LOUISVILLE, Ky.--(BUSINESS WIRE)--
Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth
quarter and year ended December 26, 2009.
FULL-YEAR HIGHLIGHTS
Worldwide system sales grew 1% prior to foreign currency translation.
Worldwide revenue declined 4% due to the negative impact from foreign currency
translation and refranchising. Excluding these items, revenue increased 5%.
International development continued at a strong pace with 1,467 new restaurants
including a record 509 new units in mainland China and 898 new units in Yum!
Restaurants International (YRI).
Worldwide operating profit grew 9% prior to foreign currency translation,
including growth of 23% in China, 5% in YRI and 1% in the U.S. After negative
foreign currency translation, worldwide operating profit grew 6%.
Worldwide restaurant margin improved by 1.7 percentage points driven by China
and the U.S.
EPS growth was negatively impacted by approximately $0.07 per share due to
foreign currency translation that was fully offset by lower interest expense
and a lower tax rate.
An industry leader with return on invested capital (ROIC) of 20%.
FOURTH-QUARTER HIGHLIGHTS
System sales growth of +8% in mainland China and +2% in YRI was offset by a 7%
decline in the U.S. resulting in a 2% decline worldwide prior to foreign
currency translation, and a 1% decline after a benefit from foreign currency
translation.
Worldwide restaurant margin improved by 0.8 percentage points.
Worldwide operating profit was flat prior to foreign currency translation with
growth of 24% in China and 9% in YRI, offset by a 23% decline in the United
States. After a benefit from foreign currency translation, worldwide operating
profit grew 2%.
Fourth Quarter Full Year
2009 2008 % Change 2009 2008 % Change
EPS Excluding Special $ 0.50 $ 0.46 7% $ 2.17 $ 1.91 13%
Items
Special Items Gain/ ($ 0.05) ($ 0.03 ) NM $ 0.05 $ 0.05 NM
(Loss)1
EPS $ 0.45 $ 0.43 5% $ 2.22 $ 1.96 13%
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, "Given the tough macro
environment, I am especially pleased to announce 2009 was another strong
year of performance as we continue our quest to make Yum! Brands "The
Defining Global Company That Feeds the World." We reported 13% EPS
growth, marking the 8th straight year that we exceeded our annual target
of at least 10% growth and achieved at least 13%. Our growth in 2009 was
driven primarily by a record 509 new units in mainland China and 898 new
units in Yum! Restaurants International. At the same time, we invested
heavily in our future growth drivers including infrastructure in
emerging markets and developing incremental sales layers that will make
our unit economics even stronger over time.
"We are in the enviable position of having powerful brands and unmatched
unit economics in China as evidenced by KFC's $1.4 million average unit
volumes and restaurant margins of over 20%. There is no question we are
in the early innings of profitable expansion in this massive and rapidly
growing economy. We are also making progress creating major new growth
vehicles by investing in India, Russia and France and beginning to
develop Taco Bell into a truly global brand. At the same time, we are
aggressively developing incremental sales layers including breakfast,
new beverages and expanded protein options. Our goal is to provide more
meaningful menu variety to our customers and leverage our assets
throughout the day. We are putting these same building blocks in place
to drive long-term growth at Taco Bell in the U.S. where we are also
making steady progress transforming and restructuring our Pizza Hut and
KFC businesses.
"In 2010, we once again expect to achieve our annual target of at least
10% EPS growth. Our profitable international new unit development will
be a key driver of our growth as we execute against our obvious
short-term challenge of driving same-store-sales growth. I am confident
that our teams around the world will continue to build on our track
record of consistent double-digit EPS growth."
CHINA DIVISION
Fourth Quarter Full Year
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
System Sales Growth +7 +7 +10 +9
Restaurant Margin 17.6 15.9 1.7 1.7 20.2 18.4 1.8 1.7
(%)
Operating Profit 149 120 +24 +24 602 480 +25 +23
($MM)
China Division system sales growth of 9% for the full year and 7% for the
fourth quarter, prior to foreign currency translation, was driven by strong
new unit development in mainland China.
