LOUISVILLE, Ky.--(BUSINESS WIRE)--
Yum! Brands Inc. (NYSE: YUM) today reported results for the second
quarter ended June 13, 2009.
Second-quarter Earnings Per Share (EPS) of $0.63 represents 40% growth
and included the benefit of a one-time gain of $68 million recognized
upon our acquisition of additional ownership in the operating entity
that owns the KFC business in Shanghai, China, this quarter. Excluding
special items, EPS was $0.50, representing 10% growth, which the company
believes is a better indication of the underlying performance.
Highlights below are based on this performance.
SECOND QUARTER HIGHLIGHTS
-- International development continued at a robust pace with 328 new
restaurants including 118 new units in mainland China and 193 in Yum!
Restaurants International (YRI).
-- Worldwide system sales growth prior to foreign currency translation of
+3% including +8% in mainland China, +6% in YRI, and a 1% decline in the
U.S.; after foreign currency translation, worldwide system sales
declined 4%.
-- Worldwide restaurant margin improved 1.7 percentage points driven by the
combination of prior year pricing, flat commodity costs and
refranchising; all three divisions improved margins.
-- Worldwide operating profit growth of 11%, excluding foreign currency
translation, driven by new unit development, improved restaurant
margins, and proactive cost management. Each of our divisions generated
profit growth: +11% in China, +8% in the U.S. and +6% for YRI. Including
foreign currency translation, worldwide growth was +4%, China increased
+14% and YRI declined 15%.
-- EPS growth was negatively impacted by foreign currency translation of
approximately $0.03 per share partially offset by the benefit from last
year's substantial share repurchases which reduced average shares
outstanding by 3%.
Note: All comparisons are versus the same period a year ago and
exclude Special Items unless noted.
Second Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
EPS Excluding Special Items $0.50 $0.45 10% $0.97 $0.87 12%
Special Items Gain/(Loss)1 $0.13 ($0.00) NM $0.11 $0.08 NM
EPS $0.63 $0.45 40% $1.08 $0.95 14%
1 The 2009 Special Items include the one-time gain recognized upon our
acquisition of additional interest in the
operating entity that owns the KFC business in Shanghai as well as charges
related to our U.S. business
transformation. See Reconciliation of Non-GAAP Measurements to GAAP Results
for further detail of the 2009
and 2008 Special Items.
David C. Novak, Chairman and CEO, said, "I'm pleased to report second
quarter EPS growth of 10%, before special items. Our global portfolio
delivered solid performance with system sales growth of 3% and operating
profit growth of 11%, prior to foreign currency translation. EPS growth
was fueled by operating profit growth in each of our divisions and
exceeded our expectations due to a much lower-than-anticipated tax rate.
Our industry leading international new unit development continues to be
a major driver of operating performance in both China and Yum!
Restaurants International. This capability is unique to the industry and
helps us consistently achieve our growth targets. I'm proud of the way
our teams around the world are executing our growth strategies while
capturing productivity opportunities and proactively reducing costs.
"Our China business continued to drive solid growth in system sales and
operating profit while lapping its very strong year ago performance.
Yum! Restaurants International also had solid, broad-based system sales
and profit growth. In our U.S. business, while we achieved 8% operating
profit growth, there is no question that the consumer is under pressure
making it difficult to drive sales growth. Nevertheless, we were
particularly pleased by KFC's dramatic results from the Kentucky Grilled
Chicken launch which broadened the appeal of the brand and led to a
substantial positive turnaround in KFC same-store-sales performance from
a decline of 7% in the first quarter. Pizza Hut is our biggest challenge
in the U.S. as it competes in a more discretionary, higher guest-check,
dinner category. We remain confident in our strategy of transforming
Pizza Hut to include a broader line of home meal replacement options
including pasta and chicken along with our world famous pizza.
"Going forward, we expect to deliver 10% EPS growth for the year in
spite of a challenging global economic environment and build on our
seven year track record of double-digit EPS growth. We expect to enter
2010 with even stronger brands and competitive positions everywhere we
do business. Longer term, the fundamental opportunities for our global
portfolio remain intact and give us the unique ability to generate
unparalleled international growth, significant free cash flow, and an
industry-leading return on invested capital."
