UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 27, 1998
TRICON GLOBAL RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 1-13163 13-3951308
- ----------------------------- ----------- ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1441 Gardiner Lane, Louisville, Kentucky 40213
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(Address of principal executive offices) (Zip Code)
(502) 874-8300
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. OTHER EVENTS
On April 27, 1998, TRICON Global Restaurants, Inc. issued a
press release with respect to earnings for the first quarter
of 1998. A copy of such press release is attached hereto as
Exhibit 99 and incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99 Press Release dated April 27, 1998 from
TRICON Global Restaurants, Inc.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRICON GLOBAL RESTAURANTS, INC.
(Registrant)
Date: April 27, 1998 /s/ Robert L. Carleton
-------------- ---------------------------
Senior Vice President and
Controller and Chief Accounting Officer
3
<PAGE>
Exhibit 99
TRICON ANNOUNCES FIRST QUARTER 1998 RESULTS.
EARNINGS OF $54 MILLION, OR $.35 PER DILUTED SHARE, ABOVE EXPECTATIONS.
LOUISVILLE, KY (April 27, 1998) -- Tricon Global Restaurants, Inc. (NYSE: YUM)
reported first quarter earnings of $54 million, or $0.35 per diluted share, for
the period ended March 21, 1998. Operating earnings before facility actions were
$38 million, or $0.25 per diluted share; facility actions net gain totaled $16
million, or $0.10 per diluted share. As expected, operating earnings comparisons
for the first quarter were negative as strong profit growth at Pizza Hut and KFC
in the U.S. was more than offset by declines in Asia, Year 2000 systems
spending, and increased administrative and interest expenses attributed to
operating as an independent, publicly owned company. The decline also reflected
the absence of $5 million in profits from non-core businesses sold in 1997.
In the U.S., company same store sales at Pizza Hut were up five percent, led by
the introduction of The Edge pizza late last year and continued operational
progress. KFC's company same store sales grew more than four percent, driven by
product promotions, while Taco Bell's company same store sales declined three
percent due to the overlap of last year's highly successful Star Wars promotion.
Financial Summary
First Quarter, 1998
(MMs except per share amounts)
% Change
1998 1997 (a) B/(W)
----------- ------------- ------------
System Sales $ 4,557 $ 4,584 (1)
Company revenues 1,921 2,237 (14)
Operating profit 139 150 (7)
Interest expense 69 66 (5)
Income tax provision 32 38 16
----------- ------------- ------------
Operating Earnings (b) $ 38 $ 46 (17)
=========== ============= ============
Earnings per diluted share components (c):
Operating Earnings - core $ .25 $ .28 (12)
Operating Earnings - non-core .00 .02 n/m
Facility Actions Net Gain .10 .04 n/m
----------- ------------- ------------
Total $ .35 $ .34 4
=========== ============= ============
(a) 1997 includes the results of Tricon's non-core businesses that were
disposed of in 1997. Comparison of 1998 versus 1997 core business results
are reflected in the attached condensed consolidated statement of income.
(b) Before facility actions net gain.
(c) The percentage change in EPS was calculated by using EPS calculated to four
decimal places to eliminate the effects of rounding.
1
<PAGE>
Andrall E. Pearson, Chairman and CEO stated:
"Our results in the quarter exceeded our expectations despite a higher tax rate.
This performance reflects exceptional effort from our international group in the
midst of the ongoing Asian economic turmoil and continued improvement in the
domestic Pizza Hut business versus the fourth quarter of last year. Also, the
benefits of the fourth quarter charge last year helped to offset the adverse
impact of Asia and information system spending related to Year 2000. I believe
we're making significant progress in establishing an effective, efficient
organization to support our commitment to consistently deliver annual system
sales growth, bottomline profits and enhanced cash flows.
Despite our tough comparisons versus prior year in the first half of this year,
we are still targeting at least one point of store level margin improvement for
1998, with about three-quarters coming from the portfolio effect of facility
actions. Our outlook for 1998 is still on-track from both an operating and
facility action basis despite a higher-than-anticipated effective tax rate for
the year. I believe that our reinvigorated operational base coupled with a solid
line-up of new products and marketing initiatives will give us momentum through
the year.
