Yum! Brands Reports Third-Quarter 2013 EPS Tanked 15%

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LOUISVILLE, Ky.–(hospitalitybusinessnews.com)–Yum! Brands, Inc. today reported results for the third quarter ended September 7, 2013, including EPS of $0.85, excluding Special Items. Reported EPS was $0.33 for the quarter, which included a $0.55 non-cash charge related to the write-down of Little Sheep intangible assets.

THIRD-QUARTER HIGHLIGHTS

  • Worldwide system sales grew 1%, prior to foreign currency translation, including 5% growth at Yum! Restaurants International (YRI). System sales declined 2% in China and were flat in the U.S.
  • Same-store sales declined 11% in China. Same-store sales grew 1% at YRI and were flat in the U.S.
  • Total international development was 364 new restaurants; 79% of this development occurred in emerging markets.
  • Worldwide restaurant margin declined 1.3 percentage points to 17.6%, including declines of 1.9 percentage points in China, 0.6 percentage points at YRI and 0.7 percentage points in the U.S.
  • Worldwide operating profit declined 9%, prior to foreign currency translation, including declines of 14% in China and 2% at YRI. Operating profit grew 1% in the U.S.
  • Worldwide effective tax rate, prior to Special Items, increased to 33.1% from 25.1% driven primarily by a tax reserve adjustment. The tax rate increase negatively impacted EPS results by 10 percentage points.
  • A non-cash, Special Item net charge of $258 million related to the write-down of Little Sheep intangible assets was recorded in the quarter. This charge impacted reported EPS by 55 percentage points.
  • On September 19, 2013, the Company announced a 10% increase in its quarterly dividend, marking the ninth consecutive year the dividend increased at a double-digit percentage rate.

CHINA SALES UPDATE

  • September same-store sales, which will be included in China Division’s fourth-quarter results, declined an estimated 11% for the China Division. This included estimated growth of 6% at Pizza Hut Casual Dining and an estimated decline of 13% at KFC, where sales have not yet fully recovered from the adverse publicity surrounding the December poultry supply incident.

REVISED FULL-YEAR OUTLOOK

Based on KFC China sales for September, it is now unlikely China Division same-store sales will be positive for the fourth quarter. Given lower-than-expected China sales and a higher-than-expected full-year tax rate, the Company now estimates a high-single to low-double-digit full-year EPS decline versus prior year, excluding Special Items. This compares to our previous guidance of a mid-single-digit decline in EPS.

Third Quarter Year-to-Date
2013 2012 % Change 2013 2012 % Change
EPS Excluding Special Items $0.85 $0.99 (15)% $2.11 $2.42 (13)%
Special Items Gain/(Loss)1 $(0.52) $0.01 NM $(0.45) $0.23 NM
EPS $0.33 $1.00 (67)% $1.66 $2.65 (37)%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for 2013 are primarily related to the impairment of Little Sheep and U.S. refranchising gains. Special Items for 2012 comparable periods are primarily related to the Little Sheep acquisition gain, U.S. refranchising gains and Pizza Hut UK refranchising.
Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

DAVID NOVAK COMMENTS

David C. Novak, Chairman and CEO, said, “Despite the disappointing third-quarter performance, I remain as confident as ever in our ability to deliver strong, sustainable growth in the years to come. Given a slower-than-expected sales recovery at KFC China and a higher-than-expected tax rate, we are now estimating a high-single to low-double-digit percentage decline in full-year EPS versus prior year, excluding Special Items. Our revised full-year EPS outlook is obviously well below our 11-year track record of double-digit growth through 2012. We also recorded a significant non-cash Special Item charge for the write-down of Little Sheep intangible assets. Little Sheep remains the number-one brand in China’s largest casual dining category, and we remain committed to this concept as an engine of future growth.

