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10Q form
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01-10Q-outline.txt
FORM 10-Q
FORM 10-Q
Cover Page Information
(Mark One) Selection Option for Filing Type
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for Period Ending June 30, 2019
Alternative Option for Transition Report Filing
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ...
Commission File Number Identifier
Registrant's Exact Name as Specified in Charter
Jurisdiction and IRS Employer Identification Number
1441 Principal Executive Office Address and Zip Code
Registrant's Contact Telephone Number with Area Code
Securities Registered Under Section 12(b) of the Securities Exchange Act
Stock Exchange Listing Details
Common Stock Listing on New York Stock Exchange
Compliance with Reporting Requirements Under the Securities Exchange Act of 1934.
Electronic Submission Compliance Verification
Compliance with Rule 405 of Regulation S-T for Electronic Submission of Interactive Data Files.
Filing Status Confirmation for Interactive Data File Submission
Registrant Classification Check Based on Rule 12b-2 of the Exchange Act.
Registrant Classification by Filing Status
Emerging Growth Company Election for Extended Transition Period Compliance.
Shell Company Status Indication
Shell Company Status Declaration (Rule 12b-2 of the Exchange Act).
Registrant's Shell Company Status Indicator
Outstanding Shares Count as of August 1, 2019.
Registrant Name and Entity Identifier.
INDEX Page No.
Part I. Financial Information
Item 1 - Financial Statements
Table of Contents for Condensed Consolidated Financial Statements
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 40 Item 4 – Controls and Procedures 40 Report of Independent Registered Public Accounting Firm 41
Part II. Other Information and Signatures
2 PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES
Condensed Consolidated Financial Statements Summary (in millions, except per share data).
4 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
YUM! BRANDS, INC.
Consolidated Statement of Comprehensive Income for Subsidiaries.
5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
YUM! BRANDS, INC. AND SUBSIDIARIES (in millions)
Year-to-Date Financial Comparison for 6/30/2019 and 6/30/2018
Cash Flows – Operating Activities
Statement of Cash Flows - Operating Activities
Cash Flows – Investing Activities
Statement of Cash Flows - Investing Activities
Net Cash Used in Investing Activities (52) (42)
Cash Flows – Financing Activities
Cash Flow Activities from Financing
Net Cash Used in Financing Activities (492) (1,579)
Effect of Exchange Rates on Cash and Cash Equivalents (2) (19)
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (85) (1,259)
Opening Balance of Cash and Equivalents
End of Period Cash Balances
Reference to Notes to Condensed Consolidated Financial Statements.
6 CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS Current Assets
Balance Sheet Summary
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Financial Liabilities Breakdown and Totals
Shareholders’ Deficit
Common Stock Issuance and Authorization Details
Accumulated Deficit Balances for 2019 and 2018
Accumulated Other Comprehensive Loss
Total Shareholders' Deficit Calculation
Summary of Total Liabilities and Shareholders’ Deficit
Reference to Accompanying Notes for Financial Statements.
7 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)
Shareholders' Equity Changes and Comprehensive Income Summary for Specified Periods
8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tabular amounts in millions, except per share data)
Note 1 - Financial Statement Presentation
Preparation and Context of Unaudited Condensed Consolidated Financial Statements for Interim Reporting.
Overview of YUM! Brands, Inc. and its Global Restaurant Operations :
Fiscal Year and Reporting Calendar Details for YUM and Subsidiaries.
Estimates and Assumptions in Financial Statement Preparation Conforming to GAAP.
Inclusion of Normal and Recurring Adjustments in Interim Financial Statements.
Interim Period Results Not Indicative of Full Year Expectations.
Interim Accounting Policies: Recognition of Advertising Costs and Income Taxes.
Reclassification of Prior Period Items for Comparative Purposes Without Impact on Net Income.
Adoption of FASB Topic 842 Standards on Lease Recognition and Measurement with Modified Retrospective Transition Approach.
Selection of Practical Expedients and Policy Elections for Lease Accounting Transition.
Reference to Note 5 for Adjustments Due to Adoption of Topic 842.
Information on Nature of Leases and Accounting Policies Post-Topic 842 Adoption.
Leases and Subleases to Franchisees with Lease and Non-Lease Components.
"Leasing of Land and Buildings for Restaurants and Support Centers and Accounting for Lease Terms and Renewal Options".
Liability Recognition Under Legacy GAAP for Operating Leases.
Recognition of Right-of-Use Assets and Liabilities Upon Adoption of Topic 842.
Definition of Right-of-Use Assets and Lease Liabilities.
Recognition of Single Lease Cost for Operating Leases on a Straight-Line Basis.
Depreciation Method for Right-of-Use Asset in Finance Leases.
Interest Calculation Method for Finance Lease Liabilities.
Use of Incremental Secured Borrowing Rate for Present Value Calculation of Lease Payments.
Exemption of Short-Term Leases from Balance Sheet and Straight-Line Expense Recognition.
Assessment of Right-of-Use Assets for Impairment Under Long-Lived Asset Policy.
Lease Reassessment and Remeasurement Triggered by Modifications and Specific Events under Topic 842.
Recognition of Lease Expense and Cash Payments Difference in Cash Flow Statements.
Quarterly and Year-to-Date Lease Costs and Sublease Income
Supplemental Cash Flow Information and Right-of-Use Assets Related to Leases :
Supplemental Balance Sheet Information for Leases as of 6/30/2019 :
Condensed Consolidated Balance Sheet
Assets
Operating Lease Right-of-Use Assets and Other Assets Valuation
Finance lease right-of-use assets 34 Property, plant and equipment, net
Summary of Right-of-Use Assets
Liabilities
Current
Operating $74 Accounts payable and other current liabilities
Finance 6 Short-term borrowings
Non-current
Operating 653 Other liabilities and deferred credits
Finance 63 Long-term debt
Total Lease Liabilities Amount
Weighted-average Remaining Lease Term (in years)
Operating leases 12.1 Finance leases 11.9 Weighted-average Discount Rate
Operating Lease and Finance Lease Percentages and Right-of-Use Assets and Liabilities as of June 30, 2019.
Schedule of Future Lease Commitments and Liabilities (Finance and Operating)
Future Minimum Lease Payments Disclosure per Legacy GAAP as of December 31, 2018 :
Note 3 - Earnings Per Common Share (“EPS”)
Financial Performance Metrics and Earnings Per Share (EPS) Calculations for Quarter and Year to Date
12 Note 4 - Shareholders’ Deficit
Authorization and Summary of Common Stock Repurchases for Years Ended June 30, 2019 and 2018.
Share Repurchase Summary for 2019 and 2018 Under Board Authorizations
13 Changes in Accumulated Other Comprehensive Loss (AOCI) Overview.
Changes in AOCI for the Period Ending June 30, 2019
OCI Adjustments and Net Balance Reconciliation for the Period Ending June 30, 2019
14 Note 5 - Items Affecting Comparability of Net Income, Financial Position and Cash Flows
Refranchising (Gain) Loss
Refranchising Gain/Loss Exclusion from Divisional Segment Performance Assessment.
Refranchising Activities and Pre-Tax Proceeds for Q1 and YTD Ended June 30, 2019.
Refranchising Activities and Pre-Tax Proceeds for Quarter and Year to Date Ended June 30, 2018.
Summary of Refranchising Gains and Losses :
Summary of Refranchising Gain (Loss) for Quarter and Year to Date by Division
Pizza Hut U.S. Transformation Agreement
Transformation Agreement with Pizza Hut U.S. Franchisees for Marketing, Operations, and Technology Enhancements.
Investment Commitments and Progress under the Transformation Agreement (2017-2019).
Investment Breakdown for Transformation Agreement (2018-2019).
Exclusion of Transformation Agreement Operating Investments from Pizza Hut Division Performance Reporting.
Allocation of Depreciation on Capital Investments to Pizza Hut Segment Results.
Amortization of Capitalized Franchisee Incentive Payments Allocated to Pizza Hut Division Operating Results.
Incremental System Advertising Funding and Recording in Pizza Hut Division Operating Results.
15 KFC U.S. Acceleration Agreement
Agreement with KFC U.S. Franchisees for Brand Marketing Control and Menu Expansion.
Investment Commitment of $130 Million for Franchisee Equipment and Remodel Incentives (2015-2019).
Investment Totals and Quarterly Breakdown for June 30, 2019 and 2018.
Incremental System Advertising Funding and Expense Allocation (2015-2018).
Turkey Acquisition Contingent Consideration
Charges Recorded for Excess Cash Payments Related to 2013 Acquisition of KFC Turkey and Pizza Hut Turkey Businesses.
Exclusion of Contingent Consideration Charges from Segment Performance Assessment.
Exclusion of Contingent Consideration Costs from Segment Operating Results.
Investment in Grubhub, Inc. ("Grubhub")
Master Services Agreement with Grubhub for KFC and Taco Bell Online Delivery Support.
Investment Agreement with Grubhub for $200 Million in Exchange for 2.8 Million Shares of Common Stock.
Completion of Regulatory Approvals and Consummation of Grubhub Shares Purchase in April 2018.
Transfer Restrictions on Acquired Shares.
Pre-Tax Income Recognition for Q2 and YTD 2019 from Grubhub Share Appreciation Adjusted for Transfer Restrictions.
Pre-Tax Income Recognition for Grubhub Stock Appreciation and Valuation Adjustments for Q2 and Year-to-Date 2018.
Reversal of Valuation Adjustment for Regulatory Approvals in Q2 2018.
Presentation of Changes in Fair Value of Grubhub Investment in Condensed Consolidated Statements of Income.
16 Impact of Adopting New Lease Standards
Adoption of Topic 842 and Application to Leases Starting January 2019.
Adjustments to Condensed Consolidated Balance Sheet Due to Topic 842 Adoption :
CONDENSED CONSOLIDATED BALANCE SHEET
Financial Statement Adjustments Due to Adoption of Topic 842
ASSETS Current Assets
Balance Sheet Summary
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Summary of Liabilities and Current Financial Obligations
Shareholders’ Deficit
Summary of Shareholders' Deficit and Total Liabilities
Lease Liabilities and Adjustments Related to Operating Lease Payments.
Write-off of Prepaid Rent and Resulting Decrease in Assets upon Adoption of New Lease Accounting Standard.
Recognition of Right-of-Use Asset and Impairment Charge Under Topic 842.
Increase in Accumulated Deficit Due to Right-of-Use Asset Recognition.
17 Note 6 - Other (Income) Expense
Settlement of Contingent Consideration and Net Foreign Exchange Gains/Losses for Q2 and YTD Ended June 30, 2019.
Other (Income) Expense Details for the Quarter and Year Ended June 30, 2018.
Note 7 - Supplemental Balance Sheet Information
Accounts and Notes Receivable, net
Primary Source of Company Receivables: Franchise and Lease Agreements.
Classification and Due Period of Trade Receivables Including Advertising Cooperative Receivables.
6 Financial Data Table: Accounts and Notes Receivable, Gross and Net, Including Allowance for Doubtful Accounts as of 6/30/2019 and 12/31/2018
Property, Plant and Equipment, net
6 Summary of Property, Plant, and Equipment Values and Depreciation as of June 30, 2019 and December 31, 2018
Assets Held-for-Sale Included in Prepaid Expenses and Other Current Assets.
Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows
Cash and Cash Equivalents in Condensed Consolidated Balance Sheets
Restricted Cash in Prepaid Expenses and Other Current Assets
Restricted Cash and Equivalents in Other Assets (b)
Cash Flow Statement Presentation of Cash and Cash Equivalents
(a) Definition of Restricted Cash in Prepaid Expenses and Other Current Assets.
(b) Trust Accounts for Self-Insurance Program.
Note 8 - Income Taxes
Quarter ended Year to date
Income Tax Provision and Effective Tax Rate Calculations
18 Explanation for Increased Effective Tax Rate Due to Tax Cuts and Jobs Act Adjustments and Prior Year Transactions.
Note 9 - Revenue Recognition
Disaggregation of Total Revenues
Revenue Disaggregation by Concept and Market Based on Operating Profit.
Revenue Disaggregation by Concept and Division for Significant Markets (First Table)
Detailed Breakdown of Financial Performance by Division for the U.S., China, and Other Regions
Division Sales and Revenue Breakdown by Brand
KFC Division Pizza Hut Division Taco Bell Division Total
Financial Breakdown of Company Sales and Revenues by Category and Region
Contract Liabilities
Composition of Contract Liabilities.
Summary of Significant Changes to Contract Liability Balance for 2019.
20 Deferred Franchise Fees
Contract Liability Balance Reconciliation for the Period Ending June 30, 2019
Expected Recognition of Contract Liabilities as Revenue Over Franchise Agreement Term :
Note 10 - Reportable Operating Segments
Summary of Revenues and Operating Profit by Reportable Operating Segments :
Quarter ended Year to date Revenues 2019 2018 2019 2018 KFC Division $584 $651 $1,150 $1,309 Pizza Hut Division 246 233 489 484 Taco Bell Division 480 484 925 946 Total $1,310 $1,368 $2,564 $2,739
Quarter ended Year to date Operating Profit 2019 2018 2019 2018 KFC Division $261 $235 $497 $456 Pizza Hut Division 96 81 93 169 Taco Bell Division 159 149 297 281 Corporate and unallocated G&A expenses (38) (40) (81) (84) Unallocated Company restaurant expenses — 1 — 1 Unallocated Franchise and property expenses(a) (2) (1) (3) (2) Unallocated Refranchising gain (loss) (See Note 5) 4 29 10 185 Unallocated Other income (expense)(b) (9) (5) (9) (4) Operating Profit $471 $449 $904 $1,002
Statement of Income Components and Pre-Tax Income Figures
(a) Costs Associated with KFC U.S. Acceleration Agreement and Pizza Hut U.S. Transformation Agreement (See Note 5).
(b) Settlement of Contingent Consideration for 2013 Acquisition of KFC Turkey and Pizza Hut Turkey Businesses.
Note 11 - Pension Benefits
Overview of Sponsored Pension Plans and Funding Status.
Components of Net Periodic Benefit Cost for Significant U.S. Pension Plans :
Net Periodic Benefit Cost Components for U.S. Pension Plans
Explanation of Additional Loss Due to Settlement Transactions.
Note 12 - Short-term Borrowings and Long-term Debt
Short-term Borrowings
6 Financial Summary of Debt Obligations and Short-term Borrowings as of 6/30/2019 and 12/31/2018
Long-term Debt
Detailed Breakdown of Debt Instruments and Adjustments
Note 13 - Derivative Instruments
Use of Derivative Instruments for Managing Market Risks.
Interest Rate Swaps
Objective of Interest Rate Swaps for Reducing Interest Rate Risk on Variable-Rate Debt.
Notional Amounts and Expiry Dates of Interest Rate Swaps.
Designation of Interest Rate Swaps as Cash Flow Hedges.
Status of Interest Rate Swaps as of June 30, 2019, and December 31, 2018.
Reporting and Reclassification of Interest Rate Swap Gains or Losses in AOCI and Interest Expense.
Effectiveness of Cash Flow Hedges Through June 30, 2019.
Foreign Currency Contracts
Foreign Currency Forward and Swap Contracts for Hedging Earnings Volatility.
Designation of Foreign Currency Contracts as Cash Flow Hedges.
Reporting of Gains or Losses on Foreign Currency Contracts in AOCI.
Quarterly Reclassification of AOCI Amounts to Offset Foreign Currency Transaction Gains or Losses.
Effectiveness of Foreign Currency Forward and Swap Contracts as Cash Flow Hedges through June 30, 2019.
Total Notional Amounts of Foreign Currency Forward and Swap Contracts as of June 30, 2019 and December 31, 2018.
Duration of Foreign Currency Forward and Swap Contracts as of June 30, 2019.
Counterparty Credit Risk Management and Performance Assessment for Interest Rate Swaps and Foreign Currency Contracts.
Gains and Losses on Cash Flow Hedges in OCI and Reclassifications to Net Income :
Estimated Net Gain from Cash Flow Hedges in AOCI to be Reclassified into Earnings within 12 Months as of June 30, 2019.
Note 14 - Fair Value Disclosures
Carrying Values and Fair Value Approximation of Short-Term Financial Instruments as of June 30, 2019.
Fair Value Approximation of Notes Receivable Net of Allowances and Lease Guarantees.
Table of Carrying Value and Estimated Fair Value of Debt Obligations as of June 30, 2019 and December 31, 2018 :
(a) Methodology for Estimating Fair Value of Securitization Notes.
(b) Estimation of Fair Value for YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility, and Term Loan B Facility Using Market Quotes and Rates.
Recurring Fair Value Measurements
Fair Value Measurement Requirement for Financial Instruments and Investments.
Fair Value Measurements and Hierarchy Levels for Recurring Basis Assets and Liabilities.
24 Fair Value
Condensed Consolidated Balance Sheet Level
6 Reporting Periods
Assets
Financial Instruments and Investments Categorized by Asset Type and Valuation
Liabilities
Foreign Currency Contracts in Accounts Payable and Other Current Liabilities
Interest Rate Swaps in Other Liabilities and Deferred Credits
Foreign Currency Contracts Fair Value Determination
Fair Value Determination of Foreign Currency Contracts and Interest Rate Swaps.
Fair Value Determination of Grubhub Common Stock Based on Closing Market Prices.
Fair Value Determination of Mutual Funds for Deferred Compensation Liabilities.
Note 15 - Contingencies
Lease Guarantees
Secondary Liability Due to Lease Obligations Assignment and Guaranteeing.
Lease Term Variability and Expiration Date.
Potential Undiscounted Payments Liability as of June 30, 2019.
Present Value of Potential Payments Discounted at Pre-Tax Cost of Debt as of June 30, 2019.
Franchisees as Primary Lessees.
Cross-Default Provisions for Franchisees in Case of Lease Non-Payment.
Risk Mitigation Through Cross-Default Provisions.
Recorded Liability for Lease Exposure as of June 30, 2019.
Legal Proceedings
Exposure to Claims and Contingencies in Normal Business Operations.
Accruals for Probable and Reasonably Estimable Losses.
Ongoing Legal Proceedings and Unresolved Claims with Indeterminate Liability.
Legal Counsel Opinion on Impact of Proceedings and Claims on Financial Statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
Introduction to Management's Discussion and Analysis (MD&A) and Related Documents.
Overview of Yum! Brands, Inc. and Its Global Restaurant Concepts :
Announcement of YUM’s Strategic Transformation Initiatives Post-China Business Separation.
Continuation of YUM's Operating Model and Capital Structure Transformation.
- More Focused.
Introduction to YUM's Strategic Plans and Growth Drivers :
- Building Relevant, Easy and Distinctive Brands through Consumer Insights and Innovation ;
- Developing Franchise Operating Capability and Recruiting Top Operators ;
- Driving Bold Restaurant Development through Strategic Franchisee Partnerships
- Growing Unrivaled Culture and Talent for Enhanced Customer Experience and Franchise Success.
- More Franchised. YUM successfully increased franchise restaurant ownership to its 98% target as of the end of 2018.
- More Efficient. The Company is revamping its financial profile, improving the efficiency of its organization and cost structure globally, by:
-- Reducing Annual Capital Expenditures and Funding New Units through Refranchising ;
-- Reduction of General and Administrative Expenses to 1.7% of System Sales in 2019
-- Maintaining an Optimized Capital Structure with ~5.0x EBITDA Leverage.
Shareholder Return Strategy (2017-2019): Funding Through Refranchising, Free Cash Flow, and EBITDA Leverage.
26 Purpose of the MD&A in Providing Operational Insights and Performance Metrics.
Definition of Same-Store Sales Growth Metric :
- Net New Units: Definition and Calculation.
- Definition of Company Restaurant Profit and Margin Calculation.
Non-GAAP Measurement: System Sales and Excluding Foreign Currency Translation :
- Non-GAAP Financial Metrics Definitions and Exclusions ;
Explanation of Non-GAAP Measurements and Exclusion of Special Items from Division Segment Results.
Exclusion of Special Items in Segment Performance Assessment by Chief Operating Decision Maker.
Non-GAAP Measurements Excluding FX Impact and Translation Methodology.
Rationale for Excluding FX Impact for Enhanced Year-to-Year Comparability.
Results of Operations
Summary
Basis of Comparisons: Year-over-Year Analysis.
Quarterly GAAP and Adjusted EPS Performance for June 30, 2019.
Impact of Special Items on GAAP Diluted EPS for Quarters Ended June 30, 2018 and 2019.
Impact of Grubhub Investment Fair Value Change on Diluted EPS for Q2 2019 and Q2 2018.
Year-to-Date GAAP and Adjusted Diluted EPS Comparison for June 30, 2019.
Impact of Changes in Grubhub Investment Fair Value on Year-to-Date EPS Comparisons.
Impact of Special Items on GAAP Diluted EPS Comparison Year-over-Year.
Quarterly Financial highlights:
% Change
System Sales, ex FX
Same-Store Sales
Net New Units
GAAP Operating Profit
Core Operating Profit
KFC Division
Numerical Data Enumeration
Pizza Hut Division
Numerical Reference Sequence
Taco Bell Division
Numerical List Enumeration
Worldwide
Numerical Value Enumeration
Year to date Financial highlights:
% Change
System Sales, ex FX
Same-Store Sales
Net New Units
GAAP Operating Profit
Core Operating Profit
KFC Division
Numerical References Enumeration
Pizza Hut Division
Numerical List Enumeration
Taco Bell Division
Numerical Data Sequence
Worldwide
Numeric Item Enumeration
Introduction to Adjustments for Prior Year Base and System Sales Growth Calculations :
- Adjustment of Prior Year Base for Strategic Alliance with Telepizza Impact on System Sales Growth.
- Net New Unit Openings and Year-over-Year Growth Analysis.
- Share Repurchase Activity for the Quarter and Year to Date.
- Impact of Foreign Currency Translation on Divisional Operating Profit.
28 Worldwide GAAP Results
Quarter ended
Year to date
2019 2018 Annual Comparative Financial Data for 2019 and 2018
% B/(W)
2019 2018 Comparative Yearly Data: 2019 and 2018
% B/(W)
Company sales
Financial Performance Metrics for Franchise and Restaurant Operations.
G&A expenses
Detailed Financial Breakdown of Franchise and Property Expenses, Franchise Advertising and Services Expense, Refranchising (Gain) Loss, and Other (Income) Expense
Operating Profit
Financial Performance Summary.
29 Performance Metrics
Unit Count
6 Franchise and Company-Owned Units Comparison Including Telepizza Strategic Alliance.
Same-store Sales Growth Comparison for Quarter and Year-to-Date
Non-GAAP Items and Reconciliation to GAAP Financial Measures.
Comparative Financial Performance Metrics for Quarter and Year to Date
(a) Adjustment to Prior Year Base for Telepizza Inclusion in System Sales Growth Calculation.
Detail of Special Items Financial Summary for Quarter and Year to Date
30 Reconciliation of GAAP Operating Profit to Core Operating Profit
Consolidated Financial Performance Metrics: GAAP Operating Profit, Special Items Income, Foreign Currency Impact, and Core Operating Profit
KFC Division Operating Profit and Foreign Currency Impact Analysis
Pizza Hut Division Operating Profit and Foreign Currency Impact Analysis
Taco Bell Division Financial Performance and Foreign Currency Impact
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Earnings Per Share (EPS) Analysis with and without Special Items
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate Percentages by Year
Impact of Special Items on Tax Rate Adjustment
Effective Tax Rate Excluding Special Items
Reconciliation of GAAP Company sales to System sales
Consolidated Sales and Foreign Currency Impact Analysis
KFC Division Sales Analysis: GAAP Company, Franchise, and System Sales Including Foreign Currency Impact
31 Pizza Hut Division Financial Performance and Foreign Currency Impact Analysis
Taco Bell Division Sales and Foreign Currency Impact Analysis
(a) Charges Related to Excess Cash Payments for 2013 KFC and Pizza Hut Turkey Acquisition.
(b) Determination of Tax Expense on Special Items and Correction of Prior Year Divestiture Tax Error.
(c) Tax Adjustments and Benefits Related to the Tax Cuts and Jobs Act of 2017 for the Quarter and Year to Date Ended June 30, 2018.
(d) Foreign Currency Impact on Operating Profit and Core Operating Profit Growth Calculation.
(e) Definition of Company Sales in Condensed Consolidated Statements of Income.
(f) Foreign Currency Impact on System Sales and Growth Percentage Calculation.
Items Impacting Current Quarter and Expected to Impact Future Results
Investment in Grubhub
Pre-Tax Income Recognition for Quarters Ended June 30, 2019 and 2018 Due to Fair Value Changes in Grubhub Investment.
Pre-Tax Income from Changes in Fair Value of Grubhub Investment for Years to Date Ended June 30, 2019 and 2018.
Reference to Note 5 for Detailed Information on Grubhub Investment.
Telepizza Strategic Alliance
Strategic Alliance Agreement with Telepizza Group S.A. on December 30, 2018 :
- Telepizza's Role in Spain and Portugal: Continued Operation of Telepizza Brand and Oversight of Pizza Hut Franchisees
- Telepizza's Conversion to Pizza Hut Brand and Franchise Oversight in Latin America, the Caribbean, and Switzerland
- Supply Chain Management and Authorized Supplier Status for Telepizza
- Telepizza's Expansion Targets Under Master Franchise Agreement
Addition of Telepizza Units to Pizza Hut Division and Total Units Under Master Franchise Agreement as of June 30, 2019.
Risks and Rewards of Collaborative Arrangement Based on Pizza Hut Intellectual Property and Telepizza's Supply Chain Management.
Classification of Alliance as Collaborative Arrangement and Financial Statement Reporting.
Continuing Fee for Pizza Hut Restaurants Post-Alliance Consummation.
Alliance Fee for Telepizza Restaurants at 3.5% of Sales.
Revenue Recognition of Franchise and Property Fees in Financial Statements.
Sales-Based Credit and Incentive Payments Reduction Clause.
Historical Franchise Fee Structure for Existing Pizza Hut Restaurants Under Telepizza Agreement.
Impact on Operating Profit from Strategic Alliance for Q2 and YTD Ended June 30, 2019.
System Sales Growth Impact from Telepizza Alliance for Q2 2019.
System Sales Growth Excluding Foreign Currency Year-to-Date June 30, 2019 Due to Telepizza Alliance.
Net New Unit Growth Increase Due to Strategic Alliance for Q2 2019.
KFC United Kingdom ("UK") Supply Availability Issues
Transition to New Distributor and Resulting Supply Issues for KFCs in the UK and Ireland.
Impact on Core Operating Profit Growth for Q2 2018 Due to Supply Issues.
Core Operating Profit Impact Estimate for KFC and YUM Due to Issues (Year to Date Ended June 30, 2018).
Estimated Same-Store Sales Growth Without Supply Disruption for Second Quarter 2018.
Estimated Negative Impact on Core Operating Profit and Same-Store Sales Growth for KFC Division and YUM in 2018.
KFC Division
KFC Division Unit Distribution and Franchise Operation Statistics as of June 30, 2019.
33 Financial Performance Metrics for KFC Division for Quarter and Year to Date Ending 2019.
% Increase (Decrease) Unit Count 6/30/2019 6/30/2018 Franchise 22,789 21,235 7 Company-owned 329 603 (45) Total 23,118 21,838 6
Company sales and Restaurant margin percentage
Explanation of Quarterly and Year-to-Date Decreases in Company Sales.
Explanation for Quarterly and Year-to-Date Increases in Restaurant Margin Percentage.
Franchise and property revenues
Drivers of Quarterly and Year-to-Date Increases in Franchise and Property Revenues.
G&A
Impact of YUM's Strategic Transformation Initiatives on G&A Expense Reductions.
34 Operating Profit
Quarterly Operating Profit Increase Drivers Excluding Foreign Currency Impact.
Year to Date Increase in Operating Profit Excluding Foreign Currency Translation.
Pizza Hut Division
Overview of Pizza Hut Division's Global Operations and Franchise Model.
Financial Performance Metrics for Pizza Hut Division - Quarterly and Year-to-Date Comparisons (2018 vs. 2019).
% Increase (Decrease) Unit Count 6/30/2019 6/30/2018 Franchise 18,459 16,730 10 Company-owned 56 93 (40) 18,515 16,823 10
Impact of Refranchising on Quarterly and Year-to-Date Sales Decrease.
Franchise and property revenues
Quarterly Increase in Franchise and Property Revenues Driven by 2% Same-Store Sales Growth and Net New Unit Growth.
Year-to-Date Increase in Franchise and Property Revenues Due to Net New Unit Growth and 1% Same-Store Sales Growth.
G&A
Explanation of Decreases in General and Administrative Expenses Due to Strategic Transformation Initiatives.
Operating Profit
Quarterly Increase in Operating Profit Drivers Excluding Foreign Currency Translation.
Year-to-Date Increase in Operating Profit Excluding Foreign Currency Impact and Contributing Factors.
Acquisition of QuikOrder in December 2018 and Its Role as a Long-Term Provider of Online Ordering Services.
Taco Bell Division
Taco Bell Division Unit Count and Ownership Percentage as of June 30, 2019.
36 Taco Bell Division Financial Performance Comparison for Quarter and Year to Date 2019 vs 2018.
% Increase (Decrease) Unit Count 6/30/2019 6/30/2018 Franchise 6,662 6,299 6 Company-owned 474 606 (22) 7,136 6,905 3
Company sales and Restaurant margin percentage
Quarterly and Year-to-Date Sales Decrease Due to Refranchising and Offset Factors.
Quarterly Decrease in Restaurant Margin Percentage Due to Higher Labor and Operating Costs.
Year to Date Increase in Restaurant Margin Percentage Due to Same-Store Sales Growth and Higher Operating Costs.
Franchise and property revenues
Franchise and Property Revenue Growth Drivers.
G&A
Quarterly G&A Stability Due to Cost Inflation Offset and Strategic Transformation Initiatives.
37 Year-to-Date Increase in G&A Due to Lapping Prior Year Forfeitures of Share-Based Compensation Awards.
Operating Profit
Quarterly Operating Profit Increase Analysis Excluding Foreign Currency Impact.
Year-to-Date Operating Profit Increase Factors Excluding Foreign Currency Translation.
Corporate & Unallocated
Quarter ended Year to date(Expense) / Income 2019 2018 % B/(W) 2019 2018 % B/(W)
Unallocated and Corporate Financial Metrics and Tax Provisions Analysis.
Corporate and unallocated G&A
Impact of YUM’s Strategic Transformation Initiatives on G&A Expense Reductions.
Unallocated Franchise and property expenses
Unallocated Franchise and Property Expenses Related to Pizza Hut U.S. Transformation and KFC U.S. Acceleration Agreements.
Unallocated Other income (expense)
Settlement of Contingent Consideration for 2013 Acquisition of KFC Turkey and Pizza Hut Turkey.
Interest expense, net
Explanation for Increase in Interest Expense Due to Higher Borrowings.
Consolidated Cash Flows
Increase in Net Cash from Operating Activities Due to Higher Operating Profit and Reduced Tax and Compensation Payments.
Net Cash Used in Investing Activities Analysis for 2019 vs. 2018.
Analysis of Decrease in Net Cash Used in Financing Activities for 2019.
Consolidated Financial Condition
Impact of Topic 842 Adoption on Condensed Consolidated Balance Sheet.
Liquidity and Capital Resources
Announcement of YUM’s Strategic Transformation Initiatives Post-China Business Separation in October 2016.
Achievement of Store Reduction Goal by End of 2018.
Announcement of Intention to Lower General and Administrative Expenses to 1.7% of System Sales.
Reduction of Capital Spending and Funding Through Refranchising.
Projected 2019 Capital Spending Including Strategic Technology Investments.
Summary of Shareholder Returns from 2017 to Q2 2019.
Funding of Shareholder Returns Through Refranchising, Cash Flow, and EBITDA Leverage.
Refranchising Proceeds and Franchise Ownership Milestone Achievement.
Primary Sources of Liquidity.
Historical Cash Flow Generation and Annual Operating Cash Flow Performance.
Offsetting Decreases in Operating Cash Flows through Reduced Capital Investment and G&A Savings.
Revolving Credit Facility for Cash Flow Shortfalls and Current Borrowings Status.
Working Capital Deficit Common in Industry and Historically for YUM.
Royalty Receivables Due Period and Payment Methods for Company Sales.
Historical Allocation of Substantial Cash Receipts.
Negotiation of Favorable Credit Terms and Rapid Inventory Turnover as Part of Working Capital Strategy.
Current Liabilities Exceeding Current Assets and Impact on Liquidity and Operations.
Debt Instruments
Composition of Long-term Debt as of June 30, 2019.
Summary of Future Maturities of Outstanding Long-term Debt as of June 30, 2019.
Summary of Future Maturities of Outstanding Long-Term Debt as of June 30, 2019
39 New Accounting Pronouncements Not Yet Adopted
FASB Standard on Measurement and Recognition of Expected vs. Incurred Credit Losses Effective Fiscal Q1 2020.
Anticipated Insignificance of Standard Adoption Impact on Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Disclosure Confirmation: No Material Changes for Quarter Ending June 30, 2019.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Evaluation of Effectiveness of Disclosure Controls and Procedures Pursuant to SEC Rules 13a-15(e) and 15d-15(e).
Conclusion of Effectiveness of Disclosure Controls and Procedures by Management.
Changes in Internal Control
Statement on Stability of Internal Control Over Financial Reporting for Quarter Ending June 30, 2019.
Forward-Looking Statements
Identification of Forward-Looking Statements by Terminology.
Basis for Forward-Looking Statements: Expectations, Estimates, Assumptions, and Perception of Trends and Conditions.
Disclaimer on Limitations and Risks of Forward-Looking Statements.
No Assurance of Achieving Expectations, Estimates, Assumptions, and Projections.
