82 | $ | 1.77 | 3 | |||||||||||
Average shares outstanding | 484 | 485 | — | 485 | 482 | (1) | |||||||||||||||
Dividends declared per common share | $ | — | $ | — | $ | 0.42 | $ | 0.38 |
See accompanying notes.
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YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/4/10 | 9/5/09 | B/(W) | 9/4/10 | 9/5/09 | B/(W) | ||||||||||||||||
Company sales | $ | 1,172 | $ | 980 | 20 | $ | 2,745 | $ | 2,251 | 22 | |||||||||||
Franchise and license fees and income | 16 | 14 | 18 | 38 | 40 | (4) | |||||||||||||||
Total revenues | 1,188 | 994 | 20 | 2,783 | 2,291 | 21 | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 390 | 341 | (14) | 909 | 796 | (14) | |||||||||||||||
Payroll and employee benefits | 151 | 116 | (31) | 372 | 286 | (31) | |||||||||||||||
Occupancy and other operating expenses | 335 | 286 | (17) | 806 | 666 | (21) | |||||||||||||||
876 | 743 | (18) | 2,087 | 1,748 | (19) | ||||||||||||||||
General and administrative expenses | 55 | 45 | (24) | 136 | 117 | (17) | |||||||||||||||
Franchise and license expenses | 1 | — | NM | 1 | — | NM | |||||||||||||||
Closures and impairment (income) expenses | — | 2 | 67 | 5 | 6 | 15 | |||||||||||||||
Other (income) expense | (11) | (12) | 4 | (28) | (29) | (1) | |||||||||||||||
921 | 778 | (18) | 2,201 | 1,842 | (20) | ||||||||||||||||
Operating Profit | $ | 267 | $ | 216 | 24 | $ | 582 | $ | 449 | 30 | |||||||||||
Company sales | 100.0% | 100.0% | 100.0% | 100.0% | |||||||||||||||||
Food and paper | 33.3 | 34.8 | 1.5 ppts | 33.1 | 35.3 | 2.2 ppts | |||||||||||||||
Payroll and employee benefits | 12.9 | 11.7 | (1.2) ppts | 13.6 | 12.7 | (0.9) ppts | |||||||||||||||
Occupancy and other operating expenses | 28.6 | 29.2 | 0.6 ppts | 29.3 | 29.6 | 0.3 ppts | |||||||||||||||
Restaurant margin | 25.2% | 24.3% | 0.9 ppts | 24.0% | 22.4% | 1.6 ppts |
See accompanying notes.
As discussed in (d) in the accompanying notes, we began consolidating the operating entity that owns the KFC business in Shanghai, China, with 236 units, during the second quarter of 2009. This entity was previously accounted for as an unconsolidated affiliate.
As discussed in (g) in the accompanying notes, beginning in 2010 the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. We have restated the segment information for 2009 to be consistent with 2010.
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YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/4/10 | 9/5/09 | B/(W) | 9/4/10 | 9/5/09 | B/(W) | ||||||||||||||||
Company sales | $ | 533 | $ | 573 | (7) | $ | 1,602 | $ | 1,567 | 2 | |||||||||||
Franchise and license fees and income | 171 | 157 | 8 | 499 | 445 | 12 | |||||||||||||||
Total revenues | 704 | 730 | (4) | 2,101 | 2,012 | 4 | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 170 | 188 | 9 | 516 | 513 | (1) | |||||||||||||||
Payroll and employee benefits | 133 | 144 | 9 | 404 | 393 | (2) | |||||||||||||||
Occupancy and other operating expenses | 163 | 177 | 8 | 498 | 483 | (3) | |||||||||||||||
466 | 509 | 8 | 1,418 | 1,389 | (2) | ||||||||||||||||
General and administrative expenses | 84 | 89 | 5 | 248 | 243 | (2) | |||||||||||||||
Franchise and license expenses | 9 | 13 | 31 | 24 | 29 | 17 | |||||||||||||||
Closures and impairment (income) expenses | 3 | (1) | NM | 6 | 5 | (6) | |||||||||||||||
Other (income) expense | — | — | — | — | — | — | |||||||||||||||
562 | 610 | 8 | 1,696 | 1,666 | (2) | ||||||||||||||||
Operating Profit | $ | 142 | $ | 120 | 18 | $ | 405 | $ | 346 | 17 | |||||||||||
Company sales | 100.0% | 100.0% | 100.0% | 100.0% | |||||||||||||||||
Food and paper | 31.9 | 32.6 | 0.7 ppts | 32.2 | 32.7 | 0.5 ppts | |||||||||||||||
Payroll and employee benefits | 24.9 | 25.5 | 0.6 ppts | 25.2 | 25.2 | — ppts | |||||||||||||||
Occupancy and other operating expenses | 30.7 | 31.0 | 0.3 ppts | 31.1 | 30.8 | (0.3) ppts | |||||||||||||||
Restaurant margin | 12.5% | 10.9% | 1.6 ppts | 11.5% | 11.3% | 0.2 ppts | |||||||||||||||
Operating margin | 20.1% | 16.4% | 3.7 ppts | 19.3% | 17.2% | 2.1 ppts |
See accompanying notes.