Even with our recent challenges, KFC is unquestionably the category leader in China and we remain confident sales will fully recover from the adverse publicity surrounding the December poultry supply incident. Our Pizza Hut business in China continues to deliver strong results, and the rest of Yum! is performing generally as expected for the full year. I’m pleased with the strong margin performance in China in the face of significant sales deleverage, along with the fact that Taco Bell has produced seven consecutive quarters of positive same-store sales growth. We remain on the ground floor of global growth and continue to have unparalleled development opportunities. As evidence of this, we expect to open at least 700 new units in China this year, as we capitalize on the world’s fastest growing consuming class. Outside of China, we expect record new-unit openings for Yum! Restaurants International and in India this year. When you add it all up for Yum!, we will open at least 1,850 new restaurants outside the U.S., further strengthening our leadership position in emerging markets. In addition, we will have net new-unit growth in the U.S. for the second consecutive year.

We expect to deliver at least 20% EPS growth in 2014 and restore our track record of double-digit EPS growth in the years ahead. Our business model remains compelling and we will continue to invest behind the enormous growth opportunities we see around the world.”

CHINA DIVISION

Third Quarter Year-to-Date
% Change % Change
2013 2012 Reported Ex F/X 2013 2012 Reported Ex F/X
System Sales Growth +1 (2) (5) (7)
Same-Store Sales Growth (%) (11) +6 NM NM (16) +9 NM NM
Restaurant Margin (%) 19.5 21.4 (1.9) (1.9) 16.0 20.0 (4.0) (4.0)
Operating Profit ($MM) 335 374 (11) (14) 557 812 (31) (33)
  • China Division third-quarter sales and profits were impacted by adverse publicity surrounding the December poultry supply incident and subsequent news of Avian flu.
  • System sales decreased 2%, prior to foreign currency translation.
    • Same-store sales declined 11%, including a 14% decline at KFC and 5% growth at Pizza Hut Casual Dining.
  • China Division opened 132 new units in the third quarter, and 458 new units year-to-date.
China Units Q3 2013 % Change2
Traditional Restaurants1 6,035 +12
KFC 4,463 +10
Pizza Hut Casual Dining 953 +29
Pizza Hut Home Service 185 +31
1 Total includes East Dawning, Pizza Hut Express and Little Sheep units
2 Represents year-over-year change
  • Restaurant margin decreased 1.9 percentage points to 19.5%. Significant sales deleverage was partially offset by restaurant operating efficiencies. Little Sheep negatively impacted overall restaurant margin by approximately 1 percentage point.
  • Foreign currency translation positively impacted operating profit by $12 million.
  • We are temporarily providing monthly same-store sales releases until sales have recovered. We will release October same-store sales for our China Division on November 12, 2013, after market hours.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

Third Quarter Year-to-Date
% Change % Change
2013 2012 Reported Ex F/X 2013 2012 Reported Ex F/X
Traditional Restaurants 14,756 14,200 +4 NA 14,756 14,200 +4 NA
System Sales Growth +1 +5 +2 +5
Restaurant Margin (%) 12.7 13.3 (0.6) (0.5) 13.0 12.4 0.6 0.5
Franchise & License Fees ($MM) 212 204 +4 +7 644 596 +8 +10
Operating Profit ($MM) 163 173 (6) (2) 525 491 +7 +9
Operating Margin (%) 22.6 22.5 0.1 0.6 25.0 21.9 3.1 3.3
  • YRI Division system sales increased 5%, prior to foreign currency translation, driven by new-unit development and 1% same-store sales growth.
    • Emerging markets system sales grew 11%, driven by 7% unit growth and 4% same-store sales growth.
    • Developed markets system sales were flat, including 1% unit growth. Same-store sales declined 1%, driven primarily by weak results in Japan and Pizza Hut UK.
    • The timing of Ramadan had an estimated negative same-store sales impact of about 1%. This negative impact is expected to reverse in the fourth quarter and benefit same-store sales by about 1%.
  • YRI opened 215 new units in 50 countries, including 139 in emerging markets.
    • 90% of all new units were opened by franchisees.
  • Restaurant margin declined 0.6 percentage points, driven by margin performance in KFC UK and Turkey.
  • Operating profit declined 2%, prior to foreign currency translation. Operating profit was negatively impacted 3 percentage points from expenses related to the bi-annual franchisee convention.
  • Foreign currency translation negatively impacted operating profit by $6 million.
YRI MARKETS1 SYSTEM Sales Growth Ex F/X
Percent of YRI2 Third Quarter (%) Year-to-Date (%)
Franchise
Asia (ex Japan) 16% +8 +7
Japan 10% (8) (7)
Latin America 11% +8 +6
Middle East3 8% +3 +4
Continental Europe 7% +3 +2
Canada 6% +1 Flat
Combined Company / Franchise
UK 12% +1 (1)
Australia / New Zealand 11% +2 +4
Thailand 2% +5 +12
Korea 2% (2) +5
Key Growth
Africa 7% +12 +16
France 4% +5 +5
Germany / Netherlands 2% +14 +15
Russia 2% +52 +49
1 See website www.yum.com under tab “Investors” for a list of the countries within each of the YRI markets
2 Percentage of Total YRI System Sales for Full Year 2012
3 Middle East excludes Turkey, which was acquired from a franchisee in the second quarter
 