We opened a record of 509 new restaurants in mainland China for the full year
including 205 in the fourth quarter.
Mainland China same-store sales declined 1% for the full year and 3% in the
fourth quarter.
Mainland China Units Q4 2009 % Change
Traditional Restaurants 3,453 +15
KFC 2,872 +15
Pizza Hut Casual Dining 457 +10
Pizza Hut Home Service 101 +28
Restaurant margin increased 1.8 points for the full year and 1.7 points for the
fourth quarter, driven primarily by commodity cost deflation of $61 million for
the full year and $39 million for the fourth quarter.
Foreign currency conversion benefited full year operating profit by $10 million
with minimal impact in the fourth quarter.
Full year operating profit growth of 25% lapped strong growth of 28% in 2008.
YUM! RESTAURANTS INTERNATIONAL (YRI)
DIVISION
Fourth Quarter Full Year
% Change % Change
2009 2008 Reported Ex F/X 2009 2008 Reported Ex F/X
Traditional 13,206 12,746 +4 NA 13,206 12,746 +4 NA
Restaurants
System Sales +5 +2 (3) +5
Growth
Franchise & 218 202 +8 +5 660 669 (1) +7
License Fees
Operating 149 129 +15 +9 491 522 (6) +5
Profit ($MM)
Operating 16.8 15.0 +1.8 +1.1 18.1 17.1 +1.0 +0.2
Margin (%)
YRI generated system sales growth of 5% for the full year and 2% for the fourth
quarter, prior to foreign currency translation, driven primarily by new unit
development. The table below provides further insight into key YRI markets.
Same-store sales grew 1% for the full year and declined 2% for the fourth
quarter.
For 2009, YRI opened 898 new restaurants in more than 75 countries with 92%
opened by our franchise partners. Continental Europe experienced a net unit
decline due to a 99 unit franchisee in Spain exiting the Pizza Hut system.
Full year operating profit growth of 5% prior to foreign currency translation
was driven by strong growth in the U.K. and key franchise markets partially
offset by weakness in Mexico and Pizza Hut South Korea. Pizza Hut South Korea's
results included a fourth quarter, non-cash, goodwill impairment charge of $12
million, equivalent to 2 percentage points of full year profit growth for YRI.
Foreign currency translation negatively impacted operating profit by $56
million for the full year. This included a benefit of $7 million in the fourth
quarter.
System-Sales Growth Ex F/X (%) Net Unit
Key YRI Markets
Fourth Quarter Full Year Growth (%)
Franchise Only Markets
Asia (ex China Division) +4 +6 +5
Continental Europe -10 -1 -6
Middle East +6 +7 +9
Latin America +4 +6 +5
Company/Franchise Markets
Australia +2 +5 +2
UK +8 +9 +1
New Growth Markets +15 +17 +12
Note: The markets listed above generate approximately 85% of YRI's
operating profit excluding corporate G&A expense. New Growth Markets
include France, Russia, and India.
U.S. DIVISION
Fourth Quarter Full Year
2009 2008 % Change 2009 2008 % Change
Same-Store-Sales Growth (%) (8) +2 NM (5) +2 NM
Restaurant Margin (%) 13.5 14.0 (0.5) 13.9 12.5 +1.4
Operating Profit ($MM) 150 194 (23) 647 641 +1
Operating Margin (%) 11.8 13.0 (1.2) 14.5 12.5 +2.0
Same-store sales declined 5% for the full year and 8% in the fourth quarter
including a decline of 5% at Taco Bell, 8% at KFC and 12% at Pizza Hut.
Restaurant margin improved by 1.4 points for the full year due largely to
commodity cost deflation of $28 million, refranchising and productivity
initiatives.
Fourth quarter operating profit declined by 23% due to weaker same-store sales,
an increase in franchise related expenses and higher expenses related to
restaurant closures.
Full year operating profit growth of 1% was driven by a $65 million reduction
in our U.S. G&A cost structure offset by a same-store-sales decline.
Importantly, Taco Bell generated solid profit growth in 2009 offset by weak
performance in the balance of our U.S. business.
