LOUISVILLE, Ky.--(BUSINESS WIRE)--
Yum! Brands Inc. (NYSE: YUM) today reported Earnings Per Share (EPS) of
$0.69, or $0.70 excluding special items, for the third quarter ended
September 5, 2009.
THIRD-QUARTER HIGHLIGHTS
-- International development continued at a strong pace with 267 new
restaurants including 88 new units in mainland China and 165 new units
in Yum! Restaurants International (YRI).
-- System sales growth of +11% in mainland China and +4% in YRI was offset
by a 5% decline in the U.S. resulting in flat worldwide system sales in
local currency terms; worldwide system sales declined 4% after foreign
currency translation.
-- Worldwide restaurant margin improved over 3 percentage points driven by
significant gains in both the U.S. and China.
-- Worldwide operating profit growth of 15% was driven by China, +32%, and
the U.S., +18%. YRI profit declined 13% due to negative foreign currency
translation. Worldwide operating profit growth was 19% prior to foreign
currency translation.
-- Foreign currency translation negatively impacted EPS by $0.02 per share.
Note: All comparisons are versus the same period a year ago and
exclude Special Items unless noted.
Third Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
EPS Excluding Special Items $0.70 $0.58 21% $1.67 $1.45 16%
Special Items Gain/(Loss)1 ($0.01 ) $0.00 NM $0.10 $0.08 NM
EPS $0.69 $0.58 19% $1.77 $1.53 16%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results
for further detail of the 2009 and 2008 Special Items.
FULL-YEAR OUTLOOK
The Company raised its full-year 2009 EPS forecast from $2.10 to $2.14
per share or 12% growth prior to special items, driven by
stronger-than-expected full year performance in China and a
lower-than-expected full year effective tax rate.
David C. Novak, Chairman and CEO, said, "I'm pleased to report we are
raising our full year 2009 EPS growth forecast to 12% based on our
strong year-to-date profit performance. Our global portfolio delivered
an impressive 15% operating profit growth this quarter, driven by 32%
growth in China and 18% growth in our U.S. business. China and Yum!
Restaurants International are on track to open over 1,400 international
new units this year. We are confident our industry leading international
new unit development will continue to be a key factor in our ability to
drive future sales and profit growth.
"Our China business generated extraordinary operating profit growth of
32% in the third quarter. We leveraged our high-return, new unit
development and increased restaurant margin over two points. We are
especially pleased that our China team achieved margins near record
levels with high average unit volumes. We are on track to open over 475
new units in mainland China. Importantly, KFC is the only Western QSR
brand in the vast majority of the 600 cities in which we have a
presence. Our U.S. business achieved strong operating profit growth of
18%. This can be attributed to substantial improvement to restaurant
margin and significant G&A savings which offset a 6% same-store-sales
decline. There's no question the overall worldwide environment continues
to be challenging. However, we are more confident than ever in the
consistent earnings power of our global portfolio. We also continue to
make major progress developing our significant, new sales layers which
will better leverage our assets and drive future growth.
"Looking to 2010, we expect to deliver 10% EPS growth. This would be the
ninth consecutive year we meet or exceed our annual target of at least
10% EPS growth. Our fundamental opportunities remain intact. We continue
to have the unique ability to generate unparalleled international
growth, increase sales in our existing assets and drive significant free
cash flow while continuing to be an industry leader in return on
invested capital."
CHINA DIVISION
Third Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
System Sales Growth +11 +10 +11 +9
Restaurant Margin 23.2 20.9 2.3 2.3 21.5 19.7 1.8 1.7
(%)
Operating Profit 217 165 +32 +31 453 360 +26 +23
($MM)
-- China Division system sales growth of 10% excluding foreign currency
translation was driven by strong new unit development in mainland China
while same-store-sales were flat.
o We opened 88 new restaurants in mainland China for the third quarter
for a total of 304 year to date.
Mainland China Units Q3 2009 % Change
Traditional Restaurants 3,281 +16
KFC 2,729 +16
Pizza Hut Casual Dining 442 +11
Pizza Hut Home Service 87 +24
-- Restaurant margin increased 2.3 percentage points driven primarily by
significant commodity deflation of $21 million in the third quarter. A
similar benefit is expected in the fourth quarter.