CHINA DIVISION
Second Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
System Sales Growth +8 +7 +11 +9
Restaurant Margin 17.9 17.1 0.8 0.7 20.1 18.9 1.2 1.1
(%)
Operating Profit 105 92 +14 +11 236 195 +21 +16
($MM)
-- China Division system sales growth of 7% excluding foreign currency
translation driven by strong unit development partially offset by an
expected same-store-sales decline in the second quarter.
-
Mainland China opened 118 new restaurants in the second quarter
further strengthening the company's leadership position.
Mainland China Units Q2 2009 % Change
Traditional Restaurants 3,208 +18
KFC 2,670 +18
Pizza Hut Casual Dining 435 +13
Pizza Hut Home Service 81 +33
-
Mainland China second quarter same-store-sales decreased by 4%,
lapping exceptional growth of 14% in 2008.
-
China Division's system sales growth was negatively impacted by weak
system sales performance in Thailand and Taiwan (+2% and a decline of
15%, respectively, excluding foreign currency translation).
-- Restaurant margin increased 0.8 percentage points driven by a
combination of the benefit of prior year pricing and commodity deflation
of $4 million in the second quarter.
-- Foreign currency conversion benefited operating profit by $3 million.
-- Operating profit growth of 14% overlapped outstanding growth of 38% in
the second quarter of 2008.
-- In the second quarter, we acquired an additional interest in the entity
that operates KFC units in Shanghai that resulted in an increase in our
ownership from 51% to 58%. This led to a one-time gain of $68 million
and did not significantly impact China Division's reported results in
the second quarter. See detailed footnote in the financial statements.
YUM! RESTAURANTS INTERNATIONAL (YRI)
DIVISION
Second Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
Traditional 12,923 12,368 +4 NA 12,923 12,368 +4 NA
Restaurants
System Sales (12) +6 (7) +8
Growth
Franchise & 137 153 (11) +6 286 302 (5) +9
License Fees
Operating 100 118 (15) +6 223 256 (13) +5
Profit ($MM)
Operating 17.1 16.2 +0.9 +0.2 19.1 17.9 +1.2 +0.1
Margin (%)
-- Solid system sales growth of 6%, excluding foreign currency translation
driven primarily by new unit development. The table below provides
further insight into key YRI markets.
-- Same-store-sales growth of +1%, which was negatively impacted by
calendar shifts versus last year (approximately 2 points).
-- The opening of 193 new restaurants in more than 50 countries.
-- Foreign currency translation negatively impacted operating profit by $24
million and operating profit growth by 21 points.
-- Operating margin continues to improve as our high return franchise
business continues to grow.
System Sales Growth
Key YRI Markets Ex F/X (%)
Second Quarter Year-to-Date
Franchise Only Markets
Asia (ex China Division) +6 +8
Continental Europe +5 +6
Middle East +7 +9
Latin America +4 +7
Company/Franchise Markets
Australia +7 +8
UK +10 +10
New Growth Markets +16 +16
Note: The markets listed above generate approximately 80% of YRI operating
profit. New
Growth Markets include France, Russia and India.
U.S. DIVISION
Second Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
Same-Store-Sales Growth (%) (1) +2 NM (2) +2 NM
Restaurant Margin (%) 14.7 12.4 +2.3 14.0 12.4 +1.6
Operating Profit ($MM) 169 155 +8 326 301 +8
Operating Margin (%) 15.3 12.7 +2.6 15.2 12.5 +2.7
-- Same-store-sales declined 1% due to an 8% decline at Pizza Hut partially
offset by positive growth at Taco Bell and KFC following the successful
launch of Kentucky Grilled Chicken.
-- Restaurant margin improved by 2.3 points this quarter due to the benefit
from prior year pricing and commodity deflation, as well as
refranchising and productivity initiatives. Commodity deflation was $4
million in the second quarter.
-- Second quarter operating profit growth of 8% and operating profit margin
improvement of 2.6 points were driven by an $18 million decline in our
U.S. G&A cost structure from actions initiated in the fourth quarter of
2008. For the full year, we anticipate cost savings of at least $60
million.
U.S. REFRANCHISING UPDATE
In the second quarter, 79 company-owned U.S. restaurants were sold to
franchisees bringing our year-to-date total to 188 units. We continue to
expect to refranchise 500 units in 2009. Full year proceeds from U.S.
refranchising are now expected to be about $175 million.
FULL YEAR GUIDANCE UPDATE
The Company maintains its expectation for full year EPS of $2.10, or 10%
growth, excluding special items. A detailed update to our guidance can
be found on our website at www.yum.com/investors.
