Company Quick10K Filing
Yum Brands
Price112.99 EPS3
Shares314 P/E44
MCap35,479 P/FCF40
Net Debt9,800 EBIT1,300
TEV45,279 TEV/EBIT35
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-09-03 Filed 2016-10-11
10-Q 2016-06-11 Filed 2016-07-19
10-Q 2016-03-19 Filed 2016-04-26
10-K 2015-12-26 Filed 2016-02-16
10-Q 2015-09-05 Filed 2015-10-15
10-Q 2015-06-13 Filed 2015-07-21
10-Q 2015-03-21 Filed 2015-04-27
10-K 2014-12-27 Filed 2015-02-17
10-Q 2014-09-06 Filed 2014-10-14
10-Q 2014-06-14 Filed 2014-07-22
10-Q 2014-03-22 Filed 2014-04-28
10-K 2013-12-28 Filed 2014-02-18
10-Q 2013-09-07 Filed 2013-10-15
10-Q 2013-06-15 Filed 2013-07-16
10-Q 2013-03-23 Filed 2013-04-29
10-K 2012-12-29 Filed 2013-02-20
10-Q 2012-09-08 Filed 2012-10-16
10-Q 2012-06-16 Filed 2012-07-24
10-Q 2012-03-24 Filed 2012-04-25
10-K 2011-12-31 Filed 2012-02-21
10-Q 2011-09-03 Filed 2011-10-11
10-Q 2011-06-11 Filed 2011-07-19
10-Q 2011-03-19 Filed 2011-04-26
10-K 2010-12-25 Filed 2011-02-15
10-Q 2010-09-04 Filed 2010-10-12
10-Q 2010-06-12 Filed 2010-07-20
10-Q 2010-03-20 Filed 2010-04-21
10-K 2009-12-26 Filed 2010-02-17
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-06-25
8-K 2020-06-10
8-K 2020-05-14
8-K 2020-04-29
8-K 2020-04-01
8-K 2020-03-30
8-K 2020-03-29
8-K 2020-03-18
8-K 2020-02-06
8-K 2020-01-12
8-K 2020-01-05
8-K 2019-10-30
8-K 2019-09-11
8-K 2019-09-04
8-K 2019-08-13
8-K 2019-08-01
8-K 2019-06-26
8-K 2019-05-16
8-K 2019-05-01
8-K 2019-02-07
8-K 2019-01-25
8-K 2018-11-28
8-K 2018-11-15
8-K 2018-11-01
8-K 2018-10-31
8-K 2018-09-24
8-K 2018-08-02
8-K 2018-05-17
8-K 2018-05-02
8-K 2018-04-03
8-K 2018-02-13
8-K 2018-02-08

YUM 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Financial Statement Presentation
Note 2 - Habit Burger Grill Acquisition
Note 3 - Earnings per Common Share ("Eps")
Note 4 - Accumulated Other Comprehensive Loss ("Aoci")
Note 5 - Other (Income) Expense
Note 6 - Supplemental Balance Sheet Information
Note 7 - Income Taxes
Note 8 - Revenue Recognition
Note 9 - Reportable Operating Segments
Note 10 - Pension Benefits
Note 11 - Short - Term Borrowings and Long - Term Debt
Note 12 - Derivative Instruments
Note 13 - Fair Value Disclosures
Note 14 - Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information and Signatures
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-15 yum-3312020xex15.htm
EX-31.1 yum-3312020xex311.htm
EX-31.2 yum-3312020xex312.htm
EX-32.1 yum-3312020xex321.htm
EX-32.2 yum-3312020xex322.htm

Yum Brands Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
151050-5-102012201420172020
Assets, Equity
4.23.32.51.60.8-0.12012201420172020
Rev, G Profit, Net Income
1.61.10.60.0-0.5-1.02012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
 
EXCHANGE ACT OF 1934 for the quarterly period ended
March 31, 2020
 
 
 
 
OR
 
 
 
 
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to _________________
 
 Commission file number 1-13163
________________________
YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)
 
North Carolina
 
13-3951308
 
 
(State or other jurisdiction of
 
(I.R.S. Employer
 
 
incorporation or organization)
 
Identification No.)
 
