LOUISVILLE, Ky.--(BUSINESS WIRE)--Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 3, 2011 including EPS of $0.83, excluding Special Items. After a Special Items loss of $0.03, reported EPS was $0.80. As a result of strong performance in China and other emerging markets, Yum! reconfirms full year EPS growth forecast of at least 12%, excluding special items.
THIRD-QUARTER HIGHLIGHTS
- Operating profit grew 7% in China and 3% at Yum! Restaurants International (“YRI”), prior to foreign currency translation. Operating profit declined 16% in the U.S.
- Foreign currency translation positively impacted operating profit by $32 million.
- Worldwide system sales grew 6%, prior to foreign currency translation, including 29% in China and 8% at YRI. System sales in the U.S. declined 3%.
- Strong international development continued with 331 new restaurants opened, including 138 new units in China. We are now expecting to open a record 600 new units in China this year. Additionally, we expect to open 900 new units in YRI.
- Same-store sales grew 19% in China and 3% at YRI, and declined 3% in the U.S.
- Worldwide restaurant margin declined 1.9 percentage points to 17.2%.
- During the quarter, the Company announced a 14% increase in its quarterly dividend.
Reconfirms Full Year EPS Growth Forecast of at least 12%, Excluding Special Items
Third Quarter |
Year-to-Date |
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2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||||||||||||
EPS Excluding Special Items | $0.83 | $ | 0.73 | 13% | $2.12 | $1.90 | 11% | |||||||||||||||
Special Items Gain/(Loss)1 | ($0.03 | ) | $ | 0.01 | NM | ($0.13 | ) | ($0.08 | ) | NM | ||||||||||||
EPS | $0.80 | $ | 0.74 | 8% | $1.99 | $1.82 | 9% | |||||||||||||||
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items in the third quarter are primarily related to Pizza Hut UK impairment and the planned sale of Long John Silver’s and A&W All-American Restaurants. |
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Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted. |
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David C. Novak, Chairman and CEO said, “I’m pleased to report EPS growth of 13% in the third quarter, excluding special items. As a result of strong performance in China and other emerging markets, we confidently reaffirm our full-year EPS growth forecast of at least 12%, which will make 2011 the 10th consecutive year we exceed our annual target of at least 10% EPS growth.
In China, operating profit grew 7% for the quarter as system sales jumped 29%, prior to foreign currency translation. Likewise, year-to-date operating profit increased 15% with system sales up 27%. This tremendous sales growth, combined with our expectation to open a record 600 new restaurants this year, gives us even more confidence our China business model is as strong as ever. At Yum! Restaurants International (YRI), operating profit increased 3% in the quarter and 7% year-to-date, prior to foreign currency translation. We are extremely excited about our progress in emerging markets like India, Africa and Russia, as these businesses will contribute meaningful profit growth to Yum! in the coming years. Importantly, we expect to open about 900 new restaurants this year at YRI. The robust new unit growth in China and YRI not only contributes to this year’s earnings, but positions Yum! for strong growth in 2012 as well.
Our impressive international growth was offset by a 16% decline in U.S. profits. We’re obviously disappointed in our U.S. performance. However, we have aggressively developed a pipeline of category leading innovation and have productivity initiatives planned to dramatically improve sales and profit performance in 2012. Looking ahead, the strength of our international brands and outstanding new unit development, combined with aggressive U.S. initiatives, make us confident we will continue our track record of double-digit earnings growth next year and beyond.”
CHINA DIVISION
Third Quarter |
Year-to-Date |
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% Change | % Change | |||||||||||||||||||||||
2011 | 2010 | Reported | Ex F/X | 2011 | 2010 | Reported | Ex F/X | |||||||||||||||||
System Sales Growth | +36 | +29 | +33 | +27 | ||||||||||||||||||||
Same-Store Sales Growth (%) | +19 | +6 | NM | NM | +17 | +5 | NM | NM | ||||||||||||||||
Restaurant Margin (%) | 21.3 | 25.2 | (3.9) | (3.9) | 21.7 | 24.0 | (2.3) | (2.3) | ||||||||||||||||
Operating Profit ($MM) | 301 | 267 | +13 | +7 | 698 | 582 | +20 | +15 | ||||||||||||||||
-
China Division system sales increased 29%, prior to foreign
currency translation, driven by same-store sales growth of 19% and new
unit development. The same-store sales growth was driven by a 27%
increase in same-store transactions.
- KFC same-store sales grew 19%.
- Pizza Hut Casual Dining same-store sales grew 19%, marking its seventh consecutive quarter of double-digit same-store sales growth.
- 138 new restaurants opened in the third quarter. We are now expecting to open a record 600 new units this year in China.
China Units |
Q3 2011 |
% |
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Traditional Restaurants | 4,187 | +14 | ||
KFC | 3,475 | +14 | ||
Pizza Hut Casual Dining | 564 | +18 | ||
Pizza Hut Home Service | 127 | +20 | ||
1 Annual Rate of Change |
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- Restaurant margin decreased 3.9 percentage points, driven by commodity and labor inflation. New menu pricing was taken after the quarter ended. We expect full year restaurant margins of 20%.
