Yum! Brands Reports Second-Quarter 2013 EPS Declined 16%, Excluding Special Items

China Division Sales and Profits Declined Significantly; KFC China Sales Recovering as Expected

LOUISVILLE, Ky. - July 10, 2013 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 15, 2013, including EPS of $0.56, excluding Special Items. Reported EPS was $0.61 for the quarter.

Second-Quarter Highlights

  • Worldwide system sales grew 1%, prior to foreign currency translation, including 6% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 12% in China.
  • China Division sales and profits were significantly impacted by adverse publicity surrounding Avian flu, as well as the residual effect of the December poultry supply incident.
  • Same-store sales declined 20% in China. Same-store sales grew 1% at YRI and 1% in the U.S.
  • Total international development was 315 new restaurants; 76% of this development occurred in emerging markets.
  • Worldwide restaurant margin declined 2.7 percentage points to 12.5%, including a decline of 5.0 percentage points in China. Restaurant margin increased 0.8 percentage points at YRI and 0.8 percentage points in the U.S.
  • Worldwide operating profit declined 20%, prior to foreign currency translation, including a 63% decline in China. Operating profit grew 12% at YRI and 4% in the U.S.
  • Worldwide effective tax rate, prior to Special Items, decreased to 22.1% from 23.9%. The decrease in the tax rate positively impacted year-over-year EPS results by 2 percentage points.

China Sales Update

  • June same-store sales declined an estimated 10% for the China Division, improving from a 19% decline in May. This included an estimated decline of 13% at KFC and 6% growth at Pizza Hut Casual Dining. June sales are included in the China Division’s third-quarter results.

Full-Year Outlook

Estimated mid-single-digit full-year EPS decline versus prior year, excluding Special Items, remains unchanged. China Division same-store sales are expected to continue to recover over the course of the year and be positive in the fourth quarter.

 
    Second Quarter   Year-to-Date
    2013   2012   % Change   2013   2012   % Change
EPS Excluding Special Items   $ 0.56   $ 0.67   (16 )%   $ 1.26   $ 1.43   (12 )%
Special Items Gain/(Loss)1   $ 0.05   $ 0.02   NM     $ 0.07   $ 0.22   NM  
EPS   $ 0.61   $ 0.69   (13 )%   $ 1.33   $ 1.65   (19 )%

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for second quarter and year-to-date 2013 are primarily related to U.S. refranchising gains. Special Items for 2012 comparable periods are primarily related to the Little Sheep acquisition gain, U.S. refranchising gains and Pizza Hut UK refranchising.

 

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

 

David Novak Comments

David C. Novak, Chairman and CEO, said, “Second-quarter EPS declined 16%, which was generally in line with our expectations. KFC sales and profits in China were significantly impacted by intense media surrounding Avian flu, as well as the residual effect of the December poultry supply incident. The good news is that China sales are recovering as expected. The extensive media surrounding Avian flu in China has subsided and same-store sales at KFC are clearly improving.

I’m pleased with the very strong performance at Pizza Hut Casual Dining, which delivered solid same-store sales growth as we continue to open new units at a record pace. For the total China Division, we remain on track to open at least 700 new units this year. This means we will have opened about 1,600 units over a two-year period. As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014.

We expect record new-unit openings for Yum! Restaurants International and in India this year. Our emerging market new-unit pipeline is stronger than ever. Additionally, Taco Bell continues to deliver sales growth in the U.S. with industry-leading innovation.

Our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. We expect a strong bounce-back year in 2014 as we continue to aggressively invest behind our core strategies and capitalize on the enormous growth opportunities we see around the world.”