As discussed in (g) in the accompanying notes, beginning in 2010 the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. We have restated the segment information for 2009 to be consistent with 2010.
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YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/4/10 | 9/5/09 | B/(W) | 9/4/10 | 9/5/09 | B/(W) | ||||||||||||||||
Company sales | $ | 791 | $ | 879 | (10) | $ | 2,365 | $ | 2,684 | (12) | |||||||||||
Franchise and license fees and income | 179 | 176 | 2 | 532 | 516 | 3 | |||||||||||||||
Total revenues | 970 | 1,055 | (8) | 2,897 | 3,200 | (9) | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 228 | 248 | 8 | 687 | 772 | 11 | |||||||||||||||
Payroll and employee benefits | 232 | 263 | 12 | 704 | 806 | 13 | |||||||||||||||
Occupancy and other operating expenses | 217 | 244 | 11 | 636 | 730 | 13 | |||||||||||||||
677 | 755 | 10 | 2,027 | 2,308 | 12 | ||||||||||||||||
General and administrative expenses | 110 | 109 | — | 323 | 330 | 2 | |||||||||||||||
Franchise and license expenses | 14 | 16 | 10 | 46 | 45 | (2) | |||||||||||||||
Closures and impairment (income) expenses | 2 | 4 | 39 | 10 | 20 | 49 | |||||||||||||||
Other (income) expense | (1) | — | NM | (4) | — | NM | |||||||||||||||
802 | 884 | 9 | 2,402 | 2,703 | 11 | ||||||||||||||||
Operating Profit | $ | 168 | $ | 171 | (2) | $ | 495 | $ | 497 | — | |||||||||||
Company sales | 100.0% | 100.0% | 100.0% | 100.0% | |||||||||||||||||
Food and paper | 28.9 | 28.3 | (0.6) ppts | 29.1 | 28.8 | (0.3) ppts | |||||||||||||||
Payroll and employee benefits | 29.2 | 29.9 | 0.7 ppts | 29.7 | 30.0 | 0.3 ppts | |||||||||||||||
Occupancy and other operating expenses | 27.5 | 27.7 | 0.2 ppts | 26.9 | 27.2 | 0.3 ppts | |||||||||||||||
Restaurant margin | 14.4% | 14.1% | 0.3 ppts | 14.3% | 14.0% | 0.3 ppts | |||||||||||||||
Operating margin | 17.4% | 16.2% | 1.2 ppts | 17.1% | 15.5% | 1.6 ppts |
See accompanying notes.
