YUM BRANDS INC - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - November 3, 2016

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8-K - YUM BRANDS, INC. FORM 8-K - YUM BRANDS INCform8k11316.htm
EX-99.1 - EXHIBIT 99.1 - YUM BRANDS INCa8kex99111316.htm
EX-10.2 - EXHIBIT 10.2 - YUM BRANDS INCa16-20742_3ex10d2.htm
EX-10.1 - EXHIBIT 10.1 - YUM BRANDS INCa16-20742_3ex10d1.htm
EX-2.1 - EXHIBIT 2.1 - YUM BRANDS INCa16-20742_3ex2d1.htm


EXHIBIT 99.2


YUM! BRANDS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


On October 31, 2016, YUM! Brands, Inc. (“YUM” or the “Company”) completed the previously announced distribution of all of the outstanding shares of common stock of Yum China Holdings, Inc. (“Yum China”) to YUM’s shareholders (the “Distribution”) as of the October 19, 2016 record date.

The following unaudited pro forma condensed consolidated statement of income for the year to date ended September 3, 2016 and unaudited pro forma consolidated statements of income for each of the years ended December 26, 2015, December 27, 2014 and December 28, 2013 are presented as if the Distribution had occurred on December 30, 2012. The following unaudited pro forma condensed consolidated balance sheet as of September 3, 2016 is presented as if the Distribution and related events had occurred on September 3, 2016.

The statements have been derived from historical financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), are presented based on information currently available, are intended for informational purposes only, and do not purport to represent YUM’s financial position and results of operations had the Distribution and related events occurred on the dates indicated, or to project YUM’s financial performance for any future period. Beginning in the fourth quarter of 2016, the historical financial results attributable to YUM’s China business for the periods prior to the Distribution will be reflected in YUM’s consolidated financial statements as discontinued operations.

The unaudited pro forma consolidated financial statements and the accompanying notes should be read in conjunction with (i) the audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in YUM’s Form 10-K for the years ended December 26, 2015, December 27, 2014 and December 28, 2013 and (ii) the unaudited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in YUM’s Form 10-Q for the quarter ended September 3, 2016.





UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YUM! BRANDS, INC.
FOR THE YEAR TO DATE ENDED SEPTEMBER 3, 2016
(in millions, except per share data)
 
 
 
 
Pro Forma Adjustments
 
 
 
 
Historical(a)
 
Separation of China Division(b)
 
Other
 
Pro Forma
Revenues
 
 
 
 
 
 
 
 
Company sales
 
$
7,560

 
$
(4,684
)
 
$
—

 
$
2,876

Franchise fees and income
 
1,383

 
(90
)
 
172

(c)
1,465

Total revenues
 
8,943

 
(4,774
)
 
172

 
4,341

Costs and Expenses, Net
 
 
 
 
 
 
 
 
Company restaurants
 
 
 
 
 
 
 
 
Food and paper
 
2,230

 
(1,361
)
 
—

 
869

Payroll and employee benefits
 
1,727

 
(963
)
 
—

 
764

Occupancy and other operating expenses
 
2,192

 
(1,420
)
 
—

 
772

Company restaurant expenses
 
6,149

 
(3,744
)
 
—

 
2,405

General and administrative expenses
 
1,028

 
(270
)
 
(18
)
(c) (d)
740

Franchise and license expenses
 
145

 
(15
)
 
—

 
130

Closures and impairment (income) expenses
 
47

 
(36
)
 
—

 
11

Refranchising (gain) loss
 
(85
)
 
—

 
8

(f)
(77
)
Other (income) expense
 
(50
)
 
42

 
2

(g)
(6
)
Total costs and expenses, net
 
7,234

 
(4,023
)
 
(8
)
 
3,203

 
 
 
 
 
 
 
 
 
Operating Profit
 
1,709

 
(751
)
 
180

 
1,138

 
 
 
 
 
 
 
 
 
Interest expense, net
 
164

 
N/A

 
7

(g)
171

 
 
 
 
 
 
 
 
 
Income Before Income Taxes
 
1,545

 
N/A

 
173

 
967

 
 
 
 
 
 
 
 
 
Income tax provision
 
183

 
N/A

 
82

(h)
265

Net Income – including noncontrolling interests
 
1,362

 
N/A

 
91

 
702

Net Income - noncontrolling interests
 
10

 
N/A

 
(10
)
(g)
—

Net Income - YUM! Brands, Inc.
 