 

CHINA DIVISION

 

     

Second Quarter

   

Year-to-Date

            % Change                 % Change
   

2013

   

2012

   

Reported

   

Ex F/X

   

2013

   

2012

   

Reported

   

Ex F/X

System Sales Growth                 (10)     (12)                 (9)     (10)
Same-Store Sales Growth (%)     (20)     +10     NM     NM     (20)     +12     NM     NM
Restaurant Margin (%)     10.6     15.6     (5.0)     (5.0)     13.2     19.1     (5.9)     (5.9)
Operating Profit ($MM)     68     182     (63)     (63)     222     438     (49)     (50)
                                                 
  • China Division sales and profits were significantly impacted by adverse publicity surrounding Avian flu, as well as the residual effect of the December poultry supply incident.
  • System sales decreased 12%, prior to foreign currency translation.
    • Same-store sales declined 20%, including a 26% decline at KFC and 7% growth at Pizza Hut Casual Dining.
  • China Division opened 100 new units in the second quarter, and 326 new units year-to-date.
 
China Units   Q2 2013   % Change
Traditional Restaurants1   5,982   +14
KFC   4,429   +13
Pizza Hut Casual Dining   918   +32
Pizza Hut Home Service   171   +23

1 Total includes East Dawning, Pizza Hut Express and Little Sheep units

 
  • Restaurant margin decreased 5.0 percentage points to 10.6%, primarily due to sales deleverage.
  • Foreign currency translation positively impacted operating profit by $1 million.
  • We are temporarily providing monthly same-store sales releases until sales have recovered. We will release July same-store sales for our China Division on August 12, 2013, after market hours.
 

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

 
     

Second Quarter

   

Year-to-Date

                  % Change                 % Change
     

2013

   

2012

   

Reported

   

Ex F/X

   

2013

   

2012

   

Reported

   

Ex F/X

Traditional Restaurants     14,665     14,105     +4     NA     14,665     14,105     +4     NA
System Sales Growth                 +2     +6                 +3     +5
Restaurant Margin (%)     12.6     11.8     0.8     0.8     13.1     12.0     1.1     1.0
Franchise & License Fees ($MM)     207     193     +8     +11     432     392     +10     +12
Operating Profit ($MM)     163     150     +8     +12     362     318     +14     +16
Operating Margin (%)     22.8     19.5     3.3     3.5     26.2     21.5     4.7     4.9
                                                 
  • YRI Division system sales increased 6% prior to foreign currency translation, driven by new-unit development and 1% same-store sales growth.
    • Emerging markets system sales grew 12%, driven by 8% unit growth and 5% same-store sales growth.
    • Developed markets system sales grew 1%, driven by 1% unit growth. Same-store sales declined 1%, driven primarily by weak results in Japan and the UK.
  • YRI opened 205 new units in 50 countries, including 129 in emerging markets.
    • 87% of all new units were opened by franchisees.
  • Restaurant margin increased 0.8 percentage points, primarily driven by the refranchising of our Pizza Hut UK Dine-In business late last year.
  • Operating profit growth was 12%; this included a benefit of 3 percentage points from refranchising the Pizza Hut UK Dine-In business.
  • Foreign currency translation negatively impacted operating profit by $5 million.
 
YRI MARKETS1       SYSTEM Sales Growth Ex F/X
  Percent of YRI2   Second Quarter (%)   Year-to-Date (%)
Franchise            
Asia (ex Japan)   16%   +10   +6
Japan   10%   (5)   (6)
Latin America   11%   +7   +6
Middle East3   8%   +4   +4
Continental Europe   7%   +2   +2
Canada   6%   (1)   (1)
             
Combined Company / Franchise            
UK   12%   (2)   (1)
Australia / New Zealand   11%   +4   +5
Thailand   2%   +13   +15
Korea   2%   +7   +9
             
Key Growth            
Africa   7%   +17   +17
France   4%   +5   +5
Germany / Netherlands   2%   +16   +16
Russia   2%   +48   +47

1 See website www.yum.com under tab “Investors” for a list of the countries within each of the YRI markets

2 Percentage of Total YRI System Sales for Full Year 2012

3 Middle East excludes Turkey, which was acquired from a franchisee in the second quarter

 
 

U.S. DIVISION

 
     

Second Quarter

   

Year-to-Date

     

2013

   

2012

   

% Change

   

2013

   