Overall, the update to our original guidance coming into 2009 is the
result of a constrained consumer spending environment, which is driving
both sluggish sales and very favorable commodity costs. As a result, we
have reduced our expectations for same-store-sales growth around the
world while at the same time significantly raising our restaurant margin
expectations due to deflation in commodity costs. In terms of our growth
by division, this impacts only our U.S. profit growth expectations which
have been reduced. Finally, we have reduced our full year effective tax
rate forecast to account for the year-to-date favorability in rates
compared to our prior expectations and have assumed some lessening in
the large negative impact to operating profits from foreign currency
translation based on current currency trends. These changes result in no
change to our full year EPS guidance of $2.10 per share.
DEFINITIONS OF KEY MARKETS
The following list of definitions provides the significant countries and
territories with at least 25 restaurants that are included in key
markets that generally follow Yum! business management units for
internal reporting purposes. For a complete list of countries and
territories please see our detailed store count information available on
our website.
China Division includes
mainland China, Thailand (KFC and Pizza Hut), and Taiwan (KFC).
YRI Division
Asia (ex China Division) includes Thailand (A&W), Japan,
Indonesia, Malaysia, Philippines, Hawaii, Korea (KFC), Singapore, Taiwan
(Pizza Hut and Long John Silver's), Hong Kong, and Vietnam.
Australia includes Australia and New Zealand.
Continental Europe includes Belgium, Spain, Portugal, Cyprus,
Germany (Pizza Hut), Greece, Italy, Israel, Romania, Poland, and the
Czech Republic.
Latin America includes Brazil, El Salvador, Guatemala, Honduras,
Costa Rica, Dominican Republic, Jamaica, Panama, Trinidad & Tobago,
Chile, Ecuador, Peru, and Puerto Rico.
Middle East includes Bahrain, United Arab Emirates, Egypt,
Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Morocco, Turkey, and
Pakistan.
New Growth Markets include France, Russia, and India.
UK includes Great Britain, Ireland, and Northern Ireland.
U.S. Division includes the
continental United States and Alaska.
2009 Second Quarter End Dates 2009 Third Quarter End Dates
International Division 5/18/2009 International Division 8/10/2009
China Division 5/31/2009 China Division 8/31/2009
U.S. Business 6/13/2009 U.S. Business 9/5/2009
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, July 15,
2009.
For U.S. callers, the number is 877/815-2029. For international callers,
the number is 706/645-9271.
The call will be available for playback beginning at noon Eastern Time
Wednesday, July 15, through midnight July 29, 2009. To
access the playback, dial 800/642-1687 in the United States and
706/645-9291 internationally. The playback pass code is 15982763.
The webcast and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site, www.yum.com/investors
and selecting "Q2 2009 Earnings Call".
For your added convenience . . . A podcast will be
available within 24 hours of the end of the call at www.yum.com/investors.
ADDITIONAL INFORMATION ONLINE
Second quarter restaurant-count details, definitions of terms, segment-results
reconciliation and updated full year 2009 guidance are
available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.
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: economic and political conditions in the
countries where we operate; currency exchange and interest rates;
commodity, labor and other operating costs; competition, consumer
preferences or perceptions; the impact of any widespread illness or food
borne illness; the effectiveness of our operating initiatives and
marketing; new-product and concept development by us and our
competitors; the success of our strategies for refranchising and
international development; the continued viability of our franchise and
license operators; our ability to secure and maintain distribution and
adequate supply to our restaurants; publicity that may impact our
business and/or industry; pending or future legal claims; our effective
tax rates; our actuarially determined casualty loss estimates;
government regulations; and accounting policies and practices. 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 36,000
restaurants in over 110 countries and territories. The company is ranked
#239 on the Fortune 500 List, with revenues in excess of $11 billion in
2008. 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, the Yum! Brands system opened
more than four new restaurants each day of the year, making it a leader
in international retail development. The company has consistently been
recognized for its reward and recognition culture, diversity leadership,
community giving, and consistent shareholder returns. For the second
year, the company launched the world's largest private sector hunger
relief effort in partnership with the United Nations World Food
Programme and other hunger relief agencies. To date, this effort is
helping to save approximately 4 million people in remote corners of the
world, where hunger is most prevalent.
YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter % Year to Date %
Change Change
6/13/09 6/14/08 B/(W) 6/13/09 6/14/08 B/(W)
Company sales $ 2,152 $ 2,323 (7) $ 4,070 $ 4,417 (8)
Franchise and
license fees 324 336 (4) 623 655 (5)
and income
Total revenues 2,476 2,659 (7) 4,693 5,072 (7)
Company
restaurants
Food and paper 693 766 9 1,304 1,435 9
Payroll and
employee 505 574 12 962 1,107 13
benefits
Occupancy and
other 630 672 6 1,172 1,256 7
operating
expenses
Company
restaurant 1,828 2,012 9 3,438 3,798 9
expenses
General and
administrative 281 317 11 536 593 10
expenses
Franchise and
license 25 19 (37) 45 38 (20)
expenses
Closures and
impairment 22 8 NM 26 6 NM
(income)
expenses
Refranchising 1 (1 ) NM (13 ) 24 NM
(gain) loss
Other (income) (75 ) (13 ) NM (84 ) (130 ) NM
expense
Total costs
and expenses, 2,082 2,342 11 3,948 4,329 9
net
Operating 394 317 25 745 743 --
Profit
Interest 43 52 15 96 105 8
expense, net
Income before 351 265 32 649 638 2
income taxes
Income tax 45 40 (13) 124 157 21
provision
Net income -
including 306 225 35 525 481 9
noncontrolling
interest
Net income -
noncontrolling 3 1 (31) 4 3 (14)
interest
Net income -
YUM! Brands, $ 303 $ 224 35 $ 521 $ 478 9
Inc.
Effective tax 12.8 % 14.9 % 19.1 % 24.6 %
rate
Effective tax
rate before 16.4 % 15.1 % 22.0 % 23.3 %
special items
Basic EPS Data
EPS $ 0.65 $ 0.47 38 $ 1.11 $ 0.99 13
Average shares 470 480 2 468 483 3
outstanding
Diluted EPS
Data
EPS $ 0.63 $ 0.45 40 $ 1.08 $ 0.95 14
Average shares 483 498 3 481 501 4
outstanding
Dividends
declared per $ 0.38 $ 0.19 $ 0.38 $ 0.34
common share
See accompanying notes.
The effective tax rate for the quarter and year to date ended June 13,
2009 was lower due to no related income tax expense recorded on a $68
million gain recognized upon our acquisition of additional ownership in,
and consolidation of, the operating entity that owns the KFC business in
Shanghai, China.
YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Year to Date %
Change Change
6/13/09 6/14/08 B/(W) 6/13/09 6/14/08 B/(W)
Company sales $ 778 $ 687 13 $ 1,382 $ 1,195 16
Franchise and
license fees 15 16 (6) 28 28 2
and income
Total revenues 793 703 13 1,410 1,223 15
Company
restaurant
expenses, net
Food and paper 278 259 (7) 497 449 (11)
Payroll and
employee 114 100 (15) 192 169 (14)
benefits
Occupancy and
other 247 210 (17) 415 351 (18)
operating
expenses
639 569 (12) 1,104 969 (14)
General and
administrative 51 49 (5) 81 76 (9)
expenses
Franchise and
license -- -- -- -- -- --
expenses
Closures and
impairment 5 2 NM 6 2 NM
(income)
expenses
Other (income) (7 ) (9 ) (17) (17 ) (19 ) (9)
expense
688 611 (13) 1,174 1,028 (14)
Operating $ 105 $ 92 14 $ 236 $ 195 21
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 35.7 37.7 2.0 36.0 37.6 1.6
ppts. ppts.
Payroll and (0.2) 0.2
employee 14.7 14.5 ppts. 13.9 14.1 ppts.
benefits
Occupancy and
other 31.7 30.7 (1.0) 30.0 29.4 (0.6)
operating ppts. ppts.
expenses
Restaurant 17.9 % 17.1 % 0.8 20.1 % 18.9 % 1.2
margin ppts. ppts.
See accompanying notes.
China Division includes mainland China, Thailand and KFC Taiwan.
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.
YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Year to Date %
Change Change
6/13/09 6/14/08 B/(W) 6/13/09 6/14/08 B/(W)
Company sales $ 451 $ 577 (22) $ 883 $ 1,129 (22)
Franchise and
license fees 137 153 (11) 286 302 (5)
and income
Total revenues 588 730 (19) 1,169 1,431 (18)
Company
restaurant
expenses, net
Food and paper 144 183 21 283 353 19
Payroll and
employee 118 152 23 227 294 23
benefits
Occupancy and
other 139 181 23 271 349 22
operating
expenses
401 516 22 781 996 22
General and
administrative 76 89 14 145 166 13
expenses
Franchise and
license 8 7 (2) 16 15 (7)
expenses
Closures and
impairment 3 -- NM 4 (1 ) NM
(income)
expenses
Other (income) -- -- -- -- (1 ) (100)
expense
488 612 20 946 1,175 19
Operating $ 100 $ 118 (15) $ 223 $ 256 (13)
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 32.1 31.7 (0.4) 32.1 31.2 (0.9)
ppts. ppts.
Payroll and 0.4 0.4
employee 26.1 26.5 ppts. 25.7 26.1 ppts.
benefits
Occupancy and
other 30.7 31.2 0.5 30.6 30.9 0.3
operating ppts. ppts.
expenses
Restaurant 11.1 % 10.6 % 0.5 11.6 % 11.8 % (0.2)
margin ppts. ppts.
Operating 17.1 % 16.2 % 0.9 19.1 % 17.9 % 1.2
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Year to Date %
Change Change
6/13/09 6/14/08 B/(W) 6/13/09 6/14/08 B/(W)
Company sales $ 923 $ 1,059 (13) $ 1,805 $ 2,093 (14)
Franchise and
license fees 176 167 5 340 325 5
and income
Total revenues 1,099 1,226 (10) 2,145 2,418 (11)
Company
restaurant
expenses, net
Food and paper 271 324 17 524 633 17
Payroll and
employee 273 322 15 543 644 16
benefits
Occupancy and
other 244 281 13 486 556 13
operating
expenses
788 927 15 1,553 1,833 15
General and
administrative 111 129 14 221 259 15
expenses
Franchise and
license 17 9 (104) 29 20 (50)
expenses
Closures and
impairment 14 6 NM 16 5 NM
(income)
expenses
Other (income) -- -- -- -- -- --
expense
930 1,071 13 1,819 2,117 14
Operating $ 169 $ 155 8 $ 326 $ 301 8
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 29.3 30.7 1.4 29.0 30.3 1.3
ppts. ppts.
Payroll and 0.9 0.7
employee 29.5 30.4 ppts. 30.1 30.8 ppts.
benefits
Occupancy and
other 26.5 26.5 -- 26.9 26.5 (0.4)
operating ppts. ppts.
expenses
Restaurant 14.7 % 12.4 % 2.3 14.0 % 12.4 % 1.6
margin ppts. ppts.
Operating 15.3 % 12.7 % 2.6 15.2 % 12.5 % 2.7
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
6/13/09 12/27/08
ASSETS
Current Assets
Cash and cash equivalents $ 284 $ 216
Accounts and notes receivable, less allowance: $27 in 278 229
2009 and $23 in 2008
Inventories 134 143
Prepaid expenses and other current assets 201 172
Deferred income taxes 84 81
Advertising cooperative assets, restricted 90 110
Total Current Assets 1,071 951
Property, plant and equipment, net of accumulated
depreciation and amortization of $3,286 in 2009 and 3,807 3,710
$3,187 in 2008
Goodwill 760 605
Intangible assets, net 341 335
Investments in unconsolidated affiliates 23 65
Other assets 582 561
Deferred income taxes 340 300
Total Assets $ 6,924 $ 6,527
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and other current liabilities $ 1,343 $ 1,473
Income taxes payable 87 114
Short-term borrowings 32 25
Advertising cooperative liabilities 90 110
Total Current Liabilities 1,552 1,722
Long-term debt 3,516 3,564
Other liabilities and deferred credits 1,299 1,335
Total Liabilities 6,367 6,621
Shareholders' Equity (Deficit)
Common stock, no par value, 750 shares authorized; 466
shares and 459 shares issued in 2009 and 2008, 170 7
respectively
Retained earnings 646 303
Accumulated other comprehensive income (loss) (340 ) (418 )
Total Shareholders' Equity (Deficit) - YUM! Brands, 476 (108 )
Inc.