Potential Factors Leading to Material Deviations from Projections
(i) Reference to Factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2,
(ii) Risks and Uncertainties in Part II, Item 1A of This Report,
(iii) Reference to Factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for Year Ended December 31, 2018
(iv) Reference to Risk Factors in Part I, Item 1A of Form 10-K for Year Ended December 31, 2018.
Disclaimer on Reliance on Forward-Looking Statements.
No Obligation to Update Forward-Looking Statements.
40 Report of Independent Registered Public Accounting Firm
Addressees: Shareholders and Board of Directors of YUM! Brands, Inc .:
Results of Review of Interim Financial Information
Review and Findings on Consolidated Interim Financial Information of YUM! Brands, Inc. as of June 30, 2019.
Previous Audit and Unqualified Opinion on 2018 Consolidated Financial Statements.
Auditor's Opinion on Condensed Consolidated Balance Sheet Accuracy as of December 31, 2018.
Basis for Review Results
Responsibility for Financial Information and Independence Compliance.
Review Conducted in Accordance with PCAOB Standards.
Scope and Procedures of Interim Financial Information Review.
Scope Limitation of Interim Financial Review Compared to PCAOB Audit Standards.
Disclaimer of Opinion on Financial Statements.
Item 1. Legal Proceedings
Reference to Legal Proceedings Information in Note 15 of Financial Statements.
Item 1A. Risk Factors
Inherent Business and Industry Risks Impacting Actual Results.
No Material Changes in Risk Factors Since 2018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information on Common Stock Repurchases as of June 30, 2019 :
Table Header for Share Repurchase Data
4 Detailed Share Purchase Data for Fiscal Period 4/1/19-4/30/19
5 Transaction Summary for May 2019
6 June 2019 Billing Summary
Summary of Monthly Totals: Quantity and Costs
(a) Exhibit Index
Exhibit No. Exhibit Description
10.28 Offer Letter Agreement with Christopher Turner Dated June 19, 2019
15 Letter from KPMG LLP regarding Unaudited Interim Financial Information (Acknowledgement of Independent Registered Public Accounting Firm)
31.1 CEO Certification under Rule 13a-14(a) of the Securities Exchange Act of 1934 (Sarbanes-Oxley Act Section 302).
31.2 Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Section 302 of the Sarbanes-Oxley Act.
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer under 18 U.S.C. Section 1350 and Sarbanes-Oxley Act Section 906.
101. INS XBRL Instance Document Embedded XBRL Tags in Inline XBRL Document.
101. SCH XBRL Taxonomy Extension Schema Document
101. CAL XBRL Taxonomy Extension Calculation Linkbase Document
101. LAB XBRL Taxonomy Extension Label Linkbase Document
101. PRE XBRL Taxonomy Extension Presentation Linkbase Document
101. DEF XBRL Taxonomy Extension Definition Linkbase Document
43 SIGNATURES
Signing Authorization Under the Securities Exchange Act of 1934.
Signature and Authorization of Report by Principal Accounting Officer
44
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"content": "Accounts payable and other current liabilities $798 $911\nIncome taxes payable 63 69\nShort-term borrowings 325 321\nTotal Current Liabilities 1,186 1,301\nLong-term debt 9,869 9,751\nOther liabilities and deferred credits 1,613 1,004\nTotal Liabilities 12,668 12,056",
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{
"index": 1,
"title": "Shareholders\u2019 Deficit",
"name": "",
"content": "",
"type": "container",
"path": "000:023:001:001",
"children": [
{
"index": 0,
"title": "",
"name": "Common Stock Issuance and Authorization Details",
"content": "Common Stock, no par value, 750 shares authorized; 304 shares issued in 2019 and 306 issued in 2018 \u2014 \u2014",
"type": "body",
"path": "000:023:001:001:000",
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},
{
"index": 1,
"title": "",
"name": "Accumulated Deficit Balances for 2019 and 2018",
"content": "Accumulated deficit (7,614) (7,592)",
"type": "body",
"path": "000:023:001:001:001",
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},
{
"index": 2,
"title": "",
"name": "Accumulated Other Comprehensive Loss",
"content": "Accumulated other comprehensive loss (380) (334)",
"type": "body",
"path": "000:023:001:001:002",
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{
"index": 3,
"title": "",
"name": "Total Shareholders' Deficit Calculation",
"content": "Total Shareholders\u2019 Deficit (7,994) (7,926)",
"type": "body",
"path": "000:023:001:001:003",
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},
{
"index": 4,
"title": "",
"name": "Summary of Total Liabilities and Shareholders\u2019 Deficit",
"content": "Total Liabilities and Shareholders\u2019 Deficit $4,674 $4,130",
"type": "body",
"path": "000:023:001:001:004",
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{
"index": 5,
"title": "",
"name": "Reference to Accompanying Notes for Financial Statements",
"content": "See accompanying Notes to Condensed Consolidated Financial Statements.",
"type": "body",
"path": "000:023:001:001:005",
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"index": 24,
"title": "7 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)",
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"content": "",
"type": "container",
"path": "000:024",
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{
"index": 25,
"title": "",
"name": "Shareholders' Equity Changes and Comprehensive Income Summary for Specified Periods",
"content": "Issued Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders' Deficit\nShares | Amount\nBalance at March 31, 2019 | 306 | $\u2014 | $(7,580) | $(324) | $(7,904)\nNet Income | 289 | 289\nTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $4 million) | (25) | (25)\nPension and post-retirement benefit plans | 1 | 1\nNet loss on derivative instruments (net of tax impact of $11 million) | (32) | (32)\nComprehensive Income | 233\nDividends declared | (128) | (128)\nRepurchase of shares of Common Stock | (2) | (1) | (195) | (196)\nEmployee share-based award exercises | (13) | (13)\nShare-based compensation events | 14 | 14\nBalance at June 30, 2019 | 304 | $\u2014 | $(7,614) | $(380) | $(7,994)\nBalance at December 31, 2018 | 306 | $\u2014 | $(7,592) | $(334) | $(7,926)\nNet Income | 551 | 551\nTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature | 5 | 5\nPension and post-retirement benefit plans (net of tax impact of $1 million) | 4 | 4\nNet loss on derivative instruments (net of tax impact of $19 million) | (55) | (55)\nComprehensive Income | 505\nDividends declared | (257) | (257)\nRepurchase of shares of Common Stock | (3) | (1) | (301) | (302)\nEmployee share-based award exercises | 1 | (38) | (13) | (51)\nShare-based compensation events | 39 | 39\nAdoption of accounting standard | (2) | (2)\nBalance at June 30, 2019 | 304 | $\u2014 | $(7,614) | $(380) | $(7,994)\nBalance at March 31, 2018 | 327 | $\u2014 | $(6,539) | $(215) | $(6,754)\nNet Income | 321 | 321\nTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature (net of tax impact of $6 million) | (70) | (70)\nPension and post-retirement benefit plans (net of tax impact of $2 million) | 3 | 3\nComprehensive Income | 254\nDividends declared | (116) | (116)\nRepurchase of shares of Common Stock | (7) | (7) | (636) | (643)\nEmployee share-based award exercises | (1) | (6) | (6)\nShare-based compensation events | 13 | 13\nAdoption of accounting standard | 5 | 5\nBalance at June 30, 2018 | 319 | $\u2014 | $(6,965) | $(282) | $(7,247)\nBalance at December 31, 2017 | 332 | $\u2014 | $(6,063) | $(271) | $(6,334)\nNet Income | 754 | 754\nTranslation adjustments and gains (losses) from intra-entity transactions of a long-term investment nature | (30) | (30)\nPension and post-retirement benefit plans (net of tax impact of $3 million) | 8 | 8\nNet gain on derivative instruments (net of tax impact of $3 million) | 9 | 9\nComprehensive Income | 741\nDividends declared | (237) | (237)\nRepurchase of shares of Common Stock | (14) | (7) | (1,164) | (1,171)\nEmployee share-based award exercises | 1 | (29) | (4) | (33)\nShare-based compensation events | 36 | 36\nAdoption of accounting standards | (251) | 2 | (249)\nBalance at June 30, 2018 | 319 | $\u2014 | $(6,965) | $(282) | $(7,247)",
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"index": 26,
"title": "8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Tabular amounts in millions, except per share data)",
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"type": "container",
"path": "000:026",
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"index": 27,
"title": "Note 1 - Financial Statement Presentation",
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"type": "container",
"path": "000:027",
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"index": 0,
"title": "",
"name": "Preparation and Context of Unaudited Condensed Consolidated Financial Statements for Interim Reporting",
"content": "We have prepared our accompanying unaudited Condensed Consolidated Financial Statements (\u201cFinancial Statements\u201d) in accordance with the rules and regulations of the Securities and Exchange Commission (\u201cSEC\u201d) 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 (\u201cGAAP\u201d) 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, 2018 (\u201c2018 Form 10-K\u201d).",
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"path": "000:027:000",
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{
"index": 1,
"title": "",
"name": "Overview of YUM! Brands, Inc. and its Global Restaurant Operations",
"content": "YUM! Brands, Inc. and its Subsidiaries (collectively referred to herein as the \u201cCompany,\u201d \u201cYUM,\u201d \u201cwe,\u201d \u201cus\u201d or \u201cour\u201d) franchises or operates a system of over 48,000 quick service restaurants in more than 145 countries and territories. At June 30, 2019, 98% of these restaurants were owned and operated by franchisees. The Company\u2019s KFC, Pizza Hut and Taco Bell brands (collectively the \u201cConcepts\u201d) are global leaders of the chicken, pizza and Mexican-style food categories. As of June 30, 2019, YUM consisted of three operating segments:\n- The KFC Division which includes our worldwide operations of the KFC concept\n- The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept\n- The Taco Bell Division which includes our worldwide operations of the Taco Bell concept",
"type": "container",
"path": "000:027:001",
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"index": 0,
"title": "",
"name": "Fiscal Year and Reporting Calendar Details for YUM and Subsidiaries",
"content": "YUM's fiscal year begins on January 1 and ends December 31 of each year, with each quarter comprised of three months. 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. For our subsidiaries that operate on this weekly periodic calendar, 2019 will include a 53rd week. Our remaining international subsidiaries operate on a monthly calendar similar to that on which YUM operates.",
"type": "body",
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"index": 1,
"title": "",
"name": "Estimates and Assumptions in Financial Statement Preparation Conforming to GAAP",
"content": "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.",
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"index": 2,
"title": "",
"name": "Inclusion of Normal and Recurring Adjustments in Interim Financial Statements",
"content": "The accompanying Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with our 2018 Form 10-K, the results of the interim periods presented.",
"type": "body",
"path": "000:027:001:002",
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"index": 3,
"title": "",
"name": "Interim Period Results Not Indicative of Full Year Expectations",
"content": "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.",
"type": "body",
"path": "000:027:001:003",
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"index": 4,
"title": "",
"name": "Interim Accounting Policies: Recognition of Advertising Costs and Income Taxes",
"content": "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.",
"type": "body",
"path": "000:027:001:004",
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{
"index": 5,
"title": "",
"name": "Reclassification of Prior Period Items for Comparative Purposes Without Impact on Net Income",
"content": "We have reclassified certain other items in the Financial Statements for the prior periods to be comparable with the classification for the quarter and year to date ended June 30, 2019. These reclassifications had no effect on previously reported Net Income.",
"type": "body",
"path": "000:027:001:005",
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{
"index": 6,
"title": "",
"name": "Adoption of FASB Topic 842 Standards on Lease Recognition and Measurement with Modified Retrospective Transition Approach",
"content": "Starting in February 2016 and continuing into 2019, the Financial Accounting Standards Board (\"FASB\") issued standards on the recognition and measurement of leases (\"Topic 842\"). We adopted these standards beginning with the quarter ended March 31, 2019, using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of 2019 and have not recast the comparative periods presented in the Condensed Consolidated Financial Statements.",
"type": "body",
"path": "000:027:001:006",
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{
"index": 7,
"title": "",
"name": "Selection of Practical Expedients and Policy Elections for Lease Accounting Transition",
"content": "The standards provide a number of optional practical expedients and policy elections in transition. We elected the \u2018package of practical expedients\u2019 under which we did not reassess under the standards our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements.",
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"path": "000:027:001:007",
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"index": 8,
"title": "",
"name": "Reference to Note 5 for Adjustments Due to Adoption of Topic 842",
"content": "Refer to Note 5 for information regarding the adjustments recorded to our Condensed Consolidated Balance Sheet as of the beginning of the quarter ended March 31, 2019 to reflect the adoption of Topic 842.",
"type": "body",
"path": "000:027:001:008",
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{
"index": 9,
"title": "",
"name": "Information on Nature of Leases and Accounting Policies Post-Topic 842 Adoption",
"content": "Below is information about the nature of our leases, accounting policies and assumptions subsequent to adopting Topic 842 and other required disclosures.",
"type": "body",
"path": "000:027:001:009",
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{
"index": 10,
"title": "",
"name": "Leases and Subleases to Franchisees with Lease and Non-Lease Components",
"content": "In certain instances, we lease or sublease certain restaurants to franchisees. Our lessor and sublease portfolio primarily consists of stores that have been leased to franchisees subsequent to refranchising transactions. Our most significant leases with lease and non-lease components are leases with our franchisees that include both the right to use a restaurant as well as a license of the intellectual property associated with our Concepts\u2019 brands. For these leases, which are primarily classified as operating leases, we account for the lease and non-lease components separately. Revenues from rental agreements with franchisees are presented within Franchise and property revenues in our Condensed Consolidated Statements of Income and related expenses (e.g. depreciation and rent expense) are presented within Franchise and property expenses. The impact of adopting Topic 842 on the accounting for our lessor and sublease portfolio was not significant.",
"type": "body",
"path": "000:027:001:010",
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},
{
"index": 11,
"title": "",
"name": "\"Leasing of Land and Buildings for Restaurants and Support Centers and Accounting for Lease Terms and Renewal Options\"",
"content": "We lease land, buildings or both for certain of our restaurants and restaurant support centers worldwide. Rental expense for leased restaurants is presented in our Condensed Consolidated Statements of Income as Company restaurant expenses and rental expense for restaurant support centers is presented as General and administrative expenses. The length of our lease terms, which vary by country and often include renewal options, are an important factor in determining the appropriate accounting for leases including the initial classification of the lease as finance (referred to as \u201ccapital\u201d leases prior to the adoption of Topic 842) or operating as well as the timing of recognition of rent expense over the duration of the lease. We include renewal option periods in determining the term of our leases when failure to renew the lease would impose a penalty on the Company in such an amount that a renewal appears to be reasonably certain at the commencement of the lease. The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements that might be impaired if we choose not to continue the use of the leased property. Our leasing activity for other assets, including equipment, is not significant.",
"type": "body",
"path": "000:027:001:011",
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},
{
"index": 12,
"title": "",
"name": "Liability Recognition Under Legacy GAAP for Operating Leases",
"content": "Prior to the adoption of Topic 842 (\u201cLegacy GAAP\u201d) liabilities for future rental payments under operating leases were not recognized on the balance sheet of the Company except when recognizing a liability was necessary to reflect the impact of recognizing rent expense on a straight-line basis.",
"type": "body",
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"index": 13,
"title": "",
"name": "Recognition of Right-of-Use Assets and Liabilities Upon Adoption of Topic 842",
"content": "Upon the adoption of Topic 842, right-of-use assets and liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. Such assets and liabilities have historically been recorded for finance leases.",
"type": "body",
"path": "000:027:001:013",
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{
"index": 14,
"title": "",
"name": "Definition of Right-of-Use Assets and Lease Liabilities",
"content": "Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.",
"type": "body",
"path": "000:027:001:014",
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},
{
"index": 15,
"title": "",
"name": "Recognition of Single Lease Cost for Operating Leases on a Straight-Line Basis",
"content": "Subsequent amortization of the right-of-use asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight-line basis, over the lease term.",
"type": "body",
"path": "000:027:001:015",
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},
{
"index": 16,
"title": "",
"name": "Depreciation Method for Right-of-Use Asset in Finance Leases",
"content": "For finance leases, the right-of-use asset is depreciated on a straight-line basis over the lesser of the useful life of the leased asset or lease term.",
"type": "body",
"path": "000:027:001:016",
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},
{
"index": 17,
"title": "",
"name": "Interest Calculation Method for Finance Lease Liabilities",
"content": "Interest on each finance lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability.",
"type": "body",
"path": "000:027:001:017",
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},
{
"index": 18,
"title": "",
"name": "Use of Incremental Secured Borrowing Rate for Present Value Calculation of Lease Payments",
"content": "As most of our leases do not provide an implicit discount rate, we use our incremental secured borrowing rate based on the information available at commencement date, including the lease term and currency, in determining the present value of lease payments for both operating and finance leases.",
"type": "body",
"path": "000:027:001:018",
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{
"index": 19,
"title": "",
"name": "Exemption of Short-Term Leases from Balance Sheet and Straight-Line Expense Recognition",
"content": "Leases with an initial term of 12 months or less are not recorded in the Condensed Consolidated Balance Sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.",
"type": "body",
"path": "000:027:001:019",
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},
{
"index": 20,
"title": "",
"name": "Assessment of Right-of-Use Assets for Impairment Under Long-Lived Asset Policy",
"content": "Right-of-use assets are assessed for impairment in accordance with our long-lived asset impairment policy, which is performed annually or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.",
"type": "body",
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"index": 21,
"title": "",
"name": "Lease Reassessment and Remeasurement Triggered by Modifications and Specific Events under Topic 842",
"content": "We reassess lease classification and remeasure right-of-use assets and lease liabilities when a lease is modified and that modification is not accounted for as a separate new lease or upon certain other events that require reassessment in accordance with Topic 842.",
"type": "body",
"path": "000:027:001:021",
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{
"index": 22,
"title": "",
"name": "Recognition of Lease Expense and Cash Payments Difference in Cash Flow Statements",
"content": "The difference between operating lease rental expense recognized in our Condensed Consolidated Statements of Income and cash payments for operating leases is recognized within Other, net within Net Cash Provided by Operating Activities in our Condensed Consolidated Statements of Cash Flows.",
"type": "body",
"path": "000:027:001:022",
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{
"index": 23,
"title": "",
"name": "Quarterly and Year-to-Date Lease Costs and Sublease Income",
"content": "Quarter Ended\n6\/30\/2019\nYear to date 6\/30\/2019\nOperating lease cost\n$27\n$56\nFinance lease cost\nAmortization of right-of-use assets\n1 2 Interest on lease liabilities\n\u2014\n1 Total finance lease cost\n1 3 Sublease income\n(16)\n(34)",
"type": "body",
"path": "000:027:001:023",
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},
{
"index": 2,
"title": "",
"name": "Supplemental Cash Flow Information and Right-of-Use Assets Related to Leases",
"content": "Supplemental cash flow information related to leases was as follows:\nYear to date\n6\/30\/2019\nCash paid for amounts included in the measurement of lease liabilities\nOperating cash flows from operating leases\n$53\nOperating cash flows from finance leases\n1 Financing cash flows from finance leases\n2 Right-of-use assets obtained in exchange for lease obligations\nOperating leases\n29 Finance leases\n3",
"type": "body",
"path": "000:027:002",
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},
{
"index": 3,
"title": "",
"name": "Supplemental Balance Sheet Information for Leases as of 6\/30\/2019",
"content": "Supplemental balance sheet information related to leases was as follows:\n6\/30\/2019",
"type": "body",
"path": "000:027:003",
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},
{
"index": 28,
"title": "Condensed Consolidated Balance Sheet",
"name": "",
"content": "",
"type": "container",
"path": "000:028",
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},
{
"index": 29,
"title": "Assets",
"name": "",
"content": "",
"type": "container",
"path": "000:029",
"children": [
{
"index": 0,
"title": "",
"name": "Operating Lease Right-of-Use Assets and Other Assets Valuation",
"content": "Operating lease right-of-use assets\n$663\nOther assets",
"type": "body",
"path": "000:029:000",
"children": []
},
{
"index": 1,
"title": "Finance lease right-of-use assets 34 Property, plant and equipment, net",
"name": "",
"content": "",
"type": "container",
"path": "000:029:001",
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}
]
},
{
"index": 30,
"title": "",
"name": "Summary of Right-of-Use Assets",
"content": "Total right-of-use assets[*a]\n$697",
"type": "body",
"path": "000:030",
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},
{
"index": 31,
"title": "Liabilities",
"name": "",
"content": "",
"type": "container",
"path": "000:031",
"children": [
{
"index": 0,
"title": "Current",
"name": "",
"content": "",
"type": "container",
"path": "000:031:000",
"children": [
{
"index": 0,
"title": "Operating $74 Accounts payable and other current liabilities",
"name": "",
"content": "",
"type": "container",
"path": "000:031:000:000",
"children": []
},
{
"index": 1,
"title": "Finance 6 Short-term borrowings",
"name": "",
"content": "",
"type": "container",
"path": "000:031:000:001",
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}
]
},
{
"index": 1,
"title": "Non-current",
"name": "",
"content": "",
"type": "container",
"path": "000:031:001",
"children": [
{
"index": 0,
"title": "Operating 653 Other liabilities and deferred credits",
"name": "",
"content": "",
"type": "container",
"path": "000:031:001:000",
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},
{
"index": 1,
"title": "Finance 63 Long-term debt",
"name": "",
"content": "",
"type": "container",
"path": "000:031:001:001",
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}
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},
{
"index": 32,
"title": "",
"name": "Total Lease Liabilities Amount",
"content": "Total lease liabilities[*a]\n$796",
"type": "body",
"path": "000:032",
"children": []
},
{
"index": 33,
"title": "Weighted-average Remaining Lease Term (in years)",
"name": "",
"content": "",
"type": "container",
"path": "000:033",
"children": [
{
"index": 0,
"title": "Operating leases 12.1 Finance leases 11.9 Weighted-average Discount Rate",
"name": "",
"content": "",
"type": "container",
"path": "000:033:000",
"children": []
}
]
},
{
"index": 34,
"title": "",
"name": "Operating Lease and Finance Lease Percentages and Right-of-Use Assets and Liabilities as of June 30, 2019",
"content": "Operating leases\n5.5%\nFinance leases\n5.7%\noperating lease right-of-use assets and liabilities totaled $282 million and $333 million, respectively, as of June 30, 2019 and primarily related to Taco Bell U.S.",
"type": "body",
"path": "000:034",
"children": []
},
{
"index": 35,
"title": "",
"name": "Schedule of Future Lease Commitments and Liabilities (Finance and Operating)",
"content": "Commitments | Finance | Operating\nLess than 1 year | $10 | $112\n1-2 years | 9 | 103\n2-3 years | 9 | 94\n3-4 years | 8 | 85\n4-5 years | 7 | 79\nThereafter | 53 | 548\nTotal lease payments | 96 | 1,021\nLess imputed interest | (27) | (294)\nTotal lease liabilities | $69 | $727",
"type": "body",
"path": "000:035",
"children": []
},
{
"index": 36,
"title": "",
"name": "Future Minimum Lease Payments Disclosure per Legacy GAAP as of December 31, 2018",
"content": "Future minimum lease payments under the non-cancellable term of leases as of December 31, 2018 as required to be disclosed under Legacy GAAP were as follows:\nCommitments | Capital | Operating\n2019 | $10 | $103\n2020 10 | 89\n2021 9 | 78\n2022 8 | 71\n2023 8 | 61\nThereafter | 58 | 384\nTotal lease payments | $103 | $786",
"type": "body",
"path": "000:036",
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},
{
"index": 37,
"title": "Note 3 - Earnings Per Common Share (\u201cEPS\u201d)",
"name": "",
"content": "",
"type": "container",
"path": "000:037",
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},
{
"index": 38,
"title": "",
"name": "Financial Performance Metrics and Earnings Per Share (EPS) Calculations for Quarter and Year to Date",
"content": "Quarter ended | Year to date\n2019 2018 | 2019 | 2018\nNet Income | $289 | $321 | $551 | $754\nWeighted-average common shares outstanding (for basic calculation) | 307324 | 307 328\nEffect of dilutive share-based employee compensation | 7 | 7 | 7 | 8\nWeighted-average common and dilutive potential common shares outstanding (for diluted calculation) | 314331 | 314336\nBasic EPS | $0.94 | $0.99 | $1.79 | $2.30\nDiluted EPS | $0.92 | $0.97 | $1.75 | $2.25\nUnexercised employee stock options and stock appreciation rights (in millions) excluded from the diluted EPS computation[*a] 2.3 2.3 1.8 1.8",
"type": "body",
"path": "000:038",
"children": []
},
{
"index": 39,
"title": "12 Note 4 - Shareholders\u2019 Deficit",
"name": "",
"content": "",
"type": "container",
"path": "000:039",
"children": [
{
"index": 0,
"title": "",
"name": "Authorization and Summary of Common Stock Repurchases for Years Ended June 30, 2019 and 2018",
"content": "Under the authority of our Board of Directors, we repurchased shares of our Common Stock during the years to date ended June 30, 2019 and 2018 as indicated below. All amounts exclude applicable transaction fees.",
"type": "body",
"path": "000:039:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Share Repurchase Summary for 2019 and 2018 Under Board Authorizations",
"content": "Shares Repurchased (thousands) | Dollar Value of Shares Repurchased | Remaining Dollar Value of Shares that may be Repurchased\n| 2019 | 2018 | 2019 | 2018 | 2019\nNovember 2017 Authorization | \u2014 | 14,147 | $\u2014 | $1,171 | $\u2014\nAugust 2018 Authorization | 3,018 | \u2014 | 302 | \u2014 | 804\nTotal | 3,018[*a] | 14,147[*b] | $302[*a] | $1,171[*b] | $804",
"type": "body",
"path": "000:039:001",
"children": []
}
]
},
{
"index": 40,
"title": "",
"name": "Changes in Accumulated Other Comprehensive Loss (AOCI) Overview",
"content": "13 Changes in Accumulated other comprehensive loss (\"AOCI\") are presented below.",
"type": "container",
"path": "000:040",
"children": [
{
"index": 0,
"title": "",
"name": "Changes in AOCI for the Period Ending June 30, 2019",
"content": "Translation Adjustments and Gains (Losses) From Intra-Entity Transactions of a Long-Term Nature | Pension and Post-Retirement Benefits | Derivative Instruments | Total\nBalance at March 31, 2019, net of tax | $(215) | $(79) | $(30) | $(324)\nOCI, net of tax\nGains (losses) arising during the period classified into AOCI, net of tax | (25) | \u2014 | (33) | (58)\n(Gains) losses reclassified from AOCI, net of tax | \u2014 | 1 | 1 | 2\n(25) 1 | (32) | (56)\nBalance at June 30, 2019, net of tax | $(240) | $(78) | $(62) | $(380)",
"type": "body",
"path": "000:040:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "OCI Adjustments and Net Balance Reconciliation for the Period Ending June 30, 2019",
"content": "Balance at December 31, 2018, net of tax | $(245) | $(82) | $(7) | $(334)\nOCI, net of tax\nGains (losses) arising during the period classified into AOCI, net of tax | 5 | \u2014 | (44) | (39)\n(Gains) losses reclassified from AOCI, net of tax | \u2014 | 4 | (11) | (7)\n5 4 | (55) | (46)\nBalance at June 30, 2019, net of tax | $(240) | $(78) | $(62) | $(380)",
"type": "body",
"path": "000:040:001",
"children": []
}
]
},
{
"index": 41,
"title": "14 Note 5 - Items Affecting Comparability of Net Income, Financial Position and Cash Flows",
"name": "",
"content": "",
"type": "container",
"path": "000:041",
"children": [
{
"index": 0,
"title": "Refranchising (Gain) Loss",
"name": "",
"content": "",
"type": "container",
"path": "000:041:000",
"children": [
{
"index": 0,
"title": "",
"name": "Refranchising Gain\/Loss Exclusion from Divisional Segment Performance Assessment",
"content": "The Refranchising (gain) loss by our Divisional reportable segments 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 Divisional segment performance. As such, we do not allocate such gains and losses to our Divisional segments for performance reporting purposes.",
"type": "body",
"path": "000:041:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Refranchising Activities and Pre-Tax Proceeds for Q1 and YTD Ended June 30, 2019",
"content": "During the quarter and year to date ended June 30, 2019, we sold certain restaurant assets associated with existing franchise restaurants to the franchisee. Additionally, we refranchised 6 restaurants in the first quarter of 2019. Pre-tax proceeds related to these sales totaled $11 million and $25 million for the quarter and year to date ended June 30, 2019, respectively.",
"type": "body",
"path": "000:041:000:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Refranchising Activities and Pre-Tax Proceeds for Quarter and Year to Date Ended June 30, 2018",
"content": "During the quarter and year to date ended June 30, 2018, we refranchised 51 restaurants and 195 restaurants, respectively, and received $47 million and $252 million, respectively, in pre-tax proceeds.",
"type": "body",
"path": "000:041:000:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Summary of Refranchising Gains and Losses",
"content": "A summary of Refranchising (gain) loss is as follows:",
"type": "container",
"path": "000:041:000:003",
"children": [
{
"index": 0,
"title": "",
"name": "Summary of Refranchising Gain (Loss) for Quarter and Year to Date by Division",
"content": "Quarter ended | Year to date\n2019 2018 | 2019 | 2018\nKFC Division | $(4) | $(42) | $(6) | $(99)\nPizza Hut Division | \u2014 | 13 | \u2014 | 11\nTaco Bell Division | \u2014 | \u2014 | (4) | (97)\nWorldwide | $(4) | $(29) | $(10) | $(185)",
"type": "body",
"path": "000:041:000:003:000",
"children": []
}
]
},
{
"index": 4,
"title": "Pizza Hut U.S. Transformation Agreement",
"name": "",
"content": "",
"type": "container",
"path": "000:041:000:004",
"children": [
{
"index": 0,
"title": "",
"name": "Transformation Agreement with Pizza Hut U.S. Franchisees for Marketing, Operations, and Technology Enhancements",
"content": "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 that included a permanent commitment to incremental advertising as well as digital and technology contributions by franchisees (the \u201cTransformation Agreement\u201d).",
"type": "body",
"path": "000:041:000:004:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Investment Commitments and Progress under the Transformation Agreement (2017-2019)",
"content": "In connection with the Transformation Agreement we anticipate investing approximately $90 million from 2017 to 2019 to upgrade restaurant equipment to improve operations, fund improvements in restaurant technology and enhance digital and e-commerce capabilities. As of June 30, 2019, we have invested $82 million since the inception of the agreement.",
"type": "body",
"path": "000:041:000:004:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Investment Breakdown for Transformation Agreement (2018-2019)",
"content": "We have invested $5 million and $13 million in the quarter and year to date ended June 30, 2019, respectively, and $4 million and $11 million in the quarter and year to date ended June 30, 2018, respectively, related to the Transformation Agreement. These amounts primarily consisted of capital investments and franchisee incentive payments that were capitalized. Also included are operating investments of $1 million and $2 million in both the quarters and years to date ended June 30, 2019 and 2018, respectively.",
"type": "body",
"path": "000:041:000:004:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Exclusion of Transformation Agreement Operating Investments from Pizza Hut Division Performance Reporting",
"content": "Due to their unique and long-term brand-building nature as well as their non-recurring impact on Pizza Hut\u2019s Division results, the financial impact of operating investments that are part of the Transformation Agreement are not being considered by our CODM when assessing segment performance. As such, these operating investments are not being allocated to the Pizza Hut Division operating segment results for performance reporting purposes.",
"type": "body",
"path": "000:041:000:004:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Allocation of Depreciation on Capital Investments to Pizza Hut Segment Results",
"content": "Depreciation on capital investments made as part of the Transformation Agreement is being allocated to Pizza Hut segment results as the expense is recurring and is not expected to significantly impact the comparability of results in any given period.",
"type": "body",
"path": "000:041:000:004:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Amortization of Capitalized Franchisee Incentive Payments Allocated to Pizza Hut Division Operating Results",
"content": "For the same reasons, the amortization related to capitalized franchisee incentive payments is being allocated to Pizza Hut Division operating segment results.",
"type": "body",
"path": "000:041:000:004:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Incremental System Advertising Funding and Recording in Pizza Hut Division Operating Results",
"content": "In addition to the investments above, we funded $37.5 million of incremental system advertising from the second half of 2017 through 2018, including $2 million and $5 million we incurred during the quarter and year to date ended June 30, 2018, respectively. These advertising amounts were recorded primarily in Franchise and property expenses and were included in the Pizza Hut Division segment operating results.",
"type": "body",
"path": "000:041:000:004:006",
"children": []
}
]
}
]
}
]
},
{
"index": 42,
"title": "15 KFC U.S. Acceleration Agreement",
"name": "",
"content": "",
"type": "container",
"path": "000:042",
"children": [
{
"index": 0,
"title": "",
"name": "2015 Agreement with KFC U.S. Franchisees for Brand Marketing Control and Menu Expansion",
"content": "During 2015, we reached an agreement with our KFC U.S. franchisees that gave us control of brand marketing execution as well as an accelerated path to expanded menu offerings, improved assets and enhanced customer experience.",
"type": "body",
"path": "000:042:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Investment Commitment of $130 Million for Franchisee Equipment and Remodel Incentives (2015-2019)",
"content": "In connection with this agreement we are investing approximately $130 million from 2015 through 2019 primarily to fund new back-of-house equipment for franchisees and to provide incentives to accelerate franchisee store remodels.",
"type": "body",
"path": "000:042:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Investment Totals and Quarterly Breakdown for June 30, 2019 and 2018",
"content": "We invested $1 million and $2 million in the quarters ended June 30, 2019 and 2018, respectively, and $2 million and $3 million in the years to date ended June 30, 2019 and 2018, respectively. We have invested approximately $125 million since the inception of the agreement.",
"type": "body",
"path": "000:042:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Incremental System Advertising Funding and Expense Allocation (2015-2018)",
"content": "In addition to the investments above, we funded $60 million of incremental system advertising from 2015 through 2018, including $3 million and $5 million incurred during the quarter and year to date ended June 30, 2018, respectively. These advertising amounts were recorded primarily in Franchise and property expenses and were included in the KFC Division segment operating results.",
"type": "body",
"path": "000:042:003",
"children": []
}
]
},
{
"index": 43,
"title": "Turkey Acquisition Contingent Consideration",
"name": "",
"content": "",
"type": "container",
"path": "000:043",
"children": [
{
"index": 0,
"title": "",
"name": "Charges Recorded for Excess Cash Payments Related to 2013 Acquisition of KFC Turkey and Pizza Hut Turkey Businesses",
"content": "During the quarter ended June 30, 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.",
"type": "body",
"path": "000:043:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Exclusion of Contingent Consideration Charges from Segment Performance Assessment",
"content": "Consistent with prior adjustments to the recorded contingent consideration, our CODM does not consider this charge when assessing segment performance due to the nature of these costs.",
"type": "body",
"path": "000:043:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Exclusion of Contingent Consideration Costs from Segment Operating Results",
"content": "As such, these costs are not being allocated to any of our segment operating results for performance reporting purposes.",
"type": "body",
"path": "000:043:002",
"children": []
}
]
},
{
"index": 44,
"title": "Investment in Grubhub, Inc. (\"Grubhub\")",
"name": "",
"content": "",
"type": "container",
"path": "000:044",
"children": []
},
{
"index": 45,
"title": "",
"name": "Master Services Agreement with Grubhub for KFC and Taco Bell Online Delivery Support",
"content": "On February 7, 2018, certain of our subsidiaries entered into a master services agreement with a subsidiary of Grubhub, the leading online and mobile takeout food-ordering company in the U.S., which is intended to provide dedicated support for the KFC and Taco Bell branded online delivery channels in the U.S. through Grubhub\u2019s online ordering platform, logistics and last-mile support for delivery orders, as well as point-of-sale integration to streamline operations.",
"type": "body",
"path": "000:045",
"children": []
},
{
"index": 46,
"title": "",
"name": "Investment Agreement with Grubhub for $200 Million in Exchange for 2.8 Million Shares of Common Stock",