2012

   

% Change

Same-Store Sales Growth (%)     +1     +7     NM     +1     +6     NM
Restaurant Margin (%)     18.3     17.5     0.8     17.6     16.0     1.6
Franchise and License Fees ($MM)     199     188     +6     389     366     +6
Operating Profit ($MM)     173     166     +4     338     324     +4
Operating Margin (%)     24.5     20.4     4.1     24.1     20.1     4.0
                                     
  • U.S. Division same-store sales increased 1%, including growth of 2% at Taco Bell and 3% at KFC. Same-store sales declined 2% at Pizza Hut.
  • Restaurant margin increased 0.8 percentage points, driven primarily by refranchising.
  • Operating profit grew 4%; this included a benefit of 10 percentage points from overlapping costs incurred last year associated with the resolution of an employment lawsuit. Operating profit growth was adversely impacted by 3 percentage points due to refranchising.

India Division

  • India Division system sales increased 24%, prior to foreign currency translation. The system sales increase was driven by 25% unit growth and 2% same-store sales growth.
 
India Units     Q2 2013     % Change
Traditional Restaurants1     597     +25
KFC     285     +34
Pizza Hut Casual Dining     180     +7
Pizza Hut Home Service     129     +34

1 Total includes 3 Taco Bell units

 

Ownership / Special Items Update

  • In the U.S., we refranchised 42 units for proceeds of $55 million, primarily related to Taco Bell. We recorded pre-tax U.S. refranchising gains of $28 million in Special Items.

Share Repurchase Update

  • Year-to-date through July 9, 2013, we repurchased 5.7 million shares totaling $390 million at an average price of $68.

Conference Call

Yum! Brands, Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. Eastern Time Thursday, July 11, 2013. 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 Thursday, July 11, through midnight Sunday, August 11, 2013. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 10533522.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q2 2013 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.

Additional Information Online

Quarter end dates for each division, restaurant-count details and definitions of terms 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 safety and food borne-illness issues; economic conditions, consumer preferences, adverse publicity, tax rates, the regulatory environment, increased competition and other risks in China, where a significant and growing portion of our restaurants are located; economic and political conditions in the other countries where we operate; the success of our international development strategy; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future litigation and legal claims or proceedings; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; consumer preferences and perceptions of our brands; the success of our refranchising strategy; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; new and changing government regulations; our effective tax rates and disagreements with taxing authorities; our ability to protect the integrity and security of individually identifiable data of our customers and employees; competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties; and risks associated with the Little Sheep business. 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, has over 39,000 restaurants in more than 130 countries and territories. Yum! is ranked #201 on the Fortune 500 List with revenues of over $13 billion in 2012 and in 2013 was named among the top 100 Corporate Citizens by Corporate Responsibility Magazine. The Company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opened over five new restaurants per day, making it a leader in international retail development.

YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)

 
    Quarter ended   % Change   Year to date   % Change
    6/15/13   6/16/12   B/(W)   6/15/13   6/16/12   B/(W)
                         
Company sales   $ 2,474     $ 2,762     (10 )   $ 4,573     $ 5,106     (10 )
Franchise and license fees and income   430     406     6     866     805     8  
Total revenues   2,904     3,168     (8 )   5,439     5,911     (8 )
                         
Company restaurant expenses, net                        
Food and paper   805     916     12     1,485     1,683     12  
Payroll and employee benefits   590     623     5     1,080     1,136     5  
Occupancy and other operating expenses   769     800     4     1,365     1,424     4  
Company restaurant expenses   2,164     2,339     7     3,930     4,243     7  
                         
General and administrative expenses   333     346     4     606     618     2  
Franchise and license expenses   34     26     (25 )   64     52     (21 )
Closures and impairment (income) expenses   6     4     (58 )   10     5     (100 )
Refranchising (gain) loss   (32 )   (13 )   NM     (49 )   (39 )   27  
Other (income) expense   9     (7 )   NM     1     (86 )   NM  
Total costs and expenses, net   2,514     2,695     7     4,562     4,793     5  
                         
