LOUISVILLE, Ky.--(BUSINESS WIRE)--
Yum! Brands Inc. (NYSE: YUM) today reported results for the first
quarter ended March 20, 2010 including EPS growth of 23% excluding
special items.
FIRST-QUARTER HIGHLIGHTS
-- Worldwide operating profit grew 13% prior to foreign currency
translation, including +37% in China and +2% in Yum! Restaurants
International (YRI), partially offset by a 9% decline in the U.S. After
a foreign currency benefit of $14 million, worldwide operating profit
grew 17%.
-- Worldwide system sales growth prior to foreign currency translation of
+1% including +15% in China, +1% in YRI, and a 1% decline in the U.S.
-- Strong international new unit development continued with 205 new
restaurants opened, including 96 new units in China.
-- Worldwide restaurant margin improvement of 0.9 percentage points driven
by record performance in China.
-- EPS growth benefited from a 20% decline in interest expense and a lower
effective tax rate.
-- Share repurchases totaled $137 million for 4 million shares at an
average price of $34.12 per share.
-- Special items included $56 million of expense related to refranchising
in the U.S. as net gains from transactions in the first quarter were
offset by non-cash write-downs of restaurants offered for sale as we
continue to execute our U.S. ownership restructuring plan.
First Quarter
2010 2009 % Change
EPS Excluding Special Items $0.59 $0.48 23 %
Special Items Gain/(Loss)1 ($0.09 ) ($0.02 ) NM
EPS $0.50 $0.46 9 %
1 See Reconciliation of Non-GAAP Measurements to GAAP Results
for further detail of the Special Items.
Note: All comparisons are versus the same period a year ago and
exclude Special Items unless noted.
David C. Novak, Chairman and CEO said, "I'm pleased to report that Yum!
Brands is off to a strong start in 2010. Our worldwide operating profit
grew by 17% and EPS increased 23%, before special items. We are
particularly pleased with our business in China, which reported robust
profit growth of 37%. This was driven by new unit growth of 14% and
same-store-sales growth of 4%. We now have over 3,500 restaurants in
China, strengthening our leading position in the world's largest growth
market. We expect to further that lead by opening about 500 new
restaurants in China this year.
"In the U.S., we are also pleased we have seen significant sales
improvement since the fourth quarter, particularly at Pizza Hut. While
we are encouraged by this improvement, we are not yet performing to
expectations as profits were down 9% and same-store sales declined 1%.
"At YRI, we increased system sales by 1% and profits by 2% primarily due
to new unit development. In the first quarter, we opened over 100 new
restaurants, predominantly by our franchisees, and expect to open about
900 units this year.
"Although the global operating environment remains challenging, we are
confident we are well on our way to another year of achieving our target
of at least 10% EPS growth. Longer term, our shareholders should expect
us to continue to build stronger brand positions around the world,
leverage our unique ability to deliver international new unit
development, maintain our industry-leading return on invested capital,
and return cash through dividends and share repurchases."
CHINA DIVISION
First Quarter
% Change
2010 2009 Reported Ex F/X
System Sales Growth +15 +15
Same-Stores-Sales Growth (%) +4 +2 NM NM
Restaurant Margin (%) 26.6 24.1 2.5 2.5
Operating Profit ($MM) 176 128 +37 +37
-- China Divisionsystem sales growth of 15% was driven by new unit
development of 14% and same-store-sales growth of 4%.
o We opened 96 new restaurants in the first quarter.
China Units Q1 2010 % Change
Traditional Restaurants 3,544 +14
KFC 2,950 +15
Pizza Hut Casual Dining 467 +9
Pizza Hut Home Service 102 +29
-- Restaurant margin increased by 2.5 percentage points driven primarily by
commodity cost deflation of $15 million.
-- We continue to expect moderate year-over-year margin improvement for the
full year as we expect commodity and labor inflation in the second half
of 2010.
-- Operating profit growth of 37% lapped growth of 30% in the first quarter
of 2009.
-- China Division now includes solely the results of our operations in
mainland China.