-- Foreign currency conversion benefited operating profit by $1 million.
-- Operating profit growth of 32% overlapped growth of 22% in the third
quarter of 2008.
YUM! RESTAURANTS INTERNATIONAL (YRI)
DIVISION
Third Quarter Year-to-Date
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
Traditional 12,895 12,489 +3 NA 12,895 12,489 +3 NA
Restaurants
System Sales (7 ) +4 (7 ) +7
Growth
Franchise & 156 165 (5 ) +5 442 467 (5 ) +8
License Fees
Operating 119 137 (13 ) Flat 342 393 (13 ) +3
Profit ($MM)
Operating 18.0 18.1 (0.1 ) (0.6 ) 18.7 18.0 +0.7 (0.2 )
Margin (%)
-- System sales growth of 4%, excluding foreign currency translation, was
driven by new unit development and same-store sales were flat. The table
below provides further insight into key YRI markets.
-- YRI opened 165 new restaurants with 93% coming from our franchise
partners.
-- Operating profit growth was negatively impacted by poor performance in
two company markets, Mexico and South Korea, and timing related to
overhead expenses.
-- Foreign currency translation negatively impacted operating profit by $17
million.
System Sales Growth
Key YRI Markets Ex F/X (%)
Third Quarter Year-to-Date
Franchise Only Markets
Asia (ex China Division) +4 +7
Continental Europe Flat +3
Middle East +6 +8
Latin America +4 +6
Company/Franchise Markets
Australia +3 +6
UK +9 +10
New Growth Markets +20 +18
Note: The markets listed above generate approximately 80% of YRI operating
profit. New
Growth Markets include France, Russia and India.
U.S. DIVISION
Third Quarter Year-to-Date
2009 2008 % Change 2009 2008 % Change
Same-Store-Sales Growth (%) (6 ) +3 NM (3 ) +3 NM
Restaurant Margin (%) 14.1 10.8 +3.3 14.0 11.9 +2.1
Operating Profit ($MM) 171 146 +18 497 447 +11
Operating Margin (%) 16.2 12.0 +4.2 15.5 12.3 +3.2
-- Same-store-sales declined 6% which included a 13% decline at Pizza Hut.
-- Restaurant margin improved by 3.3 points due largely to commodity cost
deflation of $16 million this quarter. Year-to-date commodity cost
deflation has totaled $11 million. The full year benefit from commodity
cost deflation is expected to be about $20 million.
-- Third quarter operating profit growth of 18% and operating margin
improvement of 4.2 points were driven by a $16 million decline in our
U.S. G&A cost structure from actions initiated in the fourth quarter of
2008. For the full year, we continue to expect G&A cost savings of at
least $60 million.
U.S. REFRANCHISING UPDATE
In the third quarter, 98 company-owned U.S. restaurants were sold to
franchisees. Year to date, we have refranchised a total of 286 units,
including 210 Pizza Huts, 50 KFCs and 26 Taco Bells. We continue to
expect to refranchise 500 units in 2009. Full year proceeds from U.S.
refranchising are expected to be about $175 million.
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
7, 2009.
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 7, through midnight October 21, 2009.
To access the playback, dial 800/642-1687 in the United States and
706/645-9291 internationally. The playback pass code is 29944595.