U.S. DIVISION

Third Quarter Year-to-Date
2013 2012 % Change 2013 2012 % Change
Same-Store Sales Growth (%) +6 NM +1 +6 NM
Restaurant Margin (%) 16.0 16.7 (0.7) 17.1 16.2 0.9
Franchise and License Fees ($MM) 197 189 +5 586 555 +6
Operating Profit ($MM) 164 162 +1 502 486 +3
Operating Margin (%) 23.8 20.5 3.3 24.0 20.2 3.8
  • U.S. Division same-store sales were flat; consisting of 2% growth at Taco Bell, a 1% decline at Pizza Hut and a 4% decline at KFC.
  • Restaurant margin decreased 0.7 percentage points, driven primarily by inflation and promotional activities.
  • Operating profit growth was 1%. Excluding the impact of refranchising, operating profit grew 6%.

INDIA DIVISION

  • India Division system sales increased 20%, prior to foreign currency translation, driven by 24% unit growth. Same-store sales were flat.
India Units Q3 2013 % Change2
Traditional Restaurants1 613 +24
KFC 296 +34
Pizza Hut Casual Dining 181 +6
Pizza Hut Home Service 132 +31
1 Total includes 4 Taco Bell units
2 Represents year-over-year change

OWNERSHIP / SPECIAL ITEMS / TAX UPDATE

  • Our Little Sheep business has performed below expectations since we acquired a controlling interest in February 2012. While we continue to have confidence in the long-term potential of Little Sheep, the sales and unit growth we forecasted at acquisition have not materialized. Initially, sales growth was negatively impacted by a longer-than-expected purchase approval and ownership transition. In May 2013, negative publicity from quality issues with other unrelated hot pot concepts in China further significantly impacted sales at Little Sheep, even though there was never an issue with the quality of Little Sheep products. This negative sales impact continued in the third quarter. A net impairment charge for certain Little Sheep assets totaling $258 million was recorded as a Special Item, consistent with the classification of the $74 million gain that was recorded in 2012 upon our consolidation of Little Sheep.
  • In the U.S., we refranchised 54 units and received proceeds of $58 million. We recorded pre-tax U.S. refranchising gains of $37 million in Special Items.
  • Our worldwide effective tax rate for the quarter, prior to Special Items, increased from 25.1% to 33.1%. This increase is primarily related to the continuing dispute with the IRS regarding a valuation of intangibles, which has been disclosed in our prior SEC filings, and is not expected to meaningfully impact our effective tax rate in future years. Our full-year 2013 global effective tax rate is now expected to be approximately 28%.

SHARE REPURCHASE UPDATE

  • Year-to-date through October 7, 2013, we repurchased 7.1 million shares totaling $490 million at an average price of $69.