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YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited) | |||||||
9/4/10 | 12/26/09 | ||||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 1,274 | $ | 353 | |||
Accounts and notes receivable, less allowance: $34 in 2010 and $35 in 2009 | 249 | 239 | |||||
Inventories | 149 | 122 | |||||
Prepaid expenses and other current assets | 313 | 314 | |||||
Deferred income taxes | 81 | 81 | |||||
Advertising cooperative assets, restricted | 109 | 99 | |||||
Total Current Assets | 2,175 | 1,208 | |||||
Property, plant and equipment, net of accumulated depreciation and amortization of $3,460 in 2010 and $3,348 in 2009 | 3,770 | 3,899 | |||||
Goodwill | 700 | 640 | |||||
Intangible assets, net | 440 | 462 | |||||
Investments in unconsolidated affiliates | 145 | 144 | |||||
Other assets | 529 | 544 | |||||
Deferred income taxes | 329 | 251 | |||||
Total Assets | $ | 8,088 | $ | 7,148 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities | |||||||
Accounts payable and other current liabilities | $ | 1,374 | $ | 1,413 | |||
Income taxes payable | 94 | 82 | |||||
Short-term borrowings | 724 | 59 | |||||
Advertising cooperative liabilities | 109 | 99 | |||||
Total Current Liabilities | 2,301 | 1,653 | |||||
Long-term debt | 2,905 | 3,207 | |||||
Other liabilities and deferred credits | 1,239 | 1,174 | |||||
Total Liabilities | 6,445 | 6,034 | |||||
Shareholders’ Equity | |||||||
Common stock, no par value, 750 shares authorized; 468 shares and 469 shares issued in 2010 and 2009, respectively | 112 | 253 | |||||
Retained earnings | 1,681 | 996 | |||||
Accumulated other comprehensive income (loss) | (237) | (224) | |||||
Total Shareholders’ Equity – YUM! Brands, Inc. | 1,556 | 1,025 | |||||
Noncontrolling interest | 87 | 89 | |||||
Total Shareholders’ Equity | 1,643 | 1,114 | |||||
Total Liabilities and Shareholders’ Equity | $ | 8,088 | $ | 7,148 |
See accompanying notes.
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YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to Date | ||||||
9/4/10 | 9/5/09 | |||||
Cash Flows – Operating Activities | ||||||
Net Income – including noncontrolling interest | $ | 901 | $ | 865 | ||
Depreciation and amortization | 383 | 385 | ||||
Closures and impairment (income) expenses | 21 | 31 | ||||
Refranchising (gain) loss | 51 | (9) | ||||
Contributions to defined benefit pension plans | (22) | (96) | ||||
Gain upon consolidation of a former unconsolidated affiliate in China | — | (68) | ||||
Deferred income taxes | (130) | 59 | ||||
Equity income from investments in unconsolidated affiliates | (34) | (29) | ||||
Distributions of income received from unconsolidated affiliates | 34 | 29 | ||||
Excess tax benefits from share-based compensation | (46) | (48) | ||||
Share-based compensation expense | 37 | 39 | ||||
Changes in accounts and notes receivable | (6) | 11 | ||||
Changes in inventories | (30) | 34 | ||||
Changes in prepaid expenses and other current assets | 15 | (26) | ||||
Changes in accounts payable and other current liabilities | 94 | 2 | ||||
Changes in income taxes payable | 118 | (87) | ||||
Other, net | 111 | 43 | ||||
Net Cash Provided by Operating Activities | 1,497 | 1,135 | ||||
Cash Flows – Investing Activities | ||||||
Capital spending | (490) | (505) | ||||
Proceeds from refranchising of restaurants | 106 | 91 | ||||
Acquisitions & investments | (62) | (99) | ||||
Sales of property, plant and equipment | 21 | 16 | ||||
Other, net | (10) | (8) | ||||
Net Cash Used in Investing Activities | (435) | (505) | ||||
Cash Flows – Financing Activities | ||||||
Proceeds from long-term debt | 350 | 499 | ||||
Repayments of long-term debt | (20) | (522) | ||||
Revolving credit facilities, three months or less, net | 12 | (289) | ||||
Short-term borrowings by original maturity | ||||||
More than three months – proceeds | — | — | ||||
More than three months – payments | — | — | ||||
Three months or less, net | 5 | 5 | ||||
Repurchase shares of Common Stock | (283) | — | ||||
Excess tax benefits from share-based compensation | 46 | 48 | ||||
Employee stock option proceeds | 64 | 91 | ||||
Dividends paid on Common Stock | (295) | (263) | ||||
Other, net | (30) | (8) | ||||
Net Cash Used in Financing Activities | (151) | (439) | ||||
Effect of Exchange Rates on Cash and Cash Equivalents | 10 | — | ||||
Net Increase in Cash and Cash Equivalents | 921 | 191 | ||||
Change in Cash and Cash Equivalents due to Consolidation of an Entity in China | — | 17 | ||||
Cash and Cash Equivalents - Beginning of Period | $ | 353 | $ | 216 | ||
Cash and Cash Equivalents - End of Period | $ | 1,274 | $ | 424 |
See accompanying notes.