- Consistent with our previously communicated full year commodity inflation guidance of 9%, we are expecting peak commodity inflation in the fourth quarter.
- Operating profit growth of 7%, prior to foreign currency translation, included the impact of a $10 million benefit from our participation in the Shanghai World Expo last year. This reduced operating profit growth by 4 percentage points.
- Foreign currency translation positively impacted operating profit by $16 million.
YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
Third Quarter | Year-to-Date | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
2011 | 2010 | Reported | Ex F/X | 2011 | 2010 | Reported | Ex F/X | |||||||||||||||||
Traditional Restaurants | 14,478 | 14,001 | +3 | NA | 14,478 | 14,001 | +3 | NA | ||||||||||||||||
System Sales Growth | +18 | +8 | +13 | +7 | ||||||||||||||||||||
Franchise & License Fees ($MM) | 215 | 171 | +26 | +15 | 593 | 499 | +19 | +12 | ||||||||||||||||
Operating Profit ($MM) | 163 | 142 | +15 | +3 | 466 | 405 | +15 | +7 | ||||||||||||||||
Operating Margin (%) | 20.3 | 20.1 | 0.2 | 0.1 | 21.0 | 19.3 | 1.7 | 1.5 | ||||||||||||||||
-
YRI Division system sales increased 8%, prior to foreign
currency translation, driven by new unit development and same-store
sales growth of 3%.
- Emerging markets led the way with 13% system sales growth, driven by 6% unit growth and 7% same-store sales growth.
- Developed market system sales grew 4%, including 2% unit growth.
- YRI opened 193 new units in 50 countries, including 127 new units in emerging markets. Our franchise partners opened 94% of all new units. Franchise fees are on pace for a record year of over $850 million, growing at a double-digit pace.
- Operating profit grew 3%, prior to foreign currency translation, driven by strong emerging market performance. Third quarter operating profit growth was hindered by a 5 percentage point impact from a $6 million non-cash expense related to expected Pizza Hut UK restaurant closures.
- Restaurant margin decreased 0.2 percentage points to 12.3%.
- Foreign currency translation positively impacted operating profit by $16 million.
Key YRI Markets | System Sales Ex F/X | ||||||||
Percent of YRI1 |
Third Quarter |
Year-to-Date |
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Franchise Only Markets | |||||||||
Asia (ex China Division) | 26% | +5 | +5 | ||||||
Latin America | 11% | +8 | +8 | ||||||
Middle East | 8% | +16 | +12 | ||||||
Continental Europe | 7% | +8 | +5 | ||||||
Canada | 7% | (4) | (4) | ||||||
Africa | 5% | +14 | +12 | ||||||
Company/Franchise Markets | |||||||||
UK2 | 14% | +5 | +2 | ||||||
Australia/New Zealand | 10% | (1) | +1 | ||||||
Thailand | 2% | +20 | +21 | ||||||
Key Growth Markets | |||||||||
France | 4% | +18 | +23 | ||||||
Germany/Netherlands | 2% | +19 | +15 | ||||||
India | 1% | +42 | +42 | ||||||
Russia | 1% | +32 | +23 | ||||||
1 Percentage of Total YRI System Sales for Full Year 2010. |
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2 KFC UK system sales grew 5% for the quarter and year-to-date; Pizza Hut UK system sales grew 5% for the quarter and declined 3% year-to-date. |
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U.S. DIVISION
Third Quarter |
Year-to-Date |
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2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||||||||
Same-Store Sales Growth (%) | (3) | +1 | NM | (2) | Even | NM | ||||||||||||
Restaurant Margin (%) | 12.1 | 14.4 | (2.3) | 11.5 | 14.3 | (2.8) | ||||||||||||
Franchise and License Fees ($MM) | 182 | 179 | +1 | 534 | 532 | -- | ||||||||||||
Operating Profit ($MM) | 143 | 168 | (16) | 398 | 495 | (20) | ||||||||||||
Operating Margin (%) | 16.3 | 17.4 | (1.1) | 15.3 | 17.1 | (1.8) | ||||||||||||
- U.S. Division same-store sales declined 3%, including declines of 2% at Taco Bell, 3% at Pizza Hut, and 3% at KFC.
- Restaurant margin declined 2.3 percentage points and operating profit declined 16% due to $15 million of commodity inflation and a decline in same-store sales.
- Profit performance is expected to improve in the fourth quarter.
OTHER ITEMS UPDATE
- Worldwide effective tax rate, prior to Special Items, declined to 25.1% from 27.4% in the third quarter of last year.
- Share repurchases totaled $238 million for 4.6 million shares at an average price of $52 per share. Share repurchases totaled $545 million year-to-date.