U.S. BUSINESS TRANSFORMATION UPDATE
In the fourth quarter, 255 company-owned U.S. restaurants were sold to
franchisees. For the full year, we refranchised 541 units, exceeding our goal
of 500, including 427 Pizza Huts, 60 KFCs and 54 Taco Bells. U.S. company
ownership is now 16%, a 3 percentage point reduction from 2008, with Pizza Hut
11%, KFC 17% and Taco Bell 25%. Refranchising proceeds in 2009 were $163
million. Net gains of $11 million for the fourth quarter and $34 million for
the full year were reported in Special Items.
In the fourth quarter, we made a decision to limit multibranding as a U.S.
growth strategy going forward, particularly as it relates to the use of Long
John Silver's and A&W as multibranding partners. As a result, we recorded a $26
million non-cash charge for impairment of goodwill related to these brands as a
Special Item.
DIVISION REPORTING REALIGNMENT
Beginning in the first quarter of 2010, two of our China Division
businesses, Thailand and KFC Taiwan, will begin being reported as part
of YRI. The China Division will then include solely the results of our
mainland China business. While our consolidated results will not be
impacted, we will restate our historical segment information during 2010
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, February
4, 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, February 4, through midnight Thursday, February 18, 2010.
To access the playback, dial 800/642-1687 in the United States
and 706/645-9291 internationally. The playback pass code is 52224616.
The webcast and the playback can be accessed via the internet by
visiting Yum! Brands' Web site, www.yum.com/investors
and selecting "Q4 2009 Earnings Conference Call" under "Investors: News
and Presentations". A podcast will be available within 24 hours.
ADDITIONAL INFORMATION ONLINE
Fourth 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, 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 % Year %
Change Change
12/26/09 12/27/08 B/(W) 12/26/09 12/27/08 B/(W)
Company sales $ 2,911 $ 2,944 (1 ) $ 9,413 $ 9,843 (4 )
Franchise and
license fees 454 446 1 1,423 1,461 (3 )
and income
Total revenues 3,365 3,390 (1 ) 10,836 11,304 (4 )
Company
restaurants
Food and paper 922 974 5 3,003 3,239 7
Payroll and
employee 669 688 3 2,154 2,370 9
benefits
Occupancy and
other 898 881 (2 ) 2,777 2,856 3
operating
expenses
Company
restaurant 2,489 2,543 2 7,934 8,465 6
expenses
General and
administrative 409 444 8 1,221 1,342 9
expenses
Franchise and
license 44 36 (21 ) 118 99 (19 )
expenses
Closures and
impairment 72 34 NM 103 43 NM
(income)
expenses
Refranchising (17 ) (21 ) NM (26 ) (5 ) NM
(gain) loss
Other (income) (7 ) (9 ) (16 ) (104 ) (157 ) (34 )
expense
Total costs
and expenses, 2,990 3,027 1 9,246 9,787 6
net
Operating 375 363 3 1,590 1,517 5
Profit
Interest 56 74 25 194 226 14
expense, net
Income before 319 289 11 1,396 1,291 8
income taxes
Income tax 101 83 (22 ) 313 319 2
provision
Net income -
including 218 206 6 1,083 972 11
noncontrolling
interest
Net income -
noncontrolling 2 2 NM 12 8 NM
interest
Net income -
YUM! Brands, $ 216 $ 204 6 $ 1,071 $ 964 11
Inc.
Effective tax 31.5 % 28.6 % 22.4 % 24.7 %
rate
Effective tax
rate before 29.1 % 29.3 % 23.1 % 24.3 %
special items
Basic EPS Data
EPS $ 0.46 $ 0.44 4 $ 2.28 $ 2.03 12
Average shares 474 465 (2 ) 471 475 1
outstanding
Diluted EPS
Data
EPS $ 0.45 $ 0.43 5 $ 2.22 $ 1.96 13
Average shares 485 479 (1 ) 483 491 2
outstanding
Dividends
declared per $ 0.42 $ 0.38 $ 0.80 $ 0.72
common share
See accompanying notes.
YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Year %
Change Change
12/26/09 12/27/08 B/(W) 12/26/09 12/27/08 B/(W)
Company sales $ 1,192 $ 1,009 18 $ 3,622 $ 3,058 18
Franchise and
license fees 17 22 (27) 60 70 (15)
and income
Total revenues 1,209 1,031 17 3,682 3,128 18
Company
restaurant
expenses, net
Food and paper 413 383 (8) 1,277 1,152 (11)
Payroll and
employee 179 147 (23) 500 423 (18)
benefits
Occupancy and
other 390 319 (22) 1,114 919 (21)
operating
expenses
982 849 (16) 2,891 2,494 (16)
General and
administrative 77 65 (18) 209 186 (12)
expenses
Franchise and
license -- -- -- -- -- --
expenses
Closures and
impairment 5 5 NM 13 8 NM
(income)
expenses
Other (income) (4 ) (8 ) (42) (33 ) (40 ) (18)
expense
1,060 911 (16) 3,080 2,648 (16)
Operating $ 149 $ 120 24 $ 602 $ 480 25
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 34.7 38.0 3.3 35.3 37.7 2.4
ppts. ppts.
Payroll and (0.5) --
employee 15.0 14.5 ppts. 13.8 13.8 ppts.
benefits
Occupancy and
other 32.7 31.6 (1.1) 30.7 30.1 (0.6)
operating ppts. ppts.
expenses
Restaurant 17.6 % 15.9 % 1.7 20.2 % 18.4 % 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 %
Change Change
12/26/09 12/27/08 B/(W) 12/26/09 12/27/08 B/(W)
Company sales $ 665 $ 658 1 $ 2,053 $ 2,375 (14)
Franchise and
license fees 218 202 8 660 669 (1)
and income
Total revenues 883 860 3 2,713 3,044 (11)
Company
restaurant
expenses, net
Food and paper 211 213 1 656 752 13
Payroll and
employee 175 170 (2) 533 618 14
benefits
Occupancy and
other 210 212 1 635 742 14
operating
expenses
596 595 -- 1,824 2,112 14
General and
administrative 113 118 3 341 371 8
expenses
Franchise and
license 10 10 (3) 39 35 (12)
expenses
Closures and
impairment 15 8 NM 18 5 NM
(income)
expenses
Other (income) -- -- -- -- (1 ) NM
expense
734 731 -- 2,222 2,522 12
Operating $ 149 $ 129 15 $ 491 $ 522 (6)
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 31.8 32.1 0.3 32.0 31.6 (0.4)
ppts. ppts.
Payroll and (0.3) --
employee 26.2 25.9 ppts. 26.0 26.0 ppts.
benefits
Occupancy and
other 31.6 32.3 0.7 30.9 31.3 0.4
operating ppts. ppts.
expenses
Restaurant 10.4 % 9.7 % 0.7 11.1 % 11.1 % --
margin ppts. ppts.
Operating 16.8 % 15.0 % 1.8 18.1 % 17.1 % 1.0
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Year %
Change Change
12/26/09 12/27/08 B/(W) 12/26/09 12/27/08 B/(W)
Company sales $ 1,054 $ 1,277 (17) $ 3,738 $ 4,410 (15)
Franchise and
license fees 219 222 (2) 735 722 2
and income
Total revenues 1,273 1,499 (15) 4,473 5,132 (13)
Company
restaurant
expenses, net
Food and paper 298 378 21 1,070 1,335 20
Payroll and
employee 315 371 15 1,121 1,329 16
benefits
Occupancy and
other 298 350 14 1,028 1,195 14
operating
expenses
911 1,099 17 3,219 3,859 17
General and
administrative 152 163 8 482 547 12
expenses
Franchise and
license 34 21 (60) 79 54 (45)
expenses
Closures and
impairment 26 21 NM 46 30 NM
(income)
expenses
Other (income) -- 1 NM -- 1 NM
expense
1,123 1,305 14 3,826 4,491 15
Operating $ 150 $ 194 (23) $ 647 $ 641 1
Profit
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 28.2 29.6 1.4 28.6 30.3 1.7
ppts. ppts.