 
 
 
 
 
 
 
 
1441 Gardiner Lane,
Louisville,
Kentucky
 
40213
 
 
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code:
(502)
 874-8300
 
Securities registered pursuant to Section 12(b) of the Act
 
 
 
 
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
 
Common Stock, no par value
YUM
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
 
Accelerated Filer
o
 
 
 
 
 
Non-accelerated Filer
o
 
Smaller Reporting Company
 
 
 
 
 
Emerging Growth Company
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No x
 
The number of shares outstanding of the registrant’s Common Stock as of April 28, 2020 was 300,985,972 shares.
 




YUM! BRANDS, INC.

INDEX
 
 
 
Page
 
 
No.
Part I.
Financial Information
 
 
 
 
 
Item 1 - Financial Statements
 
 
 
 
 
Condensed Consolidated Statements of Income
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
Condensed Consolidated Statements of Shareholders' Deficit
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
 
Item 2 - Management’s Discussion and Analysis of Financial Condition
              and Results of Operations
 
 
 
 
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4 – Controls and Procedures
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
Part II.
Other Information and Signatures
 
 
 
 
 
Item 1 – Legal Proceedings
 
 
 
 
Item 1A – Risk Factors
 
 
 
 
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 6 – Exhibits
 
 
 
 
Signatures


2



PART I - FINANCIAL INFORMATION

Item 1.
Financial Statements
 

3



CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
(in millions, except per share data)
 
 
 
 
Quarter ended
Revenues
3/31/2020
 
3/31/2019
Company sales
$
355


$
333

Franchise and property revenues
596


612

Franchise contributions for advertising and other services
312

 
309

Total revenues
1,263

 
1,254

Costs and Expenses, Net
 
 
 
Company restaurant expenses
298

 
272

General and administrative expenses
208


211

Franchise and property expenses
58


43

Franchise advertising and other services expense
310

 
301

Refranchising (gain) loss
(13
)

(6
)
Other (income) expense
152



Total costs and expenses, net
1,013


821

Operating Profit
250


433

Investment (income) expense, net
34

 
16

Other pension (income) expense
3

 
3

Interest expense, net
118


115

Income Before Income Taxes
95

 
299

Income tax provision
12


37

Net Income
$
83

 
$
262

 
 
 
 
Basic Earnings Per Common Share
$
0.28


$
0.85

 
 
 
 
Diluted Earnings Per Common Share
$
0.27


$
0.83

 
 
 
 
Dividends Declared Per Common Share
$
0.47

 
$
0.42

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 


4



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
Quarter ended
 
3/31/2020
 
3/31/2019
 
 
 
 
Net Income
$
83

 
$
262

Other comprehensive income (loss), net of tax
 
 
 
Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
 
 
 
Adjustments and gains (losses) arising during the period
(102
)
 
34

 
(102
)
 
34

Tax (expense) benefit

 
(4
)
 
(102
)
 
30

Changes in pension and post-retirement benefits
 
 
 
Unrealized gains (losses) arising during the period

 

Reclassification of (gains) losses into Net Income
5

 
4

 
5

 
4

Tax (expense) benefit
(1
)
 
(1
)
 
4

 
3

Changes in derivative instruments
 
 
 
Unrealized gains (losses) arising during the period
(77
)
 
(16
)
Reclassification of (gains) losses into Net Income
(6
)
 
(15
)
 
(83
)
 
(31
)
Tax (expense) benefit
20

 
8

 
(63
)
 
(23
)
 
 
 
 
Other comprehensive income (loss), net of tax
(161
)
 
10

Comprehensive Income (Loss)
$
(78
)
 
$
272

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.