OWNERSHIP / SPECIAL ITEMS UPDATE
- During the third quarter, we decided to refranchise our entire Pizza Hut UK business. As a result, we recorded a non-cash pre-tax charge in Special Items of $76 million, primarily related to the impairment of long-lived assets.
- Subsequent to the end of the third quarter, we reached definitive agreements to sell Long John Silver’s and A&W All American Restaurants to key franchisee leaders. During the third quarter, we recorded $53 million in tax benefits related to tax losses from the sales.
- In the U.S., we have essentially completed Pizza Hut refranchising, and KFC is now our main refranchising focus. Year-to-date we have refranchised 128 restaurants, including 104 KFCs. Our target for Pizza Hut and KFC is about 5% company ownership. We expect to refranchise about 400 restaurants in the U.S. for the full year. Since the inception of our refranchising program in late 2007, we have sold over 1,400 units across all brands, excluding Long John Silver’s and A&W Restaurants.
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. Eastern Time Wednesday, October 5, 2011. 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 5, through midnight Wednesday, October 19, 2011. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 10916412.
The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q3 2011 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.
ADDITIONAL INFORMATION ONLINE
Quarter end dates for each division, restaurant-count details, and definitions of terms 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: food borne-illness or food safety issues; economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. 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 38,000 restaurants in more than 110 countries and territories. The Company is ranked #214 on the Fortune 500 List and generated revenues of more than $11 billion in 2010. 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. A&W Restaurants is the longest running quick-service franchise chain in America. Outside the United States in 2010, the Yum! Brands system opened approximately 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) |
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Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/3/11 | 9/4/10 | B/(W) | 9/3/11 | 9/4/10 | B/(W) | ||||||||||||||||
Company sales | $ | 2,854 | $ | 2,496 | 14 | $ | 7,336 | $ | 6,712 | 9 | |||||||||||
Franchise and license fees and income | 420 | 366 | 15 | 1,179 | 1,069 | 10 | |||||||||||||||
Total revenues | 3,274 | 2,862 | 14 | 8,515 | 7,781 | 9 | |||||||||||||||
Company restaurants | |||||||||||||||||||||
Food and paper | 970 | 788 | (23) | 2,424 | 2,112 | (15) | |||||||||||||||
Payroll and employee benefits | 600 | 516 | (16) | 1,609 | 1,480 | (9) | |||||||||||||||
Occupancy and other operating expenses | 790 | 713 | (11) | 2,063 | 1,935 | (7) | |||||||||||||||
Company restaurant expenses | 2,360 | 2,017 | (17) | 6,096 | 5,527 | (10) | |||||||||||||||
General and administrative expenses | 310 | 285 | (9) | 873 | 813 | (7) | |||||||||||||||
Franchise and license expenses | 41 | 24 | (78) | 104 | 71 | (48) | |||||||||||||||
Closures and impairment (income) expenses | 25 | 5 | NM | 113 | 21 | NM | |||||||||||||||
Refranchising (gain) loss | 66 | (2 | ) | NM | 69 | 51 | (34) | ||||||||||||||
Other (income) expense | (16 | ) | (11 | ) | 51 | (48 | ) | (31 | ) | 54 | |||||||||||
Total costs and expenses, net | 2,786 | 2,318 | (20) | 7,207 | 6,452 | (12) | |||||||||||||||
Operating Profit | 488 | 544 | (10) | 1,308 | 1,329 | (2) | |||||||||||||||
Interest expense, net | 32 | 38 | 18 | 110 | 121 | 9 | |||||||||||||||
Income before income taxes | 456 | 506 | (10) | 1,198 | 1,208 | (1) | |||||||||||||||
Income tax provision | 67 | 139 | 52 | 220 | 307 | 28 | |||||||||||||||
Net income - including noncontrolling interests | 389 | 367 | 6 | 978 | 901 | 9 | |||||||||||||||
Net income - noncontrolling interests | 6 | 10 | 40 | 15 | 17 | 14 | |||||||||||||||
Net income - YUM! Brands, Inc. | $ | 383 | $ | 357 | 7 | $ | 963 | $ | 884 | 9 | |||||||||||
Effective tax rate |