 

YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter ended % Change Year to date % Change
9/7/13 9/8/12 B/(W) 9/7/13 9/8/12 B/(W)
Company sales $ 3,021 $ 3,142 (4 ) $ 7,594 $ 8,248 (8 )
Franchise and license fees and income 445 427 4 1,311 1,232 6
Total revenues 3,466 3,569 (3 ) 8,905 9,480 (6 )
Company restaurant expenses
Food and paper 996 1,029 3 2,481 2,712 9
Payroll and employee benefits 621 650 4 1,701 1,786 5
Occupancy and other operating expenses 873 864 (1 ) 2,238 2,288 2
Company restaurant expenses 2,490 2,543 2 6,420 6,786 5
General and administrative expenses 327 332 1 933 950 2
Franchise and license expenses 44 32 (42 ) 108 84 (29 )
Closures and impairment (income) expenses 300 4 NM 310 9 NM
Refranchising (gain) loss (38 ) (2 ) NM (87 ) (41 ) NM
Other (income) expense (7 ) (11 ) (41 ) (6 ) (97 ) (94 )
Total costs and expenses, net 3,116 2,898 (8 ) 7,678 7,691
Operating Profit 350 671 (48 ) 1,227 1,789 (31 )
Interest expense, net 31 32 8 94 107 13
Income before income taxes 319 639 (50 ) 1,133 1,682 (33 )
Income tax provision 182 161 (14 ) 384 410 6
Net income – including noncontrolling interests 137 478 (71 ) 749 1,272 (41 )
Net income (loss) – noncontrolling interests (15 ) 7 NM (21 ) 12 NM
Net income – YUM! Brands, Inc. $ 152 $ 471 (68 ) $ 770 $ 1,260 (39 )
Effective tax rate 57.2 % 25.1 % (32.1 ppts.) 33.9 % 24.4 % (9.5 ppts.)
Effective tax rate before special items 33.1 % 25.1 % (8.0 ppts.) 28.2 % 25.6 % (2.6 ppts.)
Basic EPS Data
EPS $ 0.34 $ 1.02 (67 ) $ 1.70 $ 2.72 (38 )
Average shares outstanding 451 460 2 453 463 2
Diluted EPS Data
EPS $ 0.33 $ 1.00 (67 ) $ 1.66 $ 2.65 (37 )
Average shares outstanding 461 472 2 463 476 3
Dividends declared per common share $ $ $ 0.67 $ 0.57
See accompanying notes.
Percentages may not recompute due to rounding.
YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change
9/7/13 9/8/12 B/(W) 9/7/13 9/8/12 B/(W)
Company sales $ 2,001 $ 1,958 2 $ 4,563 $ 4,692 (3 )
Franchise and license fees and income 32 30 7 70 70 (1 )
Total revenues 2,033 1,988 2 4,633 4,762 (3 )
Company restaurant expenses
Food and paper 664 662 1,508 1,611 6
Payroll and employee benefits 357 334 (7 ) 907 815 (11 )
Occupancy and other operating expenses 591 543 (9 ) 1,419 1,325 (7 )
Company restaurant expenses 1,612 1,539 (5 ) 3,834 3,751 (2 )
General and administrative expenses 88 84 (6 ) 233 213 (10 )
Franchise and license expenses 3 3 (51 ) 8 6 (50 )
Closures and impairment (income) expenses 6 1 NM 14 4 NM
Other (income) expense (11 ) (13 ) (18 ) (13 ) (24 ) (46 )
1,698 1,614 (5 ) 4,076 3,950 (3 )
Operating Profit $ 335 $ 374 (11 ) $ 557 $ 812 (31 )
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 33.2 33.9 0.7 ppts. 33.0 34.4 1.4 ppts.
Payroll and employee benefits 17.8 17.0 (0.8 ppts.) 19.9 17.4 (2.5 ppts.)
Occupancy and other operating expenses 29.5 27.7 (1.8 ppts.) 31.1 28.2 (2.9 ppts.)
Restaurant margin 19.5 % 21.4 % (1.9 ppts.) 16.0 % 20.0 % (4.0 ppts.)
Operating margin 16.5 % 18.8 % (2.3 ppts.) 12.0 % 17.1 % (5.1 ppts.)
See accompanying notes.
Percentages may not recompute due to rounding.
YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change
9/7/13 9/8/12 B/(W) 9/7/13 9/8/12 B/(W)
Company sales $ 507 $ 565 (10 ) $ 1,457 $ 1,651 (12 )
Franchise and license fees and income 212 204 4 644 596 8
Total revenues 719 769 (7 ) 2,101 2,247 (7 )
Company restaurant expenses
Food and paper 175 185 5 504 541 7
Payroll and employee benefits 119 140 14 344 415 17
Occupancy and other operating expenses 148 165 11 420 490 14
Company restaurant expenses 442 490 10 1,268 1,446 12
General and administrative expenses 95 91 (3 ) 265 275 4
Franchise and license expenses 20 13 (58 ) 44 34 (30 )
Closures and impairment (income) expenses 2 NM 2 NM
Other (income) expense (1 ) NM (1 ) (1 ) (23 )
556 596 7 1,576 1,756 10
Operating Profit $ 163 $ 173 (6 ) $ 525 $ 491 7
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 34.6 32.7 (1.9 ppts.) 34.6 32.8 (1.8 ppts.)
Payroll and employee benefits 23.6 24.7 1.1 ppts. 23.6 25.1 1.5 ppts.
Occupancy and other operating expenses 29.1 29.3 0.2 ppts. 28.8 29.7 0.9 ppts.
Restaurant margin 12.7 % 13.3 % (0.6 ppts.) 13.0 % 12.4 % 0.6 ppts.
Operating margin 22.6 % 22.5 % 0.1 ppts. 25.0 % 21.9 % 3.1 ppts.
See accompanying notes.
Percentages may not recompute due to rounding.
YUM! Brands, Inc.
UNITED STATES DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change
9/7/13 9/8/12 B/(W) 9/7/13 9/8/12 B/(W)
Company sales $ 487 $ 598 (19 ) $ 1,502 $ 1,850 (19 )
Franchise and license fees and income 197 189 5 586 555 6
Total revenues 684 787 (13 ) 2,088 2,405 (13 )
Company restaurant expenses
Food and paper 144 173 17 436 537 19
Payroll and employee benefits 142 174 19 440 549 20
Occupancy and other operating expenses 123 151 19 370 464 20
Company restaurant expenses 409 498 18 1,246 1,550 20
General and administrative expenses 92 110 16 284 322 11
Franchise and license expenses 20 16 (25 ) 54 44 (21 )
Closures and impairment (income) expenses (1 ) 1 80 3 52
Other (income) expense NM 2 NM
520 625 17 1,586 1,919 17
Operating Profit $ 164 $ 162 1 $ 502 $ 486 3
Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 29.6 28.9 (0.7 ppts.) 29.0 29.0 – ppts.
Payroll and employee benefits 29.2 29.2 – ppts. 29.3 29.7 0.4 ppts.
Occupancy and other operating expenses 25.2 25.2 – ppts. 24.6 25.1 0.5 ppts.
16.0 % 16.7 % (0.7 ppts.) 17.1 % 16.2 % 0.9 ppts.
Operating margin 23.8 % 20.5 % 3.3 ppts. 24.0 % 20.2 % 3.8 ppts.
See accompanying notes.
Percentages may not recompute due to rounding.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)