Payroll and (0.9) 0.1
employee 29.9 29.0 ppts. 30.0 30.1 ppts.
benefits
Occupancy and
other 28.4 27.4 (1.0) 27.5 27.1 (0.4)
operating ppts. ppts.
expenses
Restaurant 13.5 % 14.0 % (0.5) 13.9 % 12.5 % 1.4
margin ppts. ppts.
Operating 11.8 % 13.0 % (1.2) 14.5 % 12.5 % 2.0
margin ppts. ppts.
See accompanying notes.
YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)
(unaudited)
12/26/09 12/27/08
ASSETS
Current Assets
Cash and cash equivalents $ 353 $ 216
Accounts and notes receivable, less allowance: $35 239 229
in 2009 and $23 in 2008
Inventories 122 143
Prepaid expenses and other current assets 314 172
Deferred income taxes 81 81
Advertising cooperative assets, restricted 99 110
Total Current Assets 1,208 951
Property, plant and equipment, net of accumulated
depreciation and amortization of $3,348 in 2009 and 3,899 3,710
$3,187 in 2008
Goodwill 640 605
Intangible assets, net 462 335
Investments in unconsolidated affiliates 144 65
Other assets 544 561
Deferred income taxes 251 300
Total Assets $ 7,148 $ 6,527
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and other current liabilities $ 1,413 $ 1,473
Income taxes payable 82 114
Short-term borrowings 59 25
Advertising cooperative liabilities 99 110
Total Current Liabilities 1,653 1,722
Long-term debt 3,207 3,564
Other liabilities and deferred credits 1,174 1,335
Total Liabilities 6,034 6,621
Shareholders' Equity (Deficit)
Common stock, no par value, 750 shares authorized;
469 shares and 459 shares issued in 2009 and 2008, 253 7
respectively
Retained earnings 996 303
Accumulated other comprehensive income (loss) (224 ) (418 )
Total Shareholders' Equity (Deficit) - YUM! Brands, 1,025 (108 )
Inc.
Noncontrolling interest 89 14
Total Shareholders' Equity (Deficit) 1,114 (94 )
Total Liabilities and Shareholders' Equity (Deficit) $ 7,148 $ 6,527
See accompanying notes.
YUM! Brands, Inc.
Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year
12/26/09 12/27/08
Cash Flows - Operating Activities
Net income - including noncontrolling interest $ 1,083 $ 972
Depreciation and amortization 580 556
Closures and impairment (income) expenses 103 43
Refranchising (gain) loss (26 ) (5 )
Contributions to defined benefit pension plans (280 ) (66 )
Gain upon consolidation of a former unconsolidated (68 ) --
affiliate in China
Gain on sale of interest in Japan unconsolidated -- (100 )
affiliate
Deferred income taxes 72 1
Equity income from investments in unconsolidated (36 ) (41 )
affiliates
Distributions of income received from unconsolidated 31 41
affiliates
Excess tax benefit from share-based compensation (59 ) (44 )
Share-based compensation expense 56 59
Changes in accounts and notes receivable 3 (6 )
Changes in inventories 27 (8 )
Changes in prepaid expenses and other current assets (7 ) 4
Changes in accounts payable and other current (62 ) 18
liabilities
Changes in income taxes payable (95 ) 39
Other non-cash charges and credits, net 82 58
Net Cash Provided by Operating Activities 1,404 1,521
Cash Flows - Investing Activities
Capital spending (797 ) (935 )
Proceeds from refranchising of restaurants 194 266
Acquisition of restaurants from franchisees (24 ) (35 )
Acquisitions and investments (115 ) --
Sales of property, plant and equipment 34 72
Other, net (19 ) (9 )
Net Cash Used in Investing Activities (727 ) (641 )
Cash Flows - Financing Activities
Proceeds from long-term debt 499 375
Repayments of long-term debt (528 ) (268 )
Revolving credit facilities, three months or less, (295 ) 279
net
Short-term borrowings by original maturity
More than three months - proceeds -- --
More than three months - payments -- --
Three months or less, net (8 ) (11 )
Repurchase shares of Common Stock -- (1,628 )
Excess tax benefit from share-based compensation 59 44
Employee stock option proceeds 113 72
Dividends paid on Common Stock (362 ) (322 )
Other, net (20 ) --
Net Cash Used in Financing Activities (542 ) (1,459 )
Effect of Exchange Rate on Cash and Cash Equivalents (15 ) (11 )
Net Increase (Decrease) in Cash and Cash Equivalents 120 (590 )
Change in Cash and Cash Equivalents due to 17 17
consolidation of entities in China
Cash and Cash Equivalents - Beginning of Year $ 216 $ 789
Cash and Cash Equivalents - End of Year $ 353 $ 216
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, a 2009 U.S. Goodwill impairment charge, 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
12/26/09 12/27/08 12/26/09 12/27/08
Detail of Special Items
Gain upon the sale of our
interest in our Japan $ -- $ -- $ -- $ (100 )
unconsolidated affiliate
Gain upon consolidation of a
former unconsolidated -- -- (68 ) --
affiliate in China
Loss as a result of our offer
to refranchise an equity -- -- 10 --
market outside the U.S.
