Yum! brands reports encouraging third-quarter results; strong recovery driven by record digital sales, off-premise growth and restaurant reopening
Louisville, ky.--(business wire)--yum! brands, inc. (nyse: yum) today reported results for the third-quarter ended september 30, 2020. worldwide system sales excluding foreign currency translation grew 1%, with 2% net-new unit growth and a (2)% same-store sales decline. third-quarter gaap eps was $0.92, an increase of 14% over the prior year quarter. third-quarter eps excluding special items was $1.01, an increase of 27% over the prior year quarter. david gibbs comments david gibbs, ceo, said “third-quarter results were encouraging, demonstrating the resilience of the yum! portfolio as yum! generated year-over-year core operating profit growth, continued to reopen temporarily closed restaurants and achieved global same-store sales growth of approximately flat, in aggregate, for our open store base. for the second consecutive quarter, digital sales increased by more than $1 billion over the prior year and set a single quarter record of $4 billion. these results are a testament to the hard work and collaboration across our four brands, and i want to thank our entire global system for exceptional execution of our recipe for growth and good strategy this quarter. our employees, franchisees and restaurant team members continued to adapt to this year's ever-changing environment while also accelerating progress on our digital and technology journey. importantly, our balance sheet and liquidity position are strong and franchisee health improved. i’m confident that by continuing to leverage our unmatched scale and champion the technology-centric customer experience, we will drive global growth, enhance unit-level economics and maximize long-term value for all of our stakeholders.” third-quarter highlights worldwide system sales excluding foreign currency translation grew 1%, with taco bell at 5%, offset by kfc at (1)% and pizza hut at (4)%. we reported 2% net unit growth year-over-year and a unit decline of (267) during the quarter. we recorded $8 million of pre-tax investment income related to the change in fair value of our investment in grubhub, which resulted in a $0.02 benefit to eps on the third-quarter. our grubhub investment favorably impacted year-over-year eps growth by $0.17, as we lapped a $60 million of pre-tax investment expense in the third-quarter of 2019 for a ($0.15) impact to eps. we disposed our grubhub investment during the third-quarter for $206 million. foreign currency translation unfavorably impacted divisional operating profit by $2 million. % change system sales ex f/x same-store sales net-new units gaap operating profit core operating profit2 kfc division (1) (4) +5 +3 +4 pizza hut division (4) (3) (4) +3 +3 taco bell division +5 +3 +3 +16 +16 worldwide1 +1 (2) +2 (2) +7 third-quarter year-to-date 2020 2019 % change 2020 2019 % change gaap eps $0.92 $0.81 +14 $1.86 $2.57 (27) special items eps2 $(0.09) $0.01 nm $(0.61) $0.02 nm eps excluding special items $1.01 $0.80 +27 $2.47 $2.55 (3) 1 worldwide system sales ex f/x and net-new units include the benefit of our acquisition of habit burger grill on march 18, 2020. same-store sales reflects the inclusion of habit burger grill in the prior year base. 2 see reconciliation of non-gaap measurements to gaap results within this release for further detail of core operating profit and special items. all comparisons are versus the same period a year ago. system sales growth figures exclude foreign currency translation ("f/x") and core operating profit growth figures exclude f/x and special items. special items are not allocated to any segment and therefore only impact worldwide gaap results. see reconciliation of non-gaap measurements to gaap results within this release for further details. digital sales includes all transactions where consumers at system restaurants utilize ordering interaction that is primarily facilitated by automated technology. kfc division third-quarter year-to-date %/ppts change %/ppts change 2020 2019 reported ex f/x 2020 2019 reported ex f/x restaurants 24,602 23,435 +5 n/a 24,602 23,435 +5 n/a system sales ($mm) 6,909 6,968 (1) (1) 18,484 20,163 (8) (7) same-store sales growth (%) (4) +3 nm nm (11) +5 nm nm franchise and property revenues ($mm) 340 344 (1) (1) 906 999 (9) (8) operating profit ($mm) 278 270 +3 +4 655 767 (15) (13) operating margin (%) 47.2 44.3 2.9 2.9 41.9 43.6 (1.7) (1.9) third-quarter (% change) year-to-date (% change) international u.s. international