14.6 | % | 27.5 | % | 12.9 ppts. | 18.4 | % | 25.4 | % | 7.0 ppts. | |||||||||||
Basic EPS Data |
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EPS | $ | 0.82 | $ | 0.76 | 8 | $ | 2.05 | $ | 1.87 | 10 | |||||||||||
Average shares outstanding | 469 | 473 | 1 | 471 | 473 | 1 | |||||||||||||||
Diluted EPS Data |
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EPS | $ | 0.80 | $ | 0.74 | 8 | $ | 1.99 | $ | 1.82 | 9 | |||||||||||
Average shares outstanding | 481 | 484 | 1 | 483 | 485 | — | |||||||||||||||
Dividends declared per common share | $ | — | $ | — | $ | 0.50 | $ | 0.42 | |||||||||||||
See accompanying notes. | |||||||||||||||||||||
Percentages may not recompute due to rounding. |
YUM! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) (unaudited) |
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Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/3/11 | 9/4/10 | B/(W) | 9/3/11 | 9/4/10 | B/(W) | ||||||||||||||||
Company sales | $ | 1,577 | $ | 1,172 | 35 | $ | 3,634 | $ | 2,745 | 32 | |||||||||||
Franchise and license fees and income | 23 | 16 | 41 | 52 | 38 | 36 | |||||||||||||||
Total revenues | 1,600 | 1,188 | 35 | 3,686 | 2,783 | 32 | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 568 | 390 | (46) | 1,274 | 909 | (40) | |||||||||||||||
Payroll and employee benefits | 242 | 151 | (60) | 556 | 372 | (49) | |||||||||||||||
Occupancy and other operating expenses | 431 | 335 | (29) | 1,015 | 806 | (26) | |||||||||||||||
1,241 | 876 | (42) | 2,845 | 2,087 | (36) | ||||||||||||||||
General and administrative expenses | 67 | 55 | (20) | 171 | 136 | (25) | |||||||||||||||
Franchise and license expenses | 2 | 1 | NM | 3 | 1 | NM | |||||||||||||||
Closures and impairment (income) expenses | — | — | — | 3 | 5 |
|
42 |
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Other (income) expense | (11 | ) | (11 | ) | (3) | (34 | ) | (28 | ) | 19 | |||||||||||
1,299 | 921 | (41) | 2,988 | 2,201 | (36) | ||||||||||||||||
Operating Profit | $ | 301 | $ | 267 | 13 | $ | 698 | $ | 582 | 20 | |||||||||||
Company sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Food and paper | 36.0 | 33.3 | (2.7) ppts. | 35.1 | 33.1 | (2.0) ppts. | |||||||||||||||
Payroll and employee benefits | 15.3 | 12.9 | (2.4) ppts. | 15.3 | 13.6 | (1.7) ppts. | |||||||||||||||
Occupancy and other operating expenses | 27.4 | 28.6 | 1.2 ppts. | 27.9 | 29.3 | 1.4 ppts. | |||||||||||||||
Restaurant margin | 21.3 | % | 25.2 | % | (3.9) ppts. | 21.7 | % | 24.0 | % | (2.3) ppts. | |||||||||||
Operating margin | 18.9 | % | 22.4 | % | (3.5) ppts. | 18.9 | % | 20.9 | % | (2.0) ppts. | |||||||||||
See accompanying notes. | |||||||||||||||||||||
Percentages may not recompute due to rounding. |
YUM! Brands, Inc. YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results (amounts in millions) (unaudited) |
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Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/3/11 | 9/4/10 | B/(W) | 9/3/11 | 9/4/10 | B/(W) | ||||||||||||||||
Company sales | $ | 586 | $ | 533 | 10 | $ | 1,627 | $ | 1,602 | 2 | |||||||||||
Franchise and license fees and income | 215 | 171 | 26 | 593 | 499 | 19 | |||||||||||||||
Total revenues | 801 | 704 | 14 | 2,220 | 2,101 | 6 | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 189 | 170 | (11) | 516 | 516 | — | |||||||||||||||
Payroll and employee benefits | 152 | 133 | (14) | 418 | 404 | (3) | |||||||||||||||
Occupancy and other operating expenses | 173 | 163 | (6) | 489 | 498 | 2 | |||||||||||||||
514 | 466 | (10) | 1,423 | 1,418 | — | ||||||||||||||||
General and administrative expenses | 101 | 84 | (20) | 277 | 248 | (12) | |||||||||||||||
Franchise and license expenses | 14 | 9 | (90) | 36 | 24 | (58) | |||||||||||||||
Closures and impairment (income) expenses | 9 | 3 | NM | 18 | 6 | NM | |||||||||||||||
Other (income) expense | — | — | — | — | — | — | |||||||||||||||
638 | 562 | (14) | 1,754 | 1,696 | (3) | ||||||||||||||||
Operating Profit | $ | 163 | $ | 142 | 15 | $ | 466 | $ | 405 | 15 | |||||||||||
Company sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Food and paper | 32.2 | 31.9 | (0.3) ppts. | 31.6 | 32.2 | 0.6 ppts. | |||||||||||||||