$
1,352

 
N/A

 
$
101

 
$
702

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
3.33

 
 
 
 
 
$
1.73

Diluted
 
$
3.28

 
 
 
 
 
$
1.70

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
406

 
 
 
 
 
406

Diluted
 
412

 
 
 
 
 
412






UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YUM! BRANDS, INC.
FOR THE YEAR ENDED DECEMBER 26, 2015
(in millions, except per share data)
 
 
 
 
Pro Forma Adjustments
 
 
 
 
Historical(a)
 
Separation of China Division(b)
 
Other
 
Pro Forma
Revenues
 
 
 
 
 
 
 
 
Company sales
 
$
11,145

 
$
(6,789
)
 
$
—

 
$
4,356

Franchise fees and income
 
1,960

 
(120
)
 
244

(c)
2,084

Total revenues
 
13,105

 
(6,909
)
 
244

 
6,440

Costs and Expenses, Net
 
 
 
 
 
 
 
 
Company restaurants
 
 
 
 
 
 
 
 
Food and paper
 
3,507

 
(2,159
)
 
—

 
1,348

Payroll and employee benefits
 
2,517

 
(1,386
)
 
—

 
1,131

Occupancy and other operating expenses
 
3,335

 
(2,167
)
 
—

 
1,168

Company restaurant expenses
 
9,359

 
(5,712
)
 
—

 
3,647

General and administrative expenses
 
1,504

 
(397
)
 
7

(c) (d)
1,114

Franchise and license expenses
 
242

 
(20
)
 
—

 
222

Closures and impairment (income) expenses
 
79

 
(64
)
 
—

 
15

Refranchising (gain) loss
 
10

 
—

 
13

(f)
23

Other (income) expense
 
(10
)
 
41

 
(15
)
(g)
16

Total costs and expenses, net
 
11,184

 
(6,152
)
 
5

 
5,037

 
 
 
 
 
 
 
 
 
Operating Profit
 
1,921

 
(757
)
 
239

 
1,403

 
 
 
 
 
 
 
 
 
Interest expense, net
 
134

 
N/A

 
8

(g)
142

 
 
 
 
 
 
 
 
 
Income Before Income Taxes
 
1,787

 
N/A

 
231

 
1,261

 
 
 
 
 
 
 
 
 
Income tax provision
 
489

 
N/A

 
(164
)
(h)
325

Net Income – including noncontrolling interests
 
1,298

 
N/A

 
395

 
936

Net Income - noncontrolling interests
 
5

 
N/A

 
(5
)
(g)
—

Net Income - YUM! Brands, Inc.
 
$
1,293

 
N/A

 
$
400

 
$
936

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
2.97

 
 
 
 
 
$
2.15

Diluted
 
$
2.92

 
 
 
 
 
$
2.11

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
 
 
 
 
 
 
Basic
 
436

 
 
 
 
 
436

Diluted
 
443

 
 
 
 
 
443






UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YUM! BRANDS, INC.
FOR THE YEAR ENDED DECEMBER 27, 2014
(in millions, except per share data)
 
 
 
 
Pro Forma Adjustments
 
 
 
 
Historical(a)
 
Separation of China Division(b)
 
Other
 
Pro Forma
Revenues
 
 
 
 
 
 
 
 
Company sales
 
$
11,324

 
$
(6,821
)
 
$
—

 
$
4,503

Franchise fees and income
 
1,955

 
(113
)
 
242

(c)
2,084

Total revenues
 
13,279

 
(6,934
)
 
242

 
6,587

Costs and Expenses, Net
 
 
 
 
 
 
 
 
Company restaurants
 
 
 
 
 
 
 
 
Food and paper
 
3,678

 
(2,207
)
 
—

 
1,471

Payroll and employee benefits
 
2,579

 
(1,407
)
 
—

 
1,172

Occupancy and other operating expenses
 
3,425

 
(2,198
)
 
—

 
1,227

Company restaurant expenses
 
9,682

 
(5,812
)
 
—

 
3,870

General and administrative expenses
 
1,419

 
(391
)
 
16

(c)
1,044

Franchise and license expenses
 
160

 
(16
)
 
-

 
144

Closures and impairment (income) expenses
 
535

 
(54
)
 
(463
)
(e)
18

Refranchising (gain) loss
 
(33
)
 
—

 
17

(f)
(16
)
Other (income) expense
 
(41
)
 
52

 
1

(g)
12

Total costs and expenses, net
 
11,722

 
(6,221
)
 
(429
)
 
5,072

 
 
 
 
 
 
 
 
 
Operating Profit
 
1,557

 
(713
)
 
671

 
1,515

 
 
 
 
 
 
 
 
 
Interest expense, net
 
130

 
N/A

 
14

(g)
144

 
 
 
 
 
 
 
 
 
Income Before Income Taxes
 
1,427

 
N/A

 
657

 
1,371

 
 
 
 
 
 
 
 
 
Income tax provision
 
406

 
N/A

 
(39
)
(e) (h)
367

Net Income – including noncontrolling interests
 
1,021

 
N/A

 
696

 
1,004

Net Income (loss) - noncontrolling interests
 
(30
)
 
N/A

 
30

(e) (g)
—

Net Income - YUM! Brands, Inc.
 