U.S. Refranchising (gain) (11 ) (17 ) (34 ) 5
loss
Charges relating to U.S. G&A
productivity initiatives and 7 41 16 49
realignment of resources
Long John Silver's/A&W 26 -- 26 --
Goodwill impairment charge
Investments in our U.S. -- 2 32 7
Brands
Total Special Items (Income) 22 26 (18 ) (39 )
Expense
Tax (Benefit) Expense on 1 (10 ) (5 ) 14
Special Items
Special Items (Income) $ 23 $ 16 $ (23 ) $ (25 )
Expense, net of tax
Average diluted shares 485 479 483 491
outstanding
Special Items diluted EPS $ (0.05 ) $ (0.03 ) $ 0.05 $ 0.05
Reconciliation of Operating
Profit Before Special Items
to Reported Operating Profit
Operating Profit before $ 397 $ 389 $ 1,572 $ 1,478
Special Items
Special Items Income (22 ) (26 ) 18 39
(Expense)
Reported Operating Profit $ 375 $ 363 $ 1,590 $ 1,517
Reconciliation of EPS Before
Special Items to Reported EPS
Diluted EPS before Special $ 0.50 $ 0.46 $ 2.17 $ 1.91
Items
Special Items EPS (0.05 ) (0.03 ) 0.05 0.05
Reported EPS $ 0.45 $ 0.43 $ 2.22 $ 1.96
Reconciliation of Effective
Tax Rate Before Special Items
to Reported Effective Tax
Rate
Effective Tax Rate before 29.1 % 29.3 % 23.1 % 24.3 %
Special Items
Impact on Tax Rate as a 2.4 % (0.7 )% (0.7 )% 0.4 %
result of Special Items
Reported Effective Tax Rate 31.5 % 28.6 % 22.4 % 24.7 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended China United Corporate and
12/26/09 YRI Consolidated
Division States Unallocated
Total revenues $ 1,209 $ 883 $ 1,273 $ -- $ 3,365
Company restaurant 982 596 911 -- 2,489
expenses
General and
administrative 77 113 152 67 409
expenses
Franchise and -- 10 34 -- 44
license expenses
Closures and
impairment (income) 5 15 26 26 72
expenses
Refranchising -- -- -- (17 ) (17 )
(gain) loss
Other (income) (4 ) -- -- (3 ) (7 )
expense
1,060 734 1,123 73 2,990
Operating Profit $ 149 $ 149 $ 150 $ (73 ) $ 375
(loss)
Quarter Ended China United Corporate and
12/27/08 YRI Consolidated
Division States Unallocated
Total revenues $ 1,031 $ 860 $ 1,499 $ -- $ 3,390
Company restaurant 849 595 1,099 -- 2,543
expenses
General and
administrative 65 118 163 98 444
expenses
Franchise and -- 10 21 5 36
license expenses
Closures and
impairment (income) 5 8 21 -- 34
expenses
Refranchising -- -- -- (21 ) (21 )
(gain) loss
Other (income) (8 ) -- 1 (2 ) (9 )
expense
911 731 1,305 80 3,027
Operating Profit $ 120 $ 129 $ 194 $ (80 ) $ 363
(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 Ended China United Corporate and
12/26/09 YRI Consolidated
Division States Unallocated
Total revenues $ 3,682 $ 2,713 $ 4,473 $ (32 ) $ 10,836
Company
restaurant 2,891 1,824 3,219 -- 7,934
expenses
General and
administrative 209 341 482 189 1,221
expenses
Franchise and -- 39 79 -- 118
license expenses
Closures and
impairment 13 18 46 26 103
(income) expenses
Refranchising -- -- -- (26 ) (26 )
(gain) loss
Other (income) (33 ) -- -- (71 ) (104 )
expense
3,080 2,222 3,826 118 9,246
Operating Profit $ 602 $ 491 $ 647 $ (150 ) $ 1,590
(loss)
Year Ended China United Corporate and
12/27/08 YRI Consolidated
Division States Unallocated
Total revenues $ 3,128 $ 3,044 $ 5,132 $ -- $ 11,304
Company
restaurant 2,494 2,112 3,859 -- 8,465
expenses
General and
administrative 186 371 547 238 1,342
expenses
Franchise and
license -- 35 54 10 99
expenses
Closures and
impairment 8 5 30 -- 43
(income)
expenses
Refranchising -- -- -- (5 ) (5 )
(gain) loss
Other (income) (40 ) (1 ) 1 (117 ) (157 )
expense
2,648 2,522 4,491 126 9,787
Operating $ 480 $ 522 $ 641 $ (126 ) $ 1,517