12
Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) throughout this document, the Company has provided non-GAAP measurements which present operating results in 2010 and 2009 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the depreciation benefit from the KFC restaurants impaired in the first quarter of 2010, charges relating to U.S. General and Administrative (“G&A”) productivity initiatives and realignment of resources, investments in our U.S. Brands, the loss recognized upon refranchising of an equity market outside the U.S. and the 2009 gain upon our acquisition of additional ownership in, and consolidation of, the operating entity that owns the KFCs in Shanghai, China. These amounts are described in (d), (e) and (f) in the accompanying notes.
The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in 2010 and 2009 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.
Quarter | Year to Date | ||||||||||||
9/4/10 | 9/5/09 | 9/4/10 | 9/5/09 | ||||||||||
Detail of Special Items | |||||||||||||
Gain upon consolidation of a former unconsolidated affiliate in China | $ | — | $ | — | $ | — | $ | 68 | |||||
Loss upon refranchising of an equity market outside the U.S. | — | (10) | (7) | (10) | |||||||||
U.S. Refranchising gain (loss) | — | 8 | (51) | 23 | |||||||||
Depreciation benefit from KFC restaurants impaired upon offer to sell | 2 | — | 5 | — | |||||||||
Charges relating to U.S. G&A productivity initiatives and realignment of resources | — | — | (5) | (9) | |||||||||
Investments in our U.S. Brands | — | (1) | — | (32) | |||||||||
Total Special Items Income (Expense) | 2 | (3) | (58) | 40 | |||||||||
Tax Benefit (Expense) on Special Items | (1) | (3) | 19 | 6 | |||||||||
Special Items Income (Expense), net of tax | $ | 1 | $ | (6) | $ | (39) | $ | 46 | |||||
Average diluted shares outstanding | 484 | 485 | 485 | 482 | |||||||||
Special Items diluted EPS | $ | 0.01 | $ | (0.01) | $ | (0.08) | $ | 0.10 | |||||
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit | |||||||||||||
Operating Profit before Special Items | $ | 542 | $ | 473 | $ | 1,387 | $ | 1,175 | |||||
Special Items Income (Expense) | 2 | (3) | (58) | 40 | |||||||||
Reported Operating Profit | $ | 544 | $ | 470 | $ | 1,329 | $ | 1,215 | |||||
Reconciliation of EPS Before Special Items to Reported EPS | |||||||||||||
Diluted EPS before Special Items | $ | 0.73 | $ | 0.70 | $ | 1.90 | $ | 1.67 | |||||
Special Items EPS | 0.01 | (0.01) | (0.08) | 0.10 | |||||||||
Reported EPS | $ | 0.74 | $ | 0.69 | $ | 1.82 | $ | 1.77 | |||||
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate | |||||||||||||
Effective Tax Rate before Special Items | 27.4% | 19.9% | 25.8% | 21.1% | |||||||||
Impact on Tax Rate as a result of Special Items | 0.1% | 0.7% | (0.4)% | (1.4)% | |||||||||
Reported Effective Tax Rate | 27.5% | 20.6% | 25.4% | 19.7% |
13
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/4/10 | China Division | YRI | United States | Corporate and Unallocated | Consolidated | ||||||||||
