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Items Affecting Comparability of Net Income and Cash Flows | 12 Months Ended
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Dec. 31, 2017
Items Affecting Comparability Of Net Income And Cash Flows Disclosure [Abstract] |
Items Affecting Comparability of Net Income and Cash Flows | Items Affecting Comparability of Net Income and Cash Flows Tax Cuts and Jobs Act of 2017 (“Tax Act”) We recognized $434 million in our 2017 Income tax provision as a result of the December 22, 2017 enactment of the Tax Act. See Note 18 for a discussion of the charge. Refranchising (Gain) Loss The Refranchising (gain) loss by reportable segment is presented below. Given the size and volatility of refranchising initiatives, our chief operating decision maker ("CODM") does not consider the impact of Refranchising (gain) loss when assessing segment performance. As such, we do not allocate such gains and losses to our segments for performance reporting purposes. During the years ended December 31, 2017, 2016 and 2015, we refranchised 1,470, 432 and 270 restaurants, respectively. We received $1,773 million, $370 million and $213 million in pre-tax proceeds in 2017, 2016 and 2015, respectively, related to these transactions. A summary of Refranchising (gain) loss is as follows:
|  | Refranchising (gain) loss |  |  |  |  |
|  | 2017 |  | 2016 |  | 2015 |  |  |  |  |
KFC Division(a) |  | $ | (581 | ) |  | $ | (44 | ) |  | $ | 32 |  |  |  |  |  |
Pizza Hut Division(a) |  | (16 | ) |  | (48 | ) |  | 56 |  |  |  |  |  |
Taco Bell Division |  | (486 | ) |  | (71 | ) |  | (65 | ) |  |  |  |  |
Worldwide |  | $ | (1,083 | ) |  | $ | (163 | ) |  | $ | 23 |  |  |  |  |  |
(a) | In 2010, we refranchised our then-remaining Company-operated restaurants in Mexico. To the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. During 2015, we sold the real estate for approximately $58 million. While these proceeds exceeded the book value of the real estate, the sale represented a substantial liquidation of our Mexican foreign entities under GAAP. As such, the accumulated translation losses associated with our Mexican business were included in our loss on the sale. We recorded charges of $80 million representing the excess of the sum of the book value of the real estate and other related assets and our accumulated translation losses over the sales price. Consistent with the classification of the original Mexico market-wide refranchising transaction, these charges were classified as Refranchising (gain) loss. Refranchising losses of $40 million were associated with both the KFC and Pizza Hut Divisions. We continue to earn U.S. dollar-denominated franchise fees, most of which are sales-based royalties, under our existing franchise contracts with our Mexico franchisee.
As a result of classifying restaurant and related assets as held-for-sale and ceasing depreciation expense as well as recording any related write-downs to fair value, depreciation expense was reduced versus what would have otherwise been recorded by $10 million during the year ended December 31, 2017. Our CODM does not consider the impact of these depreciation reductions, which were recorded within Occupancy and other operating expenses when assessing segment performance. These depreciation reductions were not allocated to the Division segments resulting in depreciation expense continuing to be recorded within our Divisional results at the rate at which it was prior to the held-for-sale classification. YUM's Strategic Transformation Initiatives In October 2016, we announced our strategic transformation plans to drive global expansion of the KFC, Pizza Hut and Taco Bell brands ("YUM's Strategic Transformation Initiatives") following the then anticipated separation of our China business on October 31, 2016. Major features of the Company’s strategic transformation plans involve being more focused on the development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure. We incurred pre-tax costs of $23 million and $67 million related to our Strategic Transformation Initiatives in 2017 and 2016, respectively. In 2017, these costs were primarily recorded in G&A and included contract termination costs and relocation and severance costs for restaurant-support center employees. In 2016, these costs were primarily recorded in G&A and included restaurant-support center employee severance costs, charges associated with a voluntary retirement program offered to certain U.S. restaurant-support center employees, consulting costs incurred to facilitate YUM's Strategic Transformation Initiatives, and losses associated with our sale of Corporate aircraft upon our decision to no longer own aircraft. YUM's Strategic Transformation Initiatives represent the continuation of YUM's transformation of its operating model and capital structure following the Separation and recapitalization of YUM. Due to the scope of the initiatives as well as their significance, our CODM does not consider the associated cost when assessing segment performance. As such, these costs are not being allocated to any of our segment operating results for performance reporting purposes. Modifications of Share-based Compensation Awards In connection with the Separation, we modified certain