 

(unaudited)
9/7/13 12/29/12
ASSETS
Current Assets
Cash and cash equivalents $ 753 $ 776
Accounts and notes receivable, less allowance: $13 in 2013 and $12 in 2012 348 301
Inventories 300 313
Prepaid expenses and other current assets 233 272
Deferred income taxes 116 127
Advertising cooperative assets, restricted 80 136
Total Current Assets 1,830 1,925
Property, plant and equipment, net of accumulated depreciation and amortization of $3,292 in
2013 and $3,139 in 2012 4,257 4,250
Goodwill 882 1,034
Intangible assets, net 644 690
Investments in unconsolidated affiliates 42 72
Other assets 567 575
Deferred income taxes 508 467
Total Assets $ 8,730 $ 9,013
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and other current liabilities $ 1,745 $ 2,036
Income taxes payable 149 97
Short-term borrowings 15 10
Advertising cooperative liabilities 80 136
Total Current Liabilities 1,989 2,279
Long-term debt 2,917 2,932
Other liabilities and deferred credits 1,524 1,490
Total Liabilities 6,430 6,701
Redeemable noncontrolling interest 40 59
Shareholders Equity
Common stock, no par value, 750 shares authorized; 445 shares and 451 shares issued in 2013 and 2012, respectively
Retained earnings 2,326 2,286
Accumulated other comprehensive income (loss) (132 ) (132 )
Total Shareholders’ Equity – YUM! Brands, Inc. 2,194 2,154
Noncontrolling interests 66 99
Total Shareholders’ Equity 2,260 2,253
Total Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity 8,730 $ 9,013
 See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)