Payroll and employee benefits | 25.9 | 24.9 | (1.0) ppts. | 25.7 | 25.2 | (0.5) ppts. | |||||||||||||||
Occupancy and other operating expenses | 29.6 | 30.7 | 1.1 ppts. | 30.1 | 31.1 | 1.0 ppts. | |||||||||||||||
Restaurant margin | 12.3 | % | 12.5 | % | (0.2) ppts. | 12.6 | % | 11.5 | % | 1.1 ppts. | |||||||||||
Operating margin | 20.3 | % | 20.1 | % | 0.2 ppts. | 21.0 | % | 19.3 | % | 1.7 ppts. | |||||||||||
See accompanying notes. | |||||||||||||||||||||
Percentages may not recompute due to rounding. | |||||||||||||||||||||
YUM! Brands, Inc. UNITED STATES Operating Results (amounts in millions) (unaudited) |
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Quarter | % Change | Year to Date | % Change | ||||||||||||||||||
9/3/11 | 9/4/10 | B/(W) | 9/3/11 | 9/4/10 | B/(W) | ||||||||||||||||
Company sales | $ | 691 | $ | 791 | (13) | $ | 2,075 | $ | 2,365 | (12) | |||||||||||
Franchise and license fees and income | 182 | 179 | 1 | 534 | 532 | — | |||||||||||||||
Total revenues | 873 | 970 | (10) | 2,609 | 2,897 | (10) | |||||||||||||||
Company restaurant expenses, net | |||||||||||||||||||||
Food and paper | 213 | 228 | 7 | 634 | 687 | 8 | |||||||||||||||
Payroll and employee benefits | 206 | 232 | 11 | 635 | 704 | 10 | |||||||||||||||
Occupancy and other operating expenses | 188 | 217 | 14 | 567 | 636 | 11 | |||||||||||||||
607 | 677 | 10 | 1,836 | 2,027 | 9 | ||||||||||||||||
General and administrative expenses | 99 | 110 | 9 | 302 | 323 | 7 | |||||||||||||||
Franchise and license expenses | 25 | 14 | (70) | 66 | 46 | (42) | |||||||||||||||
Closures and impairment (income) expenses | — | 2 | 95 | 10 | 10 | (1) | |||||||||||||||
Other (income) expense | (1 | ) | (1 | ) | NM | (3 | ) | (4 | ) | (25) | |||||||||||
730 | 802 | 9 | 2,211 | 2,402 | 8 | ||||||||||||||||
Operating Profit | $ | 143 | $ | 168 | (16) | $ | 398 | $ | 495 | (20) | |||||||||||
Company sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Food and paper | 30.9 | 28.9 | (2.0) ppts. | 30.6 | 29.1 | (1.5) ppts. | |||||||||||||||
Payroll and employee benefits | 29.9 | 29.2 | (0.7) ppts. | 30.6 | 29.7 | (0.9) ppts. | |||||||||||||||
Occupancy and other operating expenses | 27.1 | 27.5 | 0.4 ppts. | 27.3 | 26.9 | (0.4) ppts. | |||||||||||||||
12.1 | % | 14.4 | % | (2.3) ppts. | 11.5 | % | 14.3 | % | (2.8) ppts. | ||||||||||||
Operating margin | 16.3 | % | 17.4 | % | (1.1) ppts. | 15.3 | % | 17.1 | % | (1.8) ppts. | |||||||||||
See accompanying notes. | |||||||||||||||||||||
Percentages may not recompute due to rounding. | |||||||||||||||||||||
YUM! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) |
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(unaudited) | |||||||||
9/3/11 | 12/25/10 | ||||||||
ASSETS | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | $ | 1,236 | $ | 1,426 | |||||
Accounts and notes receivable, less allowance: $27 in 2011 and $33 in 2010 | 281 | 256 | |||||||
Inventories | 186 | 189 | |||||||
Prepaid expenses and other current assets | 466 | 269 | |||||||
Deferred income taxes | 76 | 61 | |||||||
Advertising cooperative assets, restricted | 106 | 112 | |||||||
Total Current Assets | 2,351 | 2,313 | |||||||
Property, plant and equipment, net of accumulated depreciation and amortization of $3,383 in | |||||||||
2011 and $3,273 in 2010 | 3,872 | 3,830 | |||||||
Goodwill | 672 | 659 | |||||||
Intangible assets, net | 286 | 475 | |||||||
Investments in unconsolidated affiliates | 158 | 154 | |||||||
Restricted cash | 300 | — | |||||||
Other assets | 486 | 519 | |||||||
Deferred income taxes | 424 | 366 | |||||||
Total Assets | $ | 8,549 | $ | 8,316 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Current Liabilities | |||||||||
Accounts payable and other current liabilities | $ | 1,751 | $ | 1,602 | |||||
Income taxes payable | 123 | 61 | |||||||
Short-term borrowings | 287 | 673 | |||||||
Advertising cooperative liabilities | 106 | 112 | |||||||
Total Current Liabilities | 2,267 | 2,448 | |||||||
Long-term debt | 2,940 | 2,915 | |||||||
Other liabilities and deferred credits | 1,259 | 1,284 | |||||||
Total Liabilities | 6,466 | 6,647 | |||||||