share-based compensation awards held as part of our Executive Income Deferral ("EID") Plan in phantom shares of YUM Common Stock to provide one phantom Yum China share-based award for each outstanding phantom YUM share-based award. These Yum China awards may now be settled in cash, as opposed to stock, which requires recognition of the fair value of these awards within G&A in our Consolidated Income Statement. During 2017 and 2016, we recorded G&A charges related to these awards of $18 million and $30 million, respectively. Given these charges were a direct result of the Separation, our CODM does not consider their impact when assessing segment performance. As such, these costs are not being allocated to any of our segment operating results for performance reporting purposes. Pizza Hut U.S. Transformation Agreement In May 2017, we reached an agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising and digital and technology contributions by franchisees. In connection with this agreement, we anticipate investing approximately $90 million to upgrade restaurant equipment to improve operations, fund improvements in restaurant technology and enhance digital and e-commerce capabilities. We currently expect the majority of this investment will be split between 2017 and 2018. During 2017, we recorded pre-tax charges of $31 million, primarily within Franchise and license expenses or G&A, and capitalized $8 million of costs primarily related to digital and e-commerce initiatives. Due to their unique and long-term brand-building nature, our CODM does not consider the impact of these investments when assessing segment performance. As such, these investments are not being allocated to the Pizza Hut Division segment operating results for performance reporting purposes. In addition to the investments above, we have agreed to fund $37.5 million of incremental system advertising dollars from the second half of 2017 through 2018. During 2017, we incurred $25 million in related incremental system advertising expense. These advertising amounts were recorded primarily in Franchise and license expenses and are included in Pizza Hut's segment operating results. KFC U.S. Acceleration Agreement During 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control as well as an accelerated path to expanded menu offerings, improved assets and enhanced customer experience. In connection with this agreement we anticipate investing a total of approximately $130 million from 2015 through 2018 primarily to fund new back-of house equipment for franchisees and to provide incentives to accelerate franchisee store remodels. We recorded pre-tax charges for the portion of these investments made in 2017, 2016 and 2015 of $17 million, $26 million and $72 million, respectively. These amounts were recorded primarily as Franchise and license expenses. These payments constitute a significant portion of the approximately $140 million asset for incentive payments made to franchisees which we will establish upon adoption of the new revenue recognition standard in 2018 (see Note 2). Due to their size and unique long-term brand building nature, our CODM does not consider the impact of these investments when assessing segment performance. As such, these charges are not being allocated to the KFC Division segment operating results for performance reporting purposes. In addition to the investments above, we agreed to fund $60 million of incremental system advertising. During 2017, 2016 and 2015, we incurred $20 million, $20 million and $10 million in incremental system advertising expense, respectively, with the remaining funding of approximately $10 million to occur in 2018. The incremental system advertising amounts recorded were primarily in Franchise and license expenses and are included in the KFC Division segment operating results. Items Impacting Other Pension (Income) Expense During the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the YUM Retirement Plan ("the Plan") an opportunity to voluntarily elect an early payout of their pension benefits. As a result of settlement payments made of approximately $205 million related to this program, all of which were funded from existing Plan assets, we recorded a settlement charge of $24 million to Other pension (income) expense. Due to the size and non-recurring nature of the program, our CODM does not consider the impact of these charges when assessing performance so they were not allocated to any of our segment operating results for performance reporting purposes. During the first quarter of 2017, as a result of the completion of a pension data review and reconciliation, we recorded a non-cash, out-of-year charge of $22 million to Other pension (income) expense to adjust our historical U.S. pension liability related to our deferred vested participants. Our CODM does not consider the impact of this charge when assessing segment performance given the number of years over which it accumulated. As such, this cost is not being allocated to any of our segment operating results for performance reporting purposes. See Note 15 for further discussion of our pension plans. Store Closure and Impairment Activity Store closure (income) costs and Store impairment charges by reportable segment are presented below.