Operating Profit   390     473     (17 )   877     1,118     (22 )
Interest expense, net   32     38     13     63     75     15  
Income before income taxes   358     435     (18 )   814     1,043     (22 )
Income tax provision   82     102     21     202     249     19  
Net income - including noncontrolling interests   276     333     (17 )   612     794     (23 )
Net income (loss) - noncontrolling interests   (5 )   2     NM     (6 )   5     NM  
Net income - YUM! Brands, Inc.   $ 281     $ 331     (15 )   $ 618     $ 789     (22 )
                         

Effective tax rate

  22.7 %   23.7 %   1.0 ppts.   24.8 %   23.9 %   (0.9 ppts.)
                         

Effective tax rate before special items

  22.1 %   23.9 %   1.8 ppts.   24.4 %   25.9 %   1.5 ppts.
                         

Basic EPS Data

                       
EPS   $ 0.62     $ 0.71     (13 )   $ 1.36     $ 1.70     (20 )
Average shares outstanding   454     465     2     454     465     2  
                         

Diluted EPS Data

                       
EPS   $ 0.61     $ 0.69     (13 )   $ 1.33     $ 1.65     (19 )
Average shares outstanding   464     477     3     464     478     3  
                         
Dividends declared per common share   $ 0.335     $ 0.285     18     $ 0.67     $ 0.57     18  
 

See accompanying notes.

 

Percentages may not recompute due to rounding.

 
 
 
 
 
 

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

 
    Quarter ended   % Change   Year to date   % Change
    6/15/13   6/16/12   B/(W)   6/15/13   6/16/12   B/(W)
                         
Company sales   $ 1,429     $ 1,535     (7 )   $ 2,562     $ 2,734     (6 )
Franchise and license fees and income   20     21     (9 )   38     40     (7 )
Total revenues   1,449     1,556     (7 )   2,600     2,774     (6 )
                         
Company restaurant expenses, net                        
Food and paper   469     536     13     844     949     11  
Payroll and employee benefits   319     293     (9 )   550     481     (15 )
Occupancy and other operating expenses   489     466     (5 )   828     782     (6 )
    1,277     1,295     1     2,222     2,212     (1 )
General and administrative expenses   90     81     (9 )   145     129     (12 )
Franchise and license expenses   3     2     (46 )   5     3     (48 )
Closures and impairment (income) expenses   6     2     NM     8     3     NM  
Other (income) expense   5     (6 )   NM     (2 )   (11 )   (82 )
    1,381     1,374         2,378     2,336     (2 )
Operating Profit   $ 68     $ 182     (63 )   $ 222     $ 438     (49 )
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   32.8     34.9     2.1 ppts.   32.9     34.7     1.8 ppts.
Payroll and employee benefits   22.3     19.1     (3.2 ppts.)   21.6     17.6     (4.0 ppts.)
Occupancy and other operating expenses   34.3     30.4     (3.9 ppts.)   32.3     28.6     (3.7 ppts.)
Restaurant margin   10.6 %   15.6 %   (5.0 ppts.)   13.2 %   19.1 %   (5.9 ppts.)
                         
Operating margin   4.7 %   11.6 %   (6.9 ppts.)   8.5 %   15.8 %   (7.3 ppts.)
 

See accompanying notes.

 

Percentages may not recompute due to rounding.

 
 
 
 
 
 

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

 
    Quarter ended   % Change   Year to date   % Change
    6/15/13   6/16/12   B/(W)   6/15/13   6/16/12   B/(W)
                         
Company sales   $ 506     $ 577     (12 )   $ 950     $ 1,086     (13 )
Franchise and license fees and income   207     193     8     432     392     10  
Total revenues   713     770     (7 )   1,382     1,478     (7 )
                         