5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
Quarter ended
 
3/31/2020
 
3/31/2019
Cash Flows – Operating Activities
 
 
 
Net Income
$
83

 
$
262

Depreciation and amortization
27

 
26

Impairment and closure (income) expenses
140

 

Refranchising (gain) loss
(13
)

(6
)
Investment (income) expense, net
34

 
16

Contributions to defined benefit pension plans
(1
)
 
(9
)
Deferred income taxes
(31
)
 
(1
)
Share-based compensation expense
18

 
17

Changes in accounts and notes receivable
25

 
14

Changes in prepaid expenses and other current assets
(17
)
 
(13
)
Changes in accounts payable and other current liabilities
(51
)
 
(50
)
Changes in income taxes payable
(11
)
 
(5
)
Other, net
35

 
49

Net Cash Provided by Operating Activities
238

 
300

 
 
 
 
Cash Flows – Investing Activities
 
 
 
Capital spending
(35
)
 
(44
)
Acquisition of The Habit Restaurants, Inc., net of cash acquired
(408
)
 

Proceeds from refranchising of restaurants
2

 
14

Other, net

 
(4
)
Net Cash Used in Investing Activities
(441
)
 
(34
)
 
 
 
 
Cash Flows – Financing Activities
 
 
 
Proceeds from long-term debt

 

Repayments of long-term debt
(20
)
 
(20
)
Revolving credit facility, three months or less, net
950

 

Short-term borrowings by original maturity
 
 
 
More than three months - proceeds
66

 
58

More than three months - payments
(44
)
 
(41
)
Three months or less, net

 

Repurchase shares of Common Stock

 
(109
)
Dividends paid on Common Stock
(141
)
 
(129
)
Other, net
(13
)
 
(37
)
Net Cash Provided by (Used in) Financing Activities
798

 
(278
)
Effect of Exchange Rates on Cash and Cash Equivalents
(53
)
 
12

Net Increase in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
542

 

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period
768

 
474

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period
$
1,310

 
$
474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 


6



CONDENSED CONSOLIDATED BALANCE SHEETS
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
(in millions)
 
 
 
 
(Unaudited) 3/31/2020
 
12/31/2019
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,154


$
605

Accounts and notes receivable, net
511

 
584

Prepaid expenses and other current assets
326

 
338

Total Current Assets
1,991

 
1,527

 
 
 
 
Property, plant and equipment, net
1,252


1,170

Goodwill
596

 
530

Intangible assets, net
347

 
244

Other assets
1,398

 
1,313

Deferred income taxes
501

 
447

Total Assets
$
6,085

 
$
5,231

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
 
 
 
Current Liabilities
 
 
 
Accounts payable and other current liabilities
$
928

 
$
960

Income taxes payable
125

 
150

Short-term borrowings
447

 
431

Total Current Liabilities
1,500

 
1,541

 
 
 
 
Long-term debt
11,059

 
10,131

Other liabilities and deferred credits
1,755

 
1,575

Total Liabilities
14,314

 
13,247

 
 
 
 
Shareholders’ Deficit
 
 
 
Common Stock, no par value, 750 shares authorized; 301 shares issued in 2020 and 300 issued in 2019
15

 

Accumulated deficit
(7,695
)
 
(7,628
)
Accumulated other comprehensive loss
(549
)

(388
)
Total Shareholders’ Deficit
(8,229
)
 
(8,016
)
Total Liabilities and Shareholders’ Deficit
$
6,085

 
$
5,231

 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 

7



CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
 
 
 
 
 
 
 
 
 
 
Quarters ended March 31, 2020 and 2019
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Yum! Brands, Inc.
 
 
 
 
Issued Common Stock
 
Accumulated Deficit
 
Accumulated
Other Comprehensive Loss
 
Total Shareholders' Deficit
 
 
Shares
 
Amount
 
 
 
Balance at December 31, 2019
 
300

 
$

 
$
(7,628
)
 
$
(388
)
 
$
(8,016
)
Net Income
 
 
 
 
 
83

 
 
 
83

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature
 
 
 
 
 
 
 
(102
)
 
(102
)
Pension and post-retirement benefit plans (net of tax impact of $1 million)
 
 
 
 
 
 
 