 

Year to Date
9/7/13 9/8/12
Cash Flows – Operating Activities
Net income – including noncontrolling interests $ 749 $ 1,272
Depreciation and amortization 473 442
Closures and impairment (income) expenses 310 9
Refranchising (gain) loss (87 ) (41 )
Contributions to defined benefit pension plans (15 ) (46 )
Gain upon acquisition of Little Sheep (74 )
Deferred income taxes (51 ) 86
Equity income from investments in unconsolidated affiliates (17 ) (38 )
Distribution of income received from unconsolidated affiliates 15 38
Excess tax benefit from share-based compensation (27 ) (52 )
Share-based compensation expense 32 35
Changes in accounts and notes receivable (4 ) 7
Changes in inventories 19 27
Changes in prepaid expenses and other current assets (22 ) (14 )
Changes in accounts payable and other current liabilities (14 ) 28
Changes in income taxes payable 115 86
Other, net 77 53
Net Cash Provided by Operating Activities 1,553 1,818
Cash Flows – Investing Activities
Capital spending (699 ) (678 )
Proceeds from refranchising of restaurants 218 187
Acquisitions (98 ) (542 )
Changes in restricted cash 300
Other, net (8 ) (14 )
Net Cash Used in Investing Activities (587 ) (747 )
Cash Flows – Financing Activities
Repayments of long-term debt (5 ) (280 )
Short-term borrowings, three months or less, net 2
Short-term borrowings, more than three months, net 2
Revolving credit facilities, three months or less, net 10
Repurchase shares of Common Stock (510 ) (688 )
Excess tax benefit from share-based compensation 27 52
Employee stock option proceeds 17 27
Dividends paid on Common Stock (451 ) (393 )
Other, net (55 ) (52 )
Net Cash Used in Financing Activities (975 ) (1,322 )
Effect of Exchange Rate on Cash and Cash Equivalents (14 ) (5 )
Net Decrease in Cash and Cash Equivalents (23 ) (256 )
Cash and Cash Equivalents – Beginning of Period 776 1,198
Cash and Cash Equivalents – End of Period $ 753 $ 942
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 2013 and 2012 on a basis before Special Items. Included in Special Items are charges associated with the impairment of certain Little Sheep assets in 2013, the gain upon acquisition of Little Sheep in 2012, U.S. refranchising gain (loss), losses associated with the refranchising of the Pizza Hut UK dine-in business and charges relating to U.S. General and Administrative (“G&A”) productivity initiatives and realignment of resources. These amounts are described in (c), (d), (e) and (f) in the accompanying notes. Other Special Items Income (Expense) in 2013 includes a YUM retirement plan pension settlement charge related to the continuation of a program that began in the fourth quarter of 2012 to payout deferred vested balances. Other Special Items Income (Expense) in 2012 includes the depreciation reductions from Pizza Hut UK and KFC U.S. restaurants impaired upon our decision or offer to refranchise that remained Company stores for some or all of the periods presented and gains from real estate sales related to our previously refranchised Mexico business.
The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. 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 the quarters and years to date ended September 7, 2013 and September 8, 2012 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.
Quarter ended Year to Date
9/7/13 9/8/12 9/7/13 9/8/12
Detail of Special Items
U.S. Refranchising gain (loss)(c) $ 37 $ (1 ) $ 82 $ 53
Little Sheep impairment(d) (295 ) (295 )
Gain upon acquisition of Little Sheep(d) 74
Charges relating to U.S. G&A productivity initiatives and realignment of resources (f) (5 ) (5 )
Losses associated with the refranchising of the Pizza Hut UK dine-in business(e) (1 ) (1 ) (1 ) (24 )