"content": "Concurrently with the master services agreement, one of our subsidiaries entered into an investment agreement with Grubhub to invest $200 million in exchange for approximately 2.8 million shares of Grubhub common stock, subject to customary closing conditions.",
"type": "body",
"path": "000:046",
"children": []
},
{
"index": 47,
"title": "",
"name": "Completion of Regulatory Approvals and Consummation of Grubhub Shares Purchase in April 2018",
"content": "In April 2018, all necessary regulatory approvals were obtained and the purchase of Grubhub shares was consummated.",
"type": "body",
"path": "000:047",
"children": []
},
{
"index": 48,
"title": "",
"name": "Transfer Restrictions on Acquired Shares",
"content": "Shares acquired as part of this purchase are restricted from being transferred until the earlier of the two-year anniversary of closing the investment agreement or 30 days following the termination of our master services agreement with Grubhub.",
"type": "body",
"path": "000:048",
"children": []
},
{
"index": 49,
"title": "",
"name": "Pre-Tax Income Recognition for Q2 and YTD 2019 from Grubhub Share Appreciation Adjusted for Transfer Restrictions",
"content": "In the quarter and year to date ended June 30, 2019 we recognized pre-tax income of $24 million and $4 million, respectively, related to the mark-to-market of these shares, which includes the appreciation in the market price of Grubhub common stock less valuation adjustments related to the transfer restrictions.",
"type": "body",
"path": "000:049",
"children": []
},
{
"index": 50,
"title": "",
"name": "Pre-Tax Income Recognition for Grubhub Stock Appreciation and Valuation Adjustments for Q2 and Year-to-Date 2018",
"content": "In the quarter and year to date ended June 30, 2018, we recognized pre-tax income of $25 million and $91 million, respectively, which included the appreciation in the market price of Grubhub common stock since entering into the agreement less valuation adjustments related to the transfer restrictions.",
"type": "body",
"path": "000:050",
"children": []
},
{
"index": 51,
"title": "",
"name": "Reversal of Valuation Adjustment for Regulatory Approvals in Q2 2018",
"content": "The $25 million recognized in the quarter ended June 30, 2018 also included the reversal of the valuation adjustment that was established in the first quarter of 2018 regarding the then likelihood of obtaining the necessary regulatory approvals to close the investment agreement.",
"type": "body",
"path": "000:051",
"children": []
},
{
"index": 52,
"title": "",
"name": "Presentation of Changes in Fair Value of Grubhub Investment in Condensed Consolidated Statements of Income",
"content": "Changes in the fair value of our investment in Grubhub common stock are presented as Investment (income) expense, net within our Condensed Consolidated Statements of Income.",
"type": "body",
"path": "000:052",
"children": []
},
{
"index": 53,
"title": "16 Impact of Adopting New Lease Standards",
"name": "",
"content": "",
"type": "container",
"path": "000:053",
"children": [
{
"index": 0,
"title": "",
"name": "Adoption of Topic 842 and Application to Leases Starting January 2019",
"content": "As discussed in Note 2, we adopted Topic 842 beginning with the quarter ended March 31, 2019, using a modified retrospective method. Topic 842 was applied to all leases existing at, or entered into after, the beginning of 2019.",
"type": "container",
"path": "000:053:000",
"children": [
{
"index": 0,
"title": "",
"name": "Adjustments to Condensed Consolidated Balance Sheet Due to Topic 842 Adoption",
"content": "As a result of adopting Topic 842, the following adjustments were made to the Condensed Consolidated Balance Sheet as of the beginning of the quarter ended March 31, 2019:",
"type": "body",
"path": "000:053:000:000",
"children": []
}
]
}
]
},
{
"index": 54,
"title": "CONDENSED CONSOLIDATED BALANCE SHEET",
"name": "",
"content": "",
"type": "container",
"path": "000:054",
"children": [
{
"index": 0,
"title": "",
"name": "Financial Statement Adjustments Due to Adoption of Topic 842",
"content": "As Reported 12\/31\/2018 Adjustments Balances with Adoption of Topic 842 1\/1\/2019",
"type": "body",
"path": "000:054:000",
"children": []
},
{
"index": 1,
"title": "ASSETS Current Assets",
"name": "",
"content": "",
"type": "container",
"path": "000:054:001",
"children": [
{
"index": 0,
"title": "",
"name": "Balance Sheet Summary",
"content": "Cash and cash equivalents$292 $\u2014 $292\nAccounts and notes receivable, net561 \u2014 561\nPrepaid expenses and other current assets354 (10) 344\nTotal Current Assets1,207 (10) 1,197\nProperty, plant and equipment, net1,237 \u2014 1,237\nGoodwill525 \u2014 525\nIntangible assets, net242 \u2014 242\nOther assets724 689 1,413\nDeferred income taxes195 \u2014 195\nTotal Assets$4,130 $679 $4,809",
"type": "body",
"path": "000:054:001:000",
"children": []
}
]
},
{
"index": 2,
"title": "LIABILITIES AND SHAREHOLDERS\u2019 DEFICIT",
"name": "",
"content": "",
"type": "container",
"path": "000:054:002",
"children": [
{
"index": 0,
"title": "Current Liabilities",
"name": "",
"content": "",
"type": "container",
"path": "000:054:002:000",
"children": [
{
"index": 0,
"title": "",
"name": "Summary of Liabilities and Current Financial Obligations",
"content": "Accounts payable and other current liabilities$911 $76 $987\nIncome taxes payable69 \u2014 69\nShort-term borrowings321 \u2014 321\nTotal Current Liabilities1,301 76 1,377\nLong-term debt9,751 \u2014 9,751\nOther liabilities and deferred credits1,004 605 1,609\nTotal Liabilities12,056 681 12,737",
"type": "body",
"path": "000:054:002:000:000",
"children": []
}
]
},
{
"index": 1,
"title": "Shareholders\u2019 Deficit",
"name": "",
"content": "",
"type": "container",
"path": "000:054:002:001",
"children": [
{
"index": 0,
"title": "",
"name": "Summary of Shareholders' Deficit and Total Liabilities",
"content": "Accumulated deficit(7,592) (2) (7,594)\nAccumulated other comprehensive loss(334) \u2014 (334)\nTotal Shareholders\u2019 Deficit(7,926) (2) (7,928)\nTotal Liabilities and Shareholders\u2019 Deficit$4,130 $679 $4,809",
"type": "container",
"path": "000:054:002:001:000",
"children": [
{
"index": 0,
"title": "",
"name": "Lease Liabilities and Adjustments Related to Operating Lease Payments",
"content": "We recorded lease liabilities within Accounts payable and other current liabilities and Other liabilities and deferred credits of $83 million and $661 million, respectively, related to the present value of the remaining operating lease payments. These adjustments were partially offset by reductions to Accounts payable and other current liabilities and Other liabilities and deferred credits of $7 million and $56 million, respectively, primarily related to the write offs of liabilities previously recorded to reflect the impact of recognizing rent expense on a straight-line basis when lease payments were escalating under Legacy GAAP.",
"type": "container",
"path": "000:054:002:001:000:000",
"children": [
{
"index": 0,
"title": "",
"name": "Write-off of Prepaid Rent and Resulting Decrease in Assets upon Adoption of New Lease Accounting Standard",
"content": "Additionally, lease liabilities recognized upon adoption were offset by the write-off of prepaid rent of $11 million that was recorded under Legacy GAAP resulting in a decrease within Prepaid expenses and other current assets and Other assets of $10 million and $1 million, respectively.",
"type": "body",
"path": "000:054:002:001:000:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Recognition of Right-of-Use Asset and Impairment Charge Under Topic 842",
"content": "We recorded a corresponding right-of-use asset within Other Assets of $690 million. This right-of-use asset reflected a $2 million impairment charge that would have been recorded before adoption of Topic 842 had the right-of-use asset been recognized under Legacy GAAP.",
"type": "body",
"path": "000:054:002:001:000:000:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Increase in Accumulated Deficit Due to Right-of-Use Asset Recognition",
"content": "A related increase was recorded in Accumulated deficit.",
"type": "body",
"path": "000:054:002:001:000:000:002",
"children": []
}
]
}
]
}
]
}
]
}
]
},
{
"index": 55,
"title": "17 Note 6 - Other (Income) Expense",
"name": "",
"content": "",
"type": "container",
"path": "000:055",
"children": [
{
"index": 0,
"title": "",
"name": "Settlement of Contingent Consideration and Net Foreign Exchange Gains\/Losses for Q2 and YTD Ended June 30, 2019",
"content": "Other (income) expense primarily includes settlement of contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses (See Note 5) and net foreign exchange (gains) losses for the quarter and year to date ended June 30, 2019.",
"type": "body",
"path": "000:055:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Other (Income) Expense Details for the Quarter and Year Ended June 30, 2018",
"content": "For the quarter and year to date ended June 30, 2018, Other (income) expense primarily includes net foreign exchange (gains) losses and store closure and impairment expenses.",
"type": "body",
"path": "000:055:001",
"children": []
}
]
},
{
"index": 56,
"title": "Note 7 - Supplemental Balance Sheet Information",
"name": "",
"content": "",
"type": "container",
"path": "000:056",
"children": [
{
"index": 0,
"title": "Accounts and Notes Receivable, net",
"name": "",
"content": "",
"type": "container",
"path": "000:056:000",
"children": [
{
"index": 0,
"title": "",
"name": "Primary Source of Company Receivables: Franchise and Lease Agreements",
"content": "The Company\u2019s receivables are primarily generated as a result of ongoing business relationships with our franchisees as a result of franchise and lease agreements.",
"type": "body",
"path": "000:056:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Classification and Due Period of Trade Receivables Including Advertising Cooperative Receivables",
"content": "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.",
"type": "container",
"path": "000:056:000:001",
"children": [
{
"index": 0,
"title": "",
"name": "Financial Data Table: Accounts and Notes Receivable, Gross and Net, Including Allowance for Doubtful Accounts as of 6\/30\/2019 and 12\/31\/2018",
"content": "6\/30\/2019 12\/31\/2018\nAccounts and notes receivable, gross $580 $592\nAllowance for doubtful accounts (45) (31)\nAccounts and notes receivable, net $535 $561",
"type": "body",
"path": "000:056:000:001:000",
"children": []
}
]
}
]
},
{
"index": 1,
"title": "Property, Plant and Equipment, net",
"name": "",
"content": "",
"type": "container",
"path": "000:056:001",
"children": [
{
"index": 0,
"title": "",
"name": "Summary of Property, Plant, and Equipment Values and Depreciation as of June 30, 2019 and December 31, 2018",
"content": "6\/30\/2019 12\/31\/2018\nProperty, plant and equipment, gross $2,328 $2,353\nAccumulated depreciation and amortization (1,135) (1,116)\nProperty, plant and equipment, net $1,193 $1,237",
"type": "body",
"path": "000:056:001:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Assets Held-for-Sale Included in Prepaid Expenses and Other Current Assets",
"content": "Assets held-for-sale totaled $24 million as of both June 30, 2019 and December 31, 2018 and are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.",
"type": "body",
"path": "000:056:001:001",
"children": []
}
]
},
{
"index": 2,
"title": "Reconciliation of Cash and Cash Equivalents for Condensed Consolidated Statements of Cash Flows",
"name": "",
"content": "",
"type": "container",
"path": "000:056:002",
"children": [
{
"index": 0,
"title": "",
"name": "Cash and Cash Equivalents in Condensed Consolidated Balance Sheets",
"content": "Cash and cash equivalents as presented in Condensed Consolidated Balance Sheets $252 $292",
"type": "body",
"path": "000:056:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Restricted Cash in Prepaid Expenses and Other Current Assets",
"content": "Restricted cash included in Prepaid expenses and other current assets (a) 112 151",
"type": "body",
"path": "000:056:002:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Restricted Cash and Equivalents in Other Assets (b)",
"content": "Restricted cash and restricted cash equivalents included in Other assets (b) 25 31",
"type": "body",
"path": "000:056:002:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Cash Flow Statement Presentation of Cash and Cash Equivalents",
"content": "Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents as presented in Condensed Consolidated Statements of Cash Flows $389 $474",
"type": "container",
"path": "000:056:002:003",
"children": [
{
"index": 0,
"title": "",
"name": "(a) Definition of Restricted Cash in Prepaid Expenses and Other Current Assets",
"content": "(a) Restricted cash within Prepaid expenses and other current assets reflects Taco Bell Securitization interest reserves and the cash related to advertising cooperatives that we consolidate that can only be used to settle obligations of the respective cooperatives.",
"type": "body",
"path": "000:056:002:003:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "(b) Trust Accounts for Self-Insurance Program",
"content": "(b) Primarily trust accounts related to our self-insurance program.",
"type": "body",
"path": "000:056:002:003:001",
"children": []
}
]
}
]
}
]
},
{
"index": 57,
"title": "Note 8 - Income Taxes",
"name": "",
"content": "",
"type": "container",
"path": "000:057",
"children": [
{
"index": 0,
"title": "Quarter ended Year to date",
"name": "",
"content": "",
"type": "container",
"path": "000:057:000",
"children": [
{
"index": 0,
"title": "",
"name": "Income Tax Provision and Effective Tax Rate Calculations",
"content": "Income tax provision $88 $36 $125 $112\nEffective tax rate 23.3% 9.9% 18.5% 12.9%",
"type": "body",
"path": "000:057:000:000",
"children": []
}
]
}
]
},
{
"index": 58,
"title": "",
"name": "Explanation for Increased Effective Tax Rate Due to Tax Cuts and Jobs Act Adjustments and Prior Year Transactions",
"content": "18 Our second quarter and year to date effective tax rate was higher than prior year primarily due to the unfavorable impact of lapping a prior year decrease to the provisional tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 (the \u201cTax Act\u201d), the unfavorable impact of the global intangible low-taxed income provisions of the Tax Act in the current year, and lapping the favorable impact attributable to prior year refranchising transactions. These items were partially offset by lapping $19 million in expense recorded in the prior year to correct an error associated with the tax recorded on a prior year divestiture.",
"type": "body",
"path": "000:058",
"children": []
},
{
"index": 59,
"title": "Note 9 - Revenue Recognition",
"name": "",
"content": "",
"type": "container",
"path": "000:059",
"children": [
{
"index": 0,
"title": "Disaggregation of Total Revenues",
"name": "",
"content": "",
"type": "container",
"path": "000:059:000",
"children": [
{
"index": 0,
"title": "",
"name": "Revenue Disaggregation by Concept and Market Based on Operating Profit",
"content": "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.",
"type": "body",
"path": "000:059:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Revenue Disaggregation by Concept and Division for Significant Markets (First Table)",
"content": "KFC Division Pizza Hut Division Taco Bell Division Total\nU.S. Company sales $18 $5 $212 $235\nFranchise revenues 41 67 140 248\nProperty revenues 5 1 11 17\nFranchise contributions for advertising and other services 3 78 109 190\nChina Franchise revenues 52 15 \u2014 67\nOther Company sales 117 6 1 124\nFranchise revenues 218 60 7 285\nProperty revenues 16 \u2014 \u2014 16\nFranchise contributions for advertising and other services 114 14 \u2014 128\n$584 $246 $480 $1,310",
"type": "container",
"path": "000:059:000:001",
"children": [
{
"index": 0,
"title": "",
"name": "Detailed Breakdown of Financial Performance by Division for the U.S., China, and Other Regions",
"content": "KFC Division Pizza Hut Division Taco Bell Division Total\nU.S. Company sales $16 $11 $252 $279\nFranchise revenues 40 63 123 226\nProperty revenues 5 1 6 12\nFranchise contributions for advertising and other services 2 60 97 159\nChina Franchise revenues 49 15 \u2014 64\nOther Company sales 225 7 1 233\nFranchise revenues 198 61 5 264\nProperty revenues 18 \u2014 \u2014 18\nFranchise contributions for advertising and other services 98 15 \u2014 113\n$651 $233 $484 $1,368",
"type": "body",
"path": "000:059:000:001:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Division Sales and Revenue Breakdown by Brand",
"content": "KFC Division Pizza Hut Division Taco Bell Division Total",
"type": "body",
"path": "000:059:000:001:001",
"children": []
}
]
},
{
"index": 2,
"title": "KFC Division Pizza Hut Division Taco Bell Division Total",
"name": "",
"content": "",
"type": "container",
"path": "000:059:000:002",
"children": []
}
]
},
{
"index": 1,
"title": "",
"name": "Financial Breakdown of Company Sales and Revenues by Category and Region",
"content": "U.S. Company sales $33 $25 $494 $552\nFranchise revenues 78 132 240 $450\nProperty revenues 11 2 11 24\nFranchise contributions for advertising and other services 4 125 188 317\nChina Franchise revenues 103 31 \u2014 134\nOther Company sales 453 17 2 472\nFranchise revenues 388 123 11 522\nProperty revenues 37 1 \u2014 38\nFranchise contributions for advertising and other services 202 28 \u2014 230\n$1,309 $484 $946 $2,739",
"type": "body",
"path": "000:059:001",
"children": []
},
{
"index": 2,
"title": "Contract Liabilities",
"name": "",
"content": "",
"type": "container",
"path": "000:059:002",
"children": [
{
"index": 0,
"title": "",
"name": "Composition of Contract Liabilities",
"content": "Our contract liabilities are comprised of unamortized upfront fees received from franchisees.",
"type": "body",
"path": "000:059:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Summary of Significant Changes to Contract Liability Balance for 2019",
"content": "A summary of significant changes to the contract liability balance during 2019 is presented below.",
"type": "body",
"path": "000:059:002:001",
"children": []
},
{
"index": 2,
"title": "20 Deferred Franchise Fees",
"name": "",
"content": "",
"type": "container",
"path": "000:059:002:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Contract Liability Balance Reconciliation for the Period Ending June 30, 2019",
"content": "Balance at December 31, 2018 $414\nRevenue recognized that was included in unamortized upfront fees received from franchisees at the beginning of the period (33)\nIncrease for upfront fees associated with contracts that became effective during the period, net of amounts recognized as revenue during the period 38\nBalance at June 30, 2019 $419",
"type": "body",
"path": "000:059:002:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Expected Recognition of Contract Liabilities as Revenue Over Franchise Agreement Term",
"content": "We expect to recognize contract liabilities as revenue over the remaining term of the associated franchise agreement as follows:\nLess than 1 year $61\n1 - 2 years 57\n2 - 3 years 52\n3 - 4 years 48\n4 - 5 years 43\nThereafter 158\nTotal $419",
"type": "body",
"path": "000:059:002:004",
"children": []
}
]
}
]
},
{
"index": 60,
"title": "Note 10 - Reportable Operating Segments",
"name": "",
"content": "",
"type": "container",
"path": "000:060",
"children": [
{
"index": 0,
"title": "",
"name": "Summary of Revenues and Operating Profit by Reportable Operating Segments",
"content": "We identify our operating segments based on management responsibility. The following tables summarize Revenues and Operating Profit for each of our reportable operating segments:",
"type": "body",
"path": "000:060:000",
"children": []
},
{
"index": 1,
"title": "Quarter ended Year to date Revenues 2019 2018 2019 2018 KFC Division $584 $651 $1,150 $1,309 Pizza Hut Division 246 233 489 484 Taco Bell Division 480 484 925 946 Total $1,310 $1,368 $2,564 $2,739",
"name": "",
"content": "",
"type": "container",
"path": "000:060:001",
"children": []
},
{
"index": 2,
"title": "Quarter ended Year to date Operating Profit 2019 2018 2019 2018 KFC Division $261 $235 $497 $456 Pizza Hut Division 96 81 93 169 Taco Bell Division 159 149 297 281 Corporate and unallocated G&A expenses (38) (40) (81) (84) Unallocated Company restaurant expenses \u2014 1 \u2014 1 Unallocated Franchise and property expenses(a) (2) (1) (3) (2) Unallocated Refranchising gain (loss) (See Note 5) 4 29 10 185 Unallocated Other income (expense)(b) (9) (5) (9) (4) Operating Profit $471 $449 $904 $1,002",
"name": "",
"content": "",
"type": "container",
"path": "000:060:002",
"children": []
}
]
},
{
"index": 61,
"title": "",
"name": "Statement of Income Components and Pre-Tax Income Figures",
"content": "Investment income (expense), net (See Note 5) 25 23 9 8\nOther pension income (expense) (See Note 11) \u2014 (3) (3) (6)\nInterest expense, net (119) (112) (234) (219)\nIncome before income taxes $377 $357 $676 $866",
"type": "container",
"path": "000:061",
"children": [
{
"index": 0,
"title": "",
"name": "(a) Costs Associated with KFC U.S. Acceleration Agreement and Pizza Hut U.S. Transformation Agreement (See Note 5)",
"content": "(a) Represents costs associated with the KFC U.S. Acceleration Agreement and Pizza Hut U.S. Transformation Agreement. See Note 5.",
"type": "body",
"path": "000:061:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "(b) Settlement of Contingent Consideration for 2013 Acquisition of KFC Turkey and Pizza Hut Turkey Businesses",
"content": "(b) Includes settlement of contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses. See Note 5.",
"type": "body",
"path": "000:061:001",
"children": []
}
]
},
{
"index": 62,
"title": "Note 11 - Pension Benefits",
"name": "",
"content": "",
"type": "container",
"path": "000:062",
"children": [
{
"index": 0,
"title": "",
"name": "Overview of Sponsored Pension Plans and Funding Status",
"content": "We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit pension plans covering certain full-time salaried and hourly U.S. employees. The most significant of these plans, the YUM Retirement Plan (the \"Plan\"), is funded. We fund our other U.S. plans as benefits are paid. The Plan and our most significant non-qualified plan in the U.S. are closed to new salaried participants.",
"type": "body",
"path": "000:062:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Components of Net Periodic Benefit Cost for Significant U.S. Pension Plans",
"content": "The components of net periodic benefit cost associated with our significant U.S. pension plans are as follows:",
"type": "container",
"path": "000:062:001",
"children": [
{
"index": 0,
"title": "",
"name": "Net Periodic Benefit Cost Components for U.S. Pension Plans",
"content": "Quarter ended Year to date\n2019 2018 2019 2018\nService cost $1 $2 $3 $4\nInterest cost 10 9 20 18\nExpected return on plan assets (11) (11) (22) (21)\nAmortization of net loss 1 3 1 7\nAmortization of prior service cost 1 2 2 3\nNet periodic benefit cost $2 $5 $4 $11",
"type": "body",
"path": "000:062:001:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Explanation of Additional Loss Due to Settlement Transactions",
"content": "Additional loss recognized due to settlements(a) $\u2014 $\u2014 $2 $\u2014\n(a) Loss is a result of settlement transactions which exceeded the sum of annual service and interest costs for the applicable plan. These losses were recorded in Other pension (income) expense.",
"type": "body",
"path": "000:062:001:001",
"children": []
}
]
}
]
},
{
"index": 63,
"title": "Note 12 - Short-term Borrowings and Long-term Debt",
"name": "",
"content": "",
"type": "container",
"path": "000:063",
"children": [
{
"index": 0,
"title": "Short-term Borrowings",
"name": "",
"content": "",
"type": "container",
"path": "000:063:000",
"children": [
{
"index": 0,
"title": "",
"name": "Financial Summary of Debt Obligations and Short-term Borrowings as of 6\/30\/2019 and 12\/31\/2018",
"content": "6\/30\/2019 12\/31\/2018\nCurrent maturities of long-term debt $331 $331\nOther 4 \u2014 335 331\nLess current portion of debt issuance costs and discounts (10) (10)\nShort-term borrowings $325 $321",
"type": "body",
"path": "000:063:000:000",
"children": []
}
]
},
{
"index": 1,
"title": "Long-term Debt",
"name": "",
"content": "",
"type": "container",
"path": "000:063:001",
"children": [
{
"index": 0,
"title": "",
"name": "Detailed Breakdown of Debt Instruments and Adjustments",
"content": "Securitization Notes $2,913 $2,928\nSubsidiary Senior Unsecured Notes 2,850 2,850\nRevolving Facility 157 \u2014\nTerm Loan A Facility 475 488\nTerm Loan B Facility 1,945 1,955\nYUM Senior Unsecured Notes 1,875 1,875\nFinance lease obligations 69 71\n$10,284 $10,167\nLess debt issuance costs and discounts (84) (85)\nLess current maturities of long-term debt (331) (331)\nLong-term debt $9,869 $9,751",
"type": "body",
"path": "000:063:001:000",
"children": []
}
]
}
]
},
{
"index": 64,
"title": "Note 13 - Derivative Instruments",
"name": "",
"content": "",
"type": "container",
"path": "000:064",
"children": [
{
"index": 0,
"title": "",
"name": "Use of Derivative Instruments for Managing Market Risks",
"content": "We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates.",
"type": "body",
"path": "000:064:000",
"children": []
},
{
"index": 1,
"title": "Interest Rate Swaps",
"name": "",
"content": "",
"type": "container",
"path": "000:064:001",
"children": [
{
"index": 0,
"title": "",
"name": "Objective of Interest Rate Swaps for Reducing Interest Rate Risk on Variable-Rate Debt",
"content": "We have entered into interest rate swaps with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments.",
"type": "body",
"path": "000:064:001:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Notional Amounts and Expiry Dates of Interest Rate Swaps",
"content": "At both June 30, 2019 and December 31, 2018, our interest rate swaps expiring in July 2021 had notional amounts of $1.55 billion and our interest rate swaps expiring in March 2025 had notional amounts of $1.5 billion.",
"type": "body",
"path": "000:064:001:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Designation of Interest Rate Swaps as Cash Flow Hedges",
"content": "These interest rate swaps are designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in expected future interest payments on the related variable-rate debt.",
"type": "body",
"path": "000:064:001:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Status of Interest Rate Swaps as of June 30, 2019, and December 31, 2018",
"content": "There were no other interest rate swaps outstanding as of June 30, 2019 or December 31, 2018.",
"type": "body",
"path": "000:064:001:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Reporting and Reclassification of Interest Rate Swap Gains or Losses in AOCI and Interest Expense",
"content": "Gains or losses on the interest rate swaps are reported as a component of AOCI and reclassified into Interest expense, net in our Condensed Consolidated Statements of Income in the same period or periods during which the related hedged interest payments affect earnings.",
"type": "body",
"path": "000:064:001:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Effectiveness of Cash Flow Hedges Through June 30, 2019",
"content": "Through June 30, 2019, the swaps were highly effective cash flow hedges.",
"type": "body",
"path": "000:064:001:005",
"children": []
}
]
},
{
"index": 2,
"title": "Foreign Currency Contracts",
"name": "",
"content": "",
"type": "container",
"path": "000:064:002",
"children": [
{
"index": 0,
"title": "",
"name": "Foreign Currency Forward and Swap Contracts for Hedging Earnings Volatility",
"content": "We have entered into foreign currency forward and swap contracts with the objective of reducing our exposure to earnings volatility arising from foreign currency fluctuations associated with certain foreign currency denominated intercompany receivables and payables. The notional amount, maturity date, and currency of these contracts match those of the underlying intercompany receivables or payables.",
"type": "body",
"path": "000:064:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Designation of Foreign Currency Contracts as Cash Flow Hedges",
"content": "Our foreign currency contracts are designated cash flow hedges as the future cash flows of the contracts are expected to offset changes in intercompany receivables and payables due to foreign currency exchange rate fluctuations.",
"type": "body",
"path": "000:064:002:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Reporting of Gains or Losses on Foreign Currency Contracts in AOCI",
"content": "Gains or losses on the foreign currency contracts are reported as a component of AOCI.",
"type": "body",
"path": "000:064:002:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Quarterly Reclassification of AOCI Amounts to Offset Foreign Currency Transaction Gains or Losses",
"content": "Amounts are reclassified from AOCI each quarter to offset foreign currency transaction gains or losses recorded within Other (income) expense when the related intercompany receivables and payables affect earnings due to their functional currency remeasurements.",
"type": "body",
"path": "000:064:002:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Effectiveness of Foreign Currency Forward and Swap Contracts as Cash Flow Hedges through June 30, 2019",
"content": "Through June 30, 2019, all foreign currency forward and swap contracts related to intercompany receivables and payables were highly effective cash flow hedges.",
"type": "body",
"path": "000:064:002:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Total Notional Amounts of Foreign Currency Forward and Swap Contracts as of June 30, 2019 and December 31, 2018",
"content": "As of both June 30, 2019 and December 31, 2018, foreign currency forward and swap contracts outstanding related to intercompany receivables and payables had total notional amounts of $456 million.",
"type": "body",
"path": "000:064:002:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Duration of Foreign Currency Forward and Swap Contracts as of June 30, 2019",
"content": "As of June 30, 2019 these foreign currency forward and swap contracts have durations that expire in 2019 or 2020.",
"type": "body",
"path": "000:064:002:006",
"children": []
}
]
},
{
"index": 3,
"title": "",
"name": "Counterparty Credit Risk Management and Performance Assessment for Interest Rate Swaps and Foreign Currency Contracts",
"content": "As a result of the use of interest rate swaps and foreign currency contracts, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with major financial institutions carefully selected based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At June 30, 2019, all of the counterparties to our interest rate swaps and foreign currency contracts had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.",
"type": "body",
"path": "000:064:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Gains and Losses on Cash Flow Hedges in OCI and Reclassifications to Net Income",
"content": "Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:",
"type": "container",
"path": "000:064:004",
"children": [
{
"index": 0,
"title": "",
"name": "Estimated Net Gain from Cash Flow Hedges in AOCI to be Reclassified into Earnings within 12 Months as of June 30, 2019",
"content": "As of June 30, 2019, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $6 million, based on current LIBOR interest rates. See Note 14 for the fair value of our derivative assets and liabilities.",
"type": "body",
"path": "000:064:004:000",
"children": []
}
]
}
]
},
{
"index": 65,
"title": "Note 14 - Fair Value Disclosures",
"name": "",
"content": "",
"type": "container",
"path": "000:065",
"children": [
{
"index": 0,
"title": "",
"name": "Carrying Values and Fair Value Approximation of Short-Term Financial Instruments as of June 30, 2019",
"content": "As of June 30, 2019, the carrying values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, short-term borrowings, accounts payable and borrowings under our Revolving Facility approximated their fair values because of the short-term nature of these instruments.",
"type": "body",
"path": "000:065:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Fair Value Approximation of Notes Receivable Net of Allowances and Lease Guarantees",
"content": "The fair value of notes receivable net of allowances and lease guarantees less subsequent amortization approximates their carrying value.",
"type": "body",
"path": "000:065:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Table of Carrying Value and Estimated Fair Value of Debt Obligations as of June 30, 2019 and December 31, 2018",
"content": "The following table presents the carrying value and estimated fair value of the Company\u2019s debt obligations:\n6\/30\/2019 12\/31\/2018\nCarrying Value Fair Value (Level 2) Carrying Value Fair Value (Level 2)\nSecuritization Notes (a) $2,913 $3,048 $2,928 $2,967\nSubsidiary Senior Unsecured Notes (b) 2,850 2,972 2,850 2,733\nTerm Loan A Facility (b) 475 474 488 479\nTerm Loan B Facility (b) 1,945 1,946 1,955 1,915\nYUM Senior Unsecured Notes (b) 1,875 1,899 1,875 1,798",
"type": "container",
"path": "000:065:002",
"children": [
{
"index": 0,
"title": "",
"name": "Methodology for Estimating Fair Value of Securitization Notes",
"content": "(a) We estimated the fair value of the Securitization Notes by obtaining broker quotes from two separate brokerage firms that are knowledgeable about the Company\u2019s Securitization Notes and, at times, trade these notes. The markets in which the Securitization Notes trade are not considered active markets.",
"type": "body",
"path": "000:065:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Estimation of Fair Value for YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility, and Term Loan B Facility Using Market Quotes and Rates",
"content": "(b) We estimated the fair value of the YUM and Subsidiary Senior Unsecured Notes, Term Loan A Facility, and Term Loan B Facility using market quotes and calculations based on market rates.",
"type": "body",
"path": "000:065:002:001",
"children": []
}
]
},
{
"index": 3,
"title": "Recurring Fair Value Measurements",
"name": "",
"content": "",
"type": "container",
"path": "000:065:003",
"children": [
{
"index": 0,
"title": "",
"name": "Fair Value Measurement Requirement for Financial Instruments and Investments",
"content": "The Company has interest rate swaps, foreign currency contracts, an investment in Grubhub common stock and other investments, all of which are required to be measured at fair value on a recurring basis (See Note 13 for discussion regarding derivative instruments and Note 5 for discussion regarding our investment in Grubhub common stock).",
"type": "body",
"path": "000:065:003:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Fair Value Measurements and Hierarchy Levels for Recurring Basis Assets and Liabilities",
"content": "The following table presents fair values for those assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall.",
"type": "body",
"path": "000:065:003:001",
"children": []
}
]
}
]
},
{
"index": 66,
"title": "24 Fair Value",
"name": "",
"content": "",
"type": "container",
"path": "000:066",
"children": [
{
"index": 0,
"title": "Condensed Consolidated Balance Sheet Level",
"name": "",
"content": "",
"type": "container",
"path": "000:066:000",
"children": [
{
"index": 0,
"title": "",
"name": "Reporting Periods",
"content": "6\/30\/2019 12\/31\/2018",
"type": "body",
"path": "000:066:000:000",
"children": []
},
{
"index": 1,
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{
"index": 0,
"title": "",
"name": "Financial Instruments and Investments Categorized by Asset Type and Valuation",
"content": "Interest Rate Swaps Prepaid expenses and other current assets 2 $10 $21\nForeign Currency Contracts Prepaid expenses and other current assets 2 \u2014 5\nInterest Rate Swaps Other assets 2 6 29\nInvestment in Grubhub Common Stock Other assets 1 218 214\nOther Investments Other assets 1 32 27",
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"index": 2,
"title": "Liabilities",
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"content": "",
"type": "container",
"path": "000:066:000:002",
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{
"index": 0,
"title": "",
"name": "Foreign Currency Contracts in Accounts Payable and Other Current Liabilities",
"content": "Foreign Currency Contracts Accounts payable and other current liabilities 2 9 \u2014",
"type": "body",
"path": "000:066:000:002:000",
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{
"index": 1,
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"name": "Interest Rate Swaps in Other Liabilities and Deferred Credits",
"content": "Interest Rate Swaps Other liabilities and deferred credits 2 69 23",
"type": "body",
"path": "000:066:000:002:001",
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"title": "",
"name": "Foreign Currency Contracts Fair Value Determination",
"content": "Foreign Currency Contracts Other liabilities and deferred credits 2 \u2014 24",
"type": "body",
"path": "000:066:000:002:002",
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},
{
"index": 3,
"title": "",
"name": "Fair Value Determination of Foreign Currency Contracts and Interest Rate Swaps",
"content": "The fair value of the Company\u2019s foreign currency contracts and interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration based on observable inputs.",
"type": "body",
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{
"index": 4,
"title": "",
"name": "Fair Value Determination of Grubhub Common Stock Based on Closing Market Prices",
"content": "The fair value of the investment in Grubhub common stock was determined primarily based on closing market prices for the shares.",
"type": "body",
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},
{
"index": 5,
"title": "",
"name": "Fair Value Determination of Mutual Funds for Deferred Compensation Liabilities",
"content": "The other investments include investments in mutual funds, which are used to offset fluctuations for a portion of our deferred compensation liabilities. The other investments' fair value is determined based on the closing market prices of the respective mutual funds as of June 30, 2019 and December 31, 2018.",
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"index": 67,
"title": "Note 15 - Contingencies",
"name": "",
"content": "",
"type": "container",
"path": "000:067",
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{
"index": 0,
"title": "Lease Guarantees",
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{
"index": 0,
"title": "",
"name": "Secondary Liability Due to Lease Obligations Assignment and Guaranteeing",
"content": "As a result of having assigned our interest in obligations under real estate leases as a condition to the refranchising of certain Company-owned restaurants, and guaranteeing certain other leases, we are frequently secondarily liable on lease agreements.",
"type": "body",
"path": "000:067:000:000",
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{
"index": 1,
"title": "",
"name": "Lease Term Variability and Expiration Date",
"content": "These leases have varying terms, the latest of which expires in 2065.",
"type": "body",
"path": "000:067:000:001",
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{
"index": 2,
"title": "",
"name": "Potential Undiscounted Payments Liability as of June 30, 2019",
"content": "As of June 30, 2019, the potential amount of undiscounted payments we could be required to make in the event of non-payment by the primary lessee was approximately $500 million.",
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{
"index": 3,
"title": "",
"name": "Present Value of Potential Payments Discounted at Pre-Tax Cost of Debt as of June 30, 2019",
"content": "The present value of these potential payments discounted at our pre-tax cost of debt at June 30, 2019, was approximately $400 million.",
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{
"index": 4,
"title": "",
"name": "Franchisees as Primary Lessees",
"content": "Our franchisees are the primary lessees under the vast majority of these leases.",
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{
"index": 5,
"title": "",
"name": "Cross-Default Provisions for Franchisees in Case of Lease Non-Payment",
"content": "We generally have cross-default provisions with these franchisees that would put them in default of their franchise agreement in the event of non-payment under the lease.",
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{
"index": 6,
"title": "",
"name": "Risk Mitigation Through Cross-Default Provisions",
"content": "We believe these cross-default provisions significantly reduce the risk that we will be required to make payments under these leases.",
"type": "body",
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{
"index": 7,
"title": "",
"name": "Recorded Liability for Lease Exposure as of June 30, 2019",
"content": "Accordingly, the liability recorded for our probable exposure under such leases as of June 30, 2019 was not material.",
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"content": "",
"type": "container",
"path": "000:067:001",
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{
"index": 0,