Noncontrolling interest 81 14
Total Shareholders' Equity (Deficit) 557 (94 )
Total Liabilities and Shareholders' Equity (Deficit) $ 6,924 $ 6,527
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to Date
6/13/09 6/14/08
Cash Flows - Operating Activities
Net income - including noncontrolling interest $ 525 $ 481
Depreciation and amortization 246 250
Closures and impairment (income) expenses 26 6
Refranchising (gain) loss (13 ) 24
Gain upon consolidation of a former unconsolidated (68 ) --
affiliate in China
Contributions to defined benefit pension plans (92 ) (2 )
Gain on sale of interest in Japan unconsolidated affiliate -- (100 )
Deferred income taxes (29 ) 13
Equity income from investments in unconsolidated (17 ) (20 )
affiliates
Distributions of income received from unconsolidated 8 22
affiliates
Excess tax benefit from share-based compensation (43 ) (31 )
Share-based compensation expense 26 29
Changes in accounts and notes receivable (19 ) 6
Changes in inventories 15 (1 )
Changes in prepaid expenses and other current assets (18 ) (9 )
Changes in accounts payable and other current liabilities (140 ) (88 )
Changes in income taxes payable 15 (19 )
Other non-cash charges and credits, net 73 65
Net Cash Provided by Operating Activities 495 626
Cash Flows - Investing Activities
Capital spending (342 ) (348 )
Proceeds from refranchising of restaurants 63 66
Acquisition of restaurants from franchisees (22 ) (3 )
Acquisitions and investments (56 ) --
Sales of property, plant and equipment 8 34
Other, net (7 ) (4 )
Net Cash Used in Investing Activities (356 ) (255 )
Cash Flows - Financing Activities
Repayments of long-term debt (144 ) (257 )
Revolving credit facilities, three months or less, net 108 475
Short-term borrowings by original maturity
More than three months - proceeds -- --
More than three months - payments -- --
Three months or less, net 4 (9 )
Repurchase shares of Common Stock -- (994 )
Excess tax benefit from share-based compensation 43 31
Employee stock option proceeds 77 40
Dividends paid on Common Stock (175 ) (146 )
Other, net 5 --
Net Cash Used in Financing Activities (82 ) (860 )
Effect of Exchange Rate on Cash and Cash Equivalents (6 ) 8
Net Increase (Decrease) in Cash and Cash Equivalents 51 (481 )
Change in Cash and Cash Equivalents due to consolidation 17 17
of entities in China
Cash and Cash Equivalents - Beginning of Period $ 216 $ 789
Cash and Cash Equivalents - End of Period $ 284 $ 325
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 2009 and 2008
on a basis before Special Items. Included in Special Items are the U.S.
refranchising (gain) loss, charges relating to U.S. General and Administrative
("G&A") productivity initiatives and realignment of resources, investments in
our U.S. Brands, the 2009 gain upon our acquisition of additional ownership in,
and consolidation of, the operating entity that owns the KFCs in Shanghai,
China, and the 2008 gain on the sale of our minority interest in our Japan
unconsolidated affiliate. 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 2009 and 2008 that the Company does not believe are indicative of our
ongoing operations due to their size and/or nature.
Quarter Year to Date
6/13/09 6/14/08 6/13/09 6/14/08
Detail of Special Items
Gain of the sale of our interest
in our Japan unconsolidated $ -- $ -- $ -- $ (100 )
affiliate
Gain upon consolidation of a
former unconsolidated affiliate (68 ) -- (68 ) --
in China
U.S. Refranchising (gain) loss (1 ) (1 ) (15 ) 25
Charges relating to U.S. G&A
productivity initiatives and 5 2 9 7
realignment of resources
Investments in our U.S. Brands 4 2 31 3
Total Special Items (Income) (60 ) 3 (43 ) (65 )
Expense
Tax (Benefit) Expense on Special (3 ) (1 ) (9 ) 24
Items
Special Items (Income) Expense, $ (63 ) $ 2 $ (52 ) $ (41 )
net of tax
Average diluted shares 483 498 481 501
outstanding
Special Items diluted EPS $ 0.13 $ -- $ 0.11 $ 0.08
Reconciliation of Operating
Profit Before Special Items to
Reported Operating Profit
Operating Profit before Special $ 334 $ 320 $ 702 $ 678
Items
Special Items Income (Expense) 60 (3 ) 43 65