4

 
4

Net loss on derivative instruments (net of tax impact of $20 million)
 
 
 
 
 
 
 
(63
)
 
(63
)
Comprehensive Income
 
 
 
 
 
 
 
 
 
(78
)
Dividends declared
 
 
 
 
 
(142
)
 
 
 
(142
)
Repurchase of shares of Common Stock
 
 
 
 
 
 
 
 
 

Employee share-based award exercises
 
1

 
(13
)
 
 
 
 
 
(13
)
Share-based compensation events
 
 
 
28

 
 
 
 
 
28

Adoption of accounting standard
 
 
 
 
 
(8
)
 
 
 
(8
)
Balance at March 31, 2020
 
301

 
$
15

 
$
(7,695
)
 
$
(549
)
 
$
(8,229
)
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
306

 
$

 
$
(7,592
)
 
$
(334
)
 
$
(7,926
)
Net Income
 
 
 
 
 
262

 
 
 
262

Translation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $4 million)
 
 
 
 
 
 
 
30

 
30

Pension and post-retirement benefit plans (net of tax impact of $1 million)
 
 
 
 
 
 
 
3

 
3

Net loss on derivative instruments (net of tax impact of $8 million)
 
 
 
 
 
 
 
(23
)
 
(23
)
Comprehensive Income
 
 
 
 
 
 
 
 
 
272

Dividends declared
 
 
 
 
 
(129
)
 
 
 
(129
)
Repurchase of shares of Common Stock
 
(1
)
 

 
(106
)
 
 
 
(106
)
Employee share-based award exercises
 
1

 
(25
)
 
(13
)
 
 
 
(38
)
Share-based compensation events
 
 
 
25

 

 
 
 
25

Adoption of accounting standard
 
 
 
 
 
(2
)
 


 
(2
)
Balance at March 31, 2019
 
306

 
$

 
$
(7,580
)
 
$
(324
)
 
$
(7,904
)
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.


8



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Tabular amounts in millions, except per share data)

Note 1 - Financial Statement Presentation

We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles in the United States (“GAAP”) for complete financial statements.  Therefore, we suggest that the accompanying Financial Statements be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).  

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 50,000 restaurants in more than 150 countries and territories.  As of March 31, 2020, 98% of these restaurants were owned and operated by franchisees.  The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively. The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

As of March 31, 2020, YUM consisted of four operating segments:  

The KFC Division which includes our worldwide operations of the KFC concept
The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
The Taco Bell Division which includes our worldwide operations of the Taco Bell concept
The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. The majority of our U.S. subsidiaries and certain international subsidiaries operate on a weekly periodic calendar where the first three quarters of each fiscal year consists of 12 weeks and the fourth quarter consists of 16 weeks in fiscal years with 52 weeks and 17 weeks in fiscal years with 53 weeks. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates. Our Habit Burger Grill Division operates on a weekly periodic calendar where each quarter consists of 13 weeks, except in fiscal years with 53 weeks when the fourth quarter consists of 14 weeks.

Our preparation of the accompanying Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2019 Form 10-K, the results of the interim periods presented. Our results of operations, comprehensive income, cash flows and changes in shareholders' deficit for these interim periods are not necessarily indicative of the results to be expected for the full year.

Our significant interim accounting policies include the recognition of advertising and marketing costs, generally in proportion to revenue, and the recognition of income taxes using an estimated annual effective tax rate.

We have reclassified certain other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter ended March 31, 2020. These reclassifications had no effect on previously reported Net Income.

COVID-19

In late 2019, a novel strain of coronavirus, COVID-19, was first detected. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. We and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures, due to COVID-19. In markets where governments have imposed restrictions on travel outside of the home, or where customers are practicing social distancing, restaurant traffic has also been significantly negatively impacted, with a significant portion of stores providing only delivery and takeaway services. The impacts of COVID-19 significantly impacted our results in the quarter ended March 31, 2020.