"title": "",
"name": "Exposure to Claims and Contingencies in Normal Business Operations",
"content": "We are subject to various claims and contingencies related to lawsuits, real estate, environmental and other matters arising in the normal course of business.",
"type": "container",
"path": "000:067:001:000",
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{
"index": 0,
"title": "",
"name": "Accruals for Probable and Reasonably Estimable Losses",
"content": "An accrual is recorded with respect to claims or contingencies for which a loss is determined to be probable and reasonably estimable.",
"type": "body",
"path": "000:067:001:000:000",
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{
"index": 1,
"title": "",
"name": "Ongoing Legal Proceedings and Unresolved Claims with Indeterminate Liability",
"content": "We are currently engaged in various legal proceedings and have certain unresolved claims pending, the ultimate liability for which, if any, cannot be determined at this time.",
"type": "body",
"path": "000:067:001:000:001",
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{
"index": 2,
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"name": "Legal Counsel Opinion on Impact of Proceedings and Claims on Financial Statements",
"content": "However, based upon consultation with legal counsel, we are of the opinion that such proceedings and claims are not expected to have a material adverse effect, individually or in the aggregate, on our Condensed Consolidated Financial Statements.",
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"index": 68,
"title": "Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations",
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"type": "container",
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"index": 0,
"title": "Introduction and Overview",
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"index": 0,
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"name": "Introduction to Management's Discussion and Analysis (MD&A) and Related Documents",
"content": "The following Management's Discussion and Analysis (\u201cMD&A\u201d), should be read in conjunction with the unaudited Condensed Consolidated Financial Statements (\u201cFinancial Statements\u201d), the Forward-Looking Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (\u201c2018 Form 10-K\u201d). All Note references herein refer to the Notes to the Financial Statements. Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding.",
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"index": 1,
"title": "",
"name": "Overview of Yum! Brands, Inc. and Its Global Restaurant Concepts",
"content": "Yum! Brands, Inc. (\"Company\", \u201cYUM\u201d, \"we\", \"us\" or \"our\") franchises or operates a worldwide system of over 48,000 restaurants in more than 145 countries and territories, primarily under the concepts of KFC, Pizza Hut and Taco Bell (collectively, the \"Concepts\"). These three Concepts are global leaders of the chicken, pizza and Mexican-style food categories, respectively. Of the over 48,000 restaurants, 98% are operated by franchisees. YUM currently consists of three reporting segments:\n- The KFC Division which includes our worldwide operations of the KFC concept\n- The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept\n- The Taco Bell Division which includes our worldwide operations of the Taco Bell concept",
"type": "container",
"path": "000:068:000:001",
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{
"index": 0,
"title": "",
"name": "Announcement of YUM\u2019s Strategic Transformation Initiatives Post-China Business Separation",
"content": "On October 11, 2016, we announced our strategic transformation plans to drive global expansion of our KFC, Pizza Hut and Taco Bell brands (\u201cYUM\u2019s Strategic Transformation Initiatives\u201d) following the separation of our business in China. Major features of the Company\u2019s transformation and growth strategy involve being more focused, franchised and efficient.",
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"index": 1,
"title": "",
"name": "Continuation of YUM's Operating Model and Capital Structure Transformation",
"content": "YUM\u2019s Strategic Transformation Initiatives below represent the continuation of YUM\u2019s transformation of its operating model and capital structure.",
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"index": 2,
"title": "- More Focused.",
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"content": "",
"type": "container",
"path": "000:068:000:002",
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{
"index": 0,
"title": "",
"name": "Introduction to YUM's Strategic Plans and Growth Drivers",
"content": "Four growth drivers form the basis of YUM\u2019s strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at KFC, Pizza Hut and Taco Bell around the world over the long term. The Company is focused on becoming best-in-class in:",
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"path": "000:068:000:002:000",
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"index": 0,
"title": "",
"name": "Building Relevant, Easy and Distinctive Brands through Consumer Insights and Innovation",
"content": "- Building Relevant, Easy and Distinctive Brands, by increasing investment in consumer insights, core product innovation, digital excellence and initiatives that strengthen the quality, convenience and appeal of the customer experience;",
"type": "body",
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"index": 1,
"title": "",
"name": "Developing Franchise Operating Capability and Recruiting Top Operators",
"content": "- Developing Unmatched Franchise Operating Capability, strengthening how we equip and recruit the best restaurant operators to deliver great customer experiences, and build and protect our brands;",
"type": "body",
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{
"index": 2,
"title": "",
"name": "Driving Bold Restaurant Development through Strategic Franchisee Partnerships",
"content": "- Driving Bold Restaurant Development through partnerships with growth-minded franchisees who can expand and penetrate markets with modern restaurants, strong economics and value; and",
"type": "body",
"path": "000:068:000:002:000:002",
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{
"index": 3,
"title": "",
"name": "Growing Unrivaled Culture and Talent for Enhanced Customer Experience and Franchise Success",
"content": "- Growing Unrivaled Culture and Talent to strengthen the customer experience and franchise success with best-in-class people capability and culture.",
"type": "body",
"path": "000:068:000:002:000:003",
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}
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"index": 3,
"title": "- More Franchised. YUM successfully increased franchise restaurant ownership to its 98% target as of the end of 2018.",
"name": "",
"content": "",
"type": "container",
"path": "000:068:000:003",
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},
{
"index": 4,
"title": "- More Efficient. The Company is revamping its financial profile, improving the efficiency of its organization and cost structure globally, by:",
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"content": "",
"type": "container",
"path": "000:068:000:004",
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{
"index": 0,
"title": "",
"name": "Reducing Annual Capital Expenditures and Funding New Units through Refranchising",
"content": "-- Reducing annual capital expenditures associated with Company-operated restaurant maintenance and other projects to less than $100 million and funding any additional capital for any new Company units through the refranchising of existing Company units. Capital spending in 2019 net of refranchising proceeds is expected to approximate $125 million as we fund additional strategic investments in technology that we believe will generate faster growth and incremental value for the Company;",
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"index": 1,
"title": "",
"name": "Reduction of General and Administrative Expenses to 1.7% of System Sales in 2019",
"content": "-- Lowering General and administrative expenses (\"G&A\") to 1.7% of system sales in 2019; and",
"type": "body",
"path": "000:068:000:004:001",
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},
{
"index": 2,
"title": "",
"name": "Maintaining an Optimized Capital Structure with ~5.0x EBITDA Leverage",
"content": "-- Maintaining an optimized capital structure of ~5.0x Earnings Before Interest, Taxes, Depreciation and Amortization (\u201cEBITDA\u201d) leverage.",
"type": "body",
"path": "000:068:000:004:002",
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}
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},
{
"index": 1,
"title": "",
"name": "Shareholder Return Strategy (2017-2019): Funding Through Refranchising, Free Cash Flow, and EBITDA Leverage",
"content": "From 2017 through 2019, we intend to return $6.5 - $7.0 billion to shareholders through share repurchases and cash dividends. We intend to fund these shareholder returns through a combination of refranchising proceeds, free cash flow generation and maintenance of our five times EBITDA leverage. Refer to the Liquidity and Capital Resources section of this MD&A for additional details.",
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"path": "000:068:001",
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},
{
"index": 69,
"title": "",
"name": "Purpose of the MD&A in Providing Operational Insights and Performance Metrics",
"content": "26 We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance.",
"type": "container",
"path": "000:069",
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{
"index": 0,
"title": "",
"name": "Definition of Same-Store Sales Growth Metric",
"content": "Throughout this MD&A, we commonly discuss the following performance metrics:\n- Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the YUM system for one year or more. In 2019 we are also including in our prior year base the sales of stores that were added as a result of the Telepizza strategic alliance and that have been open for one year or more. See description of the Telepizza strategic alliance within this MD&A.",
"type": "container",
"path": "000:069:000",
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{
"index": 0,
"title": "",
"name": "Net New Units: Definition and Calculation",
"content": "- Net new units represents new unit openings, offset by store closures.",
"type": "body",
"path": "000:069:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Definition of Company Restaurant Profit and Margin Calculation",
"content": "- Company restaurant profit (\"Restaurant profit\") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin as a percentage of sales is defined as Restaurant profit divided by Company sales.",
"type": "body",
"path": "000:069:000:001",
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}
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},
{
"index": 1,
"title": "",
"name": "Non-GAAP Measurement: System Sales and Excluding Foreign Currency Translation",
"content": "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:\n- System sales and System sales excluding the impacts of foreign currency translation (\"FX\"). System sales include the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Condensed Consolidated Statements of Income; however, the franchise and license fees are included in the Company\u2019s revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.",
"type": "container",
"path": "000:069:001",
"children": [
{
"index": 0,
"title": "",
"name": "Non-GAAP Financial Metrics Definitions and Exclusions",
"content": "- Diluted Earnings Per Share excluding Special Items (as defined below);\n- Effective Tax Rate excluding Special Items;\n- Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally.",
"type": "body",
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}
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},
{
"index": 2,
"title": "",
"name": "Explanation of Non-GAAP Measurements and Exclusion of Special Items from Division Segment Results",
"content": "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.",
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"path": "000:069:002",
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{
"index": 3,
"title": "",
"name": "Exclusion of Special Items in Segment Performance Assessment by Chief Operating Decision Maker",
"content": "Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance.",
"type": "body",
"path": "000:069:003",
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{
"index": 4,
"title": "",
"name": "Non-GAAP Measurements Excluding FX Impact and Translation Methodology",
"content": "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.",
"type": "body",
"path": "000:069:004",
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{
"index": 5,
"title": "",
"name": "Rationale for Excluding FX Impact for Enhanced Year-to-Year Comparability",
"content": "We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.",
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{
"index": 70,
"title": "Results of Operations",
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"content": "",
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{
"index": 0,
"title": "Summary",
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"index": 0,
"title": "",
"name": "Basis of Comparisons: Year-over-Year Analysis",
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"type": "body",
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},
{
"index": 1,
"title": "",
"name": "Quarterly GAAP and Adjusted EPS Performance for June 30, 2019",
"content": "For the quarter ended June 30, 2019, GAAP diluted EPS decreased 5% to $0.92 per share, and diluted EPS, excluding Special Items, increased 15% to $0.93 per share.",
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"index": 2,
"title": "",
"name": "Impact of Special Items on GAAP Diluted EPS for Quarters Ended June 30, 2018 and 2019",
"content": "Special Items negatively impacted GAAP diluted EPS comparisons, adding $0.15 per share in the quarter ended June 30, 2018 as opposed to a negative impact of $0.01 per share in the quarter ended June 30, 2019.",
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"index": 3,
"title": "",
"name": "Impact of Grubhub Investment Fair Value Change on Diluted EPS for Q2 2019 and Q2 2018",
"content": "The change in fair value of our investment in Grubhub Inc. (\"Grubhub\") added $0.06 per share in diluted EPS for both the quarters ended June 30, 2019 and 2018.",
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{
"index": 4,
"title": "",
"name": "Year-to-Date GAAP and Adjusted Diluted EPS Comparison for June 30, 2019",
"content": "For the year to date ended June 30, 2019 , GAAP diluted EPS decreased 22% to $1.75 per share, and diluted EPS, excluding Special Items, increased 2% to $1.76 per share.",
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"path": "000:070:000:004",
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},
{
"index": 5,
"title": "",
"name": "Impact of Changes in Grubhub Investment Fair Value on Year-to-Date EPS Comparisons",
"content": "Both EPS comparisons were negatively impacted by the year-over-year impact of changes 27 in the fair value of our investment in Grubhub, which added $0.22 per share in the year to date ended June 30, 2018 as opposed to $0.01 per share in the year to date ended June 30, 2019.",
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},
{
"index": 6,
"title": "",
"name": "Impact of Special Items on GAAP Diluted EPS Comparison Year-over-Year",
"content": "The GAAP diluted EPS comparison was also negatively impacted by Special Items which added $0.54 per share in the year to date ended June 30, 2018 as opposed to a negative impact of $0.01 per share in the year to date ended June 30, 2019.",
"type": "body",
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},
{
"index": 7,
"title": "Quarterly Financial highlights:",
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"content": "",
"type": "container",
"path": "000:070:000:007",
"children": [
{
"index": 0,
"title": "% Change",
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{
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{
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{
"index": 4,
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]
},
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"index": 8,
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"type": "container",
"path": "000:070:000:008",
"children": [
{
"index": 0,
"title": "",
"name": "Numerical Data Enumeration",
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"index": 9,
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"path": "000:070:000:009",
"children": []
},
{
"index": 10,
"title": "",
"name": "Numerical Reference Sequence",
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"type": "body",
"path": "000:070:000:010",
"children": []
},
{
"index": 11,
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"content": "",
"type": "container",
"path": "000:070:000:011",
"children": []
},
{
"index": 12,
"title": "",
"name": "Numerical List Enumeration",
"content": "+10\n+7\n+3\n+7\n+7",
"type": "body",
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},
{
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"content": "",
"type": "container",
"path": "000:070:000:013",
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},
{
"index": 14,
"title": "",
"name": "Numerical Value Enumeration",
"content": "+10\n+5\n+7\n+5\n+18",
"type": "body",
"path": "000:070:000:014",
"children": []
},
{
"index": 15,
"title": "Year to date Financial highlights:",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:015",
"children": [
{
"index": 0,
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"content": "",
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},
{
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{
"index": 2,
"title": "Same-Store Sales",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:015:002",
"children": []
},
{
"index": 3,
"title": "Net New Units",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:015:003",
"children": []
},
{
"index": 4,
"title": "GAAP Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:015:004",
"children": []
},
{
"index": 5,
"title": "Core Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:015:005",
"children": []
}
]
},
{
"index": 16,
"title": "KFC Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:016",
"children": []
},
{
"index": 17,
"title": "",
"name": "Numerical References Enumeration",
"content": "+10\n+5\n+6\n+9\n+16",
"type": "body",
"path": "000:070:000:017",
"children": []
},
{
"index": 18,
"title": "Pizza Hut Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:018",
"children": [
{
"index": 0,
"title": "",
"name": "Numerical List Enumeration",
"content": "+8\n+1\n+10\n+14\n+18",
"type": "body",
"path": "000:070:000:018:000",
"children": []
}
]
},
{
"index": 19,
"title": "Taco Bell Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:019",
"children": []
},
{
"index": 20,
"title": "",
"name": "Numerical Data Sequence",
"content": "+8\n+6\n+3\n+6\n+6",
"type": "body",
"path": "000:070:000:020",
"children": []
},
{
"index": 21,
"title": "Worldwide",
"name": "",
"content": "",
"type": "container",
"path": "000:070:000:021",
"children": [
{
"index": 0,
"title": "",
"name": "Numeric Item Enumeration",
"content": "+9\n+4\n+7\n(10)\n+15",
"type": "container",
"path": "000:070:000:021:000",
"children": [
{
"index": 0,
"title": "",
"name": "Introduction to Adjustments for Prior Year Base and System Sales Growth Calculations",
"content": "Additionally:",
"type": "container",
"path": "000:070:000:021:000:000",
"children": [
{
"index": 0,
"title": "",
"name": "Adjustment of Prior Year Base for Strategic Alliance with Telepizza Impact on System Sales Growth",
"content": "- Adjusting the prior year base to include units added as a result of our fourth quarter 2018 strategic alliance with Telepizza, system sales growth excluding foreign currency translation would have been 9% and 8% Worldwide and 4% and 3% for the Pizza Hut Division for the quarter and year to date, respectively.",
"type": "body",
"path": "000:070:000:021:000:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Net New Unit Openings and Year-over-Year Growth Analysis",
"content": "- We opened 312 and 622 net new units for the quarter and year to date, respectively. On a year-over-year basis, which takes into account the strategic alliance with Telepizza in the fourth quarter of 2018, net new unit growth was 7%.",
"type": "body",
"path": "000:070:000:021:000:000:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Share Repurchase Activity for the Quarter and Year to Date",
"content": "- During the quarter, we repurchased 1.9 million shares totaling $196 million at an average price of $104. During the year to date, we repurchased 3.0 million shares totaling $302 million at an average price of $100.",
"type": "body",
"path": "000:070:000:021:000:000:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Impact of Foreign Currency Translation on Divisional Operating Profit",
"content": "- Foreign currency translation impacted Divisional Operating Profit unfavorably for the quarter and year to date by $17 million and $36 million, respectively.",
"type": "body",
"path": "000:070:000:021:000:000:003",
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}
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}
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}
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},
{
"index": 1,
"title": "28 Worldwide GAAP Results",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001",
"children": [
{
"index": 0,
"title": "Quarter ended",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:000",
"children": []
},
{
"index": 1,
"title": "Year to date",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Annual Comparative Financial Data for 2019 and 2018",
"content": "2019 2018",
"type": "container",
"path": "000:070:001:002",
"children": [
{
"index": 0,
"title": "% B\/(W)",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:002:000",
"children": []
}
]
},
{
"index": 3,
"title": "",
"name": "Comparative Yearly Data: 2019 and 2018",
"content": "2019 2018",
"type": "container",
"path": "000:070:001:003",
"children": [
{
"index": 0,
"title": "% B\/(W)",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:003:000",
"children": []
}
]
},
{
"index": 4,
"title": "Company sales",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Financial Performance Metrics for Franchise and Restaurant Operations",
"content": "$359\n$512\n(30)\n$692\n$1,024\n(32) Franchise and property revenues\n633 584 8 1,245\n1,168\n7 Franchise contributions for advertising and other services\n318 272 17 627 547 15 Total revenues\n$1,310\n$1,368\n(4)\n$2,564\n$2,739\n(6) Restaurant profit\n$73\n$91\n(21)\n$134\n$165\n(19) Restaurant margin %\n20.0%\n17.8%\n2.2ppts.\n19.2%\n16.1%\n3.1ppts.",
"type": "body",
"path": "000:070:001:005",
"children": []
},
{
"index": 6,
"title": "G&A expenses",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:006",
"children": []
},
{
"index": 7,
"title": "",
"name": "Detailed Financial Breakdown of Franchise and Property Expenses, Franchise Advertising and Services Expense, Refranchising (Gain) Loss, and Other (Income) Expense",
"content": "$198\n$208\n5\n$409\n$427\n4 Franchise and property expenses\n38 40 9 81 87 8 Franchise advertising and other services expense\n315 274\n(15) 616 546\n(13) Refranchising (gain) loss\n(4)\n(29)\n(85)\n(10)\n(185)\n(95) Other (income) expense\n65 NM\n63 NM",
"type": "body",
"path": "000:070:001:007",
"children": []
},
{
"index": 8,
"title": "Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:001:008",
"children": []
},
{
"index": 9,
"title": "",
"name": "Financial Performance Summary",
"content": "$471\n$449\n5\n$904\n$1,002\n(10) Investment (income) expense, net\n(25)\n(23) 11\n(9)\n(89)\n(89) Other pension (income) expense\n\u2014\n3 71 3 6 41 Interest expense, net\n119 112\n(5) 234 219\n(7) Income tax provision\n88 36 NM\n(12) Net Income\n$289\n$321\n(10)\n$551\n$754\n(27) Diluted EPS(a)\n$0.92\n$0.97\n(5)\n$1.75\n$2.25\n(22) Effective tax rate\n23.3%\n9.9%\n(13.4)ppts.\n18.5%\n12.9%\n(5.6)ppts.\n(a) See Note 3 for the number of shares used in this calculation.",
"type": "body",
"path": "000:070:001:009",
"children": []
}
]
},
{
"index": 2,
"title": "29 Performance Metrics",
"name": "",
"content": "",
"type": "container",
"path": "000:070:002",
"children": [
{
"index": 0,
"title": "Unit Count",
"name": "",
"content": "",
"type": "container",
"path": "000:070:002:000",
"children": [
{
"index": 0,
"title": "",
"name": "Franchise and Company-Owned Units Comparison Including Telepizza Strategic Alliance",
"content": "6\/30\/2019\n6\/30\/2018\n% Increase (Decrease)\nFranchise\n47,910\n44,264\n8 Company-owned\n859 1,302\n(34) 48,769\n45,566\n7\n(a)\n(a) Includes units added as a result of our fourth quarter 2018 strategic alliance with Telepizza.",
"type": "body",
"path": "000:070:002:000:000",
"children": []
}
]
},
{
"index": 1,
"title": "",
"name": "Same-store Sales Growth Comparison for Quarter and Year-to-Date",
"content": "Quarter ended\nYear to date\n2019 2018 2019 2018 Same-store Sales Growth %\n5 1 4 1",
"type": "body",
"path": "000:070:002:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Non-GAAP Items and Reconciliation to GAAP Financial Measures",
"content": "Non-GAAP Items\nNon-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.",
"type": "body",
"path": "000:070:002:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Comparative Financial Performance Metrics for Quarter and Year to Date",
"content": "Quarter ended\nYear to date\n2019 2018 2019 2018 System Sales Growth %, reported(a)\n7 7 5 8\nSystem Sales Growth %, excluding FX(a)\n10 4 9 4\nCore Operating Profit Growth (Decline) %\n18 (6) 15 (3)\nDiluted EPS Growth %, excluding Special Items\n15 20 2 29\nEffective Tax Rate excluding Special Items\n23.7% 17.4% 18.7% 15.8%",
"type": "container",
"path": "000:070:002:003",
"children": [
{
"index": 0,
"title": "",
"name": "Adjustment to Prior Year Base for Telepizza Inclusion in System Sales Growth Calculation",
"content": "(a) Adjusting the prior year base to include Telepizza, System Sales Growth in 2019 would have been 5% and 4% on a reported basis and 9% and 8% excluding FX for the quarter and year to date, respectively.",
"type": "body",
"path": "000:070:002:003:000",
"children": []
}
]
},
{
"index": 4,
"title": "",
"name": "Detail of Special Items Financial Summary for Quarter and Year to Date",
"content": "Quarter ended Year to date\nDetail of Special Items 2019 2018 2019 2018\nRefranchising gain (loss) (See Note 5) $4 $29 $10 $185\nOther Special Items Expense(a) (9) \u2014 (11) (3)\nSpecial Items Income (Expense) - Operating Profit (5) 29 (1) 182\nInterest expense, net(a) (2) \u2014 (2) \u2014\nSpecial Items Income (Expense) before Income Taxes (7) 29 (3) 182\nTax Benefit (Expense) on Special Items(b) 3 (18) 2 (37)\nTax Benefit (Expense) - U.S. Tax Act(c) \u2014 40 \u2014 34\nSpecial Items Income (Expense), net of tax $(4) $51 $(1) $179\nAverage diluted shares outstanding 314331 314 336\nSpecial Items diluted EPS $(0.01) $0.15 $(0.01) $0.54",
"type": "body",
"path": "000:070:002:004",
"children": []
}
]
},
{
"index": 3,
"title": "30 Reconciliation of GAAP Operating Profit to Core Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:003",
"children": [
{
"index": 0,
"title": "",
"name": "Consolidated Financial Performance Metrics: GAAP Operating Profit, Special Items Income, Foreign Currency Impact, and Core Operating Profit",
"content": "Consolidated GAAP Operating Profit $471 $449 $904 $1,002\nSpecial Items Income (5) 29 (1) 182\nForeign Currency Impact on Divisional Operating Profit(d) (17) N\/A (36) N\/A\nCore Operating Profit $493 $420 $941 $820",
"type": "body",
"path": "000:070:003:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "KFC Division Operating Profit and Foreign Currency Impact Analysis",
"content": "KFC Division GAAP Operating Profit $261 $235 $497 $456\nForeign Currency Impact on Divisional Operating Profit(d) (14) N\/A (30) N\/A\nCore Operating Profit $275 $235 $527 $456",
"type": "body",
"path": "000:070:003:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Pizza Hut Division Operating Profit and Foreign Currency Impact Analysis",
"content": "Pizza Hut Division GAAP Operating Profit $96 $81 $193 $169\nForeign Currency Impact on Divisional Operating Profit(d) (3) N\/A (6) N\/A\nCore Operating Profit $99 $81 $199 $169",
"type": "body",
"path": "000:070:003:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Taco Bell Division Financial Performance and Foreign Currency Impact",
"content": "Taco Bell Division GAAP Operating Profit $159 $149 $297 $281\nForeign Currency Impact on Divisional Operating Profit(d) \u2014 N\/A \u2014 N\/A\nCore Operating Profit $159 $149 $297 $281",
"type": "body",
"path": "000:070:003:003",
"children": []
},
{
"index": 4,
"title": "Reconciliation of Diluted EPS to Diluted EPS excluding Special Items",
"name": "",
"content": "",
"type": "container",
"path": "000:070:003:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Earnings Per Share (EPS) Analysis with and without Special Items",
"content": "Diluted EPS $0.92 $0.97 $1.75 $2.25\nSpecial Items Diluted EPS (0.01) 0.15 (0.01) 0.54\nDiluted EPS excluding Special Items $0.93 $0.82 $1.76 $1.71",
"type": "body",
"path": "000:070:003:005",
"children": []
},
{
"index": 6,
"title": "Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items",
"name": "",
"content": "",
"type": "container",
"path": "000:070:003:006",
"children": []
},
{
"index": 7,
"title": "",
"name": "GAAP Effective Tax Rate Percentages by Year",
"content": "GAAP Effective Tax Rate 23.3 % 9.9 % 18.5 % 12.9 %",
"type": "body",
"path": "000:070:003:007",
"children": []
},
{
"index": 8,
"title": "",
"name": "Impact of Special Items on Tax Rate Adjustment",
"content": "Impact on Tax Rate as a result of Special Items(b)(c) (0.4)% (7.5)% (0.2)% (2.9)%",
"type": "body",
"path": "000:070:003:008",
"children": []
},
{
"index": 9,
"title": "",
"name": "Effective Tax Rate Excluding Special Items",
"content": "Effective Tax Rate excluding Special Items 23.7 % 17.4 % 18.7 % 15.8 %",
"type": "body",
"path": "000:070:003:009",
"children": []
},
{
"index": 10,
"title": "Reconciliation of GAAP Company sales to System sales",
"name": "",
"content": "",
"type": "container",
"path": "000:070:003:010",
"children": []
},
{
"index": 11,
"title": "",
"name": "Consolidated Sales and Foreign Currency Impact Analysis",
"content": "Consolidated GAAP Company sales(e) $359 $512 $692 $1,024\nFranchise sales 12,114 11,177 23,965 22,373\nSystem sales 12,473 11,689 24,657 23,397\nForeign Currency Impact on System sales(f) (410) N\/A (901) N\/A\nSystem sales, excluding FX $12,883 $11,689 $25,558 $23,397",
"type": "body",
"path": "000:070:003:011",
"children": []
},
{
"index": 12,
"title": "",
"name": "KFC Division Sales Analysis: GAAP Company, Franchise, and System Sales Including Foreign Currency Impact",
"content": "KFC Division GAAP Company sales(e) $135 $241 $260 $486\nFranchise sales 6,513 6,065 12,935 12,149\nSystem sales 6,648 6,306 13,195 12,635\nForeign Currency Impact on System sales(f) (317) N\/A (700) N\/A\nSystem sales, excluding FX $6,965 $6,306 $13,895 $12,635",
"type": "body",
"path": "000:070:003:012",
"children": []
}
]
},
{
"index": 4,
"title": "",
"name": "Pizza Hut Division Financial Performance and Foreign Currency Impact Analysis",
"content": "31 Pizza Hut Division GAAP Company sales(e) $11 $18 $22 $42\nFranchise sales 3,087 2,876 6,207 5,884\nSystem sales 3,098 2,894 6,229 5,926\nForeign Currency Impact on System sales(f) (89) N\/A (192) N\/A\nSystem sales, excluding FX $3,187 $2,894 $6,421 $5,926",
"type": "container",
"path": "000:070:004",
"children": [
{
"index": 0,
"title": "",
"name": "Taco Bell Division Sales and Foreign Currency Impact Analysis",
"content": "Taco Bell Division GAAP Company sales(e) $213 $253 $410 $496\nFranchise sales 2,514 2,236 4,823 4,340\nSystem sales 2,727 2,489 5,233 4,836\nForeign Currency Impact on System sales(f) (4) N\/A (9) N\/A\nSystem sales, excluding FX $2,731 $2,489 $5,242 $4,836",
"type": "container",
"path": "000:070:004:000",
"children": [
{
"index": 0,
"title": "",
"name": "Charges Related to Excess Cash Payments for 2013 KFC and Pizza Hut Turkey Acquisition",
"content": "(a)During the quarter ended June 30, 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.",
"type": "body",
"path": "000:070:004:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "(b) Determination of Tax Expense on Special Items and Correction of Prior Year Divestiture Tax Error",
"content": "(b)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. Additionally, during the quarter ended June 30, 2018, we recorded a $19 million increase to our Income tax provision for the correction of an error associated with the tax recorded on a prior year divestiture, the effects of which were previously recorded as a Special Item.",
"type": "body",
"path": "000:070:004:000:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Tax Adjustments and Benefits Related to the Tax Cuts and Jobs Act of 2017 for the Quarter and Year to Date Ended June 30, 2018",
"content": "(c)During the quarter and year to date ended June 30, 2018, we recorded $32 million and $16 million decreases, respectively, related to our provisional tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 (\"Tax Act\") that was reported as a Special Item. We also recorded Special Items tax benefits of $8 million and $18 million in the quarter and year to date ended June 30, 2018, respectively, related to 2018 U.S. foreign tax credits that became realizable directly as a result of the impact of deemed repatriation tax expense associated with the Tax Act.",
"type": "body",
"path": "000:070:004:000:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Foreign Currency Impact on Operating Profit and Core Operating Profit Growth Calculation",
"content": "(d)The foreign currency impact on reported Operating Profit is presented in relation only to the immediately preceding year presented. When determining applicable Core Operating Profit growth percentages, the Core Operating Profit for the current year should be compared to the prior year GAAP Operating Profit adjusted only for any prior year Special Items Income (Expense).",
"type": "body",
"path": "000:070:004:000:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "(e) Definition of Company Sales in Condensed Consolidated Statements of Income",
"content": "(e)Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.",
"type": "body",
"path": "000:070:004:000:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "(f)Foreign Currency Impact on System Sales and Growth Percentage Calculation",
"content": "(f)The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales.",
"type": "body",
"path": "000:070:004:000:005",
"children": []
}
]
},
{
"index": 1,
"title": "Items Impacting Current Quarter and Expected to Impact Future Results",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:001",
"children": []
},
{
"index": 2,
"title": "Investment in Grubhub",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:002",
"children": [
{
"index": 0,
"title": "",
"name": "Pre-Tax Income Recognition for Quarters Ended June 30, 2019 and 2018 Due to Fair Value Changes in Grubhub Investment",
"content": "For the quarters ended June 30, 2019 and 2018 we recognized pre-tax income of $24 million and $25 million, respectively, related to changes in fair value in our investment in Grubhub.",
"type": "body",
"path": "000:070:004:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Pre-Tax Income from Changes in Fair Value of Grubhub Investment for Years to Date Ended June 30, 2019 and 2018",
"content": "For the years to date ended June 30, 2019 and 2018 we recognized pre-tax income of $4 million and $91 million, respectively, related to changes in fair value in our investment in Grubhub.",
"type": "body",
"path": "000:070:004:002:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Reference to Note 5 for Detailed Information on Grubhub Investment",
"content": "See Note 5 for further discussion of our investment in Grubhub.",
"type": "body",
"path": "000:070:004:002:002",
"children": []
}
]
},
{
"index": 3,
"title": "Telepizza Strategic Alliance",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:003",
"children": [
{
"index": 0,
"title": "",
"name": "Strategic Alliance Agreement with Telepizza Group S.A. on December 30, 2018",
"content": "On December 30, 2018, the Company consummated a strategic alliance with Telepizza Group S.A. (\u201cTelepizza\u201d), the largest non U.S.-based pizza delivery company in the world, to be the master franchisee of Pizza Hut in Latin America and portions of Europe. The key terms of the alliance are set forth below:",
"type": "container",
"path": "000:070:004:003:000",
"children": [
{
"index": 0,
"title": "",
"name": "Telepizza's Role in Spain and Portugal: Continued Operation of Telepizza Brand and Oversight of Pizza Hut Franchisees",
"content": "- In Spain and Portugal, Telepizza will continue operating the Telepizza brand and will oversee franchisees operating Pizza Hut branded restaurants",
"type": "body",
"path": "000:070:004:003:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Telepizza's Conversion to Pizza Hut Brand and Franchise Oversight in Latin America, the Caribbean, and Switzerland",
"content": "- In Latin America (excluding Brazil), the Caribbean and Switzerland, Telepizza will progressively convert its existing restaurants to the Pizza Hut brand and oversee franchisees operating Pizza Hut branded restaurants",
"type": "body",
"path": "000:070:004:003:000:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Supply Chain Management and Authorized Supplier Status for Telepizza",
"content": "- Telepizza will manage supply chain logistics for the entire master franchise territory and will become an authorized supplier of Pizza Hut branded restaurants",
"type": "body",
"path": "000:070:004:003:000:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Telepizza's Expansion Targets Under Master Franchise Agreement",
"content": "- Across the regions covered by the master franchise agreement, Telepizza will target opening at least 1,300 new units over the next ten years and 2,550 units in total over 20 years",
"type": "body",
"path": "000:070:004:003:000:003",
"children": []
}
]
},
{
"index": 1,
"title": "",
"name": "Addition of Telepizza Units to Pizza Hut Division and Total Units Under Master Franchise Agreement as of June 30, 2019",
"content": "Upon formation of the alliance we added 1,305 Telepizza units to our Pizza Hut Division unit count. In total, approximately 2,300 Pizza Hut and Telepizza units are subject to the master franchise agreement as of June 30, 2019.",
"type": "body",
"path": "000:070:004:003:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Risks and Rewards of Collaborative Arrangement Based on Pizza Hut Intellectual Property and Telepizza's Supply Chain Management",
"content": "Based upon our ongoing and active maintenance of the Pizza Hut intellectual property as well as Telepizza\u2019s active involvement in supply chain management and their role as a master franchisee, both parties are exposed to significant risks and rewards depending on the commercial success of the alliance.",
"type": "body",
"path": "000:070:004:003:002",
"children": []
}
]
},
{
"index": 4,
"title": "",
"name": "Classification of Alliance as Collaborative Arrangement and Financial Statement Reporting",
"content": "As a result, the alliance has been identified as a collaborative arrangement and upon consummation of the alliance no amounts were recorded in our Consolidated Financial Statements (other than insignificant success fees that were paid to third-party advisors).",
"type": "body",
"path": "000:070:004:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Continuing Fee for Pizza Hut Restaurants Post-Alliance Consummation",
"content": "Subsequent to consummation of the deal, for all Pizza Hut restaurants that are part of the alliance, we are receiving a continuing fee of 3.5% of restaurant sales.",
"type": "body",
"path": "000:070:004:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Alliance Fee for Telepizza Restaurants at 3.5% of Sales",
"content": "Likewise, for most Telepizza restaurants that are part of the alliance we are receiving an alliance fee of 3.5% of restaurant sales.",
"type": "body",
"path": "000:070:004:006",
"children": []
},
{
"index": 7,
"title": "",
"name": "Revenue Recognition of Franchise and Property Fees in Financial Statements",
"content": "These fees are being recorded as Franchise and property revenues within our Condensed Consolidated Statements of Income when the related sales occur, consistent with our recognition of continuing fees for all other restaurants subject to our franchise agreements.",
"type": "body",
"path": "000:070:004:007",
"children": []
},
{
"index": 8,
"title": "",
"name": "Sales-Based Credit and Incentive Payments Reduction Clause",