YUM! RESTAURANTS INTERNATIONAL (YRI)
DIVISION
First Quarter
% Change
2010 2009 Reported Ex F/X
Traditional Restaurants 13,842 13,408 +3 NA
System Sales Growth +10 +1
Franchise & License Fees 169 150 +12 +2
Operating Profit ($MM) 141 126 +13 +2
Operating Margin (%) 20.0 19.8 0.2 0.3
-- System sales growth of 1%, excluding foreign currency translation, was
driven by new unit development. The table below provides further insight
into key YRI markets.
-- We opened 109 new units in more than 40 countries with our franchise
partners opening 89% of these new units.
-- Same-store sales declined 2% including a negative 1 percentage point
impact from the timing of Chinese New Year and lapped strong 6% growth
in the first quarter of 2009.
-- Operating profit grew 2% prior to foreign currency translation,
primarily a result of new unit expansion offset by the impact of a
same-store-sales decline.
-- Foreign currency translation positively impacted operating profit by $14
million and operating profit growth by 11 percentage points.
System-Sales
Key YRI Markets1 Growth Ex F/X (%)
First Quarter
Franchise Only Markets
Asia (ex China Division) (1)
Continental Europe2 (8)
Middle East +3
Latin America +6
Company/Franchise Markets
Australia (2)
UK +2
New Growth Markets +14
1 The "Key YRI Markets" listed above generate approximately
85% of YRI's operating profit excluding corporate G&A expense. "New
Growth Markets" include France, Russia, and India.
2 Continental Europe system sales growth was negatively
impacted by a 99 unit franchisee in Spain exiting the Pizza Hut system
in the third quarter of 2009 (equivalent to 9 percentage points based on
units).
U.S. DIVISION
First Quarter
2010 2009 % Change
Same-Store-Sales Growth (%) (1) (2) NM
Restaurant Margin (%) 12.3 13.2 (0.9)
Operating Profit ($MM) 143 157 (9)
Operating Margin (%) 15.3 15.0 0.3
-- Same-store sales declined 1% including an increase of 5% at Pizza Hut
and declines of 2% at Taco Bell and 4% at KFC.
-- Operating profit declined 9% and restaurant margin declined 0.9
percentage points due to weaker same-store sales. Commodity deflation
was $5 million in the first quarter.
U.S. BUSINESS TRANSFORMATION UPDATE
Special items included $56 million of expense from refranchising in the
U.S. as we continue to execute our U.S. ownership restructuring plan.
This includes refranchising gains from 46 restaurants including 27 Pizza
Huts and 19 Taco Bells sold in the first quarter and a non-cash charge
related to the offer to sell (refranchise) a substantial portion of the
KFC U.S. company units. Our current company ownership stands at 16%.
DIVISION REPORTING REALIGNMENT
Beginning in the first quarter of 2010, Thailand and KFC Taiwan,
previously part of China Division, are being reported as part of YRI.
The China Division now includes solely the results of our mainland China
business. While our consolidated results are not impacted, our
historical segment financial information for YRI and China Division has
been restated for 2009 for consistent presentation.
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the company's
financial performance and strategies at 9:15 a.m. ET Thursday, April 15,
2010. The number is 877/815-2029 for U.S. callers and 706/645-9271 for
international callers.
The call will be available for playback beginning at noon Eastern Time
Thursday, April 15, through midnight Thursday, April 29, 2010. To
access the playback, dial 800/642-1687 in the United States and
706/645-9291 internationally. The playback pass code is 66737706.
The webcast and the playback can be accessed via the internet by
visiting Yum! Brands' Web site, www.yum.com/investors
and selecting "Q1 2010 Earnings Conference Call" under "Investors: News
and Presentations." A podcast will be available within 24 hours.
ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant-count details, and
definitions of terms including Key Markets are available online at www.yum.com
under "Investors".
This announcement, any related announcements and the related webcast may
contain "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. We intend all forward-looking statements to be covered by
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements can be identified by the fact
that they do not relate strictly to historical or current facts. Our
forward-looking statements are subject to risks and uncertainties, which
may cause actual results to differ materially from those projected.