The webcast and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site, www.yum.com/investors
and selecting "Q3 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
Third quarter end dates for each division, restaurant-count details, and
definitions of terms including Key Markets 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. In 2007, the
company launched World Hunger Relief, the world's largest private sector
hunger relief effort to raise awareness, volunteerism and funds to
benefit the United Nations World Food Programme (WFP) and other hunger
relief agencies. To date, this effort has raised $36 million for the WFP
and other hunger relief agencies and is helping to provide 160 million
meals and save the lives of about 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
9/5/09 9/6/08 B/(W) 9/5/09 9/6/08 B/(W)
Company sales $ 2,432 $ 2,482 (2 ) $ 6,502 $ 6,899 (6 )
Franchise and
license fees 346 360 (3 ) 969 1,015 (4 )
and income
Total revenues 2,778 2,842 (2 ) 7,471 7,914 (6 )
Company
restaurants
Food and paper 777 830 7 2,081 2,265 8
Payroll and
employee 523 575 9 1,485 1,682 12
benefits
Occupancy and
other 707 719 2 1,879 1,975 5
operating
expenses
Company
restaurant 2,007 2,124 6 5,445 5,922 8
expenses
General and
administrative 276 305 9 812 898 9
expenses
Franchise and
license 29 25 (14 ) 74 63 (18 )
expenses
Closures and
impairment 5 3 NM 31 9 NM
(income)
expenses
Refranchising 4 (8 ) NM (9 ) 16 NM
(gain) loss
Other (income) (13 ) (18 ) (32 ) (97 ) (148 ) (35 )
expense
Total costs
and expenses, 2,308 2,431 5 6,256 6,760 7
net
Operating 470 411 14 1,215 1,154 5
Profit
Interest 42 47 13 138 152 9
expense, net
Income before 428 364 18 1,077 1,002 7
income taxes
Income tax 88 79 (12 ) 212 236 10
provision
Net income -
including 340 285 19 865 766 13
noncontrolling
interest
Net income -
noncontrolling 6 3 NM 10 6 NM
interest
Net income -
YUM! Brands, $ 334 $ 282 18 $ 855 $ 760 12
Inc.
Effective tax 20.6 % 21.7 % 19.7 % 23.5 %
rate
Effective tax
rate before 19.9 % 21.6 % 21.1 % 22.6 %
special items
Basic EPS Data
EPS $ 0.71 $ 0.60 18 $ 1.82 $ 1.59 15
Average shares 472 470 -- 469 479 2
outstanding
Diluted EPS
Data
EPS $ 0.69 $ 0.58 19 $ 1.77 $ 1.53 16
Average shares 485 487 -- 482 496 3
outstanding
Dividends
declared per $ -- $ -- $ 0.38 $ 0.34
common share
See accompanying notes.
YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Year to Date %
Change Change
9/5/09 9/6/08 B/(W) 9/5/09 9/6/08 B/(W)
Company sales $ 1,048 $ 854 23 $ 2,430 $ 2,049 19
Franchise and
license fees 15 20 (25) 43 48 (10)
and income
Total revenues 1,063 874 22 2,473 2,097 18
Company
restaurant
expenses, net
Food and paper 367 320 (15) 864 769 (12)
Payroll and
employee 129 107 (19) 321 276 (16)
benefits
Occupancy and
other 309 249 (25) 724 600 (21)
operating
expenses
805 676 (19) 1,909 1,645 (16)
General and
administrative 51 45 (10) 132 121 (9)
expenses
Franchise and
license -- -- -- -- -- --
expenses
Closures and
impairment 2 1 NM 8 3 NM
(income)
expenses
Other (income) (12 ) (13 ) (16) (29 ) (32 ) (12)
expense
846 709 (19) 2,020 1,737 (16)
Operating $ 217 $ 165 32 $ 453 $ 360 26
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 35.0 37.4 2.4 35.5 37.5 2.0
ppts. ppts.
Payroll and 0.3 0.3
employee 12.3 12.6 ppts. 13.2 13.5 ppts.
benefits
Occupancy and
other 29.5 29.1 (0.4) 29.8 29.3 (0.5)
operating ppts. ppts.
expenses
Restaurant 23.2 % 20.9 % 2.3 21.5 % 19.7 % 1.8
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
9/5/09 9/6/08 B/(W) 9/5/09 9/6/08 B/(W)
Company sales $ 505 $ 588 (14) $ 1,388 $ 1,717 (19)
Franchise and
license fees 156 165 (5) 442 467 (5)
and income
Total revenues 661 753 (12) 1,830 2,184 (16)
Company
restaurant
expenses, net
Food and paper 162 186 14 445 539 18
Payroll and
employee 131 154 14 358 448 20
benefits
Occupancy and
other 154 181 15 425 530 20
operating
expenses
447 521 14 1,228 1,517 19
General and
administrative 83 87 5 228 253 10
expenses
Franchise and
license 13 10 (28) 29 25 (15)
expenses
Closures and
impairment (1 ) (2 ) NM 3 (3 ) NM
(income)
expenses
Other (income) -- -- -- -- (1 ) (100)
expense
542 616 12 1,488 1,791 17
Operating $ 119 $ 137 (13) $ 342 $ 393 (13)
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 31.9 31.8 (0.1) 32.0 31.5 (0.5)
ppts. ppts.