Other Special Items Income (Expense) (3 ) 5 (3 ) 15
Total Special Items Income (Expense) (267 ) 3 (222 ) 118
Tax Benefit (Expense) on Special Items 12 (3 ) (9 )
Special Items Income (Expense), net of tax – including noncontrolling interests $ (255 ) $ 3 $ (225 ) $ 109
Special Items Income (Expense), net of tax – noncontrolling interests 19 19
Special Items Income (Expense), net of tax – Yum Brands, Inc. (236 ) 3 (206 ) 109
Average diluted shares outstanding 461 472 463 476
Special Items diluted EPS $ (0.52 ) $ 0.01 $ (0.45 ) $ 0.23
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
Operating Profit Before Special Items $ 617 $ 668 $ 1,449 $ 1,671
Special Items Income (Expense) (267 ) 3 (222 ) 118
Reported Operating Profit $ 350 $ 671 $ 1,227 $ 1,789
Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS Before Special Items $ 0.85 $ 0.99 $ 2.11 $ 2.42
Special Items EPS (0.52 ) 0.01 (0.45 ) 0.23
Reported EPS $ 0.33 $ 1.00 $ 1.66 $ 2.65
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
Effective Tax Rate Before Special Items 33.1 % 25.1 % 28.2 % 25.6 %
Impact on Tax Rate as a result of Special Items 24.1 % % 5.7 % (1.2 )%
Reported Effective Tax Rate 57.2 % 25.1 % 33.9 % 24.4 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/7/13 China YRI United
States
India Corporate
and
Unallocated
Consolidated
Total revenues $ 2,033 $ 719 $ 684 $ 30 $ $ 3,466
Company restaurant expenses 1,612 442 409 27 2,490
General and administrative expenses 88 95 92 6 46 327
Franchise and license expenses 3 20 20 1 44
Closures and impairment (income) expenses 6 (1 ) 295 300
Refranchising (gain) loss (38 ) (38 )
Other (income) expense (11 ) (1 ) 5 (7 )
1,698 556 520 34 308 3,116
Operating Profit (loss) $ 335 $ 163 $ 164 $ (4 ) $ (308 ) $ 350
Quarter Ended 9/8/12 China YRI United
States
India Corporate
and
Unallocated
Consolidated
Total revenues $ 1,988 $ 769 $ 787 $ 25 $ $ 3,569
Company restaurant expenses 1,539 490 498 19 (3 ) 2,543
General and administrative expenses 84 91 110 6 41 332
Franchise and license expenses 3 13 16 32
Closures and impairment (income) expenses 1 2 1 4
Refranchising (gain) loss (2 ) (2 )
Other (income) expense (13 ) 2 (11 )
1,614 596 625 25 38 2,898
Operating Profit (loss) $ 374 $ 173 $ 162 $ $ (38 ) $ 671
The above tables reconcile segment information, which is based on management responsibility, with our Condensed 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 9/7/13 China YRI United
States
India Corporate
and
Unallocated
Consolidated
Total revenues $ 4,633 $ 2,101 $ 2,088 $ 83 $ $ 8,905
Company restaurant expenses 3,834 1,268 1,246 72 6,420
General and administrative expenses 233 265 284 18 133 933
Franchise and license expenses 8 44 54 2 108
Closures and impairment (income) expenses 14 1 295 310
Refranchising (gain) loss (87 ) (87 )
Other (income) expense (13 ) (1 ) 2 6 (6 )
4,076 1,576 1,586 93 347 7,678
Operating Profit (loss) $ 557 $ 525 $ 502 $ (10 ) $ (347 ) $ 1,227
Year to Date Ended 9/8/12 China YRI United
States
India Corporate
and
Unallocated
Consolidated
Total revenues $ 4,762 $ 2,247 $ 2,405 $ 66 $ $ 9,480
Company restaurant expenses 3,751 1,446 1,550 51 (12 ) 6,786
General and administrative expenses 213 275 322 16 124 950
Franchise and license expenses 6 34 44 84
Closures and impairment (income) expenses 4 2 3 9
Refranchising (gain) loss (41 ) (41 )
Other (income) expense (24 ) (1 ) (72 ) (97 )
3,950 1,756 1,919 67 (1 ) 7,691
Operating Profit (loss) $ 812 $ 491 $ 486 $ (1 ) $ 1 $ 1,789
The above tables reconcile segment information, which is based on management responsibility, with our Condensed 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.
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