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, Consolidated Balance Sheets
and 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 ended December 26,
2009 are preliminary.
China Division Other (income) expense includes equity income from our
investments in unconsolidated affiliates. In the year ended December 26,
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
ended December 27, 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. 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 Item for certain performance measures (see
(d) accompanying reconciliation to reported results). For the quarter and year
ended December 26, 2009 the consolidation of this entity increased Company
sales by $87 million and $192 million, respectively, and decreased
Franchise and license fees and income by $6 million and $12 million,
respectively. The consolidation of this entity decreased Operating Profit
by $1 million for the quarter ended December 26, 2009 and increased
Operating Profit by $4 million for the year ended December 26, 2009. Our
Consolidated Balance Sheet at December 26, 2009 reflects consolidation of
this entity, including $53 million in goodwill and $74 million in
Noncontrolling interest (which was also required to be remeasured to fair
value at the acquisition date).
As part of our plan to transform our U.S. business we took several measures
("the U.S. business transformation measures") in 2008 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. As a result of a decline in future profit expectations
for our Long John Silver's (LJS) and A&W businesses due in part to the
impact of a reduced emphasis on multi-branding, we recorded a non-cash
(e) charge of $26 million, which resulted in no related income tax benefit, in
the fourth quarter of 2009 to write-off goodwill associated with these
businesses. 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,
LJS/A&W goodwill impairment 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.
(g) Thus, consistent with our historical treatment of events occurring during
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. 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
(h) allocations are being used by our Chairman and Chief Executive
Officer, in his role as chief operating decision maker, in his
assessment of operating performance. We have restated segment
information for the quarter and year ended December 27, 2008 to be
consistent with the current period presentation. The following
table summarizes the impact of the revised allocations by segment
for the quarter and year ended December 27, 2008:
Increase/(Decrease) Quarter Year
U.S. G&A $ 17 $ 53
YRI G&A 2 6
Unallocated and corporate G&A expenses (19 ) (59 )
Effective the beginning of fiscal 2009 we began reporting separately on the
face of our Consolidated Summary of Results net income attributable to the
minority interest in the entity that operates the KFCs in Beijing, China.
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 provision. Additionally, the portion of equity in the entity not
(i) attributable to the Company is reported within equity, separately from the
Company's equity, in the Consolidated Balance Sheet. In 2008 we reported
this amount within Other liabilities and deferred credits. As required, the
presentation was applied retroactively to the quarter and year ended
December 27, 2008. Net income attributable to this noncontrolling interest
was $2 million and $9 million in the quarter and year ended December 26,
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