Company restaurant expenses, net                        
Food and paper   176     189     8     329     356     8  
Payroll and employee benefits   120     145     18     225     275     18  
Occupancy and other operating expenses   146     175     16     272     325     16  
    442     509     13     826     956     14  
General and administrative expenses   96     102     5     170     184     8  
Franchise and license expenses   12     11     (17 )   24     21     (14 )
Closures and impairment (income) expenses       (1 )   NM             NM  
Other (income) expense       (1 )   (79 )       (1 )   (39 )
    550     620     11     1,020     1,160     12  
Operating Profit   $ 163     $ 150     8     $ 362     $ 318     14  
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   34.8     32.9     (1.9 ppts.)   34.6     32.8     (1.8 ppts.)
Payroll and employee benefits   23.6     25.1     1.5 ppts.   23.6     25.3     1.7 ppts.
Occupancy and other operating expenses   29.0     30.2     1.2 ppts.   28.7     29.9     1.2 ppts.
Restaurant margin   12.6 %   11.8 %   0.8 ppts.   13.1 %   12.0 %   1.1 ppts.
                         
Operating margin   22.8 %   19.5 %   3.3 ppts.   26.2 %   21.5 %   4.7 ppts.
 

See accompanying notes.

 

Percentages may not recompute due to rounding.

 
 
 
 
 
 

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

 
    Quarter ended   % Change   Year to date   % Change
    6/15/13   6/16/12   B/(W)   6/15/13   6/16/12   B/(W)
                         
Company sales   $ 510     $ 630     (19 )   $ 1,015     $ 1,252     (19 )
Franchise and license fees and income   199     188     6     389     366     6  
Total revenues   709     818     (13 )   1,404     1,618     (13 )
                         
Company restaurant expenses, net                        
Food and paper   147     182     19     292     364     20  
Payroll and employee benefits   147     182     19     298     375     21  
Occupancy and other operating expenses   123     156     22     247     313     21  
    417     520     20     837     1,052     20  
General and administrative expenses   98     116     14     192     212     9  
Franchise and license expenses   18     13     (20 )   34     28     (19 )
Closures and impairment (income) expenses       3     89     1     2     40  
Other (income) expense   3         NM     2         NM  
    536     652     18     1,066     1,294     18  
Operating Profit   $ 173     $ 166     4     $ 338     $ 324     4  
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   29.0     28.9     (0.1 ppts.)   28.8     29.1     0.3 ppts.
Payroll and employee benefits   28.7     28.8     0.1 ppts.   29.3     29.9     0.6 ppts.
Occupancy and other operating expenses   24.0     24.8     0.8 ppts.   24.3     25.0     0.7 ppts.
    18.3 %   17.5 %   0.8 ppts.   17.6 %   16.0 %   1.6 ppts.
                         
Operating margin   24.5 %   20.4 %   4.1 ppts.   24.1 %   20.1 %   4.0 ppts.
 

See accompanying notes.

 

Percentages may not recompute due to rounding.

 
 
 
 
 
 

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

 
    (unaudited)    
    6/15/13   12/29/12
ASSETS        
Current Assets        
Cash and cash equivalents   $ 500     $ 776  
Accounts and notes receivable, less allowance: $13 in 2013 and $12 in 2012   352     301  
Inventories   319     313  
Prepaid expenses and other current assets   238     272  
Deferred income taxes   115     127  
Advertising cooperative assets, restricted   81     136  
Total Current Assets   1,605     1,925  
         

Property, plant and equipment, net of accumulated depreciation and amortization of $3,225 in 2013 and $3,139 in 2012

  4,252     4,250  
Goodwill   1,110     1,034  
Intangible assets, net   717     690  
Investments in unconsolidated affiliates   29     72  
Other assets   571     575  
Deferred income taxes   480     467  
Total Assets   $ 8,764     $ 9,013  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current Liabilities        
Accounts payable and other current liabilities   $ 1,739     $ 2,036  
Income taxes payable   102     97  
Short-term borrowings   68     10  
Advertising cooperative liabilities   81     136  
Total Current Liabilities   1,990     2,279  
         