$
1,051

 
N/A

 
$
666

 
$
1,004

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
2.37

 
 
 
 
 
$
2.26

Diluted
 
$
2.32

 
 
 
 
 
$
2.22

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
444

 
 
 
 
 
444

Diluted
 
453

 
 
 
 
 
453






UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YUM! BRANDS, INC.
FOR THE YEAR ENDED DECEMBER 28, 2013
(in millions, except per share data)
 
 
 
 
Pro Forma Adjustments
 
 
 
 
Historical(a)
 
Separation of China Division(b)
 
Other
 
Pro Forma
Revenues
 
 
 
 
 
 
 
 
Company sales
 
$
11,184

 
$
(6,800
)
 
$
—

 
$
4,384

Franchise fees and income
 
1,900

 
(105
)
 
238

(c)
2,033

Total revenues
 
13,084

 
(6,905
)
 
238

 
6,417

Costs and Expenses, Net
 
 
 
 
 
 
 
 
Company restaurants
 
 
 
 
 
 
 
 
Food and paper
 
3,669

 
(2,258
)
 
—

 
1,411

Payroll and employee benefits
 
2,499

 
(1,360
)
 
—

 
1,139

Occupancy and other operating expenses
 
3,333

 
(2,132
)
 
—

 
1,201

Company restaurant expenses
 
9,501

 
(5,750
)
 
—

 
3,751

General and administrative expenses
 
1,412

 
(357
)
 
15

(c)
1,070

Franchise and license expenses
 
158

 
(13
)
 
—

 
145

Closures and impairment (income) expenses
 
331

 
(30
)
 
(295
)
(e)
6

Refranchising (gain) loss
 
(100
)
 
—

 
5

(f)
(95
)
Other (income) expense
 
(16
)
 
22

 
3

(g)
9

Total costs and expenses, net
 
11,286

 
(6,128
)
 
(272
)
 
4,886

 
 
 
 
 
 
 
 
 
Operating Profit
 
1,798

 
(777
)
 
510

 
1,531

 
 
 
 
 
 
 
 
 
Interest expense, net
 
247

 
N/A

 
5

(g)
252

 
 
 
 
 
 
 
 
 
Income Before Income Taxes
 
1,551

 
N/A

 
505

 
1,279

 
 
 
 
 
 
 
 
 
Income tax provision
 
487

 
N/A

 
(137
)
(e) (h)
350

Net Income – including noncontrolling interests
 
1,064

 
N/A

 
642

 
929

Net Income (loss) - noncontrolling interests
 
(27
)
 
N/A

 
27

(e) (g)
—

Net Income- YUM! Brands, Inc.
 
$
1,091

 
N/A

 
$
615

 
$
929

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
2.41

 
 
 
 
 
$
2.05

Diluted
 
$
2.36

 
 
 
 
 
$
2.01

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
452

 
 
 
 
 
452

Diluted
 
461

 
 
 
 
 
461






UNAUDITED PRO FORMA CONDENSED CONSOLIATED BALANCE SHEET
YUM! BRANDS, INC.
AS OF SEPTEMBER 3, 2016
(in millions)
 
 
 
 
 
 
 
 
 
Historical(a)
 
Separation of China Division(i)
 
Pro Forma
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,885

 
$
(750
)
 
$
2,135

Accounts and notes receivable, net
 
440

 
(109
)
 
331

Inventories
 
255

 
(218
)
 
37

Prepaid expenses and other current assets
 
287

 
(49
)
 
238

Advertising cooperative assets, restricted
 
136

 
—

 
136

Total Current Assets
 
4,003

 
(1,126
)
 
2,877

 
 
 
 
 
 
 
Property, plant and equipment, net
 
4,010

 
(1,707
)
 
2,303

Goodwill
 
635

 
(82
)
 
553

Intangible assets, net
 
258

 
(96
)
 
162

Investments in unconsolidated affiliates
 
64

 
(64
)
 
—

Other assets
 
562

 
(217
)
 
345

Deferred income taxes
 
900

 
(152
)
 
748

Total Assets
 
$
10,432

 
$
(3,444
)
 
$
6,988

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 


 


 


 
 
 
 
 
 
 
Accounts payable and other current liabilities
 
$
2,058

 
$
(997
)
 
$
1,061

Income taxes payable
 
57

 
(42
)
 
15

Short-term borrowings
 
48

 
(1
)
 
47

Advertising cooperative liabilities
 
136

 
—

 
136

Total Current Liabilities
 
2,299

 
(1,040
)
 
1,259

 
 


 


 


Long-term debt
 
9,119

 
(29
)
 
9,090

Other liabilities and deferred credits
 
844

 
(210
)
 
634

Total Liabilities
 
12,262

 
(1,279
)
 
10,983

 
 
 
 
 
 
 
Shareholders’ Equity (Deficit)
 
 
 
 
 
 
Common Stock, no par value
 
—

 
—

 
—

Retained earnings (Accumulated deficit)
 
(1,572
)
 
(2,026
)
 
(3,598
)
Accumulated other comprehensive income (loss)
 
(324
)
 
(73
)
 
(397
)
Total Shareholders' Equity (Deficit) – YUM! Brands, Inc.
 