u.s. system sales growth ex f/x (2) +9 (9) +6 same-store sales growth (7) +9 (14) +5 kfc division opened 358 gross new restaurants in 45 countries. operating margin increased 2.9 percentage points driven by international franchise bad debt recoveries. foreign currency translation unfavorably impacted operating profit by $2 million. kfc markets1 percent of kfc system sales2 system sales growth ex f/x third-quarter (% change) year-to-date (% change) china 27% (1) (7) united states 16% +9 +6 asia 12% (6) (4) russia, central & eastern europe 8% (4) (14) australia 7% +7 +4 united kingdom 6% +16 (10) western europe 6% — (13) latin america 5% (19) (19) africa 4% +3 (15) middle east / turkey / north africa 4% (8) (17) canada 2% +7 — thailand 2% (8) (6) india 1% (37) (39) 1refer to investors.yum.com under financial reports for a list of the countries within each of the markets. 2reflects full year 2019. pizza hut division third-quarter year-to-date %/ppts change %/ppts change 2020 2019 reported ex f/x 2020 2019 reported ex f/x restaurants 17,842 18,532 (4) n/a 17,842 18,532 (4) n/a system sales ($mm) 2,994 3,092 (3) (4) 8,548 9,321 (8) (8) same-store sales growth (%) (3) even nm nm (8) +1 nm nm franchise and property revenues ($mm) 134 143 (5) (5) 393 431 (9) (8) operating profit ($mm) 89 86 +3 +3 252 279 (10) (9) operating margin (%) 36.7 36.0 0.7 0.8 35.4 38.2 (2.8) (2.8) third-quarter (% change) year-to-date (% change) international u.s. international u.s. system sales growth ex f/x (8) +3 (13) (1) same-store sales growth (9) +6 (14) +1 pizza hut division opened 148 gross new restaurants in 32 countries. operating margin increased 0.7 percentage points driven by u.s. franchise bad debt recoveries, offset by international same-store sales declines. foreign currency translation had no material impact on operating profit. pizza hut u.s. off-premise channel generated 21% same-store sales growth when excluding closed express units, or 17% same-store sales growth when including closed express units. pizza hut markets1 percent of pizza hut system sales2 system sales growth ex f/x third-quarter (% change) year-to-date (% change) united states 42% +3 (1) china 17% (6) (19) asia 13% +3 +6 latin america / spain / portugal 11% (23) (22) europe (excluding spain & portugal) 9% (10) (16) middle east / turkey / north africa 4% (15) (22) canada 2% +16 +13 india 1% (33) (36) africa <1% +1 (7) 1refer to investors.yum.com under financial reports for a list of the countries within each of the markets. 2reflects full year 2019. taco bell division third-quarter year-to-date %/ppts change %/ppts change 2020 2019 reported ex f/x 2020 2019 reported ex f/x restaurants 7,400 7,191 +3 n/a 7,400 7,191 +3 n/a system sales ($mm) 2,914 2,772 +5 +5 8,074 8,005 +1 +1 same-store sales growth (%) +3 +4 nm nm (2) +5 nm nm franchise and property revenues ($mm) 165 158 +4 +4 460 460 even even operating profit ($mm) 186 161 +16 +16 484 458 +6 +6 operating margin (%) 37.2 32.9 4.3 4.3 34.5 32.4 2.1 2.1 taco bell division opened 45 gross new restaurants in 9 countries. operating margin increased 4.3 percentage points due to lower general and administrative expenses, same-store sales growth and higher company restaurant margins. habit burger grill division the habit burger grill division same-store sales declined 3% during the third-quarter. the habit burger grill division opened 5 gross new restaurants in the u.s and china. other items we refinanced our 5.00% coupon rate senior subsidiary restricted group notes due in 2024 with newly issued 10.5-year yum! brands, inc. holding company notes with a coupon rate of 3.625%. disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the filing of the third-quarter form 10-q. conference call yum! brands, inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. eastern time october 29, 2020. the number is 877/871-3172 for u.s. callers, 412/902-6603 for international callers, conference id 1665220. the call will be available for playback beginning at 10:00 a.m. eastern time october 29, 2020 through november 5, 2020. to access the playback, dial 877/344-7529 in the u.s., 855/669-9658 in canada, and 412/317-0088 internationally, conference id 10148172. the webcast and the playback can be accessed by visiting yum! brands' website, investors.yum.com/events-and-presentations and selecting “q3 2020 yum! brands, inc. earnings call.” additional information online quarter end dates for each division, restaurant count details, definitions of terms and restricted group financial information are available at