01—Abstract
Summary
Summary of the 10-K filed February 20, 2013. Cited figures are marked; the original filing is the authoritative source.
YUM!
Brands, Inc. (YUM) reported fiscal 2012 total revenues of $13.63 billiona, up from $12.63 billion in 2011, and Operating Profit of $2.29 billion versus $1.82 billion. Reported diluted EPS was $3.38 (diluted EPS before Special Items was $3.25), and Net Income attributable to YUM was $1.60 billion. Results were helped by a $122 million U.S. refranchising gain, a $74 million non-cash gain on the acquisition of Little Sheep, and the $84 million YUM Retirement Plan settlement charge.
Operating cash flow was $2.29 billionb and capital spending was $1.10 billion. The company returned cash through $965 million of share repurchases and $544 million of dividends paid. China was the largest growth driver, with China Division Operating Profit of $1.015 billion and revenues of approximately $6.9 billion.
The filing discloses a serious near-term risk: China same-store sales turned sharply negative in late December 2012 after a poultry supply investigation by the Shanghai FDA. January 2013 estimated same-store sales declined 37%c for the China Division. Management stated that it expects China Operating Profit to be negative versus the prior year in 2013 and that EPS, excluding Special Items, will decline by a mid-single digit percentage, which reverses its prior expectation of at least 10% EPS growth for 2013.
The filing also highlights other exposures, including a proposed IRS adjustment that would result in approximately $700 milliond of additional taxes plus net interest of about $220 million for fiscal years 2004-2006, with a further approximately $270 million of additional taxes for 2007-2008 and securities class actions filed in January 2013 relating to China disclosures. The company's Board authorized up to $1 billion of additional share repurchases in November 2012, with $953 million remaining as of December 29, 2012.
02—Key points
Key Highlights
- Total revenues of $13.63 billion in 2012, up from $12.63 billion in 2011; Operating Profit rose to $2.29 billion from $1.82 billion.
- Reported diluted EPS of $3.38 in 2012 versus $2.74 in 2011; diluted EPS before Special Items was $3.25 versus $2.87.
- Special Items included a $122 million U.S. refranchising gain, a $74 million gain on acquiring Little Sheep, and an $84 million YUM Retirement Plan settlement charge.
- China Division January 2013 same-store sales declined an estimated 37%, and management expects 2013 China Operating Profit to be negative versus the prior year.
- Management now expects 2013 EPS, excluding Special Items, to decline by a mid-single digit percentage, compared with its prior indication of at least 10% EPS growth.
- Share repurchases of $965 million and dividends of $544 million were paid in 2012; $953 million remained under the November 2012 repurchase authorization.
- A proposed IRS adjustment could add approximately $700 million in taxes plus about $220 million of net interest for fiscal 2004-2006, and the IRS proposed a further approximately $270 million for 2007-2008.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Yum! Brands kept $0.12.
- Revenue$13.63B100.0%
- Cost of revenue−$9.85B72.3%
- Gross profit$3.78B27.7%
- Operating costs−$1.49B10.9%
- Operating income$2.29B16.8%
- Interest, other & tax−$697.0M5.1%
- Net income$1.60B11.7%
Where FY2012 revenue went
$13.63B- Cost of revenue: $9.85B, 72% of revenue
- Net income: $1.60B, 12% of revenue
- R&D: $30.0M, 0.2% of revenue
- Other operating costs: $1.46B, 11% of revenue
- Interest, other & tax: $697.0M, 5.1% of revenue
Kept 12% as net incomeNet income $1.60B · 12%R&D $30.0M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 20, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $13.63B$12.63B | +8.0% |
| Cost of Revenue | $9.85B$9.14B | +7.8% |
| Gross Profit | $3.78B$3.49B | +8.5% |
| R&D Expenses | $30.00M$34.00M | −11.8% |
| Operating Expenses | $11.34B$10.81B | +4.9% |
| Operating Income | $2.29B$1.81B | +26.4% |
| Interest Expense | $169.00M$184.00M | −8.2% |
| Net Income | $1.60B$1.32B | +21.1% |
| EPS (Basic) | $3.46$2.81 | +23.1% |
| EPS (Diluted) | $3.38$2.74 | +23.4% |
| Shares Outstanding (Basic) | 461.00M469.00M | −1.7% |
| Shares Outstanding (Diluted) | 473.00M481.00M | −1.7% |
05—Questions
Frequently Asked Questions
Why did YUM's China business weaken at the end of 2012?
The filing states that KFC China sales in the last two weeks of 2012 were significantly impacted by media attention surrounding a Shanghai FDA investigation into poultry supply management, prompted by a national television report on excessive antibiotic use by some poultry farmers. Some of that chicken was purchased by two poultry suppliers of KFC China. China Division same-store sales declined 6% in the fourth quarter of 2012, and January 2013 estimated same-store sales declined 37%.
What is management's 2013 outlook?
Management estimates that China Restaurant margin will be in the mid-teens, China Operating Profit will be negative versus the prior year, and EPS excluding Special Items will decline by a mid-single digit percentage. The company expects a significant decline in EPS in the first half of 2013 followed by growth in the second half. It still expects to open at least 700 new units in China.
How much did YUM return to shareholders?
In 2012, YUM repurchased shares for $965 million on the cash flow statement ($985 million including the effect of trade-date timing), and paid dividends of $544 million. Dividends declared per share were $1.24 for 2012, and the company targets an annual payout ratio of 35% to 40% of net income. As of December 29, 2012, $953 million remained under the November 2012 authorization.
What are the main tax and legal risks disclosed?
The filing discloses an IRS proposed adjustment for fiscal 2004-2006 of approximately $700 million of additional taxes plus about $220 million of net interest, and a January 9, 2013 Revenue Agent Report proposing about $270 million of additional taxes plus about $30 million of net interest for 2007-2008. The company has filed a protest and intends to defend its position vigorously. It also faces four purported securities class actions filed in January 2013 relating to statements about its China business, and it cannot estimate the amount of potential loss.
06—Continue