Payroll and (0.1) 0.2
employee 26.2 26.1 ppts. 25.9 26.1 ppts.
benefits
Occupancy and
other 30.6 30.7 0.1 30.6 30.8 0.2
operating ppts. ppts.
expenses
Restaurant 11.3 % 11.4 % (0.1) 11.5 % 11.6 % (0.1)
margin ppts. ppts.
Operating 18.0 % 18.1 % (0.1) 18.7 % 18.0 % 0.7
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Year to Date %
Change Change
9/5/09 9/6/08 B/(W) 9/5/09 9/6/08 B/(W)
Company sales $ 879 $ 1,040 (15) $ 2,684 $ 3,133 (14)
Franchise and
license fees 176 175 1 516 500 3
and income
Total revenues 1,055 1,215 (13) 3,200 3,633 (12)
Company
restaurant
expenses, net
Food and paper 248 324 23 772 957 19
Payroll and
employee 263 314 16 806 958 16
benefits
Occupancy and
other 244 289 16 730 845 14
operating
expenses
755 927 19 2,308 2,760 16
General and
administrative 109 125 12 330 384 14
expenses
Franchise and
license 16 13 (16) 45 33 (36)
expenses
Closures and
impairment 4 4 NM 20 9 NM
(income)
expenses
Other (income) -- -- -- -- -- --
expense
884 1,069 17 2,703 3,186 15
Operating $ 171 $ 146 18 $ 497 $ 447 11
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 28.3 31.1 2.8 28.8 30.5 1.7
ppts. ppts.
Payroll and 0.3 0.6
employee 29.9 30.2 ppts. 30.0 30.6 ppts.
benefits
Occupancy and
other 27.7 27.9 0.2 27.2 27.0 (0.2)
operating ppts. ppts.
expenses
Restaurant 14.1 % 10.8 % 3.3 14.0 % 11.9 % 2.1
margin ppts. ppts.
Operating 16.2 % 12.0 % 4.2 15.5 % 12.3 % 3.2
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
9/5/09 12/27/08
ASSETS
Current Assets
Cash and cash equivalents $ 424 $ 216
Accounts and notes receivable, less allowance: $30 in 241 229
2009 and $23 in 2008
Inventories 116 143
Prepaid expenses and other current assets 287 172
Deferred income taxes 54 81
Advertising cooperative assets, restricted 84 110
Total Current Assets 1,206 951
Property, plant and equipment, net of accumulated
depreciation and amortization of $3,369 in 2009 and 3,844 3,710
$3,187 in 2008
Goodwill 686 605
Intangible assets, net 447 335
Investments in unconsolidated affiliates 98 65
Other assets 549 561
Deferred income taxes 291 300
Total Assets $ 7,121 $ 6,527
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and other current liabilities $ 1,388 $ 1,473
Income taxes payable 27 114
Short-term borrowings 35 25
Advertising cooperative liabilities 84 110
Total Current Liabilities 1,534 1,722
Long-term debt 3,258 3,564
Other liabilities and deferred credits 1,340 1,335
Total Liabilities 6,132 6,621
Shareholders' Equity (Deficit)
Common stock, no par value, 750 shares authorized; 468
shares and 459 shares issued in 2009 and 2008, 202 7
respectively
Retained earnings 979 303
Accumulated other comprehensive income (loss) (279 ) (418 )
Total Shareholders' Equity (Deficit) - YUM! Brands, 902 (108 )
Inc.
