01—Abstract
Summary
Summary of the 10-K filed February 18, 2014. Cited figures are marked; the original filing is the authoritative source.
YUM!
Brands, Inc. reported fiscal 2013 total revenues of $13.08 billiona and Operating Profit of $1.80 billion, down from $2.29 billion in 2012, with net income attributable to YUM! Brands of $1.09 billion and diluted EPS of $2.36 (versus $3.38 in 2012). Diluted EPS before Special Items was $2.97, down from $3.25.
The decline was driven primarily by a $295 millionb non-cash Little Sheep impairment (Special Items), a $120 million loss on the extinguishment of debt, and a 26% decline in China Division Operating Profit, excluding foreign currency, following the December 2012 poultry supply incident and subsequent avian flu media attention. China same-store sales declined 13% for the year, while YRI same-store sales grew 1% and U.S. same-store sales were flat. Cash flow from operations was $2.14 billion in 2013, versus $2.29 billion in 2012.
The company returned capital through $770 millionc of share repurchases and $615 million of dividends paid, and it had $953 million of remaining repurchase authorization at year end. The company targets a dividend payout ratio of 35% to 40% of net income and had approximately $1.2 billion of unused capacity under its $1.3 billion revolving credit facility. Management expects 2014 EPS before Special Items to grow at least 20% and China Division Operating Profit to return to more than $1 billion, and it plans to combine YRI and U.S. into KFC, Pizza Hut and Taco Bell global divisions beginning in the first quarter of 2014.
The filing also flags material risks. The IRS has proposed adjustments on intangible-property transfers that would add approximately $700 milliond of taxes plus about $255 million of net interest for fiscal 2004-2006, with further proposed adjustments for 2007-2008 of about $270 million plus $40 million of interest.
In addition, a January 2014 administrative law ruling could suspend the Chinese affiliate of the company's auditor, which management considers remote but which could affect timely filings. The company also faces a securities class action and shareholder derivative suits related to China supply chain disclosures.
02—Key points
Key Highlights
- Total revenues were $13.08 billion in 2013, down from $13.63 billion in 2012, and Operating Profit fell to $1.80 billion from $2.29 billion.
- Diluted EPS was $2.36 versus $3.38 in 2012; EPS before Special Items was $2.97 versus $3.25, a 9% decline as reported in the filing.
- Special Items included a $295 million non-cash Little Sheep impairment and a $120 million loss on debt extinguishment, of which $118 million was recorded in interest expense.
- China Division Operating Profit declined 26% excluding foreign currency, with China same-store sales down 13% after the poultry supply incident and avian flu coverage.
- YRI and U.S. Operating Profit grew, with YRI up 10% and U.S. up 3%, both excluding foreign currency for YRI, per the filing.
- Cash from operations was $2.14 billion, and the company returned $770 million through share repurchases and $615 million through dividends paid.
- The IRS has proposed adjustments that could add about $700 million of taxes plus interest for fiscal 2004-2006, with further proposed adjustments for 2007-2008 and a potential 2009-2013 exposure of about $140 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Yum! Brands kept $0.08.
- Revenue$13.08B100.0%
- Cost of revenue−$9.50B72.6%
- Gross profit$3.58B27.4%
- Operating costs−$1.78B13.6%
- Operating income$1.80B13.7%
- Interest, other & tax−$707.0M5.4%
- Net income$1.09B8.3%
Where FY2013 revenue went
$13.08B- Cost of revenue: $9.50B, 73% of revenue
- Other operating costs: $1.75B, 13% of revenue
- Net income: $1.09B, 8.3% of revenue
- R&D: $31.0M, 0.2% of revenue
- Interest, other & tax: $707.0M, 5.4% of revenue
Kept 8.3% as net incomeR&D $31.0M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 18, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $13.08B$13.63B | −4.0% |
| Cost of Revenue | $9.50B$9.85B | −3.6% |
| Gross Profit | $3.58B$3.78B | −5.2% |
| R&D Expenses | $31.00M$30.00M | +3.3% |
| Operating Expenses | $11.29B$11.34B | −0.5% |
| Operating Income | $1.80B$2.29B | −21.6% |
| Interest Expense | $270.00M$169.00M | +59.8% |
| Net Income | $1.09B$1.60B | −31.7% |
| EPS (Basic) | $2.41$3.46 | −30.3% |
| EPS (Diluted) | $2.36$3.38 | −30.2% |
| Shares Outstanding (Basic) | 452.00M461.00M | −2.0% |
| Shares Outstanding (Diluted) | 461.00M473.00M | −2.5% |
05—Questions
Frequently Asked Questions
Why did YUM! Brands' earnings decline in 2013?
Operating Profit fell 22% to $1.80 billion, driven mainly by a $295 million Little Sheep impairment and weaker China results. The filing attributes China's decline to the December 2012 poultry supply incident and avian flu media attention, which reduced KFC China same-store sales. The effective tax rate also rose to 28.0% before Special Items from 25.8%, which the filing ties primarily to an IRS-related provision.
How is the China business performing and what is expected next?
China Division Operating Profit was $777 million, down 23% reported and 26% excluding foreign currency, and China same-store sales declined 13%. KFC China same-store sales improved each month in the fourth quarter, though they still declined 4% in that quarter. Management expects China Division 2014 Operating Profit to return to more than $1 billion, the 2012 level.
What is the status of the IRS dispute?
The IRS proposed adjustments to increase the taxable value of intangible rights transferred to foreign subsidiaries, which would add approximately $700 million of taxes plus about $255 million of net interest for fiscal 2004-2006. A 2013 Revenue Agent Report for 2007-2008 proposed about $270 million of additional taxes plus $40 million of interest. The company says it intends to vigorously defend its position and does not expect resolution within twelve months.
How much capital did the company return to shareholders and what remains available?
In 2013 the company repurchased $770 million of shares on the cash flow statement and paid $615 million in dividends. Dividends declared were $1.41 per share. At year end, $953 million remained available under repurchase authorizations running through May 2014 and May 2015.
What organizational changes were announced for 2014?
Beginning in the first quarter of 2014, YRI and the U.S. businesses will combine into three global divisions, KFC, Pizza Hut and Taco Bell, while China and India remain separate reporting segments. The company says consolidated results will not be affected, and it will restate historical segment information during 2014.
06—Continue