Reported Operating Profit $ 394 $ 317 $ 745 $ 743
Reconciliation of EPS Before
Special Items to Reported EPS
Diluted EPS before Special Items $ 0.50 $ 0.45 $ 0.97 $ 0.87
Special Items EPS 0.13 -- 0.11 0.08
Reported EPS $ 0.63 $ 0.45 $ 1.08 $ 0.95
Reconciliation of Effective Tax
Rate Before Special Items to
Reported Effective Tax Rate
Effective Tax Rate before Special 16.4 % 15.1 % 22.0 % 23.3 %
Items
Impact on Tax Rate as a result of (3.6 %) (0.2 %) (2.9 %) 1.3 %
Special Items
Reported Effective Tax Rate 12.8 % 14.9 % 19.1 % 24.6 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended China United Corporate and
6/13/09 YRI Consolidated
Division States Unallocated
Total revenues $ 793 $ 588 $ 1,099 $ (4 ) $ 2,476
Company restaurant 639 401 788 -- 1,828
expenses
General and
administrative 51 76 111 43 281
expenses
Franchise and -- 8 17 -- 25
license expenses
Closures and
impairment (income) 5 3 14 -- 22
expenses
Refranchising (gain) -- -- -- 1 1
loss
Other (income) (7 ) -- -- (68 ) (75 )
expense
688 488 930 (24 ) 2,082
Operating Profit $ 105 $ 100 $ 169 $ 20 $ 394
(loss)
Quarter Ended China United Corporate and
6/14/08 YRI Consolidated
Division States Unallocated
Total revenues $ 703 $ 730 $ 1,226 $ -- $ 2,659
Company restaurant 569 516 927 -- 2,012
expenses
General and
administrative 49 89 129 50 317
expenses
Franchise and -- 7 9 3 19
license expenses
Closures and
impairment (income) 2 -- 6 -- 8
expenses
Refranchising (gain) -- -- -- (1 ) (1 )
loss
Other (income) (9 ) -- -- (4 ) (13 )
expense
611 612 1,071 48 2,342
Operating Profit $ 92 $ 118 $ 155 $ (48 ) $ 317
(loss)
The above table reconciles segment information, which is based on
management responsibility, with our Consolidated Summary of Results.
Corporate and unallocated expenses comprise reductions in franchise and
license fees and income, general and administrative expenses,
refranchising (gains) and losses and other (income) expense that are not
allocated to segments for performance reporting purposes.
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Year to Date China United Corporate and
Ended 6/13/09 YRI Consolidated
Division States Unallocated
Total revenues $ 1,410 $ 1,169 $ 2,145 $ (31 ) $ 4,693
Company
restaurant 1,104 781 1,553 -- 3,438
expenses
General and
administrative 81 145 221 89 536
expenses
Franchise and -- 16 29 -- 45
license expenses
Closures and
impairment 6 4 16 -- 26
(income) expenses
Refranchising -- -- -- (13 ) (13 )
(gain) loss
Other (income) (17 ) -- -- (67 ) (84 )
expense
1,174 946 1,819 9 3,948
Operating Profit $ 236 $ 223 $ 326 $ (40 ) $ 745
(loss)
Year to Date China United Corporate and
Ended 6/14/08 YRI Consolidated
Division States Unallocated
Total revenues $ 1,223 $ 1,431 $ 2,418 $ -- $ 5,072
Company
restaurant 969 996 1,833 -- 3,798
expenses
General and
administrative 76 166 259 92 593
expenses
Franchise and
license -- 15 20 3 38
expenses
Closures and
impairment 2 (1 ) 5 -- 6
(income)
expenses
Refranchising -- -- -- 24 24
(gain) loss
Other (income) (19 ) (1 ) -- (110 ) (130 )
expense
1,028 1,175 2,117 9 4,329
Operating $ 195 $ 256 $ 301 $ (9 ) $ 743
Profit (loss)
The above table reconciles segment information, which is based on
management responsibility, with our Consolidated Summary of Results.
Corporate and unallocated expenses comprise reductions in franchise and
license fees and income, general and administrative expenses,
refranchising (gains) and losses and other (income) expense that are not
allocated to segments for performance reporting purposes.
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 June 13,
2009 are preliminary.
China Division Other (income) expense includes equity income from our
investments in unconsolidated affiliates. In the quarter ended June 13,
2009, Unallocated Other (income) expense includes the gain upon our
(c) acquisition of additional ownership in, and consolidation of, the operating
entity that owns the KFCs in Shanghai, China (See note d). In the year to
date ended June 14, 2008, Unallocated Other (income) expense includes the
pre-tax gain on the sale of our unconsolidated affiliate in Japan (see Note
f).