(1,896
)
 
(2,099
)
 
(3,995
)
Noncontrolling interests
 
66

 
(66
)
 
—

Total Shareholder's Equity (Deficit)
 
(1,830
)
 
(2,165
)
 
(3,995
)
Total Liabilities and Shareholders' Equity (Deficit)
 
$
10,432

 
$
(3,444
)
 
$
6,988

 
 
 
 
 
 
 





NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of presentation

YUM’s historical consolidated financial statements have been adjusted in the pro forma consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Distribution, (2) factually supportable and (3) with respect to the pro forma consolidated statements of income, expected to have a continuing impact on YUM’s consolidated results following the Distribution.

YUM’s fiscal year ends on the last Saturday in December. The first three quarters of each fiscal year consist of 12 weeks and the fourth quarter consists of 16 weeks. Our subsidiaries operate on similar fiscal calendars except that Yum China and certain other international subsidiaries operate on a monthly calendar with two months in the first quarter, three months in the second and third quarters and four months in the fourth quarter.

Note 2 - Pro forma adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma consolidated financial statements:

(a)
Reflects YUM’s historical GAAP financial statements and does not reflect any adjustments related to the Distribution.

(b)
Reflects the revenues and expenses representing the historical operating profit of the China Division as reported by YUM. These amounts, net of their related tax impact, will be included in discontinued operations in YUM's financial statements subsequent to the Distribution.

(c)
Per the terms of the master license agreement, Yum China will pay a license fee to YUM equal to 3% of net sales from the operations of KFC, Pizza Hut and Taco Bell subsequent to the Distribution. This adjustment reflects the impact of the license fee income from Yum China of $172 million, $244 million, $242 million and $238 million for the year to date ended September 3, 2016 and for the years ended December 26, 2015, December 27, 2014 and December 28, 2013, respectively. The license fee is subject to VAT and miscellaneous surcharges which are recorded in General and administrative expenses.

(d)
Includes the removal of separation costs incurred by YUM in connection with the Distribution of $29 million and $9 million recorded in General and administrative expenses for the year to date ended September 3, 2016 and year ended December 26, 2015, respectively. These costs primarily related to legal, tax, accounting and other professional services and were not allocated to YUM’s China Division for performance reporting purposes. These amounts, net of their related tax impact, will be included in discontinued operations in YUM's financial statements subsequent to the Distribution.

We expect to incur additional cash separation costs of approximately $25 million in the fourth quarter ending December 31, 2016 in connection with the Distribution. Additionally, we expect to incur a non-cash of approximately $30 million related to certain share-based awards that will be modified in connection with the Distribution in the fourth quarter ending December 31, 2016. Consistent with the historical separation costs incurred in connection with the Distribution these costs will be included in discontinued operations in YUM's financial statements.

(e)
Reflects historical non-cash impairment charges of $463 million and $295 million and the resulting net losses allocated to noncontrolling interests of $26 million and $19 million for the years ended December 27, 2014 and December 28, 2013, respectively, related to Yum China’s Little Sheep business which were not allocated to YUM’s China Division for performance reporting purposes. These amounts, net of their related tax impact, will be included in discontinued operations in YUM's financial statements subsequent to the Distribution.

(f)
Reflects historical refranchising gains, net related to Yum China which were not allocated to YUM’s China Division for performance reporting purposes. These amounts, net of their related tax impact, will be included in discontinued operations in YUM's financial statements subsequent to the Distribution.

(g)
Reflects the removal of historical Corporate and Unallocated items related to Yum China which were not allocated to YUM’s China Division for performance reporting purposes. These amounts, net of their related tax impact, will be included in discontinued operations in YUM's financial statements subsequent to the Distribution.





(h)
Reflects the tax effects attributable to the historical operating results of YUM’s China Division and the amounts described by (c), (d), (e), (f) and (g) above based upon the impact of the nature, as well as the jurisdiction, of the respective individual components. Although not reflected in these unaudited pro forma consolidated statements of income, the effective tax rate after the separation could be significantly different depending on YUM's repatriation decisions after the Distribution.

(i)
Reflects the assets and liabilities attributable to YUM’s China operations and was derived from YUM’s historical GAAP balance sheet included in YUM’s Form 10-Q as of September 3, 2016.





YUM BRANDS INC Reports