Noncontrolling interest 87 14
Total Shareholders' Equity (Deficit) 989 (94 )
Total Liabilities and Shareholders' Equity (Deficit) $ 7,121 $ 6,527
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to Date
9/5/09 9/6/08
Cash Flows - Operating Activities
Net income - including noncontrolling interest $ 865 $ 766
Depreciation and amortization 385 389
Closures and impairment (income) expenses 31 9
Refranchising (gain) loss (9 ) 16
Contributions to defined benefit pension plans (96 ) (7 )
Gain upon consolidation of a former unconsolidated (68 ) --
affiliate in China
Gain on sale of interest in Japan unconsolidated -- (100 )
affiliate
Deferred income taxes 59 (13 )
Equity income from investments in unconsolidated (29 ) (33 )
affiliates
Distributions of income received from unconsolidated 29 40
affiliates
Excess tax benefit from share-based compensation (48 ) (32 )
Share-based compensation expense 39 44
Changes in accounts and notes receivable 1 (18 )
Changes in inventories 34 (16 )
Changes in prepaid expenses and other current assets (26 ) (27 )
Changes in accounts payable and other current 2 23
liabilities
Changes in income taxes payable (87 ) 24
Other non-cash charges and credits, net 53 82
Net Cash Provided by Operating Activities 1,135 1,147
Cash Flows - Investing Activities
Capital spending (505 ) (583 )
Proceeds from refranchising of restaurants 91 142
Acquisition of restaurants from franchisees (24 ) (9 )
Acquisitions and investments (75 ) --
Sales of property, plant and equipment 16 58
Other, net (8 ) (8 )
Net Cash Used in Investing Activities (505 ) (400 )
Cash Flows - Financing Activities
Proceeds from long-term debt 499 375
Repayments of long-term debt (522 ) (260 )
Revolving credit facilities, three months or less, net (289 ) 305
Short-term borrowings by original maturity
More than three months - proceeds -- --
More than three months - payments -- --
Three months or less, net 5 (15 )
Repurchase shares of Common Stock -- (1,513 )
Excess tax benefit from share-based compensation 48 32
Employee stock option proceeds 91 51
Dividends paid on Common Stock (263 ) (234 )
Other, net (8 ) --
Net Cash Used in Financing Activities (439 ) (1,259 )
Effect of Exchange Rate on Cash and Cash Equivalents -- --
Net Increase (Decrease) in Cash and Cash Equivalents 191 (512 )
Change in Cash and Cash Equivalents due to 17 17
consolidation of entities in China
Cash and Cash Equivalents - Beginning of Period $ 216 $ 789
Cash and Cash Equivalents - End of Period $ 424 $ 294
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 loss recognized as a result of our decision to offer
to refranchise an equity market outside the U.S., 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), (f) and (g) 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
9/5/09 9/6/08 9/5/09 9/6/08
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 ) --
in China
Loss as a result of our offer to
refranchise an equity market 10 -- 10 --
outside the U.S.
U.S. Refranchising (gain) loss (8 ) (3 ) (23 ) 22
Charges relating to U.S. G&A
productivity initiatives and -- 1 9 8
realignment of resources
Investments in our U.S. Brands 1 2 32 5
Total Special Items (Income) 3 -- (40 ) (65 )
Expense
Tax (Benefit) Expense on Special 3 -- (6 ) 24
Items
Special Items (Income) Expense, $ 6 $ -- $ (46 ) $ (41 )
net of tax
Average diluted shares 485 487 482 496
outstanding
Special Items diluted EPS $ (0.01 ) $ -- $ 0.10 $ 0.08
Reconciliation of Operating
Profit Before Special Items to
Reported Operating Profit
Operating Profit before Special $ 473 $ 411 $ 1,175 $ 1,089
Items
Special Items Income (Expense) (3 ) -- 40 65
Reported Operating Profit $ 470 $ 411 $ 1,215 $ 1,154
Reconciliation of EPS Before
Special Items to Reported EPS
Diluted EPS before Special Items $ 0.70 $ 0.58 $ 1.67 $ 1.45
Special Items EPS (0.01 ) -- 0.10 0.08
Reported EPS $ 0.69 $ 0.58 $ 1.77 $ 1.53
Reconciliation of Effective Tax
Rate Before Special Items to
Reported Effective Tax Rate
Effective Tax Rate before 19.9 % 21.6 % 21.1 % 22.6 %
Special Items
Impact on Tax Rate as a result 0.7 % 0.1 % (1.4 )% 0.9 %
of Special Items
Reported Effective Tax Rate 20.6 % 21.7 % 19.7 % 23.5 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended China United Corporate and
9/5/09 YRI Consolidated
Division States Unallocated
Total revenues $ 1,063 $ 661 $ 1,055 $ (1 ) $ 2,778
Company
restaurant 805 447 755 -- 2,007