9



As a result of the impact of COVID-19 on the Habit Burger Grill's results as well as general market conditions, we recognized an after-tax goodwill impairment charge of $107 million during the quarter ended March 31, 2020 related to our Habit Burger Grill reporting unit (See Note 2). There were no other significant impairments recorded during the quarter. Due to the uncertainty surrounding our current assumptions regarding the expected severity and duration of the impact of COVID-19 on our and our franchisees' operations, we currently believe it is reasonably possible that certain significant estimates underlying long-lived asset and goodwill impairment evaluations as well as expected credit loss assessments within these Financial Statements will change in the near term. The effect of such a change may be material.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued a standard that requires measurement and recognition of expected versus incurred credit losses for financial assets held. As required, we adopted this standard on January 1, 2020 which resulted in the recording of a cumulative adjustment to Accumulated deficit of $8 million primarily to establish an expected credit loss liability for the contingent aspect of our financial guarantees. Substantially all of our financial guarantees relate to lease payments that our franchisees are primarily liable for and for which we are secondarily liable. See Note 14.

Upon adoption of the standard the Company's accounting policy for the measurement of credit losses related to our primary financial asset, our receivables from our franchisees, is as shown below.

Expected credit losses for uncollectible franchisee receivable balances consider both current conditions and reasonable and supportable forecasts of future conditions. Current conditions we consider include pre-defined aging criteria as well as specified events that indicate we may not collect the balance due. Reasonable and supportable forecasts used in determining the probability of future collection consider publicly available data regarding default probability.

In January 2017, the FASB issued a standard that eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value. We adopted this standard, which requires prospective application, beginning with the quarter ended March 31, 2020. As a result, the goodwill impairment charge related to our Habit Burger Grill reporting unit (See Note 2) was measured as the excess of its carrying value over the reporting unit's fair value.


Note 2 - Habit Burger Grill Acquisition

On March 18, 2020, we completed the acquisition of all of the issued and outstanding common shares of The Habit Restaurants, Inc. As of the date of acquisition, The Habit Restaurants, Inc. operated 245 company-owned and 31 franchised Habit Burger Grill restaurants across the U.S. and in China, offering a flavor-forward variety of made-to-order items chargrilled over an open flame. We expect Habit Burger Grill to benefit from the global scale and resources of YUM and that the acquisition will accelerate and diversify YUM's growth.

Total cash consideration paid in connection with the acquisition was $408 million, net of acquired cash of $20 million. This included $9 million for the settlement of existing share-based awards previously issued to The Habit Restaurants, Inc. employees and $53 million associated with an obligation to former shareholders of The Habit Restaurants, Inc. related to a tax receivable agreement entered into in connection with its initial public offering in 2014.

The acquisition was accounted for as a business combination using the acquisition method of accounting. The preliminary allocation of the purchase price is based on management's analysis, including preliminary work performed by third party valuation specialists, as of March 18, 2020. We will continue to obtain information to assist in determining the fair value of net assets acquired during the measurement period.


10



The components of the preliminary purchase price allocation upon the March 18, 2020 acquisition were as follows:

Total Current Assets
 
$
12

Property, plant and equipment, net
 
129

Habit Burger Grill brand (included in Intangible assets, net)
 
98

Operating lease right-of-use assets (included in Other assets)
 
163

Other assets
 
22

Total Assets
 
424

Total Current Liabilities
 
(68
)
Operating lease liabilities (included in Other liabilities and deferred credits)
 
(165
)
Other liabilities
 
(2
)
Total Liabilities
 
(235
)
Total identifiable net assets
 
189

Goodwill
 
219

Net consideration transferred
 
$
408

 
 
 
The Habit Burger Grill brand, which includes the related trademarks, was valued by applying the income approach through a relief from royalty analysis and it has been assigned an indefinite life and, therefore, will not be amortized. The brand asset will be tested for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicate impairment might exist.

The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill. The factors contributing to the recognition of goodwill were several strategic and synergistic benefits that are expected to be realized by Habit Burger Grill from the acquisition. These benefits include leveraging YUM's scale and resources in unit development, primarily through franchising, supply chain and global brand-building. Goodwill determined through the purchase price allocation will be entirely allocated to the Habit Burger Grill Division and goodwill of approximately $200 million is expected to be deductible for tax purposes.