We also have a very strong refranchising pipeline that will allow us to meet our
refranchising objectives for the year and contribute to paying down about $400
million in total debt. We continue to reduce our exposure to interest rate
changes by using a combination of fixed rate debt and interest rate swaps. Our
target capital structure includes 50 percent fixed rate debt compared to our
almost 100 percent floating rate debt when we were spun off from PepsiCo last
October."
Highlights in the quarter include:
- - Pizza Hut U.S. company same store sales up five percent.
- - KFC U.S. company same store sales up more than four percent.
- - Strong company same store sales growth in local currency in key markets
such as Mexico, the U.K. and Poland.
- - Portfolio activity reduced Tricon's ownership level, including joint
ventures, down to 36.5 percent.
- - Paid down $57 million of bank term debt.
- - In Q4, 1997 and Q1, 1998 closed 238 Pizza Hut units and 25 international
units that were written down in the Q4, 1997 unusual charge.
The following discussion is based on Tricon's businesses in 1998 which include
the worldwide operations of KFC, Taco Bell and Pizza Hut (core businesses)
versus Tricon's operations in 1997 which also include the results of non-core
businesses disposed of in 1997. Where material, the impact of the non-core
businesses on growth rates is noted. Same store sales refer to U.S. company
stores only.
Consolidated Results
- --------------------
System sales represent the combined sales of company, franchised, licensed and
joint venture units. Worldwide system sales declined one percent as new unit
development was more than offset by the adverse impact of foreign currency
translation and store closures.
Worldwide company revenues represent sales of company units and
franchise/license fees. Worldwide company revenues declined 14 percent as a
result of refranchising and store closures, the loss of revenue from our
non-core businesses and the adverse impact of foreign currency translation. The
decline was partially offset by a 15 percent increase in franchise fees, which
was driven by additional units. Excluding the impact of the non-core businesses
sold in 1997, worldwide company revenue declined 10 percent.
2
<PAGE>
Company store margins as a percent of sales increased 20 basis points for the
quarter. The increase was driven by the portfolio effect of facility actions,
which contributed about 90 basis points in the quarter. The favorable impact of
facility actions and the fourth quarter restructuring benefits more than offset
declines in transactions in the U.S. Higher labor costs driven in the U.S. by
minimum wage increases and investments in our core growth strategy that
recognizes the Restaurant General Manager as the foundation for a successful
restaurant were largely offset by favorable pricing.
General, administrative and other expenses, which include foreign exchange
gains/losses and income/losses from joint ventures, were down three percent. The
decline was driven by the favorable impact of the disposal of our non-core
businesses and the benefits of stores refranchised or closed. The decrease was
partially offset by investment spending, primarily Year 2000 initiatives, and
increased administrative expenses as an independent, publicly owned company.
U.S. Operations
- ---------------
Same store sales at Pizza Hut were up five percent driven by strong performances
in both delivery and traditional Red Roof units driven by The Edge pizza that
was launched late last year. KFC's same store sales grew more than four percent
led by strong product promotions that drove transactions such as Honey Barbecue
Wings and Original Recipe. Taco Bell's same store sales declined three percent
in the quarter as they overlapped the highly successful Star Wars promotion last
year. Early in the second quarter, Taco Bell's transaction growth turned
positive after the launch of Gorditas, our new flat bread taco.
International Operations
- ------------------------
International system sales decreased six percent as the benefits of new units
were more than offset by the negative impact of foreign currency translation and
store closures. Excluding the negative impact of currency translation, system
sales increased six percent.
International company revenues decreased 12 percent driven by the adverse impact
of foreign currency translation in areas such as Asia and Australia and the
absence of company store revenue from refranchising and store closures. Asia was
also adversely impacted by reduced consumer demand. These declines more than
offset increased volumes in Mexico, Spain, Poland and the U.K. Excluding the
negative impact of currency translation, company revenues declined two percent.
Operating profit declined seven percent driven by economic difficulties in Asia
which were partially offset by favorable performance in several countries
including Mexico, the U.K. and Poland and benefits of the fourth quarter charge.
This announcement contains forward-looking statements that estimate future
results from strategic actions. These "forward-looking" statements reflect
management's expectations and are based upon currently available data; however,
actual results are subject to future events and uncertainties, which could cause
actual results to differ from those projected in these statements. Factors that
can cause actual results to differ include economic and political conditions in
the countries and territories where Tricon operates, the impact of such
conditions on consumer spending and currency exchange rates, pricing pressures
resulting from competitive discounting, new product and concept development by
Tricon and other food industry competitors, and fluctuations in commodity
prices. Further information on factors that could affect Tricon's financial and
other results are included in the company's Forms 10-Q and 10-K, filed with the
Securities and Exchange Commission.