Total revenues | $ | 1,188 | $ | 704 | $ | 970 | $ | — | $ | 2,862 | |||||
Company restaurant expenses | 876 | 466 | 677 | (2) | 2,017 | ||||||||||
General and administrative expenses | 55 | 84 | 110 | 36 | 285 | ||||||||||
Franchise and license expenses | 1 | 9 | 14 | — | 24 | ||||||||||
Closures and impairment (income) expenses | — | 3 | 2 | — | 5 | ||||||||||
Refranchising (gain) loss | — | — | — | (2) | (2) | ||||||||||
Other (income) expense | (11) | — | (1) | 1 | (11) | ||||||||||
921 | 562 | 802 | 33 | 2,318 | |||||||||||
Operating Profit (loss) | $ | 267 | $ | 142 | $ | 168 | $ | (33) | $ | 544 |
Quarter Ended 9/5/09 | China Division | YRI | United States | Corporate and Unallocated | Consolidated | ||||||||||
Total revenues | $ | 994 | $ | 730 | $ | 1,055 | $ | (1) | $ | 2,778 | |||||
Company restaurant expenses | 743 | 509 | 755 | — | 2,007 | ||||||||||
General and administrative expenses | 45 | 89 | 109 | 33 | 276 | ||||||||||
Franchise and license expenses | — | 13 | 16 | — | 29 | ||||||||||
Closures and impairment (income) expenses | 2 | (1) | 4 | — | 5 | ||||||||||
Refranchising (gain) loss | — | — | — | 4 | 4 | ||||||||||
Other (income) expense | (12) | — | — | (1) | (13) | ||||||||||
778 | 610 | 884 | 36 | 2,308 | |||||||||||
Operating Profit (loss) | $ | 216 | $ | 120 | $ | 171 | $ | (37) | $ | 470 |
The above table reconciles 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.
14
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Year to Date Ended 9/4/10 | China Division | YRI | United States | Corporate and Unallocated | Consolidated | ||||||||||
Total revenues | $ | 2,783 | $ | 2,101 | $ | 2,897 | $ | — | $ | 7,781 | |||||
Company restaurant expenses | 2,087 | 1,418 | 2,027 | (5) | 5,527 | ||||||||||
General and administrative expenses | 136 | 248 | 323 | 106 | 813 | ||||||||||
Franchise and license expenses | 1 | 24 | 46 | — | 71 | ||||||||||
Closures and impairment (income) expenses | 5 | 6 | 10 | — | 21 | ||||||||||
Refranchising (gain) loss | — | — | — | 51 | 51 | ||||||||||
Other (income) expense | (28) | — | (4) | 1 | (31) | ||||||||||
2,201 | 1,696 | 2,402 | 153 | 6,452 | |||||||||||
Operating Profit (loss) | $ | 582 | $ | 405 | $ | 495 | $ | (153) | $ | 1,329 |
Year to Date Ended 9/5/09 | China Division | YRI | United States | Corporate and Unallocated | Consolidated | ||||||||||
Total revenues | $ | 2,291 | $ | 2,012 | $ | 3,200 | $ | (32) | $ | 7,471 | |||||
Company restaurant expenses | 1,748 | 1,389 | 2,308 | — | 5,445 | ||||||||||
General and administrative expenses | 117 | 243 | 330 | 122 | 812 | ||||||||||
Franchise and license expenses | — | 29 | 45 | — | 74 | ||||||||||
Closures and impairment (income) expenses | 6 | 5 | 20 | — | 31 | ||||||||||
Refranchising (gain) loss | — | — | — | (9) | (9) | ||||||||||
Other (income) expense | (29) | — | — | (68) | (97) | ||||||||||
1,842 | 1,666 | 2,703 | 45 | 6,256 | |||||||||||
Operating Profit (loss) | $ | 449 | $ | 346 | $ | 497 | $ | (77) | $ | 1,215 |
The above table reconciles 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.