Habit's total operating lease liabilities represent the present value of minimum lease payments, including rental payments for lease renewal options we are reasonably certain to exercise, of approximately $225 million. As of March 31, 2020, minimum lease payments associated with Habit leases that have not yet commenced approximated $25 million. The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2019 would not have been significant.

During the first quarter of 2020, the operations of substantially all Habit Burger Grill restaurants were impacted by COVID-19. As a result, we performed an interim impairment test of the Habit Burger Grill reporting unit goodwill as of March 31, 2020. This test of impairment included comparing the estimated fair value of the Habit Burger Grill reporting unit to its carrying value, including goodwill, as originally determined through our preliminary purchase price allocation. The fair value estimate of the Habit Burger Grill reporting unit was based on the estimated price a willing buyer would pay for the reporting unit and was determined using an income approach through a discounted cash flow analysis using unobservable inputs (Level 3). The most impactful of these inputs included future average unit volumes of Habit Burger Grill restaurants as well as restaurant unit counts. The fair value was determined based upon a probability-weighted average of three scenarios, which included assumed recovery of Habit Burger Grill average unit volumes to a pre--COVID-19 level over periods ranging from the beginning of 2021 to the end of 2022. Factors impacting restaurant unit counts were near-term unit closures as the result of COVID-19 as well as the pace of expected new unit development. Unit counts assumed were correlated with the expected recoveries in average unit volumes. Based upon this fair value estimate, we determined that the carrying value of our Habit Burger Grill reporting unit exceeded its fair value. As a result, during the quarter ended March 31, 2020 we recorded a goodwill impairment charge of $139 million to Other (income) expense and a corresponding income tax benefit of $32 million. The amount of the goodwill impairment charge and related tax benefit could change as we finalize the purchase price allocation associated with the acquisition.


11




Note 3 - Earnings Per Common Share (“EPS”)
 
 
Quarter ended
 
 
2020
 
2019
Net Income
 
$
83

 
$
262

 
 
 
 
 
Weighted-average common shares outstanding (for basic calculation)
 
302


308

Effect of dilutive share-based employee compensation
 
5

 
7

Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)
 
307


315

 
 
 
 
 
Basic EPS
 
$
0.28

 
$
0.85

 
 
 
 
 
Diluted EPS
 
$
0.27

 
$
0.83

Unexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation(a)
 
4.2

 
1.3


(a)
These unexercised employee stock options and stock appreciation rights were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.


Note 4 - Accumulated Other Comprehensive Loss (“AOCI”)

Changes in AOCI are presented below.
 
 
Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature
 
Pension and Post-Retirement Benefits
 
Derivative Instruments
 
Total
Balance at December 31, 2019, net of tax
 
$
(221
)
 
$
(104
)
 
$
(63
)
 
$
(388
)
 
 
 
 
 
 
 
 
 
OCI, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) arising during the period classified into AOCI, net of tax
 
(102
)
 

 
(58
)
 
(160
)
 
 
 
 
 
 
 
 
 
(Gains) losses reclassified from AOCI, net of tax
 

 
4

 
(5
)
 
(1
)
 
 
(102
)
 
4

 
(63
)
 
(161
)
Balance at March 31, 2020, net of tax
 
$
(323
)
 
$
(100
)
 
$
(126
)
 
$
(549
)
 
 
 
 
 
 
 
 
 



12



Note 5 - Other (Income) Expense

 
 
Quarter ended
 
 
3/31/2020
 
3/31/2019
Foreign exchange net (gain) loss and other
 
$
12

 
$

Closure and impairment expense(a)
 
140

 

Other (income) expense
 
$
152

 
$


(a)
The quarter ended March 31, 2020 includes a charge of $139 million related to the impairment of Habit Burger Grill goodwill. See Note 2.