Contact: Lynn A. Tyson
Vice President, Investor Relations
502-874-8617
3
<PAGE>
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Income
(tabular amounts in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
12 Weeks Ended 1998 % Change
----------------------------- -------------------------
Reported Core
3/21/98 3/22/97(a) B/(W) B/(W)
----------- ------------- ------------ ---------
REVENUES
<S> <C> <C> <C> <C>
Company sales $ 1,790 $ 2,123 (16) (11)
Franchise and license fees 131 114 15 16
----------- -------------
1,921 2,237 (14) (10)
----------- -------------
Costs and expenses, net
Company restaurants
Food and paper 579 684 15 11
Payroll and employee benefits 538 633 15 10
Occupancy and other operating expenses 472 572 17 14
----------- -------------
1,589 1,889 16 12
General, administrative and
other expenses (b) 193 198 3 (2)
Facility actions net gain (c) (29) (12) NM NM
----------- -------------
Total costs and expenses, net 1,753 2,075 16 11
----------- -------------
Operating Profit (d) 168 162 4 7
Interest expense, net (b) 69 66 (5) (6)
----------- -------------
Income Before Income Taxes 99 96 3 8
Income Tax Provision (e) 45 44 (2) (5)
----------- -------------
Net Income $ 54 $ 52 4 10
=========== =============
Basic Earnings Per Common Share $ .36
===========
Average Shares Outstanding - Basic 152
===========
Diluted Earnings Per Common Share $ .35
===========
Average Shares Outstanding - Diluted 154
===========
Pro Forma Diluted Earnings Per Common Share (f) $ .34
=============
Pro Forma Average Shares Outstanding - Diluted (f) 154
=============
</TABLE>
NM - Not Meaningful
See accompanying notes.
4
<PAGE>
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF INCOME:
(a) Results for the 12 weeks ended March 22, 1997 included the non-core U.S.
businesses disposed of in 1997. Following is a summary of the operating
results of the non-core businesses during the first quarter of 1997:
Revenues $ 103
Operating profit 5
Net income 3
Pro forma diluted earnings per common share .02
(b) Includes PepsiCo's allocations of interest expense of $60 million and
general and administrative expenses of $12 million for the 12 weeks ended
March 22, 1997. These allocations are not indicative of amounts which we
would have incurred if we had been an independent publicly owned entity for
all periods presented.
(c) Facility actions net gain included the following:
12 Weeks Ended
-----------------------------
3/21/98 3/22/97
------------- ------------
Refranchising gains $ (29) $ (16)
Store closure costs - 4
------------- ------------
Net gain $ (29) $ (12)
============= ============
After-tax net gain $ (16) $ (6)
============= ============
(d) Following is a reconciliation of the reported operating profit to operating
profit before facility actions net gain:
12 Weeks Ended
----------------------------
3/21/98 3/22/97
------------- -----------
Reported operating profit $ 168 $ 162
Facility actions net gain (29) (12)
============= ===========
Operating profit before facility
actions net gain $ 139 $ 150
============= ===========
(e) The effective tax rates on reported income were 45.3% and 45.8% for the 12
weeks ended March 21, 1998 and March 22, 1997, respectively.
(f) The shares used to compute pro forma diluted earnings per common share for
the 12 weeks ended March 22, 1997 were based upon 154 million shares,
assuming the 152 million shares issued at Spin-off and dilutive options
for the first quarter of 1998 had been outstanding from the beginning of
fiscal 1997. The shares used for the second and third quarters of 1998
will similarly be used for the pro forma earnings per common share for the
second and third quarters of 1997.
5
<PAGE>
TRICON Global Restaurants, Inc.