"content": "These fees are reduced by a sales-based credit that decreases over time and, potentially, certain incentive payments if development or conversion targets are met.",
"type": "body",
"path": "000:070:004:008",
"children": []
},
{
"index": 9,
"title": "",
"name": "Historical Franchise Fee Structure for Existing Pizza Hut Restaurants Under Telepizza Agreement",
"content": "Previously, the existing Pizza Hut restaurants that are now subject to the master franchise agreement with Telepizza generally paid a continuing fee of 6% of restaurant sales consistent with our standard International franchise agreement terms.",
"type": "body",
"path": "000:070:004:009",
"children": []
},
{
"index": 10,
"title": "",
"name": "Impact on Operating Profit from Strategic Alliance for Q2 and YTD Ended June 30, 2019",
"content": "The impact to Operating Profit for the quarter and year to date ended June 30, 2019 as a result of the strategic alliance was not significant.",
"type": "body",
"path": "000:070:004:010",
"children": []
},
{
"index": 11,
"title": "",
"name": "System Sales Growth Impact from Telepizza Alliance for Q2 2019",
"content": "System Sales growth excluding foreign currency for the quarter ended June 30, 2019 was approximately 1 percentage point higher Worldwide and approximately 6 percentage points higher for the Pizza Hut Division as a result of the Telepizza strategic alliance.",
"type": "body",
"path": "000:070:004:011",
"children": []
},
{
"index": 12,
"title": "",
"name": "System Sales Growth Excluding Foreign Currency Year-to-Date June 30, 2019 Due to Telepizza Alliance",
"content": "System Sales growth excluding foreign currency for the year to date ended June 30, 2019 was approximately 1 percentage point higher Worldwide and approximately 5 percentage points higher for the Pizza Hut Division as a result of the Telepizza strategic alliance.",
"type": "body",
"path": "000:070:004:012",
"children": []
},
{
"index": 13,
"title": "",
"name": "Net New Unit Growth Increase Due to Strategic Alliance for Q2 2019",
"content": "Additionally, net new unit growth for the quarter ended June 30, 2019 was approximately 3 percentage points higher Worldwide and approximately 8 percentage points higher for the Pizza Hut Division as a result of the strategic alliance.",
"type": "body",
"path": "000:070:004:013",
"children": []
},
{
"index": 14,
"title": "KFC United Kingdom (\"UK\") Supply Availability Issues",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:014",
"children": [
{
"index": 0,
"title": "",
"name": "Transition to New Distributor and Resulting Supply Issues for KFCs in the UK and Ireland",
"content": "On February 14, 2018, we and our franchisees transitioned to a new distributor for the products supplied to our approximately 900 KFCs in the United Kingdom and Ireland (those restaurants accounted for approximately 3% of YUM\u2019s global system sales in the year ended December 31, 2018). In connection with this transition, certain of the restaurants experienced supply availability issues which resulted in store closures or stores operating under a limited menu. Beginning mid-May 2018, all restaurants opened for business, offering their full menus, with advertising beginning at the end of May.",
"type": "body",
"path": "000:070:004:014:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Impact on Core Operating Profit Growth for Q2 2018 Due to Supply Issues",
"content": "For the second quarter of 2018, we estimated that Core Operating Profit growth was negatively impacted by 3 percentage points for our KFC Division and 1 percentage point for YUM as a result of these issues.",
"type": "body",
"path": "000:070:004:014:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Core Operating Profit Impact Estimate for KFC and YUM Due to Issues (Year to Date Ended June 30, 2018)",
"content": "For the year to date ended June 30, 2018 we estimated that Core Operating Profit was negatively impacted by 4 percentage points for our KFC Division and 2 percentage points for YUM as a result of these issues.",
"type": "body",
"path": "000:070:004:014:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Estimated Same-Store Sales Growth Without Supply Disruption for Second Quarter 2018",
"content": "We estimated KFC Division's same-store sales growth would have been 3% and YUM's same-store sales growth would have been 2% in the second quarter of 2018 for both the quarter and year to date absent the supply disruption.",
"type": "body",
"path": "000:070:004:014:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Estimated Negative Impact on Core Operating Profit and Same-Store Sales Growth for KFC Division and YUM in 2018",
"content": "On a full-year basis in 2018, we estimated the negative impact to Core Operating Profit growth was 2 percentage points for KFC Division and 1 percentage point for YUM, respectively, and the negative impact to same-store sales growth was 50 basis points for KFC Division and 25 basis points for YUM, respectively.",
"type": "body",
"path": "000:070:004:014:004",
"children": []
}
]
},
{
"index": 15,
"title": "KFC Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:015",
"children": [
{
"index": 0,
"title": "",
"name": "KFC Division Unit Distribution and Franchise Operation Statistics as of June 30, 2019",
"content": "The KFC Division has 23,118 units, 82% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2019.",
"type": "container",
"path": "000:070:004:015:000",
"children": [
{
"index": 0,
"title": "",
"name": "Financial Performance Metrics for KFC Division for Quarter and Year to Date Ending 2019",
"content": "33 Quarter ended Year to date % B\/(W) % B\/(W)\n2019 2018 Reported Ex FX 2019 2018 Reported Ex FX\nSystem Sales $6,648 $6,306 5 10 $13,195 $12,635 4 10\nSame-Store Sales Growth % 6 2 N\/A N\/A 5 2 N\/A N\/A\nCompany sales $135 $241 (44) (41) $260 $486 (47) (42)\nFranchise and property revenues 332 310 7 12 655 617 6 12\nFranchise contributions for advertising and other services 117 100 18 26 235 206 14 23\nTotal revenues $584 $651 (10) (5) $1,150 $1,309 (12) (6)\nRestaurant profit $22 $31 (29) (25) $39 $56 (30) (25)\nRestaurant margin % 15.8% 12.5% 3.3ppts. 3.3ppts. 15.0% 11.5% 3.5ppts. 3.5ppts.\nG&A expenses $75 $81 6 3 $153 $166 7 4\nFranchise and property expenses 19 25 25 20 47 54 13 7\nFranchise advertising and other services expense 116 101 (15) (23) 232 205 (13) (21)\nOperating Profit $261 $235 11 17 $497 $456 9 16",
"type": "body",
"path": "000:070:004:015:000:000",
"children": []
}
]
},
{
"index": 1,
"title": "% Increase (Decrease) Unit Count 6\/30\/2019 6\/30\/2018 Franchise 22,789 21,235 7 Company-owned 329 603 (45) Total 23,118 21,838 6",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:015:001",
"children": []
}
]
},
{
"index": 16,
"title": "Company sales and Restaurant margin percentage",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:016",
"children": [
{
"index": 0,
"title": "",
"name": "Explanation of Quarterly and Year-to-Date Decreases in Company Sales",
"content": "The quarterly and year to date decreases in Company sales, excluding the impact of foreign currency translation, were driven by refranchising offset by company same-store sales growth of 9%, including lapping the prior year impact of supply interruptions in our KFC UK business.",
"type": "body",
"path": "000:070:004:016:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Explanation for Quarterly and Year-to-Date Increases in Restaurant Margin Percentage",
"content": "The quarterly and year to date increases in Restaurant margin percentage were driven by same-store sales growth, including lapping the prior year impact of supply interruptions in our KFC UK business, and refranchising.",
"type": "body",
"path": "000:070:004:016:001",
"children": []
}
]
},
{
"index": 17,
"title": "Franchise and property revenues",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:017",
"children": [
{
"index": 0,
"title": "",
"name": "Drivers of Quarterly and Year-to-Date Increases in Franchise and Property Revenues",
"content": "The quarterly and year to date increases in Franchise and property revenues, excluding the impact of foreign currency translation, were driven by international net new unit growth, franchise same-store sales growth of 5%, including the impact of lapping the prior year impact of supply interruptions in our KFC UK business, and refranchising.",
"type": "body",
"path": "000:070:004:017:000",
"children": []
}
]
},
{
"index": 18,
"title": "G&A",
"name": "",
"content": "",
"type": "container",
"path": "000:070:004:018",
"children": [
{
"index": 0,
"title": "",
"name": "Impact of YUM's Strategic Transformation Initiatives on G&A Expense Reductions",
"content": "The quarterly and year to date decreases in G&A expenses, excluding the impact of foreign currency translation, were driven by the positive impact of YUM's Strategic Transformation Initiatives, including reductions in G&A directly attributable to refranchising.",
"type": "body",
"path": "000:070:004:018:000",
"children": []
}
]
}
]
},
{
"index": 5,
"title": "34 Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly Operating Profit Increase Drivers Excluding Foreign Currency Impact",
"content": "The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth, net new unit growth and lapping the prior year impact of supply interruptions in our KFC UK business, partially offset by refranchising.",
"type": "body",
"path": "000:070:005:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Year to Date Increase in Operating Profit Excluding Foreign Currency Translation",
"content": "The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by net new unit growth, same-store sales growth and lapping the prior year impact of supply interruptions in our KFC UK business, partially offset by refranchising.",
"type": "body",
"path": "000:070:005:001",
"children": []
},
{
"index": 2,
"title": "Pizza Hut Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:002",
"children": [
{
"index": 0,
"title": "",
"name": "Overview of Pizza Hut Division's Global Operations and Franchise Model",
"content": "The Pizza Hut Division has 18,515 units, 60% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of June 30, 2019.",
"type": "body",
"path": "000:070:005:002:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Financial Performance Metrics for Pizza Hut Division - Quarterly and Year-to-Date Comparisons (2018 vs. 2019)",
"content": "Quarter ended Year to date % B\/(W) % B\/(W)\n2019 2018 Reported Ex FX 2019 2018 Reported Ex FX\nSystem Sales $3,098 $2,894 7 10 $6,229 $5,926 5 8\nSame-Store Sales Growth (Decline) % 2 (1) N\/A N\/A 1 Even N\/A N\/A\nCompany sales $11 $18 (38) (36) $22 $42 (47) (46)\nFranchise and property revenues 143 140 3 5 288 289 \u2014 2\nFranchise contributions for advertising and other services 92 75 21 22 179 153 17 17\nTotal revenues $246 $233 6 7 $489 $484 1 3\nRestaurant profit $1 $(1) NM NM $1 $(1) NM NM\nRestaurant margin % 1.6% (2.4)% 4.0ppts. 3.9ppts. 2.7% (1.0)% 3.7ppts. 3.6ppts.\nG&A expenses $44 $46 6 5 $91 $96 6 4\nFranchise and property expenses 9 8 \u2014 (2) 14 19 30 28\nFranchise advertising and other services expense 89 77 (16) (16) 172 155 (11) (12)\nOperating Profit $96 $81 18 21 $193 $169 14 18",
"type": "body",
"path": "000:070:005:002:001",
"children": []
},
{
"index": 2,
"title": "% Increase (Decrease) Unit Count 6\/30\/2019 6\/30\/2018 Franchise 18,459 16,730 10 Company-owned 56 93 (40) 18,515 16,823 10",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:002:002",
"children": []
}
]
},
{
"index": 3,
"title": "",
"name": "Impact of Refranchising on Quarterly and Year-to-Date Sales Decrease",
"content": "The quarterly and year to date decreases in Company sales, excluding the impacts of foreign currency translation, were driven by refranchising.",
"type": "body",
"path": "000:070:005:003",
"children": []
},
{
"index": 4,
"title": "Franchise and property revenues",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:004",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly Increase in Franchise and Property Revenues Driven by 2% Same-Store Sales Growth and Net New Unit Growth",
"content": "The quarterly increase in Franchise and property revenues, excluding the impact of foreign currency translation, was driven by franchise same-store sales growth of 2% and net new unit growth.",
"type": "body",
"path": "000:070:005:004:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Year-to-Date Increase in Franchise and Property Revenues Due to Net New Unit Growth and 1% Same-Store Sales Growth",
"content": "The year to date increase in Franchise and property revenues, excluding the impact of foreign currency translation, was driven by net new unit growth and franchise same-store sales growth of 1%.",
"type": "body",
"path": "000:070:005:004:001",
"children": []
}
]
},
{
"index": 5,
"title": "G&A",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Explanation of Decreases in General and Administrative Expenses Due to Strategic Transformation Initiatives",
"content": "The quarterly and year to date decreases in G&A, excluding the impacts of foreign currency translation, were driven by the positive impacts of YUM\u2019s Strategic Transformation Initiatives, including reductions in G&A directly attributable to refranchising.",
"type": "body",
"path": "000:070:005:006",
"children": []
},
{
"index": 7,
"title": "Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:007",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly Increase in Operating Profit Drivers Excluding Foreign Currency Translation",
"content": "The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by profits generated from our ownership of QuikOrder, LLC (\"QuikOrder\"), same-store sales growth, net new unit growth, lower G&A, and lapping advertising costs in the prior year associated with the Pizza Hut Transformation Agreement (See Note 5), partially offset by higher provisions for past due receivables.",
"type": "body",
"path": "000:070:005:007:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Year-to-Date Increase in Operating Profit Excluding Foreign Currency Impact and Contributing Factors",
"content": "The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by profits generated from our ownership of QuikOrder, net new unit growth, lapping advertising costs in the prior year associated with the Pizza Hut Transformation Agreement (See Note 5), lower G&A, and same-store sales growth, partially offset by higher provisions for past due receivables.",
"type": "body",
"path": "000:070:005:007:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Acquisition of QuikOrder in December 2018 and Its Role as a Long-Term Provider of Online Ordering Services",
"content": "We acquired QuikOrder in December 2018, which has been a provider of online ordering software and services to the Company and franchise restaurants of our Pizza Hut U.S. business for nearly two decades.",
"type": "body",
"path": "000:070:005:007:002",
"children": []
}
]
},
{
"index": 8,
"title": "Taco Bell Division",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:008",
"children": [
{
"index": 0,
"title": "",
"name": "Taco Bell Division Unit Count and Ownership Percentage as of June 30, 2019",
"content": "The Taco Bell Division has 7,136 units, the vast majority of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of June 30, 2019.",
"type": "body",
"path": "000:070:005:008:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Taco Bell Division Financial Performance Comparison for Quarter and Year to Date 2019 vs 2018",
"content": "36 Quarter ended Year to date % B\/(W) % B\/(W)\n2019 2018 Reported Ex FX 2019 2018 Reported Ex FX\nSystem Sales $2,727 $2,489 10 10 $5,233 $4,836 8 8\nSame-Store Sales Growth % 7 2 N\/A N\/A 6 1 N\/A N\/A\nCompany sales $213 $253 (16) (16) $410 $496 (17) (17)\nFranchise and property revenues 158 134 18 18 302 262 15 15\nFranchise contributions for advertising and other services 109 97 13 13 213 188 14 14\nTotal revenues $480 $484 (1) (1) $925 $946 (2) (2)\nRestaurant profit $50 $60 (18) (18) $94 $109 (14) (14)\nRestaurant margin % 23.6% 24.1% (0.5)ppts. (0.5)ppts. 22.8% 21.9% 0.9ppts. 0.9ppts.\nG&A expenses $41 $41 \u2014 \u2014 $84 $81 (4) (4)\nFranchise and property expenses 8 6 (30) (30) 17 12 (41) (41)\nFranchise advertising and other services expense 110 96 (14) (14) 212 186 (14) (14)\nOperating Profit $159 $149 7 7 $297 $281 6 6",
"type": "body",
"path": "000:070:005:008:001",
"children": []
},
{
"index": 2,
"title": "% Increase (Decrease) Unit Count 6\/30\/2019 6\/30\/2018 Franchise 6,662 6,299 6 Company-owned 474 606 (22) 7,136 6,905 3",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:008:002",
"children": []
}
]
},
{
"index": 9,
"title": "Company sales and Restaurant margin percentage",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:009",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly and Year-to-Date Sales Decrease Due to Refranchising and Offset Factors",
"content": "The quarterly and year to date decreases in Company sales were driven by refranchising, partially offset by company same-store sales growth of 5% and net new unit growth.",
"type": "body",
"path": "000:070:005:009:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Quarterly Decrease in Restaurant Margin Percentage Due to Higher Labor and Operating Costs",
"content": "The quarterly decrease in restaurant margin percentage was driven by higher labor and other operating costs, partially offset by same-store sales growth.",
"type": "body",
"path": "000:070:005:009:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Year to Date Increase in Restaurant Margin Percentage Due to Same-Store Sales Growth and Higher Operating Costs",
"content": "The year to date increase in restaurant margin percentage was driven by same-store sales growth, partially offset by higher labor and other operating costs.",
"type": "body",
"path": "000:070:005:009:002",
"children": []
}
]
},
{
"index": 10,
"title": "Franchise and property revenues",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:010",
"children": []
},
{
"index": 11,
"title": "",
"name": "Franchise and Property Revenue Growth Drivers",
"content": "The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 7% and 6%, respectively, refranchising, and net new unit growth.",
"type": "body",
"path": "000:070:005:011",
"children": []
},
{
"index": 12,
"title": "G&A",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:012",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly G&A Stability Due to Cost Inflation Offset and Strategic Transformation Initiatives",
"content": "G&A for the quarter was flat with prior year as the impact of cost inflation was offset by the positive impacts of YUM's Strategic Transformation Initiatives.",
"type": "body",
"path": "000:070:005:012:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "37 Year-to-Date Increase in G&A Due to Lapping Prior Year Forfeitures of Share-Based Compensation Awards",
"content": "37 The year to date increase in G&A was driven by the unfavorable impact of lapping prior year forfeitures related to share based compensation awards.",
"type": "body",
"path": "000:070:005:012:001",
"children": []
}
]
},
{
"index": 13,
"title": "Operating Profit",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:013",
"children": [
{
"index": 0,
"title": "",
"name": "Quarterly Operating Profit Increase Analysis Excluding Foreign Currency Impact",
"content": "The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and net new unit growth, partially offset by refranchising and higher restaurant operating costs.",
"type": "body",
"path": "000:070:005:013:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Year-to-Date Operating Profit Increase Factors Excluding Foreign Currency Translation",
"content": "The year to date increase in Operating Profit, excluding the impact of foreign currency translation, was driven by same-store sales growth and net new unit growth, partially offset by refranchising, higher restaurant operating costs and higher G&A.",
"type": "body",
"path": "000:070:005:013:001",
"children": []
}
]
},
{
"index": 14,
"title": "Corporate & Unallocated",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:014",
"children": [
{
"index": 0,
"title": "Quarter ended Year to date(Expense) \/ Income 2019 2018 % B\/(W) 2019 2018 % B\/(W)",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:014:000",
"children": []
}
]
},
{
"index": 15,
"title": "",
"name": "Unallocated and Corporate Financial Metrics and Tax Provisions Analysis",
"content": "Corporate and unallocated G&A $(38) $(40) 3 $(81) $(84) 3\nUnallocated Company restaurant expenses \u2014 1 NM \u2014 1 NM\nUnallocated Franchise and property expenses (2) (1) (30) (3) (2) (30)\nRefranchising gain (loss) (See Note 5) 4 29 (85) 10 185 (95)\nUnallocated Other income (expense) (9) (5) NM (9) (4) NM\nInvestment income (expense), net (See Note 5) 25 23 11 9 89 (89)\nOther pension income (expense) (See Note 11) \u2014 (3) 71 (3) (6) 41\nInterest expense, net (119) (112) (5) (234) (219) (7)\nIncome tax provision (See Note 8) (88) (36) NM (125) (112) (12)\nEffective tax rate (See Note 8) 23.3% 9.9% (13.4)ppts. 18.5% 12.9% (5.6)ppts.",
"type": "body",
"path": "000:070:005:015",
"children": []
},
{
"index": 16,
"title": "Corporate and unallocated G&A",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:016",
"children": []
},
{
"index": 17,
"title": "",
"name": "Impact of YUM\u2019s Strategic Transformation Initiatives on G&A Expense Reductions",
"content": "The decreases in Corporate G&A expenses for the quarter and year to date were driven by current year G&A reductions due to the impact of YUM\u2019s Strategic Transformation Initiatives.",
"type": "body",
"path": "000:070:005:017",
"children": []
},
{
"index": 18,
"title": "Unallocated Franchise and property expenses",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:018",
"children": []
},
{
"index": 19,
"title": "",
"name": "Unallocated Franchise and Property Expenses Related to Pizza Hut U.S. Transformation and KFC U.S. Acceleration Agreements",
"content": "Unallocated Franchise and property expenses reflect charges related to the Pizza Hut U.S. Transformation Agreement and\/or the KFC U.S. Acceleration Agreement. See Note 5.",
"type": "body",
"path": "000:070:005:019",
"children": []
},
{
"index": 20,
"title": "Unallocated Other income (expense)",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:020",
"children": []
},
{
"index": 21,
"title": "",
"name": "Settlement of Contingent Consideration for 2013 Acquisition of KFC Turkey and Pizza Hut Turkey",
"content": "Unallocated Other income (expense) primarily includes settlement of contingent consideration associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses. See Note 5.",
"type": "body",
"path": "000:070:005:021",
"children": []
},
{
"index": 22,
"title": "Interest expense, net",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:022",
"children": [
{
"index": 0,
"title": "",
"name": "Explanation for Increase in Interest Expense Due to Higher Borrowings",
"content": "The quarterly and year to date increases in Interest expense, net were driven by increased outstanding borrowings.",
"type": "body",
"path": "000:070:005:022:000",
"children": []
}
]
},
{
"index": 23,
"title": "Consolidated Cash Flows",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:023",
"children": [
{
"index": 0,
"title": "",
"name": "Increase in Net Cash from Operating Activities Due to Higher Operating Profit and Reduced Tax and Compensation Payments",
"content": "Net cash provided by operating activities was $461 million in 2019 versus $381 million in 2018. The increase was largely driven by an increase in Operating profit before Special Items, a decrease in income tax payments, and lower compensation payments, partially offset by an increase in interest payments.",
"type": "body",
"path": "000:070:005:023:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Net Cash Used in Investing Activities Analysis for 2019 vs. 2018",
"content": "Net cash used in investing activities was $52 million in 2019 versus $42 million in 2018. The change was primarily driven by lower refranchising proceeds in the current year, partially offset by the lapping of our prior year investment in Grubhub common stock.",
"type": "body",
"path": "000:070:005:023:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Analysis of Decrease in Net Cash Used in Financing Activities for 2019",
"content": "Net cash used in financing activities was $492 million in 2019 versus $1,579 million in 2018. The decrease was primarily driven 38 by lower share repurchases and lower net debt repayments in the current year.",
"type": "body",
"path": "000:070:005:023:002",
"children": []
}
]
},
{
"index": 24,
"title": "Consolidated Financial Condition",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:024",
"children": []
},
{
"index": 25,
"title": "",
"name": "Impact of Topic 842 Adoption on Condensed Consolidated Balance Sheet",
"content": "Our Condensed Consolidated Balance Sheet was impacted by the adoption of Topic 842 (See Note 2).",
"type": "body",
"path": "000:070:005:025",
"children": []
},
{
"index": 26,
"title": "Liquidity and Capital Resources",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:026",
"children": [
{
"index": 0,
"title": "",
"name": "Announcement of YUM\u2019s Strategic Transformation Initiatives Post-China Business Separation in October 2016",
"content": "In October 2016, we announced YUM\u2019s Strategic Transformation Initiatives to drive global expansion of the KFC, Pizza Hut and Taco Bell brands following the separation of our China business on October 31, 2016.",
"type": "body",
"path": "000:070:005:026:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Achievement of Store Reduction Goal by End of 2018",
"content": "As part of this transformation we announced our intention to own less than 1,000 stores by the end of 2018, which we achieved in December 2018.",
"type": "body",
"path": "000:070:005:026:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Announcement of Intention to Lower General and Administrative Expenses to 1.7% of System Sales",
"content": "Additionally, we announced our intention to improve our efficiency by lowering G&A to 1.7% of system sales.",
"type": "body",
"path": "000:070:005:026:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Reduction of Capital Spending and Funding Through Refranchising",
"content": "We also intend to reduce capital spending associated with Company-operated restaurant maintenance and other projects to less than $100 million and fund capital for any new units to be operated by the Company through the refranchising of existing company units.",
"type": "body",
"path": "000:070:005:026:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Projected 2019 Capital Spending Including Strategic Technology Investments",
"content": "Capital spending in 2019 net of refranchising proceeds is expected to approximate $125 million as we fund additional strategic investments in technology that we believe will generate faster growth and incremental value for the Company.",
"type": "body",
"path": "000:070:005:026:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Summary of Shareholder Returns from 2017 to Q2 2019",
"content": "From 2017 through the second quarter of 2019, we returned a cumulative $5.7 billion to shareholders through share repurchases and cash dividends towards our commitment to return between $6.5 and $7.0 billion from 2017 to 2019.",
"type": "body",
"path": "000:070:005:026:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Funding of Shareholder Returns Through Refranchising, Cash Flow, and EBITDA Leverage",
"content": "We are funding these shareholder returns through a combination of refranchising proceeds, free cash flow generation and maintenance of our five times EBITDA leverage.",
"type": "body",
"path": "000:070:005:026:006",
"children": []
},
{
"index": 7,
"title": "",
"name": "Refranchising Proceeds and Franchise Ownership Milestone Achievement",
"content": "We generated total gross refranchising proceeds of $2.8 billion in connection with our initiative to increase franchise ownership to 98%, which we achieved in December 2018.",
"type": "body",
"path": "000:070:005:026:007",
"children": []
}
]
},
{
"index": 27,
"title": "",
"name": "Primary Sources of Liquidity",
"content": "Our primary sources of liquidity are cash on hand, cash generated by operations and our revolving facilities.",
"type": "body",
"path": "000:070:005:027",
"children": []
},
{
"index": 28,
"title": "",
"name": "Historical Cash Flow Generation and Annual Operating Cash Flow Performance",
"content": "We have historically generated substantial cash flows from the operations of our Company-owned stores and from our extensive franchise operations, which require a limited YUM investment. Our annual operating cash flows have historically been in excess of $1 billion.",
"type": "body",
"path": "000:070:005:028",
"children": []
},
{
"index": 29,
"title": "",
"name": "Offsetting Decreases in Operating Cash Flows through Reduced Capital Investment and G&A Savings",
"content": "Decreases in operating cash flows from the operation of fewer Company-owned stores due to refranchising have been offset, and are expected to continue to be offset, with savings generated from decreased capital investment and G&A required to support company operations.",
"type": "body",
"path": "000:070:005:029",
"children": []
},
{
"index": 30,
"title": "",
"name": "Revolving Credit Facility for Cash Flow Shortfalls and Current Borrowings Status",
"content": "To the extent operating cash flows plus other sources of cash such as refranchising proceeds do not cover our anticipated cash needs, we maintain a $1 billion Revolving Facility under our existing Credit Agreement. As of June 30, 2019, there was approximately $157 million of outstanding borrowings under the Revolving Facility.",
"type": "body",
"path": "000:070:005:030",
"children": []
},
{
"index": 31,
"title": "",
"name": "Working Capital Deficit Common in Industry and Historically for YUM",
"content": "Our balance sheet often reflects a working capital deficit, which is not uncommon in our industry and is also historically common for YUM.",
"type": "body",
"path": "000:070:005:031",
"children": []
},
{
"index": 32,
"title": "",
"name": "Royalty Receivables Due Period and Payment Methods for Company Sales",
"content": "Our royalty receivables from franchisees are generally due within 30 days of the period in which the related sales occur and Company sales are paid in cash or by credit card (which is quickly converted into cash).",
"type": "body",
"path": "000:070:005:032",
"children": []
},
{
"index": 33,
"title": "",
"name": "Historical Allocation of Substantial Cash Receipts",
"content": "Substantial amounts of cash received have historically been either returned to shareholders or invested in new restaurant assets which are non-current in nature.",
"type": "body",
"path": "000:070:005:033",
"children": []
},
{
"index": 34,
"title": "",
"name": "Negotiation of Favorable Credit Terms and Rapid Inventory Turnover as Part of Working Capital Strategy",
"content": "As part of our working capital strategy we negotiate favorable credit terms with vendors and, as a result, our on-hand inventory turns faster than the related short-term liabilities.",
"type": "body",
"path": "000:070:005:034",
"children": []
},
{
"index": 35,
"title": "",
"name": "Current Liabilities Exceeding Current Assets and Impact on Liquidity and Operations",
"content": "Accordingly, it is not unusual for current liabilities to exceed current assets. We believe such a deficit has no significant impact on our liquidity or operations.",
"type": "body",
"path": "000:070:005:035",
"children": []
},
{
"index": 36,
"title": "Debt Instruments",
"name": "",
"content": "",
"type": "container",
"path": "000:070:005:036",
"children": [
{
"index": 0,
"title": "",
"name": "Composition of Long-term Debt as of June 30, 2019",
"content": "As of June 30, 2019, our Long-term debt is comprised primarily of borrowings under our Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes, YUM Senior Unsecured Notes and Revolving Facility. See Note 12 for additional details.",
"type": "body",
"path": "000:070:005:036:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Summary of Future Maturities of Outstanding Long-term Debt as of June 30, 2019",
"content": "The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases, as of June 30, 2019.",
"type": "body",
"path": "000:070:005:036:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Summary of Future Maturities of Outstanding Long-Term Debt as of June 30, 2019",
"content": "| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2037 | 2043 | Total\nSecuritization Notes | $15 | $29 | $29 | $29 | $1,281 $16 | $16 | $921 | $6 | $571 | $2,913\nCredit Agreement | 22 | 51 | 76 | 395 | 20 | 20 | 1,836 2,420\nSubsidiary Senior Unsecured Notes | 1,050 1,050 750 | 2,850\nYUM Senior Unsecured Notes | 250 | 350 | 350 | 325 | 325 | 275 | 1,875\nRevolving Facility | 157 | 157\nTotal | $287 | $430 | $455 | $581 | $1,626 $1,086 $1,852 $1,971 $756 | $571 | $325 | $275 | $10,215",
"type": "body",
"path": "000:070:005:036:002",
"children": []
}
]
}
]
},
{
"index": 6,
"title": "39 New Accounting Pronouncements Not Yet Adopted",
"name": "",
"content": "",
"type": "container",
"path": "000:070:006",
"children": [
{
"index": 0,
"title": "",
"name": "FASB Standard on Measurement and Recognition of Expected vs. Incurred Credit Losses Effective Fiscal Q1 2020",
"content": "In June 2016, the FASB issued a standard that requires measurement and recognition of expected versus incurred credit losses for financial assets held. The standard is effective for the Company in our first quarter of fiscal 2020.",
"type": "body",
"path": "000:070:006:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Anticipated Insignificance of Standard Adoption Impact on Financial Statements",
"content": "We do not anticipate the impact of adopting this standard will be material to our Financial Statements.",
"type": "body",
"path": "000:070:006:001",
"children": []
}
]
}
]
},
{
"index": 71,
"title": "Item 3. Quantitative and Qualitative Disclosures About Market Risk",
"name": "",
"content": "",
"type": "container",
"path": "000:071",
"children": [
{
"index": 0,
"title": "",
"name": "Disclosure Confirmation: No Material Changes for Quarter Ending June 30, 2019",
"content": "There were no material changes during the quarter ended June 30, 2019 to the disclosures made in Item 7A of the Company\u2019s 2018 Form 10-K.",
"type": "body",
"path": "000:071:000",
"children": []
}
]
},
{
"index": 72,
"title": "Item 4. Controls and Procedures",
"name": "",
"content": "",
"type": "container",
"path": "000:072",
"children": [
{
"index": 0,
"title": "Evaluation of Disclosure Controls and Procedures",
"name": "",
"content": "",
"type": "container",
"path": "000:072:000",
"children": [
{
"index": 0,
"title": "",
"name": "Evaluation of Effectiveness of Disclosure Controls and Procedures Pursuant to SEC Rules 13a-15(e) and 15d-15(e)",
"content": "The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report.",
"type": "body",
"path": "000:072:000:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Conclusion of Effectiveness of Disclosure Controls and Procedures by Management",
"content": "Based on the evaluation, performed under the supervision and with the participation of the Company\u2019s management, including the Chief Executive Officer (the \u201cCEO\u201d) and the Chief Financial Officer (the \u201cCFO\u201d), the Company\u2019s management, including the CEO and CFO, concluded that the Company\u2019s disclosure controls and procedures were effective as of the end of the period covered by the report.",
"type": "body",
"path": "000:072:000:001",
"children": []
}
]
},
{
"index": 1,
"title": "Changes in Internal Control",
"name": "",
"content": "",
"type": "container",
"path": "000:072:001",
"children": [
{
"index": 0,
"title": "",
"name": "Statement on Stability of Internal Control Over Financial Reporting for Quarter Ending June 30, 2019",
"content": "There were no changes with respect to the Company\u2019s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2019.",
"type": "body",
"path": "000:072:001:000",
"children": []
}
]
}
]
},
{
"index": 73,
"title": "Forward-Looking Statements",
"name": "",
"content": "",
"type": "container",
"path": "000:073",
"children": [
{
"index": 0,
"title": "",
"name": "Identification of Forward-Looking Statements by Terminology",
"content": "Forward-looking statements 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 \u201cexpect,\u201d \u201cexpectation,\u201d \u201cbelieve,\u201d \u201canticipate,\u201d \u201cmay,\u201d \u201ccould,\u201d \u201cintend,\u201d \u201cbelief,\u201d \u201cplan,\u201d \u201cestimate,\u201d \u201ctarget,\u201d \u201cpredict,\u201d \u201clikely,\u201d \u201cseek,\u201d \u201cproject,\u201d \u201cmodel,\u201d \u201congoing,\u201d \u201cwill,\u201d \u201cshould,\u201d \u201cforecast,\u201d \u201coutlook\u201d or similar terminology.",
"type": "body",
"path": "000:073:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Basis for Forward-Looking Statements: Expectations, Estimates, Assumptions, and Perception of Trends and Conditions",
"content": "Forward-looking statements are based on 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.",
"type": "body",
"path": "000:073:001",
"children": []
}
]
},
{
"index": 74,
"title": "",
"name": "Disclaimer on Limitations and Risks of Forward-Looking Statements",
"content": "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.",
"type": "body",
"path": "000:074",
"children": []
},
{
"index": 75,
"title": "",
"name": "No Assurance of Achieving Expectations, Estimates, Assumptions, and Projections",
"content": "There can be no assurance that our expectations, estimates, assumptions and\/or projections will be achieved.",
"type": "body",
"path": "000:075",
"children": []
},
{
"index": 76,
"title": "",
"name": "Potential Factors Leading to Material Deviations from Projections",
"content": "Factors that could cause actual results and events to differ materially from our expectations and forward-looking statements include",
"type": "container",
"path": "000:076",
"children": [
{
"index": 0,
"title": "",
"name": "(i) Reference to Factors in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2",
"content": "(i) the factors described in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report,",
"type": "body",
"path": "000:076:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "(ii) Risks and Uncertainties in Part II, Item 1A of This Report",
"content": "(ii) any risks and uncertainties described in the Risk Factors included in Part II, Item 1A of this report,",
"type": "body",
"path": "000:076:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "(iii) Reference to Factors in Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for Year Ended December 31, 2018",
"content": "(iii) the factors described in the Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2018 and",
"type": "body",
"path": "000:076:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "(iv) Reference to Risk Factors in Part I, Item 1A of Form 10-K for Year Ended December 31, 2018",
"content": "(iv) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of our Form 10-K for the year ended December 31, 2018.",
"type": "body",
"path": "000:076:003",
"children": []
}
]
},
{
"index": 77,
"title": "",
"name": "Disclaimer on Reliance on Forward-Looking Statements",
"content": "You should not place undue reliance on forward-looking statements, which speak only as of the date hereof.",
"type": "body",
"path": "000:077",
"children": []
},
{
"index": 78,
"title": "",
"name": "No Obligation to Update Forward-Looking Statements",
"content": "We are not undertaking to update any of these statements.",
"type": "body",
"path": "000:078",
"children": []
},
{
"index": 79,
"title": "40 Report of Independent Registered Public Accounting Firm",
"name": "",
"content": "",
"type": "container",
"path": "000:079",
"children": [
{
"index": 0,
"title": "",
"name": "Addressees: Shareholders and Board of Directors of YUM! Brands, Inc.",
"content": "To the Shareholders and Board of Directors\nYUM! Brands, Inc.:",
"type": "body",
"path": "000:079:000",
"children": []
},
{
"index": 1,
"title": "Results of Review of Interim Financial Information",
"name": "",
"content": "",
"type": "container",
"path": "000:079:001",
"children": [
{
"index": 0,
"title": "",
"name": "Review and Findings on Consolidated Interim Financial Information of YUM! Brands, Inc. as of June 30, 2019",
"content": "We have reviewed the condensed consolidated balance sheet of YUM! Brands, Inc. and Subsidiaries (YUM) as of June 30, 2019, the related condensed consolidated statements of income, comprehensive income and shareholders\u2019 deficit for the quarter and year-to-date periods ended June 30, 2019 and 2018, the related condensed consolidated statements of cash flows for the year-to-date periods ended June 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.",
"type": "body",
"path": "000:079:001:000",
"children": []
},
{
"index": 1,
"title": "",
"name": "Previous Audit and Unqualified Opinion on 2018 Consolidated Financial Statements",