15
Notes to the Consolidated Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)
(a) | Percentages may not recompute due to rounding. |
(b) | Amounts presented as of and for the quarter and year to date ended September 4, 2010 are preliminary. |
(c) | China Division Other (income) expense includes equity income from our investments in unconsolidated affiliates. In the year to date ended September 5, 2009, Unallocated Other (income) expense includes the gain upon our acquisition of additional ownership in, and consolidation of, the operating entity that owns the KFCs in Shanghai, China (see Note d). |
(d) | On May 4, 2009 we acquired an additional 7% ownership in the entity that operates the KFCs in Shanghai, China for $12 million, increasing our ownership to 58%. Prior to our acquisition of this additional interest, this entity was accounted for as an unconsolidated affiliate. As part of the acquisition we received additional rights in the governance of the entity such that we began consolidating the entity upon acquisition. We remeasured our previously held 51% ownership in the entity at fair value and recognized a gain of $68 million accordingly. The gain, which resulted in no related income tax expense, was recorded as unallocated other income during the quarter ended June 13, 2009 and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results) . For the year to date ended September 4, 2010 the consolidation of the existing restaurants upon acquisition increased Company sales by $98 million and decreased Franchise and license fees and income by $6 million. The consolidation of the existing restaurants upon acquisition increased Operating Profit by $3 million for the year to date ended September 4, 2010. |
(e) | As part of our plan to transform our U.S. business we took several measures (“the U.S. business transformation measures”) in 2010 and 2009 including: expansion of our U.S. refranchising, potentially reducing our Company ownership in the U.S. to below 10%; a reduced emphasis on multi-branding as a long-term growth strategy; G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs); and investments in our U.S. Brands made on behalf of our franchisees such as equipment purchases. We have traditionally not allocated refranchising (gains) losses for segment reporting purposes and will not allocate the costs associated with the productivity initiatives, realignment of resources and investments in our U.S. Brands to the U.S. segment. Additionally, these items have been reflected as S pecial Items for certain performance measures (see accompanying reconciliation to reported results). U.S. refranchising loss recorded in the year to date ended September 4, 2010 is the net result of gains from 98 restaurants sold and non-cash impairment charges in the first quarter related to our offers to refranchise restaurants in the U.S., principally a substantial portion of our Company operated KFCs. We have recorded the depreciation benefit for the quarter and year to date ended September 4, 2010 resulting from the non-cash impairment charge related to these KFCs as a Special Item, resulting in depreciation expense in the U.S. Segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded. Investments in our U.S. Brands recorded in 2009 reflect our reimbursements to KFC franchisees for installation costs of ovens for the national launch of Kentucky Grilled Chicken and have been recorded as a reduction of Franchise and license fees and income. |
(f) | During the quarter ended September 5, 2009 we recognized a $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the quarter ended March 20, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs. We included in our March 20, 2010 financial statements a non-cash write off of $7 million of goodwill in determining the loss on refranchising of Taiwan. Neither of these losses resulted in a related income tax benefit, and neither loss was allocated to any segment for performance reporting purposes. |
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(g) | In 2010 we began reporting information for our Thailand and KFC Taiwan businesses within our International Division as a result of changes to our management reporting structure. These businesses now report to the President of our YRI Division whereas previously they reported to the President of our China Division. Beginning in 2010, the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. While this reporting change did not impact our Consolidated results, segment information for previous periods has been restated to be consistent with the current period presentation. |
The following table summarizes the 2009 quarterly increases to selected line items within the YRI segment as a result of these segment reporting changes (with equal and offsetting decreases impacting the China Division segment): |
First | Second | Third | Fourth | ||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||||
Company sales | $ | 47 | $ | 64 | $ | 68 | $ | 91 | $ | 270 | |||||||||||
Company restaurant expenses | 42 | 57 | 62 | 83 | 244 | ||||||||||||||||
Operating Profit | 3 | — | 1 | 2 | 6 |
(h) | On July 1, 2010, we completed the exercise of our option with our Russian partner to purchase their interest in the co-branded KFC-Rostik’s restaurants across Russia and the Commonwealth of Independent States (“CIS”). As a result, we acquired company ownership of 50 restaurants and gained full rights and responsibilities as franchisor of 81 restaurants, which our partner previously managed as master franchisor. Upon exercise of our option, we paid cash of $56 million, forgave a long-term note receivable of $11 million and assumed long-term debt of $10 million. The remaining balance of the purchase price, anticipated to be $11 million, will be paid in cash in July 2012 . The impact of consolidating this business on all line items within our Condensed Consolidated Income Statement was insignificant for the quarter ended September 4, 2010 for our International Division. While we have not yet completed our allocation of the purchase price, our Condensed Consolidated Balance Sheet at September 4, 2010 reflects the consolidation of this entity using preliminary amounts including $74 million of goodwill. |
17