Shareholders' Equity | |||||||||
Common stock, no par value, 750 shares authorized; 461 shares and 469 shares issued in 2011 and 2010, respectively |
— | 86 | |||||||
Retained earnings | 2,082 | 1,717 | |||||||
Accumulated other comprehensive income (loss) | (89 | ) | (227 | ) | |||||
Total Shareholders' Equity - YUM! Brands, Inc. | 1,993 | 1,576 | |||||||
Noncontrolling interests | 90 | 93 | |||||||
Total Shareholders' Equity | 2,083 | 1,669 | |||||||
Total Liabilities and Shareholders' Equity | $ | 8,549 | $ | 8,316 | |||||
See accompanying notes. |
|||||||||
YUM! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) (unaudited) |
|||||||||
Year to date | |||||||||
9/3/11 | 9/4/10 | ||||||||
Cash Flows - Operating Activities | |||||||||
Net income - including noncontrolling interests | $ | 978 | $ | 901 | |||||
Depreciation and amortization | 426 | 383 | |||||||
Closures and impairment (income) expenses | 113 | 21 | |||||||
Refranchising (gain) loss | 69 | 51 | |||||||
Contributions to defined benefit pension plans | (12 | ) | (22 | ) | |||||
Deferred income taxes | (72 | ) | (130 | ) | |||||
Equity income from investments in unconsolidated affiliates | (40 | ) | (34 | ) | |||||
Distributions of income received from unconsolidated affiliates | 37 | 34 | |||||||
Excess tax benefit from share-based compensation | (33 | ) | (46 | ) | |||||
Share-based compensation expense | 40 | 37 | |||||||
Changes in accounts and notes receivable | (19 | ) | (6 | ) | |||||
Changes in inventories | 9 | (30 | ) | ||||||
Changes in prepaid expenses and other current assets | (29 | ) | 15 | ||||||
Changes in accounts payable and other current liabilities | 142 | 94 | |||||||
Changes in income taxes payable |
55 |
118 | |||||||
Other, net |
39 |
111 | |||||||
Net Cash Provided by Operating Activities |
1,703 |
1,497 | |||||||
Cash Flows - Investing Activities | |||||||||
Capital spending | (553 | ) | (490 | ) | |||||
Proceeds from refranchising of restaurants | 119 | 106 | |||||||
Acquisitions | (1 | ) | (62 | ) | |||||
Sales of property, plant and equipment |
15 |
21 | |||||||
Increase in restricted cash | (300 | ) | — | ||||||
Other, net | (20 | ) | (10 | ) | |||||
Net Cash Used in Investing Activities |
(740 |
) | (435 | ) | |||||
Cash Flows - Financing Activities | |||||||||
Proceeds from long-term debt | 349 | 350 | |||||||
Repayments of long-term debt | (662 | ) | (20 | ) | |||||
Revolving credit facilities, three months or less, net | — | 12 | |||||||
Short-term borrowings by original maturity | |||||||||
More than three months - proceeds | — | — | |||||||
More than three months - payments | — | — | |||||||
Three months or less, net | — | 5 | |||||||
Repurchase shares of Common Stock | (562 | ) | (283 | ) | |||||
Excess tax benefit from share-based compensation | 33 | 46 | |||||||
Employee stock option proceeds | 30 | 64 | |||||||
Dividends paid on Common Stock | (350 | ) | (295 | ) | |||||
Other, net | (33 | ) | (30 | ) | |||||
Net Cash Used in Financing Activities | (1,195 | ) | (151 | ) | |||||
Effect of Exchange Rate on Cash and Cash Equivalents | 42 | 10 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (190 | ) | 921 | ||||||
Cash and Cash Equivalents - Beginning of Period | $ | 1,426 | $ | 353 | |||||
Cash and Cash Equivalents - End of Period | $ | 1,236 | $ | 1,274 | |||||
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 2011 and 2010 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the depreciation reduction from the KFC restaurants impaired upon our offer to refranchise in 2010 that remained Company stores for some or all of the quarter or year to date ended September 3, 2011, charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources, the losses associated with refranchising equity markets outside the U.S., and the impairment of intangibles, other costs and anticipated tax benefits relating to the planned sale of our Long John Silver's ("LJS") and A&W All-American Food Restaurants ("A&W") brands. These amounts are described in (b), (c), (d) and (e) 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 2011 and 2010 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.