Factors that can cause our actual results to differ materially include,
but are not limited to: 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 37,000
restaurants in over 110 countries and territories. The company is ranked
#239 on the Fortune 500 List, with revenues of nearly $11 billion in
2009. Four of the company's restaurant brands - KFC, Pizza Hut, Taco
Bell and Long John Silver's - are the global leaders of the chicken,
pizza, Mexican-style food and quick-service seafood categories,
respectively. Outside the United States in 2009, the Yum! Brands system
opened more than four new restaurants each day of the year, making it a
leader in international retail development.
YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter % Change
3/20/10 3/21/09 B/(W)
Company sales $ 1,996 $ 1,918 4
Franchise and license fees and 349 299 17
income
Total revenues 2,345 2,217 6
Company restaurants
Food and paper 625 611 (2 )
Payroll and employee benefits 461 457 (1 )
Occupancy and other operating 570 542 (5 )
expenses
Company restaurant expenses 1,656 1,610 (3 )
General and administrative expenses 245 255 4
Franchise and license expenses 23 20 (13 )
Closures and impairment (income) 4 4 (5 )
expenses
Refranchising (gain) loss 63 (14 ) NM
Other (income) expense (10 ) (9 ) 19
Total costs and expenses, net 1,981 1,866 (6 )
Operating Profit 364 351 4
Interest expense, net 41 53 20
Income before income taxes 323 298 8
Income tax provision 78 79 2
Net Income - including 245 219 11
noncontrolling interest
Net Income - noncontrolling 4 1 NM
interest
Net Income - YUM! Brands, Inc. $ 241 $ 218 10
Effective tax rate 24.1 % 26.5 % 2.4 ppts
Effective tax rate before special 25.7 % 27.1 % 1.4 ppts
items
Basic EPS Data
EPS $ 0.51 $ 0.47 8
Average shares outstanding 474 466 (2 )
Diluted EPS Data
EPS $ 0.50 $ 0.46 9
Average shares outstanding 485 479 (1 )
Dividends declared per common share $ 0.21 $ --
See accompanying notes.
YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change
3/20/10 3/21/09 B/(W)
Company sales $ 698 $ 557 25
Franchise and license fees and 10 12 (18 )
income
Total revenues 708 569 24
Company restaurant expenses, net
Food and paper 229 201 (15 )
Payroll and employee benefits 90 68 (32 )
Occupancy and other operating 193 154 (25 )
expenses
512 423 (21 )
General and administrative 30 27 (12 )
expenses
Franchise and license expenses -- -- --
Closures and impairment (income) -- 1 NM
expenses
Other (income) expense (10 ) (10 ) 8
532 441 (21 )
Operating Profit $ 176 $ 128 37
Company sales 100.0 % 100.0 %
Food and paper 32.9 36.0 3.1 ppts
Payroll and employee benefits 12.9 12.3 (0.6) ppts
Occupancy and other operating 27.6 27.6 -- ppts
expenses
Restaurant margin 26.6 % 24.1 % 2.5 ppts
See accompanying notes.
As discussed in (d) in the accompanying notes, we began consolidating the
operating entity that owns the KFC business in Shanghai, China, with 236 units,
during the second quarter of 2009. This entity was previously accounted for as
an unconsolidated affiliate.
As discussed in (g) in the accompanying notes, beginning in 2010 the China
Division only consists of operations in mainland China and the International
Division includes the remainder of our international operations. We have
restated the segment information for 2009 to be consistent with 2010.
YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change
3/20/10 3/21/09 B/(W)
Company sales $ 535 $ 479 12
Franchise and license fees and 169 150 12
income
Total revenues 704 629 12
Company restaurant expenses, net
Food and paper 174 157 (10 )
Payroll and employee benefits 134 119 (13 )
Occupancy and other operating 166 146 (14 )
expenses
474 422 (12 )
General and administrative 78 72 (7 )
expenses
Franchise and license expenses 9 8 (5 )
Closures and impairment (income) 2 1 (30 )
expenses
Other (income) expense -- -- --
563 503 (11 )
Operating Profit $ 141 $ 126 13
Company sales 100.0 % 100.0 %
Food and paper 32.6 32.8 0.2 ppts
Payroll and employee benefits 25.0 24.7 (0.3) ppts
Occupancy and other operating 31.1 30.6 (0.5) ppts
expenses
Restaurant margin 11.3 % 11.9 % (0.6) ppts
Operating margin 20.0 % 19.8 % 0.2 ppts
See accompanying notes.