Supplemental Schedule of Revenues and Operating Profit
(in millions)
(unaudited)
<TABLE>
<CAPTION>
12 Weeks Ended 1998 % Change
---------------------------
Reported Core
3/21/98 3/22/97 (a) B/(W) B/(W)
----------- ------------ ------------ ------------
SYSTEM SALES (b)
<S> <C> <C> <C> <C>
U.S. $ 3,057 $ 2,996 N/A 2
International 1,500 1,588 N/A (6)
=========== ============
Total $ 4,557 $ 4,584 N/A (1)
=========== ============
REVENUES
U.S. $ 1,467 $ 1,724 (15) (10)
International 454 513 (12) (12)
=========== ============
Total $ 1,921 $ 2,237 (14) (10)
=========== ============
OPERATING PROFIT
U.S. $ 126 $ 119 6 11
International 42 45 (7) (7)
----------- ------------
Total 168 164 2 6
Unallocated expenses (28) (11) NM NM
Foreign exchange loss (1) (3) 67 67
----------- ------------
Ongoing operating profit 139 150 (7) (4)
Facility actions net gain (c) 29 12 NM NM
----------- ------------
Total Operating Profit $ 168 $ 162 4 7
=========== ============
</TABLE>
NM - Not Meaningful See accompanying notes.
NOTES TO THE SUPPLEMENTAL SCHEDULE OF REVENUES AND OPERATING PROFIT:
(a) Results for the 12 weeks ended March 22, 1997 included the non-core U.S.
businesses disposed of in 1997. Following is a summary of the operating
results of the non-core businesses during the first quarter of 1997:
Revenues $ 103
Operating Profit 5
(b) Excludes the non-core businesses.
(c) Facility actions net gain (loss) included the following:
12 Weeks Ended
------------------------------
3/21/98 3/22/97
------------- -------------
Refranchising gains $ 29 $ 16
Store closure costs - (4)
============= =============
$ 29 $ 12
============= =============
U.S. $ 27 $ 13
International 2 (1)
============= =============
$ 29 $ 12
============= =============
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<PAGE>
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary (a)
For the 12 Weeks Ended March 21, 1998
(unaudited)
<TABLE>
<CAPTION>
Joint
Company-Operated Ventures Franchised Licensed Total
------------------ -------------- -------------- ------------- -----------
Pizza Hut U.S.
<S> <C> <C> <C> <C> <C> <C>
Balance at December 27, 1997 3,823 - 3,581 1,294 8,698
New builds and acquisitions 2 - 9 90 101
Refranchising and licensing (39) - 39 - -
Closures (182) - (29) (20) (231)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 3,604 - 3,600 1,364 8,568
================== ============== ============== ============= ===========
Taco Bell U.S.
Balance at December 27, 1997 2,149 - 2,826 1,793 6,768
New builds and acquisitions - - 25 49 74
Refranchising and licensing (91) - 89 2 -
Closures (18) - (15) (58) (91)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 2,040 - 2,925 1,786 6,751
================== ============== ============== ============= ===========
KFC U.S.
Balance at December 27, 1997 1,850 - 3,190 80 5,120
New builds and acquisitions 5 - 17 - 22
Refranchising and licensing (52) - 52 - -
Closures (14) - (5) (1) (20)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 1,789 - 3,254 79 5,122
================== ============== ============== ============= ===========
Total U.S.
Balance at December 27, 1997 7,822 - 9,597 3,167 20,586
New builds and acquisitions 7 - 51 139 197
Refranchising and licensing (182) - 180 2 -
Closures (214) - (49) (79) (342)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 7,433 - 9,779 3,229 20,441
================== ============== ============== ============= ===========
Total International
Balance at December 27, 1997 2,295 1,090 5,500 241 9,126
New builds and acquisitions 57 12 116 - 185
Refranchising and licensing (16) (6) 22 - -
Closures (32) (28) (78) - (138)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 2,304 1,068 5,560 241 9,173
================== ============== ============== ============= ===========
Total
Balance at December 27, 1997 10,117 1,090 15,097 3,408 29,712
New builds and acquisitions 64 12 167 139 382
Refranchising and licensing (198) (6) 202 2 -
Closures (246) (28) (127) (79) (480)
------------------ -------------- -------------- ------------- -----------
Balance at March 21, 1998 9,737 (b) 1,068 15,339 3,470 29,614
================== ============== ============== ============= ===========
% of Total 32.9% 3.6% 51.8% 11.7% 100.0%
</TABLE>
(a) Excludes the non-core businesses.
(b) Includes 476 units approved for closure but not yet closed at March 21,
1998.
7