investors.yum.com. reconciliation of non-gaap financial measures to the most directly comparable gaap measures are included within this release. forward-looking statements this announcement may contain “forward-looking statements” within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. we intend all forward-looking statements to be covered by the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. these statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. there can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of yum! brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved. numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: the severity and duration of the covid-19 pandemic, food safety and food borne-illness issues; health concerns arising from outbreaks of a significant health epidemic; the success of our franchisees and licensees; our significant exposure to the chinese market; changes in economic and political conditions in countries and territories outside of the u.s. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to successfully implement technology initiatives; our increasing dependence on digital commerce platforms and information technology systems; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the loss of key personnel, or labor shortages or difficulty finding qualified employees; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; harm or dilution to our brands caused by franchisee and third party activity; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including changes in tax laws or disagreements with taxing authorities; consumer preferences and perceptions of our brands; failure to protect our service marks or other intellectual property; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; not realizing the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions, and risks relating to our significant amount of indebtedness. in addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. the forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. you should consult our filings with the securities and exchange commission (including the information set forth under the captions “risk factors” and “forward-looking statements” in our most recently filed annual report on form 10-k and quarterly report on form 10-q) for additional detail about factors that could affect our financial and other results. yum! brands, inc., based in louisville, kentucky, has over 50,000 restaurants in more than 150 countries and territories primarily operating the company’s brands – kfc, pizza hut and taco bell – global leaders of the chicken, pizza and mexican-style food categories. the company’s family of brands also includes the habit burger grill, a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. in 2019, yum! brands was named to the dow jones sustainability north america index and in 2020, the company ranked among the top 100 best corporate citizens by 3bl media. yum! brands, inc. condensed consolidated summary of results (amounts in millions, except per share amounts) (unaudited) quarter ended % change year to date % change 9/30/20 9/30/19 b/(w) 9/30/20 9/30/19 b/(w) revenues company sales $ 486 $ 364 34 $ 1,244 $ 1,056 18 franchise and property revenues 639 645 (1) 1,760 1,890 (7) franchise contributions for advertising and other services 323 330 (2) 905 957 (6) total revenues 1,448 1,339 8 3,909 3,903 — costs and expenses, net company restaurant expenses 399 292 (38) 1,046 850 (23) general and administrative expenses 257 208 (24) 724 617 (17) franchise and property expenses 13 43 71 107 124 14 franchise advertising and other services expense 313 325 4 887 941 6 refranchising (gain) loss (9 ) (8 ) 17 (30 ) (18 ) 70 other (income) expense 4 (1 ) nm 154 5 nm total costs and expenses, net 977 859 (14) 2,888 2,519 (15) operating profit 471 480 (2) 1,021 1,384 (26) investment (income) expense, net (10 ) 59 nm (67 ) 50 nm other pension (income) expense 4 1 nm 9 4 nm interest expense, net 161 120 (34) 411 354 (16) income before income taxes 316 300 6 668 976 (31) income tax provision 33 45 26 96 170 44 net income $ 283 $ 255 11 $ 572 $ 806 (29) basic eps eps $ 0.94 $ 0.83 12 $ 1.89 $ 2.63 (28) average shares outstanding 303 306 1 302 307 1 diluted eps eps $ 0.92 $ 0.81 14 $ 1.86 $ 2.57 (27) average shares outstanding 307 313 2 307 314 2 dividends declared per common share $ 0.47 $ 0.42 $ 1.41 $ 1.26 see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. kfc division operating results (amounts in millions) (unaudited) quarter ended % change year to date % change 9/30/20 9/30/19 b/(w) 9/30/20 9/30/19 b/(w) company sales $ 130 $ 135 (3) $ 346 $ 395 (12) franchise and property revenues 340 344 (1) 906 999 (9) franchise contributions for advertising and other services 116 130 (11) 309 365 (15) total revenues 586 609 (4) 1,561 1,759 (11) company restaurant expenses 109 113 4 307 334 8 general and administrative expenses 81 80 (1) 224 233 4 franchise and property expenses 7 23 66 69 70 1 franchise advertising and other services expense 111 126 12 301 358 16 other (income) expense — (3 ) nm 5 (3 ) nm total costs and expenses, net 308 339 9 906 992 9 operating profit $ 278 $ 270 3 $ 655 $ 767 (15) restaurant margin 16.3 % 16.1 % 0.2 ppts. 11.2 % 15.3 % (4.1) ppts. operating margin 47.2 % 44.3 % 2.9 ppts. 41.9 % 43.6 % (1.7) ppts. see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. pizza hut division operating results (amounts in millions) (unaudited) quarter ended % change year to date % change 9/30/20 9/30/19 b/(w) 9/30/20 9/30/19 b/(w) company sales $ 20 $ 13 54 $ 57 $ 35 62 franchise and property revenues 134 143 (5) 393 431 (9) franchise contributions for advertising and other services 89 85 3 263 264 (1) total revenues 243 241 1 713 730 (2) company restaurant expenses 18 13 (47) 55 34 (61) general and administrative expenses 51 47 (7) 141 138 (2) franchise and property expenses (2 ) 9 nm 11 23 52 franchise advertising and other services expense 85 86 — 256 258 1 other (income) expense 2 — nm (2 ) (2 ) nm total costs and expenses, net 154 155 — 461 451 (2) operating profit $ 89 $ 86 3 $ 252 $ 279 (10) restaurant margin 8.2 % 4.0 % 4.2 ppts. 3.4 % 3.2 % 0.2 ppts. operating margin 36.7 % 36.0 % 0.7 ppts. 35.4 % 38.2 % (2.8) ppts. see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. taco bell division operating results (amounts in millions) (unaudited) quarter ended % change year to date % change 9/30/20 9/30/19 b/(w) 9/30/20 9/30/19 b/(w) company sales $ 218 $ 216 1 $ 610 $ 626 (3) franchise and property revenues 165 158 4 460 460 — franchise contributions for advertising and other services 118 115 3 333 328 1 total revenues 501 489 2 1,403 1,414 (1) company restaurant expenses 158 166 5 458 482 5 general and administrative expenses 33 40 16 108 124 13 franchise and property expenses 8 9 19 24 26 10 franchise advertising and other services expense 117 113 (3) 330 325 (2) other (income) expense (1 ) — nm (1 ) (1 ) nm total costs and expenses, net 315 328 4 919 956 4 operating profit $ 186 $ 161 16 $ 484 $ 458 6 restaurant margin 27.8 % 23.6 % 4.2 ppts. 25.0 % 23.1 % 1.9 ppts. operating margin 37.2 % 32.9 % 4.3 ppts. 34.5 % 32.4 % 2.1 ppts. see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. condensed consolidated balance sheets (amounts in millions) (unaudited) 9/30/20 12/31/19 assets current assets cash and cash equivalents $ 1,110 $ 605 accounts and notes receivable, less allowance: $72 in 2020 and 2019 522 584 prepaid expenses and other current assets 398 338 total current assets 2,030 1,527 property, plant and equipment, net of accumulated depreciation of $1,201 in 2020 and $1,136 in 2019 1,229 1,170 goodwill 590 530 intangible assets, net 339 244 other assets 1,361 1,313 deferred income taxes 512 447 total assets $ 6,061 $ 5,231 liabilities and shareholders' deficit current liabilities accounts payable and other current liabilities $ 1,100 $ 960 income taxes payable 9 150 short-term borrowings 444 431 total current liabilities 1,553 1,541 long-term debt 10,647 10,131 other liabilities and deferred credits 1,780 1,575 total liabilities 13,980 13,247 shareholders' deficit common stock, no par value, 750 shares authorized; 302 shares issued in 2020 and 300 issued in 2019 23 — accumulated deficit (7,490 ) (7,628 ) accumulated other comprehensive loss (452 ) (388 ) total shareholders' deficit (7,919 ) (8,016 ) total liabilities and shareholders' deficit $ 6,061 $ 5,231 see accompanying notes. yum! brands, inc. condensed consolidated statements of cash flows (amounts in millions) (unaudited) year to date 9/30/20 9/30/19 cash flows - operating activities net income $ 572 $ 806 depreciation and amortization 100 84 impairment and closure (income) expenses 156 — refranchising (gain) loss (30 ) (18 ) investment (income) expense, net (67 ) 50 contributions to defined benefit pension plans (2 ) (13 ) deferred income taxes (32 ) (10 ) share-based compensation expense 44 45 changes in accounts and notes receivable 46 (4 ) changes in prepaid expenses and other current assets 11 (9 ) changes in accounts payable and other current liabilities 105 (96 ) changes in income taxes payable (152 ) (64 ) other, net 102 112 net cash provided by operating activities 853 883 cash flows - investing activities capital spending (99 ) (109 ) acquisition of the habit restaurants, inc. (408 ) — proceeds from sale of investment in grubhub, inc. common stock 206 — proceeds from refranchising of restaurants 13 55 other, net 19 — net cash used in investing activities (269 ) (54 ) cash flows - financing activities proceeds from long-term debt 1,650 800 repayments of long-term debt (1,142 ) (311 ) revolving credit facilities, three months or less, net — — short-term borrowings by original maturity more than three months - proceeds 85 80 more than three months - payments (90 ) (70 ) three months or less, net — — repurchase shares of common stock — (472 ) dividends paid on common stock (425 ) (385 ) debt issuance costs (20 ) (9 ) other, net (34 ) (73 ) net cash provided by (used in) financing activities 24 (440 ) effect of exchange rate on cash and cash equivalents (1 ) (27 ) net increase in cash and cash equivalents, restricted cash and restricted cash equivalents 607 362 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 $ 1,375 $ 836 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 generally accepted accounting principles in the united states of america ("gaap"), the company provides the following non-gaap measurements. diluted earnings per share ("eps") excluding special items (as defined below); effective tax rate excluding special items; core operating profit. core operating profit excludes special items and fx and we use core operating profit for the purposes of evaluating performance internally. these non-gaap measurements are not intended to replace the presentation of our financial results in accordance with gaap. rather, the company believes that the presentation of these non-gaap measurements provide additional information to investors to facilitate the comparison of past and present operations. special items are not included in any of our division segment results as the company does not believe they are indicative of our ongoing operations due to their size and/or nature. our chief operating decision maker does not consider the impact of special items when assessing segment performance. the special items are described in (a) - (i) in the accompanying notes. certain non-gaap measurements are presented excluding the impact of fx. these amounts are derived by translating current year results at prior year average exchange rates. we believe the elimination of the fx impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. quarter ended year to date 9/30/20 9/30/19 9/30/20 9/30/19 detail of special items refranchising gain (loss)(a) $ 2 $ 8 $ 8 $ 18 costs associated with acquisition and integration of habit burger grill(b) — — (9 ) — impairment of habit burger grill goodwill(c) (5 ) — (144 ) — unlocking opportunity initiative contribution(d) — — (50 ) — charges associated with resource optimization(e) (32 ) — (32 ) — other special items income (expense)(f) 1 (3 ) (6 ) (14 ) special items income (expense) - operating profit (34 ) 5 (233 ) 4 charges associated with resource optimization - other pension expense(e) (1 ) — (1 ) — interest expense, net(f)(g) (34 ) — (34 ) (2 ) special items income (expense) before income taxes (69 ) 5 (268 ) 2 tax benefit on special items(h) 17 — 57 2 tax benefit - intra-entity transfer of intellectual property(i) 25 — 25 — special items income (expense), net of tax $ (27 ) $ 5 $ (186 ) $ 4 average diluted shares outstanding 307 313 307 314 special items diluted eps $ (0.09 ) $ 0.01 $ (0.61 ) $ 0.02 reconciliation of gaap operating profit to core operating profit consolidated gaap operating profit $ 471 $ 480 $ 1,021 $ 1,384 special items income (expense) (34 ) 5 (233 ) 4 foreign currency impact on divisional operating profit (2 ) n/a (14 ) n/a core operating profit $ 507 $ 475 $ 1,268 $ 1,380 kfc division gaap operating profit $ 278 $ 270 $ 655 $ 767 foreign currency impact on divisional operating profit (2 ) n/a (13 ) n/a core operating profit $ 280 $ 270 $ 668 $ 767 reconciliation of non-gaap measurements to gaap results (continued) (amounts in millions, except per share amounts) (unaudited) quarter ended year to date 9/30/20 9/30/19 9/30/20 9/30/19 pizza hut division gaap operating profit $ 89 $ 86 $ 252 $ 279 foreign currency impact on divisional operating profit — n/a (1 ) n/a core operating profit $ 89 $ 86 $ 253 $ 279 taco bell division gaap operating profit $ 186 $ 161 $ 484 $ 458 foreign currency impact on