As discussed in (g) in the accompanying notes, beginning in 2010 the China
Division only consists of operations in mainland China and the International
Division includes the remainder of our international operations. We have
restated the segment information for 2009 to be consistent with 2010.
YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Change
3/20/10 3/21/09 B/(W)
Company sales $ 763 $ 882 (14 )
Franchise and license fees and 170 164 4
income
Total revenues 933 1,046 (11 )
Company restaurant expenses, net
Food and paper 222 253 12
Payroll and employee benefits 237 270 12
Occupancy and other operating 211 242 13
expenses
670 765 13
General and administrative 104 110 5
expenses
Franchise and license expenses 14 12 (17 )
Closures and impairment (income) 2 2 (27 )
expenses
Other (income) expense -- -- --
790 889 11
Operating Profit $ 143 $ 157 (9 )
Company sales 100.0 % 100.0 %
Food and paper 29.1 28.7 (0.4) ppts
Payroll and employee benefits 31.1 30.7 (0.4) ppts
Occupancy and other operating 27.5 27.4 (0.1) ppts
expenses
Restaurant margin 12.3 % 13.2 % (0.9) ppts
Operating margin 15.3 % 15.0 % 0.3 ppts
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
3/20/10 12/26/09
ASSETS
Current Assets
Cash and cash equivalents $ 444 $ 353
Accounts and notes receivable, less allowance: $33 in 303 239
2010 and $35 in 2009
Inventories 113 122
Prepaid expenses and other current assets 303 314
Deferred income taxes 145 81
Advertising cooperative assets, restricted 96 99
Total Current Assets 1,404 1,208
Property, plant and equipment, net of accumulated
depreciation and amortization of $3,361 in 2010 and 3,766 3,899
$3,348 in 2009
Goodwill 623 640
Intangible assets, net 453 462
Investments in unconsolidated affiliates 124 144
Other assets 539 544
Deferred income taxes 232 251
Total Assets $ 7,141 $ 7,148
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $ 1,363 $ 1,413
Income taxes payable 81 82
Short-term borrowings 56 59
Advertising cooperative liabilities 96 99
Total Current Liabilities 1,596 1,653
Long-term debt 3,219 3,207
Other liabilities and deferred credits 1,209 1,174
Total Liabilities 6,024 6,034
Shareholders' Equity
Common stock, no par value, 750 shares authorized; 467
shares and 469 shares issued in 2010 and 2009, 154 253
respectively
Retained earnings 1,138 996
Accumulated other comprehensive income (loss) (249 ) (224 )
Total Shareholders' Equity - YUM! Brands, Inc. 1,043 1,025
Noncontrolling interest 74 89
Total Shareholders' Equity 1,117 1,114
Total Liabilities and Shareholders' Equity $ 7,141 $ 7,148
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Quarter
3/20/10 3/21/09
Cash Flows - Operating Activities
Net Income - including noncontrolling interest $ 245 $ 219
Depreciation and amortization 119 117
Closures and impairment (income) expenses 4 4
Refranchising (gain) loss 63 (14 )
Contributions to defined benefit pension plans (10 ) (6 )
Deferred income taxes (74 ) (5 )
Equity income from investments in unconsolidated affiliates (12 ) (10 )
Excess tax benefit from share-based compensation (9 ) (8 )
Share-based compensation expense 13 13
Changes in accounts and notes receivable (7 ) 18
Changes in inventories 5 19
Changes in prepaid expenses and other current assets 1 (1 )
Changes in accounts payable and other current liabilities (8 ) (75 )
Changes in income taxes payable 26 (1 )
Other non-cash charges and credits, net 36 27
Net Cash Provided by Operating Activities 392 297
Cash Flows - Investing Activities
Capital spending (163 ) (143 )
Proceeds from refranchising of restaurants 42 36
Acquisition of restaurants from franchisees -- (20 )
Sales of property, plant and equipment 9 1
Other, net (4 ) (2 )
Net Cash Used in Investing Activities (116 ) (128 )
Cash Flows - Financing Activities
Repayments of long-term debt (3 ) (2 )
Revolving credit facilities, three months or less, net 23 (43 )
Short-term borrowings by original maturity
More than three months - proceeds -- --
More than three months - payments -- --
Three months or less, net (3 ) 4
Repurchase shares of Common Stock (132 ) --
Excess tax benefit from share-based compensation 9 8
Employee stock option proceeds 17 21
Dividends paid on Common Stock (99 ) (87 )
Other, net (2 ) --
Net Cash Used in Financing Activities (190 ) (99 )
Effect of Exchange Rates on Cash and Cash Equivalents 5 3
Net Increase in Cash and Cash Equivalents 91 73
Cash and Cash Equivalents - Beginning of Period $ 353 $ 216
Cash and Cash Equivalents - End of Period $ 444 $ 289
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 2010 and 2009
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, and the 2010 loss recognized upon refranchising of an equity
market outside the U.S. These amounts are described in (e) and (f) in the
accompanying notes.