|  | 2017
|  | KFC |  | Pizza Hut |  | Taco Bell |  | Worldwide
Store closure (income) costs(a) |  | $ | — |  |  | $ | — |  |  | $ | (1 | ) |  | $ | (1 | )
Store impairment charges |  | 2 |  |  | 1 |  |  | 1 |  |  | 4 |
Closure and impairment (income) expenses |  | $ | 2 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 3 |
|  | 2016
|  | KFC |  | Pizza Hut |  | Taco Bell |  | Worldwide
Store closure (income) costs(a) |  | $ | 3 |  |  | $ | (5 | ) |  | $ | — |  |  | $ | (2 | )
Store impairment charges |  | 8 |  |  | 6 |  |  | 3 |  |  | 17 |
Closure and impairment (income) expenses |  | $ | 11 |  |  | $ | 1 |  |  | $ | 3 |  |  | $ | 15 |
|  | 2015
|  | KFC |  | Pizza Hut |  | Taco Bell |  | Worldwide
Store closure (income) costs(a) |  | $ | 1 |  |  | $ | (1 | ) |  | $ | (1 | ) |  | $ | (1 | )
Store impairment charges |  | 8 |  |  | 5 |  |  | 4 |  |  | 17 |
Closure and impairment (income) expenses |  | $ | 9 |  |  | $ | 4 |  |  | $ | 3 |  |  | $ | 16 |
(a) | Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company-owned restaurant that was closed, lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related expenses from previously closed stores. Remaining lease obligations for closed stores were not material at December 31, 2017 or December 31, 2016.
Impact of Change in Reporting Calendar As discussed in Note 2, we have changed our fiscal year from a year ending on the last Saturday of December to a year beginning on January 1 and ending on December 31 of each year commencing with the year ending December 31, 2017. We also removed the monthly or period reporting lags certain of our international subsidiaries historically used to report results. The impacts on our Consolidated Financial Statements of retrospectively applying these changes are included below:
|  | 2016
|  | As Previously Reported |  | Adjustments |  | After Change in Reporting Calendar
Total revenues |  | $ | 6,366 |  |  | $ | (10 | ) |  | $ | 6,356 |  |
Operating Profit |  | 1,625 |  |  | 25 |  | (a) | 1,650 |  | (b)
Income from continuing operations |  | 994 |  |  | 24 |  |  | 1,018 |  |
Income from discontinued operations, net of tax |  | 625 |  |  | — |  |  | 625 |  |
Net Income |  | $ | 1,619 |  |  | $ | 24 |  |  | 1,643 |  |
Diluted EPS from continuing operations |  | $ | 2.48 |  |  | $ | 0.06 |  |  | $ | 2.54 |  |
Diluted EPS from discontinued operations |  | 1.56 |  |  | — |  |  | 1.56 |  |
Diluted EPS |  | $ | 4.04 |  |  | $ | 0.06 |  |  | $ | 4.10 |  |
|  | 2015
|  | As Previously Reported |  | Adjustments |  | After Change in Reporting Calendar
Total revenues |  | $ | 6,440 |  |  | $ | (22 | ) |  | $ | 6,418 |  |
Operating Profit |  | 1,402 |  |  | (8 | ) |  | 1,394 |  | (b)
Income from continuing operations |  | 936 |  |  | (10 | ) |  | 926 |  |
Income from discontinued operations, net of tax |  | 357 |  |  | — |  |  | 357 |  |
Net Income |  | $ | 1,293 |  |  | $ | (10 | ) |  | $ | 1,283 |  |
Diluted EPS from continuing operations |  | $ | 2.11 |  |  | $ | (0.02 | ) |  | $ | 2.09 |  |
Diluted EPS from discontinued operations |  | 0.81 |  |  | — |  |  | 0.81 |  |
Diluted EPS |  | $ | 2.92 |  |  | $ | (0.02 | ) |  | $ | 2.90 |  |
(a) | Primarily represents gains of $24 million related to the refranchising of certain international restaurants which occurred in December 2016.
(b) | Amount does not reconcile to our Consolidated Statements of Income for the year ended December 31, 2016 and December 31, 2015 due to the impact of retrospectively adopting a new accounting standard on Benefit Costs of $32 million and $40 million, respectively. See Note 2.
In 2016, the impact on our Consolidated Statement of Cash Flows was a decrease in cash provided by operating activities of $39 million, a decrease in cash used in investing activities of $20 million and a decrease in cash used in financing activities of $16 million. In 2015, the impact on our Consolidated Statement of Cash Flows was an increase in cash used in investing activities of $10 million and a decrease in cash used in financing activities of $16 million. There was no impact to cash provided by operating activities. Our Shareholders' Equity, as of December 31, 2014, increased $9 million as a result of the change in reporting calendar.

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