Quarter | Year to Date | ||||||||||||||||
9/3/11 | 9/4/10 | 9/3/11 | 9/4/10 | ||||||||||||||
Detail of Special Items | |||||||||||||||||
Loss associated with refranchising equity markets outside the U.S. |
$ | (76 | ) | $ | — | $ | (76 | ) | $ | (7 | ) | ||||||
U.S. Refranchising gain (loss) | 4 | — | (3 | ) | (51 | ) | |||||||||||
Depreciation reduction from KFC restaurants impaired upon offer to sell | 2 | 2 | 8 | 5 | |||||||||||||
Charges relating to U.S. G&A productivity initiatives and realignment of resources | (1 | ) | — | (2 | ) | (5 | ) | ||||||||||
Impairment of intangibles and other costs relating to the planned sale of LJS and A&W | (17 | ) | — | (86 | ) | — | |||||||||||
Total Special Items Income (Expense) | (88 | ) | 2 | (159 | ) | (58 | ) | ||||||||||
Tax Benefit (Expense) on Special Items | 70 | (1 | ) | 96 | 19 | ||||||||||||
Special Items Income (Expense), net of tax | $ | (18 | ) | $ | 1 | $ | (63 | ) | $ | (39 | ) | ||||||
Average diluted shares outstanding | 481 | 484 | 483 | 485 | |||||||||||||
Special Items diluted EPS | $ | (0.03 | ) | $ | 0.01 | $ | (0.13 | ) | $ | (0.08 | ) | ||||||
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit | |||||||||||||||||
OPERATING PROFIT BEFORE SPECIAL ITEMS | $ | 576 | $ | 542 | $ | 1,467 | $ | 1,387 | |||||||||
Special Items Income (Expense) | (88 | ) | 2 | (159 | ) | (58 | ) | ||||||||||
Reported Operating Profit | $ | 488 | $ | 544 | $ | 1,308 | $ | 1,329 | |||||||||
Reconciliation of EPS Before Special Items to Reported EPS | |||||||||||||||||
DILUTED EPS BEFORE SPECIAL ITEMS | $ | 0.83 | $ | 0.73 | $ | 2.12 | $ | 1.90 | |||||||||
Special Items EPS | (0.03 | ) | 0.01 | (0.13 | ) | (0.08 | ) | ||||||||||
Reported EPS | $ | 0.80 | $ | 0.74 | $ | 1.99 | $ | 1.82 | |||||||||
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate | |||||||||||||||||
EFFECTIVE TAX RATE BEFORE SPECIAL ITEMS | 25.1 | % | 27.4 | % | 23.3 | % | 25.8 | % | |||||||||
Impact on Tax Rate as a result of Special Items | (10.5 | )% | 0.1 | % | (4.9 | )% | (0.4 | )% | |||||||||
Reported Effective Tax Rate | 14.6 | % | 27.5 | % | 18.4 | % | 25.4 | % |
YUM! Brands, Inc. Segment Results (amounts in millions) (unaudited) |
|||||||||||||||||||||
Quarter Ended 9/3/11 | China | YRI |
United
States |
Corporate and Unallocated |
Consolidated | ||||||||||||||||
Total revenues | $ | 1,600 | $ | 801 | $ | 873 | $ | — | $ | 3,274 | |||||||||||
Company restaurant expenses | 1,241 | 514 | 607 | (2 | ) | 2,360 | |||||||||||||||
General and administrative expenses | 67 | 101 | 99 | 43 | 310 | ||||||||||||||||
Franchise and license expenses | 2 | 14 | 25 | — | 41 | ||||||||||||||||
Closures and impairment (income) expenses | — | 9 | — | 16 | 25 | ||||||||||||||||
Refranchising (gain) loss | — | — | — | 66 | 66 | ||||||||||||||||
Other (income) expense | (11 | ) | — | (1 | ) | (4 | ) | (16 | ) | ||||||||||||
1,299 | 638 | 730 | 119 | 2,786 | |||||||||||||||||
Operating Profit (loss) | $ | 301 | $ | 163 | $ | 143 | $ | (119 | ) | $ | 488 | ||||||||||
Quarter Ended 9/4/10 | China | YRI |
United
States |
Corporate and Unallocated |
Consolidated | ||||||||||||||||
Total revenues | $ | 1,188 | $ | 704 | $ | 970 | $ | — | $ | 2,862 | |||||||||||
Company restaurant expenses | 876 | 466 | 677 | (2 | ) | 2,017 | |||||||||||||||
General and administrative expenses | 55 | 84 | 110 | 36 | 285 | ||||||||||||||||
Franchise and license expenses | 1 | 9 | 14 | — | 24 | ||||||||||||||||
Closures and impairment (income) expenses | — | 3 | 2 | — | 5 | ||||||||||||||||
Refranchising (gain) loss | — | — | — | (2 | ) | (2 | ) | ||||||||||||||
Other (income) expense | (11 | ) | — | (1 | ) | 1 | (11 | ) | |||||||||||||
921 | 562 | 802 | 33 | 2,318 | |||||||||||||||||
Operating Profit (loss) | $ | 267 | $ | 142 | $ | 168 | $ | (33 | ) | $ | 544 |
The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.