expenses
General and
administrative 51 83 109 33 276
expenses
Franchise and -- 13 16 -- 29
license expenses
Closures and
impairment 2 (1 ) 4 -- 5
(income) expenses
Refranchising -- -- -- 4 4
(gain) loss
Other (income) (12 ) -- -- (1 ) (13 )
expense
846 542 884 36 2,308
Operating Profit $ 217 $ 119 $ 171 $ (37 ) $ 470
(loss)
Quarter Ended China United Corporate and
9/6/08 YRI Consolidated
Division States Unallocated
Total revenues $ 874 $ 753 $ 1,215 $ -- $ 2,842
Company restaurant 676 521 927 -- 2,124
expenses
General and
administrative 45 87 125 48 305
expenses
Franchise and -- 10 13 2 25
license expenses
Closures and
impairment 1 (2 ) 4 -- 3
(income) expenses
Refranchising -- -- -- (8 ) (8 )
(gain) loss
Other (income) (13 ) -- -- (5 ) (18 )
expense
709 616 1,069 37 2,431
Operating Profit $ 165 $ 137 $ 146 $ (37 ) $ 411
(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 9/5/09 YRI Consolidated
Division States Unallocated
Total revenues $ 2,473 $ 1,830 $ 3,200 $ (32 ) $ 7,471
Company
restaurant 1,909 1,228 2,308 -- 5,445
expenses
General and
administrative 132 228 330 122 812
expenses
Franchise and -- 29 45 -- 74
license expenses
Closures and
impairment 8 3 20 -- 31
(income) expenses
Refranchising -- -- -- (9 ) (9 )
(gain) loss
Other (income) (29 ) -- -- (68 ) (97 )
expense
2,020 1,488 2,703 45 6,256
Operating Profit $ 453 $ 342 $ 497 $ (77 ) $ 1,215
(loss)
Year to Date China United Corporate and
Ended 9/6/08 YRI Consolidated
Division States Unallocated
Total revenues $ 2,097 $ 2,184 $ 3,633 $ -- $ 7,914
Company
restaurant 1,645 1,517 2,760 -- 5,922
expenses
General and
administrative 121 253 384 140 898
expenses
Franchise and
license -- 25 33 5 63
expenses
Closures and
impairment 3 (3 ) 9 -- 9
(income)
expenses
Refranchising -- -- -- 16 16
(gain) loss
Other (income) (32 ) (1 ) -- (115 ) (148 )
expense
1,737 1,791 3,186 46 6,760
Operating $ 360 $ 393 $ 447 $ (46 ) $ 1,154
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
September 5, 2009 are preliminary.
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
(c) upon our 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 September 6, 2008, Unallocated Other (income) expense
includes the pre-tax gain on the sale of our unconsolidated affiliate in
Japan (see Note g).
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 and year to date ended September 5, 2009
the consolidation of this entity increased Company sales by $82 million and
$105 million, respectively, and decreased Franchise and license fees and
income by $5 million and $6 million, respectively. The consolidation of
this entity positively impacted Operating Profit by $5 million for both the
quarter and year to date ended September 5, 2009. While we have not yet
finalized the determination of all identifiable assets and liabilities
assumed upon acquisition, our Condensed Consolidated Balance Sheet at
September 5, 2009 reflects consolidation of this entity, including $60
million in goodwill 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 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.
During the quarter ended September 5, 2009 we recognized a $10 million
refranchising loss as a result of our decision to offer to refranchise an
equity market outside the U.S. This loss, which resulted in no related
(f) income tax benefit, was recorded as refranchising loss which we have
traditionally not allocated for segment reporting purposes. The loss has
also been reflected as a Special Item for certain performance measures (see
accompanying reconciliation to reported results) given the amount and
strategic nature of refranchising an entire equity market.
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
(g) 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
(h) his assessment of operating performance. We have restated segment
information for the quarter and year to date ended September 6, 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 September 6, 2008:
Increase/(Decrease) Quarter Year to date
U.S. G&A $ 12 $ 36
YRI G&A 1 4
Unallocated and corporate G&A expenses (13 ) (40 )
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
(i) 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 September
6, 2008. Net income attributable to this noncontrolling interest was $4
million and $7 million in the quarter and year to date ended September 5,
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