divisional operating profit — n/a — n/a core operating profit $ 186 $ 161 $ 484 $ 458 habit burger grill division gaap operating profit $ (7 ) n/a $ (15 ) n/a foreign currency impact on divisional operating profit — n/a — n/a core operating profit $ (7 ) n/a $ (15 ) n/a reconciliation of diluted eps to diluted eps excluding special items diluted eps $ 0.92 $ 0.81 $ 1.86 $ 2.57 special items diluted eps (0.09 ) 0.01 (0.61 ) 0.02 diluted eps excluding special items $ 1.01 $ 0.80 $ 2.47 $ 2.55 reconciliation of gaap effective tax rate to effective tax rate excluding special items gaap effective tax rate 10.5 % 15.1 % 14.4 % 17.4 % impact on tax rate as a result of special items (8.8 )% — % (4.6 )% (0.2 )% effective tax rate excluding special items 19.3 % 15.1 % 19.0 % 17.6 % yum! brands, inc. segment results (amounts in millions) (unaudited) quarter ended 9/30/2020 kfc pizza hut taco bell habit burger corporate and unallocated consolidated total revenues $ 586 $ 243 $ 501 $ 118 $ — $ 1,448 company restaurant expenses 109 18 158 115 (1 ) 399 general and administrative expenses 81 51 33 11 81 257 franchise and property expenses 7 (2 ) 8 — — 13 franchise advertising and other services expense 111 85 117 — — 313 refranchising (gain) loss — — — — (9 ) (9 ) other (income) expense — 2 (1 ) (1 ) 4 4 total costs and expenses, net 308 154 315 125 75 977 operating profit (loss) $ 278 $ 89 $ 186 $ (7 ) $ (75 ) $ 471 quarter ended 9/30/2019 kfc pizza hut taco bell corporate and unallocated consolidated total revenues $ 609 $ 241 $ 489 $ — $ 1,339 company restaurant expenses 113 13 166 — 292 general and administrative expenses 80 47 40 41 208 franchise and property expenses 23 9 9 2 43 franchise advertising and other services expense 126 86 113 — 325 refranchising (gain) loss — — — (8 ) (8 ) other (income) expense (3 ) — — 2 (1 ) total costs and expenses, net 339 155 328 37 859 operating profit (loss) $ 270 $ 86 $ 161 $ (37 ) $ 480 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 9/30/2020 kfc pizza hut taco bell habit burger corporate and unallocated consolidated total revenues $ 1,561 $ 713 $ 1,403 $ 232 $ — $ 3,909 company restaurant expenses 307 55 458 226 — 1,046 general and administrative expenses 224 141 108 22 229 724 franchise and property expenses 69 11 24 — 3 107 franchise advertising and other services expense 301 256 330 — — 887 refranchising (gain) loss — — — — (30 ) (30 ) other (income) expense 5 (2 ) (1 ) (1 ) 153 154 total costs and expenses, net 906 461 919 247 355 2,888 operating profit $ 655 $ 252 $ 484 $ (15 ) $ (355 ) $ 1,021 year to date 9/30/2019 kfc pizza hut taco bell corporate and unallocated consolidated total revenues $ 1,759 $ 730 $ 1,414 $ — $ 3,903 company restaurant expenses 334 34 482 — 850 general and administrative expenses 233 138 124 122 617 franchise and property expenses 70 23 26 5 124 franchise advertising and other services expense 358 258 325 — 941 refranchising (gain) loss — — — (18 ) (18 ) other (income) expense (3 ) (2 ) (1 ) 11 5 total costs and expenses, net 992 451 956 120 2,519 operating profit $ 767 $ 279 $ 458 $ (120 ) $ 1,384 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. notes to the condensed consolidated summary of results, condensed consolidated balance sheets and condensed consolidated statements of cash flows (amounts in millions) (unaudited) amounts presented as of and for the quarters and years to date ended september 30, 2020 and 2019 are preliminary. (a) we have reflected as special items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018. as such, refranchising gains and losses recorded during the quarters and years to date ended september 30, 2020 and 2019 as special items primarily include true-ups to refranchising gains and losses recorded prior to december 31, 2018. during the quarters ended september 30, 2020 and 2019, we recorded net refranchising gains of $2 million and $8 million, respectively, that have been reflected as special items. during the years to date ended september 30, 2020 and 2019, we recorded net refranchising gains of $8 million and $18 million, respectively, that have been reflected as special items. additionally, during the quarter and year to date ended september 30, 2020 we recorded refranchising gains of $7 million and $22 million, respectively, that have not been reflected as special items. these gains relate to the refranchising of restaurants in 2020 that were not part of our aforementioned plans to achieve 98% franchise ownership. (b) during the year to date ended september 30, 2020, we recorded special