"content": "We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of YUM as of December 31, 2018, and the related consolidated statements of income, comprehensive income, cash flows, and shareholders\u2019 deficit for the year then ended (not presented herein); and in our report dated February 20, 2019, we expressed an unqualified opinion on those consolidated financial statements.",
"type": "body",
"path": "000:079:001:001",
"children": []
},
{
"index": 2,
"title": "",
"name": "Auditor's Opinion on Condensed Consolidated Balance Sheet Accuracy as of December 31, 2018",
"content": "In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.",
"type": "body",
"path": "000:079:001:002",
"children": []
}
]
},
{
"index": 2,
"title": "Basis for Review Results",
"name": "",
"content": "",
"type": "container",
"path": "000:079:002",
"children": []
},
{
"index": 3,
"title": "",
"name": "Responsibility for Financial Information and Independence Compliance",
"content": "This consolidated interim financial information is the responsibility of YUM\u2019s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to YUM in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.",
"type": "body",
"path": "000:079:003",
"children": []
},
{
"index": 4,
"title": "",
"name": "Review Conducted in Accordance with PCAOB Standards",
"content": "We conducted our reviews in accordance with the standards of the PCAOB.",
"type": "body",
"path": "000:079:004",
"children": []
},
{
"index": 5,
"title": "",
"name": "Scope and Procedures of Interim Financial Information Review",
"content": "A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.",
"type": "body",
"path": "000:079:005",
"children": []
},
{
"index": 6,
"title": "",
"name": "Scope Limitation of Interim Financial Review Compared to PCAOB Audit Standards",
"content": "It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.",
"type": "body",
"path": "000:079:006",
"children": []
},
{
"index": 7,
"title": "",
"name": "Disclaimer of Opinion on Financial Statements",
"content": "Accordingly, we do not express such an opinion.",
"type": "body",
"path": "000:079:007",
"children": []
}
]
},
{
"index": 80,
"title": "Item 1. Legal Proceedings",
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RISK FACTORS\n Risk Disclosure and Considerations for Investors.\n Identification of Material Risks and Potential Adverse Effects on Business Operations.\n Potential Decline in Stock Price and Investment Loss Due to Identified Risks.\n Risks Related to Our Ability to Grow Our Business\n Competitive Market Participation and Impact on Business Performance.\n Government Regulations Impacting Data Privacy, Internet Usage, AI, and Data Sovereignty for Cloud Services.\n Risk of Competitive Disadvantage Due to Rapid Technological and Market Changes.\n Risks Associated with Government and Heavily-Regulated Organizational Contracts.\n Expansion into Heavily Regulated Industries.\n Risks Associated with Non-U.S. Government Customers in Emerging Markets.\n Reliance on Partner Network and Potential Impact on Revenue and Growth.\n Impact of Unsuccessful International Market Penetration and Risk Management on Business and Operating Results.\n Potential Risks and Downsides of Acquisitions and Investments.\n Risks Related to the Operation of Our Business\n Potential Liabilities and Business Impact of Cyber-Security Events.\n Dependence on Key Employees and Impact on Business Operations.\n Impact of Natural Disasters and Catastrophic Events on Business Operations.\n Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation.\n Potential Liability and Reputational Damage from Service Disruptions or Defects.\n Risks Related to the Financial Performance or Financial Position of Our Business\n Potential Impact of Financial Performance on Common Stock Price.\n Variability of Operating Results Due to Uncontrollable Factors.\n Risk of Financial Performance Not Meeting Guidance or Expectations of Analysts and Investors.\n Potential Impact on Common Stock Price and Investor Losses Due to Unmet Financial Expectations.\n Factors Influencing Financial Performance and Forward-Looking Guidance :\n Potential Consequences and Costs of Intellectual Property Litigation :\n Potential Lack of Competitive Advantage and Significant Costs in Defending Intellectual Property.\n Dependence on Intellectual Property Protections for Success.\n Potential Limitations and Risks of Patent Protection.\n Uncertainty of Legal Standards for Intellectual Property Rights Validity and Enforceability.\n Challenges and Invalidations of Intellectual Property Rights Through Administrative Processes or Litigation.\n Availability of Intellectual Property Protection Across Different Countries.\n Differences in Intellectual Property Protection and Enforcement in Foreign Countries.\n Monitoring and Protection of Intellectual Property Rights Expenditure.\n Potential Claims or Litigation for Infringement and Validation of Proprietary Rights.\n Potential Impact of Litigation on Company Resources and Risk of Counter-Claims.\n Risk of Adverse Effects on Business Due to Intellectual Property Infringement and Defense Costs.\n Risks Associated with Open Source Software Use.\n Incorporation of Third-Party Open Source Software in Products and Services.\n Efforts to Monitor Open Source Software Usage and Mitigate Adverse Licensing Conditions.\n Uncertainty and Lack of Legal Precedent in Open Source License Interpretation.\n Potential Obligations Under Various Open Source Licenses.\n Potential Legal Risks of Non-Compliance with Open Source Software Licenses.\n Revenue Recognition and Impact of Subscription Fluctuations on Operating Results.\n Impact of Decline in Subscriptions and Renewals on Future Revenues.\n Impact of Subscription Model on Revenue Recognition and Growth.\n Revenue Recognition Variability Due to Contract Complexity Under ASC 606.\n Impact of Subscription and Contract Variability on Period Billings.\n Expected Decline in Revenue Growth Rate and Potential Impact on Stock Price.\n Impact of Changes in Effective Tax Rate and Tax Position Rejection on Financial Results.\n Impact of Changes in Accounting Principles and Tax Laws on Future Effective Tax Rate.\n Authority of the U.S. Department of Treasury to Issue Regulations and Interpretative Guidance Affecting Operational Results.\n Consideration and Enactment of New Tax Laws by Various Countries and International Organizations.\n Impact of Recent Global Tax Developments and Increased Scrutiny on Multinational Businesses.\n Impact of Changes in Tax Laws or Rulings on Effective Tax Rate and Financial Results.\n Potential for Global Income Tax Audits and Ambiguities in Cloud Computing Tax Treatment.\n Potential Impact of Adverse Resolution of Uncertain Tax Positions on Operational Results.\n Potential Tax Liabilities from International Intangible Assets and Inter-Company Agreements.\n Potential GAAP Losses Despite Historical Profitability.\n Potential Future GAAP Losses Due to Increased Costs and Unforeseen Expenses.\n Market Uncertainty and Competitive Dynamics Impacting Business Performance Predictability.\n Potential Negative Impact on Future Profitability and Cash Flow.\n Impact of Insufficient Revenue Growth on Business and Financial Performance.\n Impact of Ineffective Internal Control on Financial Reporting Accuracy and Timeliness.\n Sarbanes-Oxley Act Annual and Quarterly Reporting Requirements for Internal Control and Disclosure Controls.\n Annual Audit Requirement of Internal Control Effectiveness by Independent Accounting Firm under Section 404(b) of Sarbanes-Oxley Act.\n Adverse Report Issuance by Independent Registered Public Accounting Firm Due to Unsatisfactory Control Levels.\n Potential Discovery of Material Weaknesses or Significant Deficiencies Through Testing.\n Potential Consequences of Identifying Material Weaknesses or Non-Compliance with Section 404.\n Potential Delays in Implementing System and Process Changes for New Standards.\n Risks Related to General Economic Conditions\n Impact of Global Economic Conditions on Business and Operations.\n Impact of Global Macroeconomic Conditions on Business and Revenues.\n Impact of 2020 Geopolitical and Economic Events on Business Operations.\n Potential Impact of Brexit on UK and EU Economies and Businesses\n Impact of Global Financial Conditions on Business and Operational Judgments.\n Impact of Foreign Currency Exchange Rate Fluctuations on Financial Results.\n Risk of Unpredictable Currency Fluctuations on Financial Results.\n Impact of Brexit Announcement and Uncertainty on Global Markets and Currency Volatility.\n Expected Continued Volatility in Exchange Rates and Global Financial Markets Due to Brexit and Global Uncertainty.\n Initiation of Derivative Instruments for Currency Exchange Rate Hedging in 2018.\n Risk of Unanticipated Currency Exchange Rate Changes on Financial Performance.\n Risk of Imperfect Correlation in Hedging Due to Limited Experience.\n Risk of Loss Due to Imperfect Correlation in Hedging.\n Risks Related to Our Convertible Senior Notes\n Potential Inability to Fund Cash Settlements or Repurchases of 2022 Convertible Senior Notes.\n Repurchase Rights of Holders Upon Fundamental Change.\n Adjustment to Conversion Rate upon Make-Whole Fundamental Change.\n Cash Settlement Requirement and Potential Liquidity Constraints upon Conversion of 2022 Notes.\n Future Incurrence of Additional Debt by Company and Subsidiaries Subject to Future Debt Instrument Restrictions.\n No Restrictions on Incurring Additional Debt or Recapitalizing Existing Debt Under the Indenture.\n Acquisition Prohibition and Obligations Assumption Clause.\n Limitations on Repurchase or Cash Payment upon Conversion of 2022 Notes Due to Legal and Regulatory Constraints.\n Failure to Repurchase or Pay Cash Upon Conversion of 2022 Notes Constitutes Default.\n Consequential Default Under Future Indebtedness Agreements.\n Impact of Fundamental Change on Default and Indebtedness Repayment Obligations.\n Potential Adverse Impact of Conditional Conversion Feature on Financial Condition and Operating Results.\n Conditions for Conversion of 2022 Notes Prior to February 1, 2022.\n Conversion Eligibility of 2022 Notes Based on Conversion Condition Compliance.\n Cash Settlement of Immaterial Principal Amount of 2022 Notes for Year Ended December 31, 2019.\n Expected Cash Settlement of 2022 Notes Conversion Requests for Q1 and Q2 2020.\n Potential Liquidity Impact of Future 2022 Notes Conversions.\n Recording a Loss on Early Conversions of 2022 Notes.\n Impact of Convertible Note Hedge and Warrant Transactions on 2022 Notes and Common Stock Value.\n Convertible Note Hedge and Warrant Transactions with Option Counterparties.\n Purpose and Effect of the 2022 Note Hedge Transactions.\n Potential Dilutive Effect and Share Issuance Mechanics of the 2022 Warrants.\n Expected Issuance of Additional Shares Upon Automatic Exercise of 2022 Warrants.\n Potential Impact of Hedge Position Adjustments by Option Counterparties on Stock and 2022 Notes Prices.\n Market Condition Dependency on Stock and Note Price Effects.\n Potential Adverse Effects on Common Stock and 2022 Notes Value and Conversion Ability.\n Disclaimer on Potential Effects of Transactions on 2022 Notes and Common Stock Prices.\n Non-Representation of Option Counterparties' Engagement and Continuity of Transactions.\n Counterparty Risk and Credit Exposure in the 2022 Note Hedge.\n Impact of Recent Global Economic Conditions on Financial Institutions' Stability.\n Unsecured Creditor Status in Option Counterparty Insolvency Proceedings.\n Correlation Between Exposure and Stock Price\/Volatility.\n Potential Adverse Tax Consequences and Increased Dilution Due to Option Counterparty Default.\n No Assurance on Financial Stability or Viability of Option Counterparties.\n Risks Related to Ownership of Our Common Stock\n Potential Litigation Due to Stock Price Volatility.\n Stock Price Volatility Due to Uncontrollable Factors.\n Technology Sector Stock Price and Trading Volume Volatility Disproportionate to Financial Performance.\n Factors Influencing Stock Price Volatility Beyond Company Control :\n Dividend Policy and Return on Stock Price.\n Anti-Takeover Provisions and Their Impact on Stock Price.\n Provisions in Restated Certificate of Incorporation and Bylaws Potentially Affecting Stock Price by Discouraging Changes in Control or Management.",
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"content": "Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making an investment decision.",
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"content": "We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results of operations and future prospects. Our business could be harmed by any of these risks.",
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"content": "Our stock price could decline due to any of these risks, and you may lose all or part of your investment.",
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Data for Continuous Improvement.\n Impact of Evolving Data Privacy Laws on Service Development and Deployment.\n Examples of Recent Regulatory Changes Affecting Data Handling :\n - Introduction of GDPR and Interpretation Variability.\n Potential Future Legislation on Data Privacy and Localization by Various Jurisdictions.\n Compliance Costs and Obligations Under Data Privacy and Transfer Regulations.\n Potential Consequences of Non-Compliance with Data Privacy Regulations.\n Potential Fines for GDPR Non-Compliance and Regulatory Interpretations.\n Impact of Product Changes on Compliance Requirements.\n Impact of Increased Privacy Regulation Compliance Costs on Innovation and Product Demand.\n Additional Obligations from Self-Regulatory Standards by Privacy and Industry Groups.\n Customer Expectations for Voluntary Certifications and Third-Party Standards Compliance.\n Risk of Competitive Disadvantage Due to Rapid Technological and Market Changes.\n Acceleration of Innovation Driven by Digital Technology Adoption.\n Customer Decision-Making on Digital Technology Adoption.\n Requirements for Competitive Effectiveness in Technology Market :\n Potential Risks of Failing to Meet Key Business Requirements.\n Impact of Product Release Delays and Defects on Technology Adoption and Customer Satisfaction.\n Necessity for Successful Release of New Products and Updates and Associated Risk Management.\n Impact of Delayed or Defective Product Releases on Customer Adoption and Business Growth.\n Risks Associated with Government and Heavily-Regulated Organizational Contracts.\n Provision of Products and Services to Government and Regulated Entities Directly and Through Partners.\n Investments in Government Sector Sales and Cloud Security Certifications.\n Potential Changes and Challenges in Maintaining Government Certifications.\n Impact of Certification Requirements on Government Sector Sales.\n Sales to Government Entities Primarily Through Distributors and Resellers.\n Risks and Challenges in Government Procurement Process.\n Significant Up-Front Costs and Compliance Risks in Government Contract Bidding.\n Impact of Public Sector Budgetary Cycles and Federal Government Shutdown on Product and Service Demand.\n Potential Challenges to Bid Awards by Competitive Bidders.\n Impact of Bid Protests on Contract Award Expenses and Outcomes.\n Impact of Unsuccessful Bid Protests on Project Initiation and Financial Results\n Termination Rights of Public Sector Customers for Convenience or Default.\n Termination for Convenience \u2013 Fee Collection Limitations.\n Liability for Excess Costs and Business Restrictions Upon Contract Termination Due to Default.\n Compliance Requirements and Legal Obligations for Government Contracting Entities.\n Government Audits and Potential Penalties for Non-Compliance with Contractual Requirements.\n Expansion into Heavily Regulated Industries.\n Regulatory Compliance Requirements for Customers in Heavily Regulated Industries.\n Regulatory Compliance Challenges for Third-Party Vendors and Our Company.\n Customer Audit Rights in Heavily-Regulated Areas.\n Regulatory Compliance Determination and Business Continuity Constraints.\n Risks Associated with Non-U.S. Government Customers in Emerging Markets.\n Compliance Costs and Management Resource Consumption Due to Complex Regulations in Various Jurisdictions.\n Impact of Political and Non-Competitive Factors on Business Opportunities in Certain Jurisdictions.\n Potential Adverse Impact on Business and Operational Results.\n Reliance on Partner Network and Potential Impact on Revenue and Growth.\n Revenue Generation through Partner Network, Including Managed Service Providers and Resellers.\n Increasing Reliance on Partners for Professional Services and Customer Implementations.\n Effectiveness and Consistency of Partner Training Programs.\n Extensive Training and Resource Requirements for New Partners.\n Partner-Related Legal Risks and Reputational Harm Due to Misrepresentation, Service Failures, or Policy Violations.\n Potential Competitive Threats and Intellectual Property Concerns from Partners.\n Impact of Partner Network Management and Service Quality on Business Performance.\n Impact of Unsuccessful International Market Penetration and Risk Management on Business and Operating Results.\n Dependence on Increasing International Sales and Risks of Failing to Grow Internationally.\n Risks and Investments Associated with Operating in International Markets.\n Investment Uncertainty in New Geographic Markets.\n Lower Rate of Acquisition of Large Enterprise Customers in Less Established Markets Due to Regulatory and Operational Risks.\n Emerging Markets Presence Among Prospective Large Enterprise Customers.\n Challenges in Geographic Expansion and Foreign Operations Management.\n Risks Associated with International Market Expansion :\n Adverse Effects of Unmanaged International Market Risks on Business and Revenue Growth.\n Potential Risks and Downsides of Acquisitions and Investments.\n Past and Future Strategic Transactions: Acquisitions and Investments in Businesses, Technologies, Services, Products, and Assets.\n Potential Strategic Business Relationships for Expanding Services and International Capabilities.\n Limitations of Due Diligence in Strategic Transactions.\n Risks Associated with Strategic Transactions :\n Potential Financial Impact of Future Acquisition Financing Methods.\n Potential Dilution and Financial Constraints from Equity or Debt Financing of Acquisitions.\n Potential Negative Impact on Business, Operating Results, and Financial Condition.",
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"content": "We participate in intensely competitive markets, and if we do not compete effectively, our business and operating results will be harmed.",
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"content": "As the market for digital workflow products matures and new technologies and competitors enter the market, we expect competition to intensify.",
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"name": "List of Current Competitors in the Digital Workflow Market",
"content": "Our current competitors include:\n- large, well-established, enterprise application software vendors and large integrated systems vendors;\n- new entrants to the market developing technologies to solve similar problems in different ways;\n- solutions developed in-house by our potential customers or using integrations with other tools;\n- vendors of infrastructure-as-a-service, platform-as-a-service and development operations; and\n- established and emerging cloud vendors.",
"outline": "List of Current Competitors in the Digital Workflow Market :\n Customer Reluctance Due to Existing Enterprise Software Investments.",
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"content": "Many prospective customers have invested substantial personnel and financial resources to implement and integrate their current enterprise software into their businesses and therefore may be reluctant or unwilling to migrate away from their current solution to ours.",
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"content": "Many of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships (including at the executive level of large enterprises where decision-making authority is held), larger marketing budgets and greater resources than we do.",
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"content": "While we believe that our platform and products can largely be complementary to large and established systems that traditionally operate as \u201csystems of record,\u201d competitors may try to enter our space. They may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, customer requirements and buying practices. They may utilize acquisitions, integrations or consolidations to offer integrated or bundled products, enhanced functionality or other advantages. They may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions, causing our products to appear relatively more expensive. They may also invest in industry-specific solutions that purport to provide a unique solution for that industry.",
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"name": "Expanding Competition from Adjacent Markets and New Service Offerings",
"content": "Other potential competitors not currently offering competitive products may expand their services to compete with our services, or we may shift our products and services to compete with current and future competitors in adjacent markets. We have in the past expanded, and we expect to continue to expand the breadth of our services to include offerings in new markets and the use of our platform by developers of custom applications. As a result, we expect increasing competition from platform vendors and application development vendors focused on these other markets.",
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"name": "Impact of Smaller Competitors and New Entrants on Pricing Pressure in ITSM Market",
"content": "Smaller competitors and new entrants may accelerate pricing pressures, including in the ITSM market, which is our more mature offering and from which we derive a large portion of our revenues.",
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"content": "For all of these reasons, we may not be able to compete successfully, and competition could result in reduced sales, reduced margins, losses or the failure of our products to achieve or maintain market acceptance, any of which could harm our business.",
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"name": "Impact of Privacy Laws, Cloud Computing Regulations, and Data Transfer Restrictions on Business",
"content": "Privacy laws and concerns, evolving regulation of cloud computing, cross-border data transfer restrictions, other foreign and domestic regulations and standards related to data and the Internet may adversely affect our business.",
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"name": "Government Regulations Impacting Data Privacy, Internet Usage, AI, and Data Sovereignty for Cloud Services",
"content": "National and local governments or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, the use of the Internet as a commercial medium, the use of data in contexts referred to as artificial intelligence and machine learning, and data sovereignty requirements concerning the location of data centers that store and process data. As a cloud based service provider, we optimize performance of our products and services by utilizing data centers that may be located in different political jurisdictions.",
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"content": "Changing laws, regulations and standards applying to the collection, transfer, processing, storage or use of data, including personal data, could affect our ability to develop our products and services to maximize their utility, as well as our customers\u2019 ability to use and share data, potentially restricting our ability to store, process and share data with our customers in connection with providing our services. In some cases, this could impact our ability to offer our services in certain locations or our customers\u2019 ability to deploy our services globally.",
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"name": "Introduction of GDPR and Interpretation Variability",
"content": "- In 2016, the European Union (the EU) adopted the General Data Protection Regulation (the GDPR), which took effect in May 2018 and established new requirements applicable to the handling of personal data. The particular obligations imposed by GDPR are subject to interpretation, and different regulators may interpret requirements inconsistently.",
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"name": "EU Proposed e-Privacy Regulation and Right to be Forgotten Requirements",
"content": "Further, laws such as the EU\u2019s proposed e-Privacy Regulation are increasingly aimed at the use of personal information , the tracking of individuals\u2019 online activities and the \u201cright to be forgotten,\u201d requiring a company to delete certain information about individuals upon their request in certain circumstances.",
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"content": "- In January 2020, Britain exited the EU (Brexit). Although we do not believe Brexit will require us to alter our operations in any material way to comply with privacy regulations in the EU and the United Kingdom (the UK), Brexit has and may continue to cause uncertainty for our customers.",
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"name": "Implementation and Impact of the California Consumer Privacy Act (CCPA) in January 2020",
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"content": "In addition, other nations and U.S. states and the federal government have discussed, are passing or may pass, future legislation similar to the GDPR and\/or the CCPA, or with other data localization or sovereignty requirements.",
"outline": "Potential Future Legislation on Data Privacy and Localization by Various Jurisdictions.\n - Consideration of AI and Machine Learning Regulation by US and Non-US Governments.",
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"name": "Risk of Competitive Disadvantage Due to Rapid Technological and Market Changes",
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"outline": "Risk of Competitive Disadvantage Due to Rapid Technological and Market Changes.\n Acceleration of Innovation Driven by Digital Technology Adoption.\n Customer Decision-Making on Digital Technology Adoption.\n Requirements for Competitive Effectiveness in Technology Market :\n Potential Risks of Failing to Meet Key Business Requirements.\n Impact of Product Release Delays and Defects on Technology Adoption and Customer Satisfaction.\n Necessity for Successful Release of New Products and Updates and Associated Risk Management.\n Impact of Delayed or Defective Product Releases on Customer Adoption and Business Growth.",
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"content": "The pace of innovation will continue to accelerate as customers increasingly base their purchases on digital technologies and capabilities, including public and private cloud solutions and infrastructure, massively scalable databases, mobile, consumer product-like user experiences, social, collaboration, machine learning, artificial intelligence, Internet-connected devices, high-velocity robotic automation, security, cryptography, internal software development operations, and application and service awareness.",
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"content": "Accordingly, to compete effectively, we must:\n- identify and innovate in the right emerging technologies, knowing that we cannot make substantial investments in all of them;\n- accurately predict our customers\u2019 changing business needs, priorities and adoption practices, including their technology infrastructures and buying and budgetary practices;\n- invest in and continually optimize our own technology platform so that it continues to meet the very high performance expectations of our customers;\n- successfully deliver new, scalable platform and database technologies and products to meet these needs and priorities;\n- efficiently integrate with other technologies within our customers\u2019 digital environments;\n- expand our offerings into industries and to buyers who are not familiar with our offerings;\n- profitably market and sell products to companies and buyers in markets where our sales and marketing teams have less experience, including to companies built on fully-digital, modern, dynamic IT technologies that have not been strong buyers of ITSM and ITOM products; and\n- effectively deliver, either directly or through our partner ecosystem, the business process planning, IT systems architecture planning, and product implementation services that our customers require to be successful.",
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"content": "Delays in the release of, or actual or perceived defects in, new or updated products may slow the adoption of our most recent technologies, reduce our ability to efficiently provide our services, decrease customer satisfaction, and adversely impact sales of additional products to our customers.",
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"content": "We must successfully continue to release new products and updates to existing products. The success of any release depends on a number of factors, including our ability to manage the risks associated with quality or other defects or deficiencies, delays in the timing of releases or the adoption of releases by customers, and other complications that may arise during the early stages of introduction.",
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"name": "Impact of Delayed or Defective Product Releases on Customer Adoption and Business Growth",
"content": "If releases are delayed or if customers perceive that our releases contain bugs or other defects or are difficult to implement, customer adoption of our new products or updates may be adversely impacted, customer satisfaction may decrease, our ability to efficiently provide our services may be reduced, and our growth prospects may be harmed.",
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"name": "Risks Associated with Government and Heavily-Regulated Organizational Contracts",
"content": "We do business with federal, state and local governments and agencies, and heavily-regulated U.S. and foreign organizations; as a result, we face risks related to the procurement process, budget decisions driven by statutory and regulatory determinations, termination of contracts, and compliance with government contracting requirements.",
"outline": "Risks Associated with Government and Heavily-Regulated Organizational Contracts.\n Provision of Products and Services to Government and Regulated Entities Directly and Through Partners.\n Investments in Government Sector Sales and Cloud Security Certifications.\n Potential Changes and Challenges in Maintaining Government Certifications.\n Impact of Certification Requirements on Government Sector Sales.\n Sales to Government Entities Primarily Through Distributors and Resellers.\n Risks and Challenges in Government Procurement Process.\n Significant Up-Front Costs and Compliance Risks in Government Contract Bidding.\n Impact of Public Sector Budgetary Cycles and Federal Government Shutdown on Product and Service Demand.\n Potential Challenges to Bid Awards by Competitive Bidders.\n Impact of Bid Protests on Contract Award Expenses and Outcomes.\n Impact of Unsuccessful Bid Protests on Project Initiation and Financial Results\n Termination Rights of Public Sector Customers for Convenience or Default.\n Termination for Convenience \u2013 Fee Collection Limitations.\n Liability for Excess Costs and Business Restrictions Upon Contract Termination Due to Default.\n Compliance Requirements and Legal Obligations for Government Contracting Entities.\n Government Audits and Potential Penalties for Non-Compliance with Contractual Requirements.",
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"content": "We provide products and services to the U.S. government, state and local governments and heavily-regulated organizations directly and through our partners.",
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"path": "000:012:003:003:000",
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"name": "Investments in Government Sector Sales and Cloud Security Certifications",
"content": "We have made, and may continue to make, significant investments to support future sales opportunities in the federal, state and local government sectors. This includes obtaining additional cloud security certification requirements for the ServiceNow GovCommunityCloud, such as the U.S. Federal Risk and Authorization Management Program (FedRAMP) High Impact Provisional Authority to Operate (P-ATO) from the Joint Authorization Board, and the U.S. Department of Defense Impact Level 4 P-ATO in the Security Requirements Guide for cloud computing by the Defense Information Systems Agency.",
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"name": "Potential Changes and Challenges in Maintaining Government Certifications",
"content": "However, government certification requirements may change, or we may be unable to achieve or sustain one or more government certifications, including those mentioned above.",
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"name": "Impact of Certification Requirements on Government Sector Sales",
"content": "As a result, our ability to sell into the government sector could be restricted until we obtain such certifications.",
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"path": "000:012:003:003:003",
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"name": "Risks and Challenges in Government Procurement Process",
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"name": "Significant Up-Front Costs and Compliance Risks in Government Contract Bidding",
"content": "We incur significant up-front time and expense, such as through engaging lobbyists, which subjects us to additional compliance risks and costs, without any assurance that we (or a third-party distributor or reseller) will win a contract.",
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"content": "Beyond this, demand for our products and services may be adversely impacted by public sector budgetary cycles and funding availability that in any given fiscal cycle may be reduced or delayed, including in connection with an extended federal government shutdown.",
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"path": "000:012:003:003:007",
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"name": "Potential Challenges to Bid Awards by Competitive Bidders",
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"path": "000:012:003:003:012",
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"name": "Liability for Excess Costs and Business Restrictions Upon Contract Termination Due to Default",
"content": "If a contract is terminated due to a default, we may be liable for excess costs incurred by the customer for procuring alternative products or services or be precluded from doing further business with government entities.",
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"path": "000:012:003:003:013",
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"name": "Compliance Requirements and Legal Obligations for Government Contracting Entities",
"content": "Further, entities providing services to governments are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typically found in commercial contracts. These may include rights with respect to price protection, the accuracy of information provided to the government, contractor compliance with supplier diversity policies, and other terms that are particular to government contracts, such as termination rights. These rules may apply to us and\/or third-party resellers or distributors whose practices we may not control. Such parties\u2019 non-compliance could impose repercussions with respect to contractual and customer satisfaction issues.",
"outline": "",
"path": "000:012:003:003:014",
"parentPath": "000:012:003:003",
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"name": "Government Audits and Potential Penalties for Non-Compliance with Contractual Requirements",
"content": "In addition, federal, state, and local governments routinely investigate and audit contractors for compliance with these requirements. If, as a result of an audit, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, cost associated with the triggering of price reduction clauses, fines, and suspensions or debarment from future government business, and we may suffer reputational harm.",
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"outline": "Expansion into Heavily Regulated Industries.\n Regulatory Compliance Requirements for Customers in Heavily Regulated Industries.\n Regulatory Compliance Challenges for Third-Party Vendors and Our Company.\n Customer Audit Rights in Heavily-Regulated Areas.\n Regulatory Compliance Determination and Business Continuity Constraints.",
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"outline": "Risks Associated with Non-U.S. Government Customers in Emerging Markets.\n Compliance Costs and Management Resource Consumption Due to Complex Regulations in Various Jurisdictions.\n Impact of Political and Non-Competitive Factors on Business Opportunities in Certain Jurisdictions.\n Potential Adverse Impact on Business and Operational Results.",
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"name": "Reliance on Partner Network and Potential Impact on Revenue and Growth",
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"outline": "Reliance on Partner Network and Potential Impact on Revenue and Growth.\n Revenue Generation through Partner Network, Including Managed Service Providers and Resellers.\n Increasing Reliance on Partners for Professional Services and Customer Implementations.\n Effectiveness and Consistency of Partner Training Programs.\n Extensive Training and Resource Requirements for New Partners.\n Partner-Related Legal Risks and Reputational Harm Due to Misrepresentation, Service Failures, or Policy Violations.\n Potential Competitive Threats and Intellectual Property Concerns from Partners.\n Impact of Partner Network Management and Service Quality on Business Performance.",
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"content": "Our partners may subject us to lawsuits, potential liability, and reputational harm if, for example, any of our partners misrepresent the functionality of our platform or products to customers, fail to perform services to our customers\u2019 expectations, or violate laws or our corporate policies.",
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"name": "Dependence on Increasing International Sales and Risks of Failing to Grow Internationally",
"content": "Sales outside of North America represented approximately 34% of our total revenues for each of the years ended December 31, 2019 and 2018. Our business and future prospects depend on increasing our international sales as a percentage of our total revenues. The failure to grow internationally will harm our business.",
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"name": "Investment Uncertainty in New Geographic Markets",
"content": "We have made, and will continue to make, substantial investments in data centers, cloud computing infrastructure, sales, marketing, personnel and facilities as we enter and expand in new geographic markets. When we make these investments, it is typically unclear whether, and when, sales in the new market will justify our investments. We may significantly underestimate the level of investment and time required to be successful, or whether we will be successful.",
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"name": "Lower Rate of Acquisition of Large Enterprise Customers in Less Established Markets Due to Regulatory and Operational Risks",
"content": "Our rate of acquisition of new large enterprise customers, a factor affecting our growth, has generally been lower in Africa, Asia, Eastern Europe, South America and other markets in which we are less established and where there may be increased or changing regulations and operational and intellectual property risks, as compared to North America, Australia and Western Europe.",
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"name": "Risks Associated with International Market Expansion",