Long-term debt   2,918     2,932  
Other liabilities and deferred credits   1,512     1,490  
Total Liabilities   6,420     6,701  
         
Redeemable noncontrolling interest   59     59  
         
Shareholders' Equity        
Common stock, no par value, 750 shares authorized; 447 shares and 451 shares issued in 2013 and 2012, respectively        
Retained earnings   2,324     2,286  
Accumulated other comprehensive income (loss)   (101 )   (132 )
Total Shareholders' Equity - YUM! Brands, Inc.   2,223     2,154  
Noncontrolling interests   62     99  
Total Shareholders' Equity   2,285     2,253  
Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity   $ 8,764     $ 9,013  
 

See accompanying notes.

 
 
 
 
 
 

YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)

 
    Year to Date
    6/15/2013   6/16/2012
Cash Flows - Operating Activities        
Net income - including noncontrolling interests   $ 612     $ 794  
Depreciation and amortization   300     285  
Closures and impairment (income) expenses   10     5  
Refranchising (gain) loss   (49 )   (39 )
Contributions to defined benefit pension plans   (3 )   (43 )
Gain upon acquisition of Little Sheep       (74 )
Deferred income taxes   (5 )   (10 )
Equity income from investments in unconsolidated affiliates   (4 )   (22 )
Distribution of income received from unconsolidated affiliates   12     15  
Excess tax benefit from share-based compensation   (24 )   (46 )
Share-based compensation expense   21     23  
Changes in accounts and notes receivable   4     16  
Changes in inventories   1     14  
Changes in prepaid expenses and other current assets   (8 )   (9 )
Changes in accounts payable and other current liabilities   (229 )   (118 )
Changes in income taxes payable   62     70  
Other, net   29     63  
Net Cash Provided by Operating Activities   729     924  
         
Cash Flows - Investing Activities        
Capital spending   (472 )   (406 )
Proceeds from refranchising of restaurants   155     132  
Acquisitions   (89 )   (542 )
Changes in restricted cash       300  
Increase in short-term investments   2     (82 )
Other, net   (6 )   2  
Net Cash Used in Investing Activities   (410 )   (596 )
         
Cash Flows - Financing Activities        
Repayments of long-term debt   (4 )   (15 )
Short-term borrowings, more than three months, net   55      
Repurchase shares of Common Stock   (329 )   (289 )
Excess tax benefit from share-based compensation   24     46  
Employee stock option proceeds   11     22  
Dividends paid on Common Stock   (301 )   (262 )
Other, net   (43 )   (41 )
Net Cash Used in Financing Activities   (587 )   (539 )
Effect of Exchange Rate on Cash and Cash Equivalents   (8 )   (3 )
Net Decrease in Cash and Cash Equivalents   (276 )   (214 )
Cash and Cash Equivalents - Beginning of Period   776     1,198  
Cash and Cash Equivalents - End of Period   $ 500     $ 984  
 

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 operating results in 2013 and 2012 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the gain on the acquisition of Little Sheep and losses associated with the refranchising of the Pizza Hut UK dine-in business. These amounts are described in (c), (d) and (e) in the accompanying notes. Other Special Items Income (Expense) in 2012 includes the depreciation reductions from Pizza Hut UK and KFC U.S. restaurants impaired upon our decision or offer to refranchise that remained Company stores for some or all of the periods presented, gains from real estate sales related to our previously refranchised Mexico business and charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources.

 

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. 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 the quarters and years to date ended June 15, 2013 and June 16, 2012 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