item charges of $9 million related to the acquisition and integration of the habit restaurants, inc. ("habit"). (c) on march 18, 2020 we acquired all of the issued and outstanding common shares of habit for total cash consideration of $408 million, net of cash acquired. during the first-quarter of 2020 the operation of substantially all habit restaurants was impacted by government recommendations and mandates arising from containment and mitigation measures related to the covid-19 global pandemic. as a result of the impacts of the covid-19 pandemic on habit’s results through march 31, 2020 as well as general market conditions, during the quarter ended march 31, 2020 we recorded a goodwill impairment charge of $139 million to other (income) expense. as we continued to refine our preliminary purchase price allocation for habit in the quarter ended september 30, 2020 the impairment charge was adjusted upward by $5 million. these impairment charges have been reflected as special items. we have also reflected the tax benefit of these impairment charges, which were $1 million and $33 million for the quarter and year to date ended september 30, 2020, respectively, as special items. (d) on june 24, 2020, the yum! brands, inc. board of directors approved the establishment of the company’s new global “unlocking opportunity initiative” including a $100 million investment over the next five years to fight inequality by unlocking opportunities for employees, restaurant team members and communities. the company recorded a special item charge of $50 million in the quarter ended june 30, 2020 related to a contribution made to the yum! brands foundation, inc. as part of these efforts and investment. (e) during the quarter ended september 30, 2020, we recorded charges of $32 million and $1 million to general and administrative expenses and other pension (income) expense, respectively, associated with a voluntary early retirement program offered to our u.s. based employees and a worldwide severance program. these programs were part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth. these critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. these charges have been reflected as special items. (f) during the second quarter of 2019, we recorded charges of $8 million and $2 million to other (income) expense and interest expense, net, respectively, related to cash payments in excess of our recorded liability to settle contingent consideration associated with our 2013 acquisition of the kfc turkey and pizza hut turkey businesses. consistent with prior adjustments to the recorded contingent consideration we have reflected this as a special item. (g) during the quarter ended september 30, 2020, kfc holding co., pizza hut holdings, llc and taco bell of america, llc, each of which a wholly-owned subsidiary of the company, issued a notice of redemption for $1,050 million aggregate principal amount of 5.00% subsidiary senior unsecured notes due in 2024 (the "2024 notes"). the redemption amount included a $26 million call premium plus accrued and unpaid interest to the date of redemption of october 9, 2020. we recorded the call premium, $6 million of unamortized debt issuance costs associated with the 2024 notes and $2 million of accrued and unpaid interest associated with the period of time from prepayment of the 2024 notes with the trustee on september 25, 2020 to their redemption date within interest expense, net and reflected the charges as special items. (h) tax expense on special items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within special items. (i) in the fourth quarter of 2019, we completed an intercompany restructuring that resulted in the transfer of certain intellectual property rights held by wholly owned foreign subsidiaries to the united kingdom (uk). as a result of the transfer of certain of these rights, we received a step-up in the tax basis to fair market value for uk tax purposes. to the extent this step-up in tax basis will be amortizable against future taxable income, we recognized a one-time deferred tax benefit of $220 million as a special item in the quarter ended december 31, 2019. during the quarter ended september 30, 2020, the uk finance act 2020 was enacted resulting in an increase in the uk corporate tax rate from 17% to 19%. as a result, in the quarter ended september 30, 2020, we remeasured the related deferred tax asset originally recorded in the fourth quarter of 2019 and recognized an additional $25 million deferred tax benefit as a special item. category: earnings
