Note 4. Discontinued Operations Discontinued Operations

3 Months Ended

Mar. 31, 2017

Discontinued Operations [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Discontinued Operations

As discussed in Note 1, on October 31, 2016, the Company completed the separation of our China business.

As a result of the Separation, all royalty revenues earned by us under the Master License Agreement with Yum China that were previously eliminated in consolidation are now reflected as Franchise and license fees and income in our Condensed Consolidated Statements of Income. For the quarter ended March 31, 2016 the combined KFC and Pizza Hut Divisions' Franchise and license fees and income, as a result of the Separation, increased by $65 million. The value added tax associated with this royalty revenue increased Franchise and license expenses for the combined KFC and Pizza Hut Divisions by $4 million for the quarter ended March 31, 2016. The net increases in the KFC and Pizza Hut Divisions' Operating Profit were offset with a corresponding reduction in Income from discontinued operations such that there was no impact from the Separation on total Net income.

The financial results of Yum China presented in discontinued operations reflect the results of the former China Division, an operating segment of the Company until the Separation, adjusted for the transactions discussed above and the inclusion of certain G&A expenses, non-cash impairment charges, refranchising gains, interest and taxes that were previously not allocated to but were related to the former China Division's historical results of operations. The following table presents the financial results of the Company’s discontinued operations:

	Quarter ended
	2016(a)
Company sales	$	1,278
Franchise and license fees and income	25
Company restaurant expenses	(1,045		)
G&A expenses	(74		)
Franchise and license expenses	(12		)
Refranchising gain	3
Other income	16
Interest income, net	1
Income from discontinued operations before income taxes(b)	192
Income tax provision	(50		)
Income from discontinued operations - including noncontrolling interests	142
(Income) from discontinued operations - noncontrolling interests	(4		)
Income from discontinued operations - YUM! Brands, Inc.	$	138

(a) Includes historical Yum China financial results from January 1, 2016 to February 29, 2016 plus an additional month of expense associated with the license fee paid to YUM to conform to the new YUM reporting calendar.

(b) Includes costs incurred to execute the Separation of $8 million for the quarter ended March 31, 2016. Such costs primarily related to transaction advisors, legal and other consulting fees.

Cash inflows from Yum China to the Company during the quarter ended March 31, 2017 related to the Master License Agreement were $55 million, net of taxes paid, and primarily related to royalty revenues.