"content": "Risks inherent with making our products and services available in international markets include without limitation:\n- compliance with multiple, conflicting and changing governmental laws and regulations, including employment, tax, competition, requirements to have local partner(s), local entity ownership limitations, technology transfer or sharing requirements, data residency and transfer laws and regulations, privacy and data protection laws and regulations, including the GDPR;\n- compliance by us and our business partners with international bribery and anti-corruption laws, including the UK Bribery Act and the U.S. Foreign Corrupt Practices Act of 1977, as amended (the FCPA);\n- the risk that illegal or unethical activities of our local employees or business partners will be attributed to or result in liability to us or damage to our reputation;\n- longer and potentially more complex sales and accounts receivable payment cycles and other collection difficulties;\n- tax treatment of revenues from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding, income or other taxes in foreign jurisdictions;\n- different pricing and distribution environments;\n- foreign currency fluctuations, which may cause transactional and translational remeasurement losses;\n- potential changes in international trade policies, tariffs, agreements and practices, including the adoption and expansion of formal or informal trade restrictions or regulatory frameworks favoring local competitors;\n- potential threatening state-sponsored actions, including cybersecurity threats directed at local data centers, customers or end-users;\n- local business practices and cultural norms that may favor local competitors; and\n- localization of our services, including translation into foreign languages and associated expenses.",
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"name": "Adverse Effects of Unmanaged International Market Risks on Business and Revenue Growth",
"content": "If we are unable to manage these risks, if our required investments in these international markets are greater than anticipated, or if we are unsuccessful in increasing sales in emerging markets, our revenue growth rate, business and operating results will be adversely affected.",
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"name": "Potential Risks and Downsides of Acquisitions and Investments",
"content": "As we acquire or invest in companies and technologies, we may not realize the expected business or financial benefits and the acquisitions and investments may divert our management\u2019s attention and result in additional dilution to our stockholders.",
"outline": "Potential Risks and Downsides of Acquisitions and Investments.\n Past and Future Strategic Transactions: Acquisitions and Investments in Businesses, Technologies, Services, Products, and Assets.\n Potential Strategic Business Relationships for Expanding Services and International Capabilities.\n Limitations of Due Diligence in Strategic Transactions.\n Risks Associated with Strategic Transactions :\n Potential Financial Impact of Future Acquisition Financing Methods.\n Potential Dilution and Financial Constraints from Equity or Debt Financing of Acquisitions.\n Potential Negative Impact on Business, Operating Results, and Financial Condition.",
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"name": "Past and Future Strategic Transactions: Acquisitions and Investments in Businesses, Technologies, Services, Products, and Assets",
"content": "We have acquired or invested in companies and technologies in the past as part of our business strategy and may continue to evaluate and execute potential strategic transactions, including acquisitions of or investments in businesses, technologies, services, products and other assets in the future.",
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"path": "000:012:003:008:000",
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"name": "Potential Strategic Business Relationships for Expanding Services and International Capabilities",
"content": "We also may enter into relationships with other businesses to expand our service offerings, functionality or our ability to provide services in international locations, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.",
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"path": "000:012:003:008:001",
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"name": "Limitations of Due Diligence in Strategic Transactions",
"content": "Although we conduct reasonably extensive due diligence with each of the entities we engage for a strategic transaction, our due diligence efforts may not reveal every material concern that may exist either with respect to the target entity or our assumptions surrounding the resulting combination.",
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"path": "000:012:003:008:002",
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"name": "Risks Associated with Strategic Transactions",
"content": "These strategic transactions involve numerous risks, including:\n- assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies;\n- failing to achieve the expected benefits of the acquisition or investment;\n- potential loss of key employees of the acquired company;\n- inability to maintain relationships with customers and partners of the acquired business;\n- potential adverse tax consequences;\n- disruption to our business and diversion of management attention and other resources;\n- potential financial and credit risks associated with acquired customers;\n- dependence on acquired technologies or licenses for which alternatives may not be available to us without significant cost or complexity;\n- in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency and regulatory risks associated with specific countries;\n- increased data privacy or security compliance requirements resulting from integrating the acquired technology or company with ours; and\n- potential unknown liabilities associated with the acquired businesses.",
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"path": "000:012:003:008:003",
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"name": "Potential Financial Impact of Future Acquisition Financing Methods",
"content": "In addition, we may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or our stock price.",
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"path": "000:012:003:008:004",
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"name": "Potential Dilution and Financial Constraints from Equity or Debt Financing of Acquisitions",
"content": "Furthermore, if we finance acquisitions by issuing equity, convertible or other debt securities or loans, our existing stockholders may be diluted, or we could face constraints related to the terms of and repayment obligation related to the incurrence of indebtedness that could affect our stock price.",
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"path": "000:012:003:008:005",
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"content": "The occurrence of any of these risks could harm our business, operating results and financial condition.",
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"path": "000:012:003:008:006",
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"outline": "Risks Related to the Operation of Our Business\n Potential Liabilities and Business Impact of Cyber-Security Events.\n Handling and Protection of Confidential and Sensitive Customer Data.\n Potential Breach of Security Measures and Unauthorized Data Access.\n Fraudulent Inducement and Phishing Risks by Third Parties.\n Lack of Control Over Third-Party Data Processing and Security Measures.\n Prevalence and Recurrence of Cybersecurity Threats in Industry.\n Inability to Anticipate and Prevent Evolving Cybersecurity Threats.\n Ongoing Investment in Cyber-Security Measures and Potential Future Expenditures.\n Potential Consequences of Security Breaches and Cyber Attacks.\n Potential Costs and Operational Consequences of Security Incident Mitigation and Prevention.\n Uncertainty of Insurance Coverage for Security Incidents and Breaches.\n Customer Responsibility for Data Access and Optional Use of Provided Security Tools and Practices.\n Potential Economic, Operational, and Reputational Impact of Customer-Caused Cyber-Security Events.\n Dependence on Key Employees and Impact on Business Operations.\n Management Team Changes and Potential Impact on Business Operations.\n Challenges in Attracting and Retaining Qualified Technology Industry Personnel.\n Challenges in Hiring and Retaining Highly-Skilled Employees in Key Geographic Locations.\n At-Will Employment and Its Impact on Recruitment and Retention.\n Importance of Corporate Culture in Retaining and Recruiting Personnel During Global Expansion.\n Impact of Natural Disasters and Catastrophic Events on Business Operations.\n Risk of Business Interruption Due to Natural Disasters and Uncontrollable Events.\n Insurance Coverage Insufficiency for Potential Losses and Expenses.\n Risk of Operational Disruption Due to Proximity to Seismic Faults in California and Washington.\n Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation.\n Dependence on Partner Network for Implementation Services and Potential Shortage of Qualified Partners.\n Potential Causes of Implementation Delays and Inefficiencies.\n Potential for Significant Implementation Costs Due to Various Risks.\n Customer Implementation Delays and Impact on Sales and Subscription Renewals.\n Customer Capacity and Talent Limitations Impacting Digital Transformation Benefits.\n Risks of Unsuccessful, Lengthy, or Costly Customer Implementation and Integration Projects.\n Potential Liability and Reputational Damage from Service Disruptions or Defects.\n Potential for Defects in Services and Impact of Third-Party Software.\n Potential Sources of Service Disruptions: Internal Errors and External Incidents.\n Current and Future Data Center Management and Service Provision Strategy.\n Vulnerability of Data Centers to Natural Disasters, Misconduct, and Operational Failures.\n Potential Service Interruptions and Customer Data Loss Due to Data Center Issues.\n Customer-Induced Service Disruption Risks.\n Impact of Service Reliability on Customer Trust and Business Reputation.\n Impact of Service Disruptions or Defects on Revenue, Penalties, Litigation, Customer Retention, and New Customer Acquisition.\n Customer-Specific System Resiliency Requirements and Potential Non-Compliance.\n Impacts of Claims and Breaches on Financial Liabilities and Litigation Risks.\n Insufficient Insurance Coverage for Service Disruption Claims.",
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"name": "Potential Liabilities and Business Impact of Cyber-Security Events",
"content": "If we or our third-party service providers suffer a cyber-security event, we may lose customers and incur significant liabilities, any of which would harm our business and operating results.",
"outline": "Potential Liabilities and Business Impact of Cyber-Security Events.\n Handling and Protection of Confidential and Sensitive Customer Data.\n Potential Breach of Security Measures and Unauthorized Data Access.\n Fraudulent Inducement and Phishing Risks by Third Parties.\n Lack of Control Over Third-Party Data Processing and Security Measures.\n Prevalence and Recurrence of Cybersecurity Threats in Industry.\n Inability to Anticipate and Prevent Evolving Cybersecurity Threats.\n Ongoing Investment in Cyber-Security Measures and Potential Future Expenditures.\n Potential Consequences of Security Breaches and Cyber Attacks.\n Potential Costs and Operational Consequences of Security Incident Mitigation and Prevention.\n Uncertainty of Insurance Coverage for Security Incidents and Breaches.\n Customer Responsibility for Data Access and Optional Use of Provided Security Tools and Practices.\n Potential Economic, Operational, and Reputational Impact of Customer-Caused Cyber-Security Events.",
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"name": "Handling and Protection of Confidential and Sensitive Customer Data",
"content": "Our operations involve the storage, transmission and processing of our customers\u2019 confidential, proprietary and sensitive data, including personally identifiable information, protected health information, financial information and, in some cases, government information.",
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"name": "Potential Breach of Security Measures and Unauthorized Data Access",
"content": "While we have security measures in place designed to protect customer information and prevent data loss, these measures may be breached because of employee error or third-party actions, including unintentional events or deliberate attacks by cyber criminals, and result in someone obtaining unauthorized access to our customers\u2019 data or our data, including our intellectual property and other confidential business information.",
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"name": "Fraudulent Inducement and Phishing Risks by Third Parties",
"content": "In addition, third parties have attempted and may continue to attempt to fraudulently induce employees, contractors, or users to disclose information to gain access to our data or our customers\u2019 data, and we may be the target of email scams that attempt to acquire personal information or company assets.",
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"name": "Lack of Control Over Third-Party Data Processing and Security Measures",
"content": "Additionally, because we do not control our third-party service providers or their processing of data, we cannot ensure the integrity or security of measures they take to protect customer information and prevent data loss.",
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"title": "",
"name": "Prevalence and Recurrence of Cybersecurity Threats in Industry",
"content": "Computer malware, viruses, hacking, phishing and denial of service attacks by third parties have become more prevalent in our industry, and they have occurred on our and our third-party service providers\u2019 systems in the past and may occur again on these systems in the future.",
"outline": "",
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"name": "Inability to Anticipate and Prevent Evolving Cybersecurity Threats",
"content": "Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not detected until successfully launched against a target, we have been and may continue to be unable to anticipate these techniques or to implement adequate preventative measures.",
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"path": "000:012:004:000:005",
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"name": "Ongoing Investment in Cyber-Security Measures and Potential Future Expenditures",
"content": "We devote significant financial and personnel resources to implement and maintain security measures; however, as cyber-security threats develop and grow more complex over time, it may be necessary to make significant further investments to protect data and infrastructure.",
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"path": "000:012:004:000:006",
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"name": "Potential Consequences of Security Breaches and Cyber Attacks",
"content": "A security breach suffered by us or our third-party service providers, an attack against our service availability or unauthorized access or loss of data could result in a disruption to our service, litigation, the triggering of service availability, indemnification and other contractual obligations, regulatory investigations, government fines and penalties, reputational damage, loss of sales and customers, mitigation and remediation expenses and other significant costs and liabilities.",
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"name": "Potential Costs and Operational Consequences of Security Incident Mitigation and Prevention",
"content": "In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating, complying with notice obligations and implementing additional measures designed to prevent actual or perceived security incidents.",
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"name": "Uncertainty of Insurance Coverage for Security Incidents and Breaches",
"content": "We also cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage as to any future claim.",
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"title": "",
"name": "Customer Responsibility for Data Access and Optional Use of Provided Security Tools and Practices",
"content": "Further, in most instances, our customers administer access to the data held in their particular instance for their employees and service providers. We offer tools and support for what we believe are best practices to maintain security utilizing our services, but customers are not required to utilize those tools or follow our suggested practices.",
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"title": "",
"name": "Potential Economic, Operational, and Reputational Impact of Customer-Caused Cyber-Security Events",
"content": "As a result, or for other reasons, a customer may suffer a cyber-security event on its own systems, unrelated to our own, and allow a malicious actor to obtain access to the customer\u2019s information held on our platform.Even if such a breach is unrelated to our security programs or practices, such breach could result in our incurring significant economic and operational costs in investigating, remediating, eliminating and implementing additional measures to further protect our customers from their own vulnerabilities, and could result in reputational harm to us.",
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"title": "",
"name": "Dependence on Key Employees and Impact on Business Operations",
"content": "If we lose key employees or are unable to attract and retain the employees we need, our business and operating results will be adversely affected. Our success depends largely upon the continued services of our management team, including our Chief Executive Officer and Chief Financial Officer, and many key individual contributors.",
"outline": "Dependence on Key Employees and Impact on Business Operations.\n Management Team Changes and Potential Impact on Business Operations.\n Challenges in Attracting and Retaining Qualified Technology Industry Personnel.\n Challenges in Hiring and Retaining Highly-Skilled Employees in Key Geographic Locations.\n At-Will Employment and Its Impact on Recruitment and Retention.\n Importance of Corporate Culture in Retaining and Recruiting Personnel During Global Expansion.",
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"name": "Management Team Changes and Potential Impact on Business Operations",
"content": "From time to time in the ordinary course of business, there may be changes in our management team resulting from the hiring or departure of executives. For example, our current President and Chief Executive Officer was appointed in November 2019 and our current Chief Financial Officer was appointed in January 2020. While we seek to manage these transitions carefully, including by establishing strong processes and procedures and succession planning, such changes may result in a loss of institutional knowledge and cause disruptions to our business.",
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"name": "Challenges in Attracting and Retaining Qualified Technology Industry Personnel",
"content": "In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related solutions, sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel, and we may experience increased compensation and training costs that may not be offset by either improved productivity or higher sales.",
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"name": "Challenges in Hiring and Retaining Highly-Skilled Employees in Key Geographic Locations",
"content": "We have from time to time experienced, and we may continue to experience, difficulty in hiring and retaining highly-skilled employees with appropriate qualifications, and may not be able to fill positions in desired geographic areas or at all. In particular, competition for experienced software and cloud computing infrastructure engineers in the San Francisco Bay area, San Diego, Seattle, London, Amsterdam and Hyderabad, our primary operating locations, is intense.",
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"name": "At-Will Employment and Its Impact on Recruitment and Retention",
"content": "Many of our employees, including all of our executive officers, are employed \u201cat-will\u201d and may terminate their employment with us at any time. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.",
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"name": "Importance of Corporate Culture in Retaining and Recruiting Personnel During Global Expansion",
"content": "In addition, we believe our corporate culture of fostering innovation, teamwork and employee satisfaction has been a key contributor to our success to date. As we continue to grow and expand globally, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our ability to retain and recruit personnel who are essential to our future success.",
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"name": "Impact of Natural Disasters and Catastrophic Events on Business Operations",
"content": "Natural disasters and other events beyond our control could harm our business. Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a negative effect on us.",
"outline": "Impact of Natural Disasters and Catastrophic Events on Business Operations.\n Risk of Business Interruption Due to Natural Disasters and Uncontrollable Events.\n Insurance Coverage Insufficiency for Potential Losses and Expenses.\n Risk of Operational Disruption Due to Proximity to Seismic Faults in California and Washington.",
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"name": "Risk of Business Interruption Due to Natural Disasters and Uncontrollable Events",
"content": "Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, pandemics such as the recent spread of the coronavirus, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, increased storm severity and sea level rise) and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and could cause us to incur substantial expense.",
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"path": "000:012:004:002:000",
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"name": "Insurance Coverage Insufficiency for Potential Losses and Expenses",
"content": "Our insurance may not be sufficient to cover losses or additional expense that we may sustain.",
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"path": "000:012:004:002:001",
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"name": "Risk of Operational Disruption Due to Proximity to Seismic Faults in California and Washington",
"content": "The majority of our research and development activities, corporate offices, information technology systems, and other critical business operations are located near major seismic faults in California and Washington. Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating results could be adversely affected in the event of a major natural disaster or catastrophic event.",
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"title": "",
"name": "Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation",
"content": "Various factors, including our customers\u2019 business, integration, migration and security requirements, or errors by us, our partners, or our customers, may cause implementations of our products to be delayed, inefficient or otherwise unsuccessful. Our business depends upon the successful implementation of our products by our customers.",
"outline": "Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation.\n Dependence on Partner Network for Implementation Services and Potential Shortage of Qualified Partners.\n Potential Causes of Implementation Delays and Inefficiencies.\n Potential for Significant Implementation Costs Due to Various Risks.\n Customer Implementation Delays and Impact on Sales and Subscription Renewals.\n Customer Capacity and Talent Limitations Impacting Digital Transformation Benefits.\n Risks of Unsuccessful, Lengthy, or Costly Customer Implementation and Integration Projects.",
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"name": "Dependence on Partner Network for Implementation Services and Potential Shortage of Qualified Partners",
"content": "Increasingly, we and our customers rely on our network of partners to deliver implementation services, and there may not be enough qualified implementation partners available to meet customer demand.",
"outline": "",
"path": "000:012:004:003:000",
"parentPath": "000:012:004:003",
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"name": "Potential Causes of Implementation Delays and Inefficiencies",
"content": "Further, our customers\u2019 business, integration, migration and security requirements, or errors by us, our partners, or our customers, or other factors may cause implementations to be delayed, inefficient or otherwise unsuccessful. For example, changes in the functional requirements of our customers, delays in timeline, or deviations from recommended best practices may occur during the course of an implementation project.",
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"name": "Potential for Significant Implementation Costs Due to Various Risks",
"content": "As a result of these and other risks, we or our customers may incur significant implementation costs in connection with the purchase, implementation and enablement of our products.",
"outline": "",
"path": "000:012:004:003:002",
"parentPath": "000:012:004:003",
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"properties": {
"title": "",
"name": "Customer Implementation Delays and Impact on Sales and Subscription Renewals",
"content": "Some customer implementations may take longer than planned or fail to meet our customers\u2019 expectations, which may delay our ability to sell additional products or result in customers canceling or failing to renew their subscriptions before our products have been fully implemented.",
"outline": "",
"path": "000:012:004:003:003",
"parentPath": "000:012:004:003",
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"type": "body"
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{
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"properties": {
"title": "",
"name": "Customer Capacity and Talent Limitations Impacting Digital Transformation Benefits",
"content": "Some customers may lack the employee talent or organizational capacity to manage a digital transformation such as our offering and, as a consequence, may be unable to see the benefits of our products.",
"outline": "",
"path": "000:012:004:003:004",
"parentPath": "000:012:004:003",
"parentName": "Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation",
"document": "abcd-1234",
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"type": "body"
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{
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"properties": {
"title": "",
"name": "Risks of Unsuccessful, Lengthy, or Costly Customer Implementation and Integration Projects",
"content": "Unsuccessful, lengthy, or costly customer implementation and integration projects could result in claims from customers, reputational harm, and opportunities for competitors to displace our products, each of which could have an adverse effect on our business and operating results.",
"outline": "",
"path": "000:012:004:003:005",
"parentPath": "000:012:004:003",
"parentName": "Factors Impacting Product Implementation Success and Business Dependence on Effective Customer Implementation",
"document": "abcd-1234",
"order": 5,
"type": "body"
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},
{
"class": "Element",
"properties": {
"title": "",
"name": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"content": "Disruptions or defects in our services could damage our customers\u2019 businesses, subject us to substantial liability and harm our reputation and financial results.",
"outline": "Potential Liability and Reputational Damage from Service Disruptions or Defects.\n Potential for Defects in Services and Impact of Third-Party Software.\n Potential Sources of Service Disruptions: Internal Errors and External Incidents.\n Current and Future Data Center Management and Service Provision Strategy.\n Vulnerability of Data Centers to Natural Disasters, Misconduct, and Operational Failures.\n Potential Service Interruptions and Customer Data Loss Due to Data Center Issues.\n Customer-Induced Service Disruption Risks.\n Impact of Service Reliability on Customer Trust and Business Reputation.\n Impact of Service Disruptions or Defects on Revenue, Penalties, Litigation, Customer Retention, and New Customer Acquisition.\n Customer-Specific System Resiliency Requirements and Potential Non-Compliance.\n Impacts of Claims and Breaches on Financial Liabilities and Litigation Risks.\n Insufficient Insurance Coverage for Service Disruption Claims.",
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"parentPath": "000:012:004",
"parentName": "Risks Related to the Operation of Our Business",
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{
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"properties": {
"title": "",
"name": "Potential for Defects in Services and Impact of Third-Party Software",
"content": "From time to time, we experience defects in our services, and new defects may be detected in the future. For example, we provide regular updates to our services, which frequently contain undetected defects when first released. Defects may also be introduced by our use of third-party software, including open source software.",
"outline": "",
"path": "000:012:004:004:000",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
"order": 0,
"type": "body"
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{
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"properties": {
"title": "",
"name": "Potential Sources of Service Disruptions: Internal Errors and External Incidents",
"content": "Disruptions may result from errors we make in developing, delivering, configuring or hosting our services, or designing, installing, expanding or maintaining our cloud infrastructure. Disruptions in service can also result from incidents that are outside of our control, including denial of service attacks.",
"outline": "",
"path": "000:012:004:004:001",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
"order": 1,
"type": "body"
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"name": "Current and Future Data Center Management and Service Provision Strategy",
"content": "We currently serve our customers primarily using equipment managed by us and co-located in third-party data centers operated by several different providers located around the world, and we plan to serve certain of our customers using data center facilities operated by public cloud service providers.",
"outline": "",
"path": "000:012:004:004:002",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
"order": 2,
"type": "body"
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},
{
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"title": "",
"name": "Vulnerability of Data Centers to Natural Disasters, Misconduct, and Operational Failures",
"content": "These data centers are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, power loss and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct, equipment failure and adverse events caused by operator error or negligence.",
"outline": "",
"path": "000:012:004:004:003",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
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"type": "body"
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"name": "Potential Service Interruptions and Customer Data Loss Due to Data Center Issues",
"content": "Despite precautions taken at these centers, problems at these centers could result in lengthy interruptions in our services and the loss of customer data.",
"outline": "",
"path": "000:012:004:004:004",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
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"order": 4,
"type": "body"
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"name": "Customer-Induced Service Disruption Risks",
"content": "In addition, our customers may use our services in ways that cause disruptions in service for other customers.",
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"path": "000:012:004:004:005",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
"order": 5,
"type": "body"
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},
{
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"title": "",
"name": "Impact of Service Reliability on Customer Trust and Business Reputation",
"content": "Our customers use our services to manage important aspects of their businesses, and our reputation and business will be adversely affected if our customers and potential customers believe our services are unreliable.",
"outline": "",
"path": "000:012:004:004:006",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
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"order": 6,
"type": "body"
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},
{
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"properties": {
"title": "",
"name": "Impact of Service Disruptions or Defects on Revenue, Penalties, Litigation, Customer Retention, and New Customer Acquisition",
"content": "Disruptions or defects in our services may reduce our revenues, cause us to issue credits or pay penalties, subject us to claims and litigation, cause our customers to delay payment or terminate or fail to renew their subscriptions, and adversely affect our ability to attract new customers.",
"outline": "",
"path": "000:012:004:004:007",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
"document": "abcd-1234",
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"name": "Customer-Specific System Resiliency Requirements and Potential Non-Compliance",
"content": "Similarly, customers may have unique requirements for system resiliency that we may not be able to, or may not choose to, meet.",
"outline": "",
"path": "000:012:004:004:008",
"parentPath": "000:012:004:004",
"parentName": "Potential Liability and Reputational Damage from Service Disruptions or Defects",
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"name": "Impacts of Claims and Breaches on Financial Liabilities and Litigation Risks",
"content": "The occurrence of payment delays, service credit, warranty or termination for material breach or other claims against us could result in an increase in our bad debt expense, an increase in collection cycles for accounts receivable, an increase to our service level credit accruals, other increased expenses or risks of litigation.",
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"name": "Insufficient Insurance Coverage for Service Disruption Claims",
"content": "We may not have insurance sufficient to compensate us for the potentially significant losses that may result from claims arising from disruptions in our services.",
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Litigation and Public Statements on Customer Satisfaction, Sales, and Stock Price.\n Impact of Claims or Litigation on Management Focus and Financial Health.\n Consequences of Non-Compliance with Anti-Corruption Laws and Trade Regulations.\n Compliance with FCPA, 18 U.S.C. \u00a7201, UK Bribery Act, and Other International Anti-Bribery Laws.\n Risks of Non-Compliance with FCPA and Anti-Corruption Laws.\n Liability for Third-Party Intermediaries' Corrupt Activities.\n Anti-Corruption Compliance Program and Associated Risks of Employee and Agent Violations.\n Increased Scrutiny and Liability Due to Business Expansion in Countries with High Corruption Levels.\n Compliance with International Trade Regulations and Restrictions.\n Consequences of Violating FCPA, Anti-Corruption Laws, or Trade Regulations.\n Impact of Enforcement Action Response on Management Focus and Defense Costs.\n Potential Lack of Competitive Advantage and Significant Costs in Defending Intellectual Property.\n Dependence on Intellectual Property Protections for Success.\n Potential Limitations and Risks of Patent Protection.\n Uncertainty of Legal Standards for Intellectual Property Rights Validity and Enforceability.\n Challenges and Invalidations of Intellectual Property Rights Through Administrative Processes or Litigation.\n Availability of Intellectual Property Protection Across Different Countries.\n Differences in Intellectual Property Protection and Enforcement in Foreign Countries.\n Monitoring and Protection of Intellectual Property Rights Expenditure.\n Potential Claims or Litigation for Infringement and Validation of Proprietary Rights.\n Potential Impact of Litigation on Company Resources and Risk of Counter-Claims.\n Risk of Adverse Effects on Business Due to Intellectual Property Infringement and Defense Costs.\n Risks Associated with Open Source Software Use.\n Incorporation of Third-Party Open Source Software in Products and Services.\n Efforts to Monitor Open Source Software Usage and Mitigate Adverse Licensing Conditions.\n Uncertainty and Lack of Legal Precedent in Open Source License Interpretation.\n Potential Obligations Under Various Open Source Licenses.\n Potential Legal Risks of Non-Compliance with Open Source Software Licenses.\n Revenue Recognition and Impact of Subscription Fluctuations on Operating Results.\n Impact of Decline in Subscriptions and Renewals on Future Revenues.\n Impact of Subscription Model on Revenue Recognition and Growth.\n Revenue Recognition Variability Due to Contract Complexity Under ASC 606.\n Impact of Subscription and Contract Variability on Period Billings.\n Expected Decline in Revenue Growth Rate and Potential Impact on Stock Price.\n Impact of Changes in Effective Tax Rate and Tax Position Rejection on Financial Results.\n Impact of Changes in Accounting Principles and Tax Laws on Future Effective Tax Rate.\n Authority of the U.S. Department of Treasury to Issue Regulations and Interpretative Guidance Affecting Operational Results.\n Consideration and Enactment of New Tax Laws by Various Countries and International Organizations.\n Impact of Recent Global Tax Developments and Increased Scrutiny on Multinational Businesses.\n Impact of Changes in Tax Laws or Rulings on Effective Tax Rate and Financial Results.\n Potential for Global Income Tax Audits and Ambiguities in Cloud Computing Tax Treatment.\n Potential Impact of Adverse Resolution of Uncertain Tax Positions on Operational Results.\n Potential Tax Liabilities from International Intangible Assets and Inter-Company Agreements.\n Potential GAAP Losses Despite Historical Profitability.\n Potential Future GAAP Losses Due to Increased Costs and Unforeseen Expenses.\n Market Uncertainty and Competitive Dynamics Impacting Business Performance Predictability.\n Potential Negative Impact on Future Profitability and Cash Flow.\n Impact of Insufficient Revenue Growth on Business and Financial Performance.\n Impact of Ineffective Internal Control on Financial Reporting Accuracy and Timeliness.\n Sarbanes-Oxley Act Annual and Quarterly Reporting Requirements for Internal Control and Disclosure Controls.\n Annual Audit Requirement of Internal Control Effectiveness by Independent Accounting Firm under Section 404(b) of Sarbanes-Oxley Act.\n Adverse Report Issuance by Independent Registered Public Accounting Firm Due to Unsatisfactory Control Levels.\n Potential Discovery of Material Weaknesses or Significant Deficiencies Through Testing.\n Potential Consequences of Identifying Material Weaknesses or Non-Compliance with Section 404.\n Potential Delays in Implementing System and Process Changes for New Standards.",
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"name": "Potential Impact of Financial Performance on Common Stock Price",
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"name": "Risk of Financial Performance Not Meeting Guidance or Expectations of Analysts and Investors",
"content": "For any quarterly or annual period, there is a risk that our financial performance will not meet the financial guidance we have previously given for that period, or that we may otherwise fail to meet the financial performance expectations of the securities analysts who issue reports on our company and our common stock price, or of investors in our common stock. There is also a risk that we may issue forward-looking financial guidance for a quarterly or annual period that fails to meet the expectations of such securities analysts or investors.",
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"name": "Potential Impact on Common Stock Price and Investor Losses Due to Unmet Financial Expectations",
"content": "If any of the foregoing occurs, for any reason, either within or outside of our control, the price of our common stock could decline substantially and investors in our common stock could incur substantial losses.",
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"name": "Factors Influencing Financial Performance and Forward-Looking Guidance",
"content": "Some of the important factors that may cause our financial performance to vary widely, or cause our forward-looking financial guidance to fall below the expectations of such securities analysts or investors, include:",