Note 6 - Supplemental Balance Sheet Information

Accounts and Notes Receivable, net

The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements.  Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts and notes receivable, net in our Condensed Consolidated Balance Sheets.  Accounts and notes receivable, net also includes receivables generated from advertising cooperatives that we consolidate.
 
3/31/2020
 
12/31/2019
Accounts and notes receivable, gross
$
612

 
$
656

Allowance for doubtful accounts
(101
)
 
(72
)
Accounts and notes receivable, net
$
511

 
$
584


Property, Plant and Equipment, net
 
3/31/2020
 
12/31/2019
Property, plant and equipment, gross
$
2,366

 
$
2,306

Accumulated depreciation and amortization
(1,114
)
 
(1,136
)
Property, plant and equipment, net
$
1,252

 
$
1,170



Assets held-for-sale totaled $19 million and $25 million, respectively, as of March 31, 2020 and December 31, 2019 and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

Other Assets
3/31/2020
 
12/31/2019
Operating lease right-of-use assets
$
773

 
$
642

Investment in Grubhub, Inc. common stock
115

 
137

Franchise incentives
174

 
174

Other
336

 
360

Other assets
$
1,398

 
$
1,313


Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows
 
3/31/2020
 
12/31/2019
Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets
$
1,154

 
$
605

Restricted cash included in Prepaid expenses and other current assets(a)
126

 
138

Restricted cash and restricted cash equivalents included in Other assets(b)
30

 
25

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows
$
1,310

 
$
768



13



(a)
Restricted cash within Prepaid expenses and other current assets reflects Taco Bell Securitization interest reserves and the cash related to advertising cooperatives which we consolidate that can only be used to settle obligations of the respective cooperatives.

(b)
Primarily trust accounts related to our self-insurance program.


Note 7 - Income Taxes
 
Quarter ended
 
2020
 
2019
Income tax provision
$
12


$
37

Effective tax rate
12.5
%
 
12.3
%


Our effective tax rate is lower than the U.S. federal statutory tax rate of 21% primarily due to the favorable impact of excess tax benefits associated with share based compensation.

  
Note 8 - Revenue Recognition

Disaggregation of Total Revenues

The following tables disaggregate revenue by Concept, for our two most significant markets based on Operating Profit and for all other markets. We believe this disaggregation best reflects the extent to which the nature, amount, timing and uncertainty of our revenues and cash flows are impacted by economic factors.
 
Quarter ended 3/31/2020
 
 
KFC Division
 
Pizza Hut Division
 
Taco Bell Division
 
Habit Burger Grill Division
 
Total
U.S.
 
 
 
 
 
 
 
 
 
 
Company sales
 
$
16

 
$
5

 
$
198

 
$
9

 
$
228

Franchise revenues
 
38

 
62

 
131

 

 
231

Property revenues
 
4

 
1

 
10

 

 
15

Franchise contributions for advertising and other services
 
4

 
70

 
107

 

 
181

 
 
 
 
 
 
 
 
 
 
 
China
 
 
 
 
 
 
 
 
 
 
Franchise revenues
 
47

 
10

 

 

 
57

 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
Company sales
 
114

 
13

 

 

 
127

Franchise revenues
 
212

 
59

 
7

 

 
278

Property revenues
 
14

 
1

 

 

 
15

Franchise contributions for advertising and other services
 
117

 
14

 

 

 
131

 
 
$
566

 
$
235

 
$
453

 
$
9

 
$
1,263




14



 
Quarter ended 3/31/2019
 
 
KFC Division
 
Pizza Hut Division
 
Taco Bell Division
 
Total
U.S.
 
 
 
 
 
 
 
 
Company sales
 
$
16

 
$
5

 
$
196

 
$
217

Franchise revenues
 
38

 
67

 
128

 
233

Property revenues
 
6

 
2

 
10

 
18

Franchise contributions for advertising and other services
 
2

 
74

 
104

 
180

 
 
 
 
 
 
 
 
 
China
 
 
 
 
 
 
 
 
Franchise revenues
 
56

 
15

 

 
71

 
 
 
 
 
 
 
 
 
Other