YUM! Brands, Inc. Segment Results (amounts in millions) (unaudited) |
|||||||||||||||||||||
Year to Date Ended 9/3/11 | China | YRI |
United
States |
Corporate and Unallocated |
Consolidated | ||||||||||||||||
Total revenues | $ | 3,686 | $ | 2,220 | $ | 2,609 | $ | — | $ | 8,515 | |||||||||||
Company restaurant expenses | 2,845 | 1,423 | 1,836 | (8 | ) | 6,096 | |||||||||||||||
General and administrative expenses | 171 | 277 | 302 | 123 | 873 | ||||||||||||||||
Franchise and license expenses | 3 | 36 | 66 | (1 | ) | 104 | |||||||||||||||
Closures and impairment (income) expenses | 3 | 18 | 10 | 82 | 113 | ||||||||||||||||
Refranchising (gain) loss | — | — | — | 69 | 69 | ||||||||||||||||
Other (income) expense | (34 | ) | — | (3 | ) | (11 | ) | (48 | ) | ||||||||||||
2,988 | 1,754 | 2,211 | 254 | 7,207 | |||||||||||||||||
Operating Profit (loss) | $ | 698 | $ | 466 | $ | 398 | $ | (254 | ) | $ | 1,308 | ||||||||||
Year to Date Ended 9/4/10 | China | YRI |
United
States |
Corporate and Unallocated |
Consolidated | ||||||||||||||||
Total revenues | $ | 2,783 | $ | 2,101 | $ | 2,897 | $ | — | $ | 7,781 | |||||||||||
Company restaurant expenses | 2,087 | 1,418 | 2,027 | (5 | ) | 5,527 | |||||||||||||||
General and administrative expenses | 136 | 248 | 323 | 106 | 813 | ||||||||||||||||
Franchise and license expenses | 1 | 24 | 46 | — | 71 | ||||||||||||||||
Closures and impairment (income) expenses | 5 | 6 | 10 | — | 21 | ||||||||||||||||
Refranchising (gain) loss | — | — | — | 51 | 51 | ||||||||||||||||
Other (income) expense | (28 | ) | — | (4 | ) | 1 | (31 | ) | |||||||||||||
2,201 | 1,696 | 2,402 | 153 | 6,452 | |||||||||||||||||
Operating Profit (loss) | $ | 582 | $ | 405 | $ | 495 | $ | (153 | ) | $ | 1,329 |
The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.
Notes to the Consolidated Summary of Results, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (amounts in millions, except per share amounts) (unaudited) |
||
(a) | Amounts presented as of and for the quarter and year to date ended September 3, 2011 are preliminary. | |
(b) |
As part of our plan to transform our U.S. business we took several measures ("the U.S. business transformation measures") in 2011 and 2010 including: continuation of our U.S. refranchising, potentially reducing our Company ownership in the U.S., excluding the LJS and A&W brands, to about 12%; and G&A productivity initiatives and realignment of resources (primarily severance and early retirement costs). We have traditionally not allocated refranchising (gains) losses for segment reporting purposes and will not allocate the costs associated with the productivity initiatives and realignment of resources 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 year to date ended September 4, 2010 is primarily due to non-cash impairment charges related to our offers to refranchise restaurants in the U.S., principally a substantial portion of our Company operated KFCs. We have recorded the depreciation reduction resulting from the non-cash impairment charges related to these KFCs that remained Company stores for some or all of the periods presented as a Special Item, resulting in depreciation expense in the U.S. segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded for these KFCs while we continue to own the restaurants. |
|
(c) |
During the quarter ended March 19, 2011 we decided to sell the LJS and A&W brands resulting in a pre-tax non-cash write down of intangible assets totaling $66 million. During the quarter ended September 3, 2011, we recorded an additional $16 million non-cash pre-tax write down of intangible assets based on expected proceeds. Other pre-tax charges relating to the planned sales totaled $1 million and $4 million in the quarter and year to date ended September 3, 2011, respectively. Separate from the aforementioned write downs and other charges related to the planned sales of LJS and A&W, we recorded tax benefits of $53 million during the quarter ended September 3, 2011 related to the planned sales. These items have not been allocated for segment reporting purposes and have been reflected in Special Items for certain reporting measures (see accompanying reconciliation to reported results). We have classified $144 million of assets and $79 million of liabilities held for sale as Prepaid expenses and other current assets and Accounts payable and other current liabilities, respectively, in our Condensed Consolidated Balance Sheet as of September 3, 2011. |
|
(d) | During the quarter ended September 3, 2011, we recognized a pre-tax non-cash $76 million refranchising loss ($63 million net of tax) as a result of our decision to offer to refranchise all our remaining company-owned Pizza Hut restaurants in the UK. This loss was not allocated to any segment for performance reporting purposes and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results). | |
(e) | 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 March 20, 2010 financial statements a non-cash write off of $7 million of goodwill in determining the loss on refranchising of Taiwan. This loss did not result in a related income tax benefit, was not allocated to any segment for performance reporting purposes and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results). | |
(f) | Other (income) expense for the China Division primarily consists of equity income from investments in unconsolidated affiliates. | |
(g) | In connection with the potential acquisition of Little Sheep Group Limited (“Little Sheep”), in which we currently own 27% of the outstanding shares, we have placed $300 million in an escrow account to demonstrate availability of funds to acquire additional shares in this business. The funds placed in escrow are restricted to the potential acquisition of Little Sheep and are included in Restricted cash in our Condensed Consolidated Balance Sheet as of September 3, 2011. |
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