"outline": "Factors Influencing Financial Performance and Forward-Looking Guidance :\n - Ability to Attract, Retain, and Satisfy Customers ;\n - Changes in Product and Service Mix, Cloud vs. Self-Hosted Offerings, Market Penetration, and Customer Usage ;\n - Ability to Increase Sales of Emerging Products ;\n - Volatility in Foreign Currency Exchange Rates and Hedging Ability ;\n - Sales Force Expansion, Retention, and Productivity Rate ;\n - Number of New Employees Added ;\n - Cost, Timing, and Management Effort for Development of New Products and Services ;\n - General Economic Conditions Impacting Customer Purchasing Decisions ;\n - Operating Costs and Capital Expenditures: Amount and Timing Related to Business Operation and Expansion ;\n - Seasonality of Customer Agreement Timings ;\n - Length and Complexity of Sales Cycle and Certification Process for Services ;\n - Changes in Customer Relationship Size and Complexity ;\n - Changes to Management, Sales, and Account Management Teams Due to Scaling and Evolving Business Priorities ;\n - Changes in Pricing Policies of Company or Competitors ;\n - Significant Security Breaches, Technical Difficulties, or Service Interruptions ;\n - Competitor Introductions of New Solutions or Products ;\n - Changes in Effective Tax Rates ;\n - Changes in Customer Agreement Terms and Billing Durations ;\n - Timing of Customer Payments and Payment Defaults ;\n - Extraordinary Expenses Including Litigation Costs and Settlement Payments ;\n - Costs of Acquiring New Businesses and Technologies, Integration, and Tax Effects of Acquisitions ;\n - Changes in Laws or Regulations Impacting Service Delivery ;\n - Compliance with Privacy Laws and Regulations, Including GDPR and CCPA ;\n - Significant Litigation or Regulatory Actions Regarding Intellectual Property, Privacy Laws, Employment, or Other Significant Matters ;\n - Equity Awards and Related Financial Statement Expenses ;\n - Impact of New Accounting Pronouncements\n - Estimation pr\u00e9cise du march\u00e9 total adressable pour nos produits et services.\n Risk of Intellectual Property Infringement Claims by Third Parties.\n Disparity in Patent Portfolios and Increased Risk of Infringement Litigation.\n Potential Claims of Intellectual Property Infringement by Competitors and Third Parties.\n Example of Legal Settlement Charges and Fulfillment of Obligations with BMC and HPE.",
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"content": "- our ability to attract new customers, retain and increase sales to existing customers, and satisfy our customers\u2019 requirements;",
"outline": "",
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"content": "- changes in our mix of products and services, including changes in our mix of cloud and self-hosted offerings, market penetration of our products, or use of our products by our customers;",
"outline": "",
"path": "000:012:005:004:001",
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"name": "Ability to Increase Sales of Emerging Products",
"content": "- our ability to increase sales of certain emerging products;",
"outline": "",
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"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Volatility in Foreign Currency Exchange Rates and Hedging Ability",
"content": "- volatility in foreign currency exchange rates and our ability to effectively hedge our foreign currency exposure;",
"outline": "",
"path": "000:012:005:004:003",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Sales Force Expansion, Retention, and Productivity Rate",
"content": "- the rate of expansion, retention and productivity of our sales force;",
"outline": "",
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"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Number of New Employees Added",
"content": "- the number of new employees added;",
"outline": "",
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"name": "Cost, Timing, and Management Effort for Development of New Products and Services",
"content": "- the cost, timing and management effort for our development of new products and services;",
"outline": "",
"path": "000:012:005:004:006",
"parentPath": "000:012:005:004",
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"name": "General Economic Conditions Impacting Customer Purchasing Decisions",
"content": "- general economic conditions that may adversely affect our customers\u2019 or a prospective customers\u2019 purchasing decisions;",
"outline": "",
"path": "000:012:005:004:007",
"parentPath": "000:012:005:004",
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"name": "Operating Costs and Capital Expenditures: Amount and Timing Related to Business Operation and Expansion",
"content": "- the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;",
"outline": "",
"path": "000:012:005:004:008",
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"name": "Seasonality of Customer Agreement Timings",
"content": "- seasonality in terms of when we enter into customer agreements;",
"outline": "",
"path": "000:012:005:004:009",
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"name": "Length and Complexity of Sales Cycle and Certification Process for Services",
"content": "- the length and complexity of the sales cycle and certification process for our services, especially for sales to larger enterprises, government and regulated organizations;",
"outline": "",
"path": "000:012:005:004:010",
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"name": "Changes in Customer Relationship Size and Complexity",
"content": "- changes in the size and complexity of our customer relationships;",
"outline": "",
"path": "000:012:005:004:011",
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"name": "Changes to Management, Sales, and Account Management Teams Due to Scaling and Evolving Business Priorities",
"content": "- changes to our management, sales and account management teams as we scale and as a result of evolving business priorities;",
"outline": "",
"path": "000:012:005:004:012",
"parentPath": "000:012:005:004",
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"name": "Changes in Pricing Policies of Company or Competitors",
"content": "- changes in our or our competitors\u2019 pricing policies;",
"outline": "",
"path": "000:012:005:004:013",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Significant Security Breaches, Technical Difficulties, or Service Interruptions",
"content": "- significant security breaches, technical difficulties or interruptions of our services;",
"outline": "",
"path": "000:012:005:004:014",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Competitor Introductions of New Solutions or Products",
"content": "- new solutions or products introduced by our competitors;",
"outline": "",
"path": "000:012:005:004:015",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Changes in Effective Tax Rates",
"content": "- changes in effective tax rates;",
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"path": "000:012:005:004:016",
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"name": "Changes in Customer Agreement Terms and Billing Durations",
"content": "- changes in the average contract term of our customer agreements, timing of renewals, renewal rates, expansion within our existing customers and billings duration;",
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"path": "000:012:005:004:017",
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"name": "Timing of Customer Payments and Payment Defaults",
"content": "- the timing of customer payments and payment defaults by customers;",
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"name": "Extraordinary Expenses Including Litigation Costs and Settlement Payments",
"content": "- extraordinary expenses such as litigation costs or damages, including settlement payments;",
"outline": "",
"path": "000:012:005:004:019",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Costs of Acquiring New Businesses and Technologies, Integration, and Tax Effects of Acquisitions",
"content": "- the costs associated with acquiring new businesses and technologies and the follow-on costs of integration, including the tax effects of acquisitions;",
"outline": "",
"path": "000:012:005:004:020",
"parentPath": "000:012:005:004",
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"name": "Changes in Laws or Regulations Impacting Service Delivery",
"content": "- changes in laws or regulations impacting the delivery of our services;",
"outline": "",
"path": "000:012:005:004:021",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Compliance with Privacy Laws and Regulations, Including GDPR and CCPA",
"content": "- our ability to comply with privacy laws and regulations, including the GDPR and the CCPA;",
"outline": "",
"path": "000:012:005:004:022",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Significant Litigation or Regulatory Actions Regarding Intellectual Property, Privacy Laws, Employment, or Other Significant Matters",
"content": "- significant litigation or regulatory actions relating to claims of intellectual property infringement, violation of privacy laws, employment matters or any other significant matter;",
"outline": "",
"path": "000:012:005:004:023",
"parentPath": "000:012:005:004",
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"name": "Equity Awards and Related Financial Statement Expenses",
"content": "- the amount and timing of equity awards and the related financial statement expenses;",
"outline": "",
"path": "000:012:005:004:024",
"parentPath": "000:012:005:004",
"parentName": "Factors Influencing Financial Performance and Forward-Looking Guidance",
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"name": "Impact of New Accounting Pronouncements",
"content": "- the impact of new accounting pronouncements; and",
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"parentPath": "000:012:005:004",
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"name": "Estimation pr\u00e9cise du march\u00e9 total adressable pour nos produits et services",
"content": "- our ability to accurately estimate the total addressable market for our products and services.",
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"path": "000:012:005:004:026",
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"name": "Risk of Intellectual Property Infringement Claims by Third Parties",
"content": "Lawsuits against us by third parties that allege we infringe their intellectual property rights could harm our business and operating results. There is considerable patent and other intellectual property development activity in our industry. Many companies in our industry, including our competitors, other third parties and non-practicing entities, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of patent infringement, misappropriation or other violations of intellectual property rights against us.",
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"name": "Disparity in Patent Portfolios and Increased Risk of Infringement Litigation",
"content": "Moreover, the patent portfolios of many of our competitors are larger than ours. This disparity may increase the risk that our competitors may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses.",
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"properties": {
"title": "",
"name": "Potential Claims of Intellectual Property Infringement by Competitors and Third Parties",
"content": "From time to time, our competitors or other third parties, including patent holding companies seeking to monetize patents they have purchased or otherwise obtained, may claim that we are infringing upon their intellectual property rights.",
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{
"class": "Element",
"properties": {
"title": "",
"name": "Example of Legal Settlement Charges and Fulfillment of Obligations with BMC and HPE",
"content": "For example, we recorded charges for aggregate legal settlements of $270.0 million in our consolidated statement of comprehensive loss during the year ended December 31, 2016. The charges covered the fulfillment by us of all financial obligations under settlement agreements with BMC and HPE, with no remaining financial obligations to BMC or HPE under either settlement.",
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"title": "",
"name": "Potential Consequences and Costs of Intellectual Property Litigation",
"content": "In any intellectual property litigation, regardless of the scope or merits of the claims at issue, we may incur substantial attorney\u2019s fees and other litigation expenses and, if the claims are successfully asserted against us and we are found to be infringing upon the intellectual property rights of others, we could be required to:\n- pay substantial damages and\/or make substantial ongoing royalty payments;\n- cease offering our products and services;\n- modify our products and services;\n- comply with other unfavorable terms, including settlement terms; and\n- indemnify our customers and business partners and obtain costly licenses on their behalf and refund fees or other payments previously paid to us.",
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"name": "Potential Intellectual Property Litigation Due to Expiration of Third-Party Agreements",
"content": "Further, upon expiration of the term of any third-party agreements that allow us to use their intellectual property, we may be unable to renew such agreements on favorable terms, if at all, in which case we may face intellectual property litigation.",
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"name": "Impact of Litigation and Public Statements on Customer Satisfaction, Sales, and Stock Price",
"content": "The mere existence of any lawsuit, or any interim or final outcomes, and the course of its conduct and the public statements related to it (or absence of such statements) by the courts, press, analysts and litigants could be unsettling to our customers and prospective customers. This could cause an adverse impact to our customer satisfaction and related renewal rates, cause us to lose potential sales, and could also be unsettling to investors or prospective investors and cause a substantial decline in our stock price.",
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"title": "",
"name": "Impact of Claims or Litigation on Management Focus and Financial Health",
"content": "Any claim or litigation against us could be costly, time-consuming and divert the attention of our management and key personnel from our business operations and harm our financial condition and operating results.",
"outline": "",
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"parentName": "Potential Consequences and Costs of Intellectual Property Litigation",
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"class": "Element",
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"title": "",
"name": "Consequences of Non-Compliance with Anti-Corruption Laws and Trade Regulations",
"content": "If we fail to comply with anti-corruption laws, including the FCPA and similar laws of other countries, and general trade regulations, including but not limited to economic sanctions and embargoes, we could be subject to penalties and civil and\/or criminal sanctions and our business could be materially adversely affected.",
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{
"class": "Element",
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"title": "",
"name": "Compliance with FCPA, 18 U.S.C. \u00a7201, UK Bribery Act, and Other International Anti-Bribery Laws",
"content": "We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. \u00a7201, the UK Bribery Act, and possibly other anti-bribery laws in countries in which we conduct activities.",
"outline": "",
"path": "000:012:005:005:004",
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"title": "",
"name": "Risks of Non-Compliance with FCPA and Anti-Corruption Laws",
"content": "We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from promising, authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage.",
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"path": "000:012:005:005:005",
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"title": "",
"name": "Liability for Third-Party Intermediaries' Corrupt Activities",
"content": "In addition, we use various third parties to sell our products and services and conduct our business both in the US and abroad. We or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.",
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"class": "Element",
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"title": "",
"name": "Anti-Corruption Compliance Program and Associated Risks of Employee and Agent Violations",
"content": "We have implemented and continue to update an anti-corruption compliance program but there is a risk that our employees and agents, as well as those companies to which we outsource certain of our business operations, could take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.",
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{
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"title": "",
"name": "Increased Scrutiny and Liability Due to Business Expansion in Countries with High Corruption Levels",
"content": "As we continue to expand our business internationally, we will inevitably do more business with large enterprises and the public sector in countries that are perceived to have heightened levels of public sector corruption. Increased business in countries perceived to have heightened levels of corruption could subject us and our officers and directors to increased scrutiny and increased liability from our business operations.",
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"name": "Compliance with International Trade Regulations and Restrictions",
"content": "In addition, we are subject to compliance with general trade regulations relating to doing business outside the US, including certain restrictions on conducting trade in certain restricted countries or with certain entities or individuals.",
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"name": "Consequences of Violating FCPA, Anti-Corruption Laws, or Trade Regulations",
"content": "Any violation of the FCPA, other anti-corruption laws or general trade regulations by our employees or our third-party intermediaries could result in regulatory investigations, whistleblower complaints, adverse media coverage and\/or severe criminal or civil sanctions, which could have a materially adverse effect on our reputation, business, operating results, and prospects.",
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"name": "Impact of Enforcement Action Response on Management Focus and Defense Costs",
"content": "In addition, responding to any enforcement action may result in a significant diversion of management\u2019s attention and resources and significant defense costs.",
"outline": "",
"path": "000:012:005:005:011",
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"name": "Potential Lack of Competitive Advantage and Significant Costs in Defending Intellectual Property",
"content": "Our intellectual property protections may not provide us with a competitive advantage, and defending our intellectual property may result in substantial expenses that harm our operating results.",
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"path": "000:012:005:006",
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"title": "",
"name": "Dependence on Intellectual Property Protections for Success",
"content": "Our success depends to a significant degree on our ability to protect our proprietary technology and our brand under patent and other intellectual property protections of the US and other jurisdictions.",
"outline": "",
"path": "000:012:005:007",
"parentPath": "000:012:005",
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{
"class": "Element",
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"title": "",
"name": "Potential Limitations and Risks of Patent Protection",
"content": "Though we seek patent protection for our technology, we may not be successful in obtaining patent protection, and any patents acquired in the future may not provide us with competitive advantages, or may be successfully challenged by third parties.",
"outline": "",
"path": "000:012:005:008",
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"name": "Uncertainty of Legal Standards for Intellectual Property Rights Validity and Enforceability",
"content": "Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.",
"outline": "",
"path": "000:012:005:009",
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"title": "",
"name": "Challenges and Invalidations of Intellectual Property Rights Through Administrative Processes or Litigation",
"content": "Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation.",
"outline": "",
"path": "000:012:005:010",
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"class": "Element",
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"title": "",
"name": "Availability of Intellectual Property Protection Across Different Countries",
"content": "Effective patent, trademark, copyright and trade secret protection may not be available in every country in which we offer services.",
"outline": "",
"path": "000:012:005:011",
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"title": "",
"name": "Differences in Intellectual Property Protection and Enforcement in Foreign Countries",
"content": "The laws of some foreign countries may not be as protective of intellectual property rights as those in the US, and mechanisms for enforcement of intellectual property rights or available remedies may be inadequate.",
"outline": "",
"path": "000:012:005:012",
"parentPath": "000:012:005",
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"title": "",
"name": "Monitoring and Protection of Intellectual Property Rights Expenditure",
"content": "We may be required to spend significant resources to monitor and protect our intellectual property rights.",
"outline": "",
"path": "000:012:005:013",
"parentPath": "000:012:005",
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{
"class": "Element",
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"title": "",
"name": "Potential Claims or Litigation for Infringement and Validation of Proprietary Rights",
"content": "We have initiated and, in the future, may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights.",
"outline": "",
"path": "000:012:005:014",
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"title": "",
"name": "Potential Impact of Litigation on Company Resources and Risk of Counter-Claims",
"content": "Any litigation, whether or not resolved in our favor, could result in significant expense to us, divert the efforts of our technical and management personnel and may result in counter-claims with respect to infringement of intellectual property rights by us.",
"outline": "",
"path": "000:012:005:015",
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"title": "",
"name": "Risk of Adverse Effects on Business Due to Intellectual Property Infringement and Defense Costs",
"content": "If we are unable to prevent third parties from infringing upon or misappropriating our intellectual property, or are required to incur substantial expenses defending our intellectual property rights, our business and operating results may be adversely affected.",
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"path": "000:012:005:016",
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"name": "Risks Associated with Open Source Software Use",
"content": "Our use of open source software could harm our ability to sell our products and services and subject us to possible litigation.",
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"path": "000:012:005:017",
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"name": "Incorporation of Third-Party Open Source Software in Products and Services",
"content": "Our products incorporate software licensed to us by third-party authors under open source licenses, and we expect to continue to incorporate open source software into other products and services in the future.",
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"name": "Efforts to Monitor Open Source Software Usage and Mitigate Adverse Licensing Conditions",
"content": "We attempt to monitor our use of open source software in an effort to avoid subjecting our products and services to adverse licensing conditions. However, there can be no assurance that our efforts have been or will be successful.",
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"name": "Uncertainty and Lack of Legal Precedent in Open Source License Interpretation",
"content": "There is little or no legal precedent governing the interpretation of the terms of open source licenses, and therefore the potential impact of these terms on our business is uncertain and enforcement of these terms may result in unanticipated obligations regarding our products and services.",
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"name": "Potential Obligations Under Various Open Source Licenses",
"content": "For example, depending on which open source license governs open source software included within our products and services, we may be subjected to conditions requiring us to offer our products and services to users at no cost; make available the source code for modifications and derivative works based upon, incorporating or using the open source software; and license such modifications or derivative works under the terms of the particular open source license.",
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"name": "Potential Legal Risks of Non-Compliance with Open Source Software Licenses",
"content": "Moreover, if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal costs defending ourselves against such allegations, be subject to significant damages or be enjoined from distributing our products and services.",
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"name": "Revenue Recognition and Impact of Subscription Fluctuations on Operating Results",
"content": "Because we generally recognize revenues from our subscription service over the subscription term, a decrease in new subscriptions or renewals during a reporting period may not be immediately reflected in our operating results for that period. We generally recognize revenues from customers ratably over the terms of their subscriptions. Net new annual contract value from new subscriptions and expansion contracts entered into during a period can generally be expected to generate revenues for the duration of the subscription term. As a result, most of the revenues we report in each period are derived from the recognition of deferred revenues relating to subscriptions entered into during previous periods. Consequently, a decrease in new or renewed subscriptions in any single reporting period will have a limited impact on our revenues for that period. In addition, our ability to adjust our cost structure in the event of a decrease in new or renewed subscriptions may be limited.",
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"name": "Impact of Decline in Subscriptions and Renewals on Future Revenues",
"content": "Further, a decline in new subscriptions, expansion contracts or renewals in a given period may not be fully reflected in our revenues for that period, but they will negatively affect our revenues in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and changes in our rate of renewals, may not be fully reflected in our results of operations until future periods.",
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"name": "Impact of Subscription Model on Revenue Recognition and Growth",
"content": "Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers are generally recognized over the applicable subscription term.",
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"name": "Revenue Recognition Variability Due to Contract Complexity Under ASC 606",
"content": "Additionally, due to the complexity of certain of our customer contracts, the actual revenue recognition treatment required under Accounting Standards Update 2014-09, \u201cRevenue from Contracts with Customers (Topic 606)\u201d depends on contract-specific terms and may result in greater variability in revenues from period to period.",
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"title": "",
"name": "Impact of Subscription and Contract Variability on Period Billings",
"content": "In addition, a decrease in new subscriptions, expansion contracts or renewals in a reporting period may not have an immediate impact on billings for that period due to factors that may offset the decrease, such as an increase in billings duration, the dollar value of contracts with future start dates, or the dollar value of collections in the current period related to contracts with future start dates.",
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"name": "Expected Decline in Revenue Growth Rate and Potential Impact on Stock Price",
"content": "As our business grows, we expect our revenue growth rate to continue to decline. We have experienced significant revenue growth in prior periods; however, our longer-term revenue growth rate is declining, and we expect that it will continue to decline into the foreseeable future. We also expect our costs to increase in future periods as we continue to invest in our strategic priorities, which may not result in increased revenues or growth in our business. You should not rely on our revenue for any prior periods as any indication of our future revenue growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile.",
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"class": "Element",
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"name": "Impact of Changes in Effective Tax Rate and Tax Position Rejection on Financial Results",
"content": "Changes in our effective tax rate or rejection of our tax position in jurisdictions outside the US could have a material impact on our financial position and results. We are subject to income taxes in the US and various foreign jurisdictions. We believe that our provision for income taxes is reasonable, but the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods in which such outcome is determined. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses, the valuation of deferred tax assets and liabilities and the effects of acquisitions. Increases in our effective tax rate would reduce our profitability or in some cases increase our losses.",
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"content": "Global economic conditions may harm our industry, business and results of operations.",
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"content": "We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions. Global financial developments seemingly unrelated to us or the software industry may harm us. From time to time, the US and other key international economies have been impacted by geopolitical and economic instability, high levels of credit defaults, international trade disputes, falling demand for various goods and services, high levels of persistent unemployment, wage and income stagnation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, international trade agreements, trade restrictions and overall economic uncertainty. These conditions can arise suddenly and affect the rate of information technology spending and could adversely affect our customers\u2019 or prospective customers\u2019 ability or willingness to purchase our services, delay purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our operating results.",
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"content": "In 2020, for example, the growth rate in the EU, China, or the US, tariffs or trade relations between the US and China or other countries, political uncertainty in the Middle East and other geopolitical events could directly or indirectly affect our business.",
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"name": "Potential Impact of Brexit on UK and EU Economies and Businesses",
"content": "Additionally, in connection with Brexit, the impact of the UK\u2019s exit from the EU is still to be fully seen, with the applicable trade agreement to be negotiated before December 2020, or a type of \u201cno-deal\u201d exit would occur. This could be harmful to both the U.K. and E.U.economies and businesses operating there",
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"name": "Impact of Global Financial Conditions on Business and Operational Judgments",
"content": "In addition, the effects, if any, of global financial conditions on our business can be difficult to distinguish from the effects on our business from product, pricing, and other developments in the markets specific to our products and our relative competitive strength. If we make incorrect judgments about our business for this reason, our business and results of operations could be adversely affected.",
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"name": "Impact of Foreign Currency Exchange Rate Fluctuations on Financial Results",
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"name": "Risk of Unpredictable Currency Fluctuations on Financial Results",
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"name": "Impact of Brexit Announcement and Uncertainty on Global Markets and Currency Volatility",
"content": "In addition, the announcement of Brexit and the continued uncertainty around the full impact of it and the exact trade arrangements upon exit has adversely impacted global markets, including currencies, and resulted in a decline and volatility in the value of the British pound and the Euro, as compared to the U.S. Dollar and other currencies.",
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"content": "Volatility in exchange rates and global financial markets is expected to continue due to a number of factors, including uncertainty surrounding Brexit trade arrangements and the recent political and economic uncertainty globally.",
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"name": "Initiation of Derivative Instruments for Currency Exchange Rate Hedging in 2018",
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"outline": "Risks Related to Our Convertible Senior Notes\n Potential Inability to Fund Cash Settlements or Repurchases of 2022 Convertible Senior Notes.\n Repurchase Rights of Holders Upon Fundamental Change.\n Adjustment to Conversion Rate upon Make-Whole Fundamental Change.\n Cash Settlement Requirement and Potential Liquidity Constraints upon Conversion of 2022 Notes.\n Future Incurrence of Additional Debt by Company and Subsidiaries Subject to Future Debt Instrument Restrictions.\n No Restrictions on Incurring Additional Debt or Recapitalizing Existing Debt Under the Indenture.\n Acquisition Prohibition and Obligations Assumption Clause.\n Limitations on Repurchase or Cash Payment upon Conversion of 2022 Notes Due to Legal and Regulatory Constraints.\n Failure to Repurchase or Pay Cash Upon Conversion of 2022 Notes Constitutes Default.\n Consequential Default Under Future Indebtedness Agreements.\n Impact of Fundamental Change on Default and Indebtedness Repayment Obligations.\n Potential Adverse Impact of Conditional Conversion Feature on Financial Condition and Operating Results.\n Conditions for Conversion of 2022 Notes Prior to February 1, 2022.\n Conversion Eligibility of 2022 Notes Based on Conversion Condition Compliance.\n Cash Settlement of Immaterial Principal Amount of 2022 Notes for Year Ended December 31, 2019.\n Expected Cash Settlement of 2022 Notes Conversion Requests for Q1 and Q2 2020.\n Potential Liquidity Impact of Future 2022 Notes Conversions.\n Recording a Loss on Early Conversions of 2022 Notes.\n Impact of Convertible Note Hedge and Warrant Transactions on 2022 Notes and Common Stock Value.\n Convertible Note Hedge and Warrant Transactions with Option Counterparties.\n Purpose and Effect of the 2022 Note Hedge Transactions.\n Potential Dilutive Effect and Share Issuance Mechanics of the 2022 Warrants.\n Expected Issuance of Additional Shares Upon Automatic Exercise of 2022 Warrants.\n Potential Impact of Hedge Position Adjustments by Option Counterparties on Stock and 2022 Notes Prices.\n Market Condition Dependency on Stock and Note Price Effects.\n Potential Adverse Effects on Common Stock and 2022 Notes Value and Conversion Ability.\n Disclaimer on Potential Effects of Transactions on 2022 Notes and Common Stock Prices.\n Non-Representation of Option Counterparties' Engagement and Continuity of Transactions.\n Counterparty Risk and Credit Exposure in the 2022 Note Hedge.\n Impact of Recent Global Economic Conditions on Financial Institutions' Stability.\n Unsecured Creditor Status in Option Counterparty Insolvency Proceedings.\n Correlation Between Exposure and Stock Price\/Volatility.\n Potential Adverse Tax Consequences and Increased Dilution Due to Option Counterparty Default.\n No Assurance on Financial Stability or Viability of Option Counterparties.",
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"name": "Potential Inability to Fund Cash Settlements or Repurchases of 2022 Convertible Senior Notes",
"content": "We may not have the ability to raise the funds necessary to settle conversions of our convertible senior notes due 2022 (the 2022 Notes) in cash or to repurchase the 2022 Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2022 Notes.",
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"name": "Repurchase Rights of Holders Upon Fundamental Change",
"content": "Holders of the 2022 Notes have the right to require us to repurchase all or a portion of their 2022 Notes upon the occurrence of a fundamental change (as defined in the indenture for the 2022 Notes (the Indenture)) at a repurchase price equal to 100% of the principal amount of the 2022 Notes to be repurchased, plus accrued and unpaid special interest, if any.",
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"name": "Adjustment to Conversion Rate upon Make-Whole Fundamental Change",
"content": "In addition, if a make-whole fundamental change (as defined in the Indenture) occurs prior to the maturity date of the 2022 Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its 2022 Notes in connection with such make-whole fundamental change.",
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"name": "Cash Settlement Requirement and Potential Liquidity Constraints upon Conversion of 2022 Notes",
"content": "Upon conversion of the 2022 Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional shares), we will be required to make cash payments in respect of the 2022 Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the 2022 Notes surrendered therefor or pay cash with respect to the 2022 Notes being converted.",
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"content": "If more holders elect to convert their 2022 Notes in future periods, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we may settle all or a portion of our conversion obligation in cash, which could adversely affect our liquidity and result in a material adverse effect on our financial position, results of operations and cash flows.",
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"content": "In connection with the sale of the 2022 Notes, we entered into convertible note hedge (the 2022 Note Hedge) transactions with certain financial institutions (option counterparties). We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the purchase of our common stock (the 2022 Warrants).",
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"name": "Correlation Between Exposure and Stock Price\/Volatility",
"content": "Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the stock price and in the volatility of our common stock.",
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"name": "Potential Adverse Tax Consequences and Increased Dilution Due to Option Counterparty Default",
"content": "In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.",
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"content": "Our stock price has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.",
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"name": "Factors Influencing Stock Price Volatility Beyond Company Control",
"content": "Factors affecting our stock price, some of which are beyond our control, include:\n- changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to cover our common stock;\n- announcements of new products, services or technologies, new applications or enhancements to services, strategic alliances, acquisitions, or other significant events by us or by our competitors;\n- fluctuations in the valuation of companies, such as high-growth or cloud companies, investors perceive to be comparable to us;\n- changes to our management team;\n- trading activity by directors, executive officers and significant stockholders, or the market\u2019s perception that large stockholders intend to sell their shares;\n- the inclusion, exclusion, or deletion of our stock from any trading indices, such as the S&P 500 Index;\n- the size of our market float;\n- the volume of trading in our common stock, including sales upon exercise of outstanding options or vesting of equity awards or sales and purchases of any common stock issued upon conversion of the 2022 Notes or in connection with the 2022 Note Hedge and 2022 Warrant transactions;\n- the economy as a whole, market conditions in our industry, and the industries of our customers; and\n- overall performance of the equity markets.",
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"content": "Our restated certificate of incorporation and restated bylaws contain provisions that could depress our stock price by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous.",
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