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%. This entity has historically been 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. As required by Statement of Financial Accounting
Standards ("SFAS") No. 141(R), "Business Combinations" ("SFAS" 141(R)), we
remeasured our previously held 51% ownership in the entity at fair value
and recognized a gain of $68 million accordingly. This 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
(d) Item for certain performance measures (see accompanying reconciliation to
reported results). For the quarter ended June 13, 2009 the consolidation of
this entity increased Company sales by $23 million and decreased Franchise
and license fees and income by $1 million. The impacts of consolidation on
all other line items within our Consolidated Summary of Results were not
significant. While, we have not yet completed the determination of all
indentifiable assets and liabilities assumed, our Condensed Consolidated
Balance Sheet at June 13, 2009 reflects consolidation of this entity using
preliminary amounts, including $133 million in goodwill (which we
anticipate will be retroactively reduced upon completion of the
aforementioned determinations) and $70 million in Noncontrolling interest
(which was also required to be remeasured to fair value at the acquisition
date per SFAS 141(R)).
As part of our plan to transform our U.S. business we took several measures
in 2008 and are taking similar measures in 2009 that we do not believe are
indicative of our ongoing operations. These measures ("the U.S. business
transformation measures") include: expansion of our U.S. refranchising,
potentially reducing our Company ownership in the U.S. to below 10%;
charges relating to 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
(e) 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 Special Items for certain performance measures (see
accompanying reconciliation to reported results). Investments in our U.S.
Brands recorded in 2009 reflect our reimbursements or obligations to
reimburse 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.
During December 2007, we sold our interest in our unconsolidated affiliate
in Japan for $128 million in cash (includes the impact of related foreign
currency contracts that were settled in 2007). Our international subsidiary
that owned this interest operates on a fiscal calendar with a period end
that is approximately one month earlier than our consolidated period close.
Thus, consistent with our historical treatment of events occurring during
(f) the lag period, the pre-tax gain on the sale of this investment was
recorded in the quarter ended March 22, 2008 as other income and was not
allocated to any segment for reporting purposes. However, the cash proceeds
from this transaction were transferred from our international subsidiary to
the U.S. in December 2007 and were thus reported on our Consolidated
Statement of Cash Flows for the year ended December 29, 2007. Additionally,
this transaction was reflected as a Special Item for certain performance
measures (see accompanying reconciliation to reported results).
In connection with our U.S. business transformation measures our reported
segment results began reflecting increased allocations of certain expenses
in 2009 that were previously reported as corporate and unallocated
expenses. While our consolidated results were not impacted, we believe the
revised allocation better aligns costs with accountability of our segment
managers. These revised allocations are being used by our Chairman and
Chief Executive Officer, in his role as chief operating decision maker, in
(g) his assessment of operating performance. We have restated segment
information for the quarter and year to date ended June 14, 2008 to be
consistent with the current period presentation. We expect that on a full
year basis approximately $50 million and $5 million of Unallocated and
corporate G&A will be reclassified to the U.S. and YRI segments,
respectively, as we present 2009 results. The following table summarizes
the impact of the revised allocations by segment for the quarter and year
to date ended June 14, 2008:
Increase/(Decrease) Quarter Year to date
U.S. G&A $ 13 $ 24
YRI G&A 2 3
Unallocated and corporate G&A expenses (15 ) (27 )
Effective the beginning of fiscal 2009 we adopted SFAS No. 160,
"Noncontrolling Interests in Consolidated Financial Statements" ("SFAS
160"). SFAS 160 required that net income attributable to the minority
interest in the entity that operates the KFCs in Beijing, China be reported
separately on the face of our Consolidated Summary of Results. In 2008 we
reported Operating Profit attributable to the minority interest as an Other
expense and the related tax benefit as a reduction to our Income tax
(h) provision. Additionally, SFAS 160 required that the portion of equity in
the entity not attributable to the Company be reported within equity,
separately from the Company's equity, in the Condensed Consolidated Balance
Sheet. In 2008 we reported this amount within Other liabilities and
deferred credits. As required, the presentation requirements of SFAS 160
were applied retroactively to the quarter and year to date ended June 14,
2008. Net income attributable to this minority interest was $2 million and
$3 million in the quarter and year to date ended June 13, 2009,
respectively.
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Source: Yum! Brands Inc.
Contact: Yum! Brands Inc.
Analysts:
Tim Jerzyk, Senior Vice President, Investor Relations/Treasurer
888-298-6986
or
Bruce Bishop, Director Investor Relations
888-298-6986
or
Media:
Amy Sherwood, Vice President Public Relations
502-874-8200