 
    Quarter ended   Year to Date
    6/15/13   6/16/12   6/15/13   6/16/12
Detail of Special Items                
U.S. Refranchising gain (loss)(c)   $ 28     $ 9     $ 45     $ 54  
Gain upon acquisition of Little Sheep(d)               74  
Losses associated with the refranchising of the Pizza Hut UK dine-in business(e)       (2 )       (23 )
Other Special Items Income (Expense)       7         10  
Total Special Items Income (Expense)   28     14     45     115  
Tax Benefit (Expense) on Special Items   (9 )   (2 )   (15 )   (9 )
Special Items Income (Expense), net of tax   $ 19     $ 12     $ 30     $ 106  
Average diluted shares outstanding   464     477     464     478  
Special Items diluted EPS   $ 0.05     $ 0.02     $ 0.07     $ 0.22  
                 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit                
Operating Profit Before Special Items   $ 362     $ 459     $ 832     $ 1,003  
Special Items Income (Expense)   28     14     45     115  
Reported Operating Profit   $ 390     $ 473     $ 877     $ 1,118  
                 
Reconciliation of EPS Before Special Items to Reported EPS                
Diluted EPS Before Special Items   $ 0.56     $ 0.67     $ 1.26     $ 1.43  
Special Items EPS   0.05     0.02     0.07     0.22  
Reported EPS   $ 0.61     $ 0.69     $ 1.33     $ 1.65  
                 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate                
Effective Tax Rate Before Special Items   22.1 %   23.9 %   24.4 %   25.9 %
Impact on Tax Rate as a result of Special Items   0.6 %   (0.2 )%   0.4 %   (2.0 )%
Reported Effective Tax Rate   22.7 %   23.7 %   24.8 %   23.9 %
 
 
 
 
 
 

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

 
 
Quarter Ended 6/15/13   China   YRI   United

States

  India  

Corporate

and

Unallocated

  Consolidated
Total revenues   $ 1,449     $ 713     $ 709     $ 33     $     $ 2,904  
                         
Company restaurant expenses   1,277     442     417     28         2,164  
General and administrative expenses   90     96     98     8     41     333  
Franchise and license expenses   3     12     18     1         34  
Closures and impairment (income) expenses   6                     6  
Refranchising (gain) loss                   (32 )   (32 )
Other (income) expense   5         3         1     9  
    1,381     550     536     37     10     2,514  
Operating Profit (loss)   $ 68     $ 163     $ 173     $ (4 )   $ (10 )   $ 390  
 
 
 
Quarter Ended 6/16/12   China   YRI   United

States

  India  

Corporate

and

Unallocated

  Consolidated
Total revenues   $ 1,556     $ 770     $ 818     $ 24     $     $ 3,168  
                         
Company restaurant expenses   1,295     509     520     20     (5 )   2,339  
General and administrative expenses   81     102     116     6     41     346  
Franchise and license expenses   2     11     13             26  
Closures and impairment (income) expenses   2     (1 )   3             4  
Refranchising (gain) loss                   (13 )   (13 )
Other (income) expense   (6 )   (1 )               (7 )
    1,374     620     652     26     23     2,695  
Operating Profit (loss)   $ 182     $ 150     $ 166     $ (2 )   $ (23 )   $ 473  
 

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.

 
 
 
 
 
 

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

 
 
Year to Date Ended 6/15/13   China   YRI   United

States

  India  

Corporate

and

Unallocated

  Consolidated
Total revenues   $ 2,600     $ 1,382     $ 1,404     $ 53     $     $ 5,439  
                         
Company restaurant expenses   2,222     826     837     45         3,930  
General and administrative expenses   145     170     192     12     87     606  
Franchise and license expenses   5     24     34     1         64  
Closures and impairment (income) expenses   8         1     1         10  
Refranchising (gain) loss                   (49 )   (49 )
Other (income) expense   (2 )       2         1     1  
    2,378     1,020     1,066     59     39     4,562  
Operating Profit (loss)   $ 222     $ 362     $ 338     $ (6 )   $ (39 )   $ 877  
 
 
 
Year to Date Ended 6/16/12   China   YRI   United

States

  India  

Corporate

and

Unallocated

  Consolidated
Total revenues   $ 2,774     $ 1,478     $ 1,618     $ 41     $     $ 5,911  
                         
Company restaurant expenses   2,212     956     1,052     32     (9 )   4,243  
General and administrative expenses   129     184     212     10     83     618  
Franchise and license expenses   3     21     28             52  
Closures and impairment (income) expenses   3         2             5  
Refranchising (gain) loss                   (39 )   (39 )
Other (income) expense   (11 )   (1 )           (74 )   (86 )
    2,336     1,160     1,294     42     (39 )   4,793  
Operating Profit (loss)   $ 438     $ 318     $ 324     $ (1 )   $ 39     $ 1,118  
 

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.