The Company uses earnings before Special Items as a key performance measure of
results of operations for the purpose of evaluating performance internally.
This non-GAAP measurement is not intended to replace the presentation of our
financial results in accordance with GAAP. Rather, the Company believes that
the presentation of earnings before Special Items provides additional
information to investors to facilitate the comparison of past and present
operations, excluding items in 2010 and 2009 that the Company does not believe
are indicative of our ongoing operations due to their size and/or nature.
Quarter
3/20/10 3/21/09
Detail of Special Items
Loss upon refranchising of an equity market $ (7 ) $ --
outside the U.S.
U.S. Refranchising gain (loss) (56 ) 14
Charges relating to U.S. G&A productivity (3 ) (4 )
initiatives and realignment of resources
Investments in our U.S. Brands -- (27 )
Total Special Items Income (Expense) (66 ) (17 )
Tax Benefit (Expense) on Special Items 22 6
Special Items Income (Expense), net of tax $ (44 ) $ (11 )
Average diluted shares outstanding 485 479
Special Items diluted EPS $ (0.09 ) $ (0.02 )
Reconciliation of Operating Profit Before Special
Items to Reported Operating Profit
Operating Profit before Special Items $ 430 $ 368
Special Items Income (Expense) (66 ) (17 )
Reported Operating Profit $ 364 $ 351
Reconciliation of EPS Before Special Items to
Reported EPS
Diluted EPS before Special Items $ 0.59 $ 0.48
Special Items EPS (0.09 ) (0.02 )
Reported EPS $ 0.50 $ 0.46
Reconciliation of Effective Tax Rate Before
Special Items to Reported Effective Tax Rate
Effective Tax Rate before Special Items 25.7 % 27.1 %
Impact on Tax Rate as a result of Special Items (1.6 )% (0.6 )%
Reported Effective Tax Rate 24.1 % 26.5 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
China United Corporate and
Quarter Ended 3/20/10 YRI Consolidated
Division States Unallocated
Total revenues $ 708 $ 704 $ 933 $ -- $ 2,345
Company restaurant 512 474 670 -- 1,656
expenses
General and 30 78 104 33 245
administrative expenses
Franchise and license -- 9 14 -- 23
expenses
Closures and impairment -- 2 2 -- 4
(income) expenses
Refranchising (gain) loss -- -- -- 63 63
Other (income) expense (10 ) -- -- -- (10 )
532 563 790 96 1,981
Operating Profit (loss) $ 176 $ 141 $ 143 $ (96 ) $ 364
China United Corporate and
Quarter Ended 3/21/09 YRI Consolidated
Division States Unallocated
Total revenues $ 569 $ 629 $ 1,046 $ (27 ) $ 2,217
Company restaurant 423 422 765 -- 1,610
expenses
General and 27 72 110 46 255
administrative expenses
Franchise and license -- 8 12 -- 20
expenses
Closures and impairment 1 1 2 -- 4
(income) expenses
Refranchising (gain) loss -- -- -- (14 ) (14 )
Other (income) expense (10 ) -- -- 1 (9 )
441 503 889 33 1,866
Operating Profit (loss) $ 128 $ 126 $ 157 $ (60 ) $ 351
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 ended March 20, 2010 are
preliminary.