 
 
 
 
 
 

Notes to the Condensed Consolidated Summary of Results, Condensed Consolidated Balance Sheets

and Condensed Consolidated Statements of Cash Flows

(amounts in millions, except per share amounts)

(unaudited)

 
(a)   Amounts presented as of and for the quarter and year to date ended June 15, 2013 are preliminary.
 
(b)   Other (income) expense for the China Division primarily consists of equity income (loss) from investments in unconsolidated affiliates. The year to date ended June 16, 2012 also includes costs related to the acquisition of Little Sheep Group Limited ("Little Sheep").
 
(c)   During the quarter and year to date ended June 15, 2013, we recorded gains of $28 million and $45 million, respectively, related to refranchising in the U.S., primarily at Taco Bell. During the quarter and year to date ended June 16, 2012, we recorded gains of $9 million and $54 million, respectively, related to refranchising in the U.S., primarily at Taco Bell. We have traditionally not allocated refranchising (gains) losses for segment reporting purposes. Additionally, U.S. refranchising (gains) losses have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results).
 
(d)   On February 1, 2012 we acquired an additional 66% interest in Little Sheep for $540 million, net of cash acquired of $44 million, increasing our ownership to 93%. The acquisition was driven by our strategy to build leading brands across China in every significant category. Prior to our acquisition of this additional interest, our 27% interest in Little Sheep was accounted for under the equity method of accounting. As a result of the acquisition we obtained voting control of Little Sheep, and thus we began consolidating Little Sheep upon acquisition. As required by GAAP, we remeasured our previously held 27% ownership in Little Sheep, which had a recorded value of $107 million at the date of acquisition, at fair value and recognized a non-cash gain of $74 million. This gain, which resulted in no related income tax expense, was recorded in Other (income) expense on our Condensed Consolidated Statement of Income during the quarter ended March 24, 2012, was not allocated for segment reporting purposes and is reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results).
 
(e)   During the quarter ended December 29, 2012, we refranchised our remaining 331 Pizza Hut UK dine-in restaurants. During the year to date ended June 16, 2012, we recorded pre-tax losses of $23 million to Refranchising (gain) loss primarily to adjust the carrying amount of the asset group to its then estimated fair value. These losses were not allocated for segment reporting purposes and were reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results).
 
    For the quarter ended June 15, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 18% and increased Franchise and license fees and income and Operating Profit by 2% and 3%, respectively, for the YRI Division. For the year to date ended June 15, 2013, the refranchising of the Pizza Hut UK dine-in restaurants decreased Company sales by 19% and increased Franchise and license fees and income and Operating Profit by 2% and 3%, respectively, for the YRI Division.
 
(f)   At the beginning of fiscal 2013 we eliminated the period lag that we previously used to facilitate the reporting of our India Division's results. Accordingly, the India Division's 2013 second quarter results include the months of March through May 2013, and the 2013 year to date results include the months of January through May 2013. Due to the immateriality of the India Division's results we did not restate the prior year operating results for the elimination of this period lag and therefore the 2012 second quarter results continue to include the months of February through April 2012 and the 2012 year to date results include the months of December 2011 through April 2012. However, we have presented India Division system sales growth, same-store sales growth and restaurant unit growth within this release by comparing March through May 2013 to March through May 2012 for the second quarter and January through May 2013 to January through May 2012 for the year to date to enhance comparability.

Contacts

Yum! Brands Inc.
Analysts:

Steve Schmitt
Vice President Investor Relations
888-298-6986

Donny Lau
Director Investor Relations
888-298-6986

Media:

Amy Sherwood
Vice President Public Relations
502-874-8200

###

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