(c) China Division Other (income) expense includes equity income from our
investments in unconsolidated affiliates.
On May 4, 2009 we acquired an additional 7% ownership in the entity
that operates the KFCs in Shanghai, China for $12 million, increasing
our ownership to 58%. Prior to our acquisition of this additional
interest, this entity was accounted for as an unconsolidated
affiliate. As part of the acquisition we received additional rights in
(d) the governance of the entity such that we began consolidating the
entity upon acquisition. For the quarter ended March 20, 2010 the
consolidation of the existing restaurants upon acquisition increased
Company sales by $52 million and decreased Franchise and license fees
and income by $3 million. The consolidation of the existing
restaurants upon acquisition increased Operating Profit by $2 million
for the quarter ended March 20, 2010.
As part of our plan to transform our U.S. business we took several
measures ("the U.S. business transformation measures") in 2010 and
2009 including: expansion of our U.S. refranchising, potentially
reducing our Company ownership in the U.S. to below 10%; a reduced
emphasis on multi-branding as a long-term growth strategy; G&A
productivity initiatives and realignment of resources (primarily
severance and early retirement costs); and investments in our U.S.
Brands made on behalf of our franchisees such as equipment purchases.
We have traditionally not allocated refranchising (gains) losses for
segment reporting purposes and will not allocate the costs associated
with the productivity initiatives, realignment of resources and
(e) 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). U.S. refranchising loss recorded in the quarter ended March
20, 2010 is the net result of gains from 46 restaurants sold in the
first quarter and non-cash impairment charges related to our offers to
refranchise restaurants in the U.S., principally a substantial portion
of our Company operated KFCs. 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 March 20, 2010, we refranchised all of our
remaining company restaurants in Taiwan, which consisted of 124 KFCs.
We included in our financial statements a non-cash write off of $7
million of goodwill in determining the loss upon refranchising. This
charge, which resulted in no related 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. The $7 million write
off of goodwill was based on the Company's interpretation of U.S.
Generally Accepted Accounting Principles ("GAAP") which, we believe,
(f) is consistent with the interpretation of others in our industry. The
Company is in discussions with the Office of Chief Accountant of the
Securities and Exchange Commission regarding an alternative
interpretation of GAAP that, if required to be applied, would result
in an additional $30 million non-cash write off of goodwill related to
the refranchising of our Taiwan business. In addition, this
alternative interpretation would require us to also write off
additional goodwill in connection with other historical refranchising
transactions, principally in the U.S. Based on our current
understanding, if we are required to apply this alternative
interpretation, we estimate that additional non-cash write offs of
approximately $40 million of goodwill related to these historical
refranchising transactions would be necessary.
In 2010 we began reporting information for our Thailand and KFC Taiwan
businesses within our International Division as a result of changes to
our management reporting structure. These businesses now report to the
President of our YRI Division whereas previously they reported to the
(g) President of our China Division. Beginning in 2010, the China Division
only consists of operations in mainland China and the International
Division includes the remainder of our international operations. While
this reporting change did not impact our Consolidated results, segment
information for previous periods has been restated to be consistent
with the current period presentation.
The following table summarizes the 2009 quarterly increases to
selected line items within the YRI segment as a result of these
segment reporting changes (with equal and offsetting decreases
impacting the China Division segment):
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Company sales $ 47 $ 64 $ 68 $ 91 $ 270
Company restaurant expenses 42 57 62 83 244
Operating Profit 3 -- 1 2 6
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Source: Yum! Brands Inc.
Contact: Yum! Brands Inc.
Analysts:
Tim Jerzyk, Senior Vice President Investor Relations, 888-298-6986
or
Bruce Bishop, Director Investor Relations, 888-298-6986
or
Media:
Amy Sherwood, Vice President Public Relations, 502-874-8200