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)
February 11, 1999
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(502) 874-8300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. OTHER EVENTS
On February 11, 1999 TRICON Global Restaurants, Inc. issued a press release
with respect to earnings for the fourth quarter and fiscal year ended
December 26, 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 February 11, 1999 from TRICON Global
Restaurants, Inc.
2
<PAGE>
SIGNATURE
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: February 25, 1999 /s/ Robert L. Carleton
----------------- -----------------------------------------
Senior Vice President and
Controller and Chief Accounting Officer
(Principal Accounting Officer)
3
<PAGE>
EXHBIT 99
TRICON ANNOUNCES OPERATING EARNINGS PER SHARE UP 90 PERCENT FOR THE
FOURTH QUARTER AND 29 PERCENT FOR THE YEAR.
LOUISVILLE, KY (February 11, 1999) - Tricon Global Restaurants, Inc.
(NYSE:YUM) reported fourth quarter earnings of $151 million, or $0.95
per diluted share, for the quarter ended December 26, 1998. The
components were: (1) $0.55 per share before facility actions and
unusual charges, an increase of 90 percent, (2) $0.44 per share of
facility actions net gain, or $119 million pre-tax; and (3) an unusual
charge of $0.04 per share.
Andrall Pearson, Chairman and CEO said: "The fourth quarter was the
culmination of a tremendous year for Tricon. On the operational side,
in the U.S. all three of our brands delivered growth in same store
sales for the second consecutive quarter. What's more important, for
the first time in nearly a decade, they each posted same store sales
growth for the full year. We believe this achievement in the U.S. is
the result of our focus on both operational excellence at the store
level and marketing innovation with new products and promotions.
Despite the ongoing economic turmoil in Asia, our international
business posted strong results, with a 27 percent increase in
operating profit. The growth was driven by our focus on key markets
where we can build scale and rationalize our G&A structure while
expanding franchise opportunities in other markets.
These solid performances drove our store level margins up 281 basis
points to 13.7 percent. Two-thirds of the improvement in margins came
from our base stores while the balance of the improvement came from
the benefits of our portfolio actions and the fourth quarter charge we
took in 1997. Ongoing operating profit jumped 33 percent driven by
strong same store sales, the powerful growth in margins, and higher
franchise fees. For the year, store level margins increased 187 basis
points with 68 points from our base stores, while ongoing operating
profit increased 14 percent.
1
<PAGE>
In the quarter we forged ahead on our refranchising and debt reduction
targets. Strong demand in the market led to the refranchising of 470
units, which brings the full year number to 1,389 - almost equaling
the record number of units we sold in 1997. As a result, we made
tremendous progress against our strategy to reduce our ownership to
20-25 percent of our system units. The 1,389 units refranchised,
coupled with the closure of 661 units, drove our ownership level down
six points to 32 percent. Also in the quarter, we repaid $300 million
in debt, bringing total debt repaid in 1998 to over $1 billion. The
pay-down of over $1 billion in debt, in our first full year as an
independent company, is almost two years ahead of our original
target."
Operating Highlights for the quarter
o Driven by the successful promotion of Stuffed Crust, Pizza Hut
posted their sixth consecutive quarter of same store sales growth
with an increase of four percent. This growth is particularly
notable because it was on top of five percent same store sales
growth in the fourth quarter of 1997.
o Taco Bell's same store sales grew by nine percent aided by
favorable price/mix, and an increase in transactions. The
Gordita, launched earlier in 1998, and the wildly popular
promotion of the talking Chihuahua plush toy, helped transaction
growth.
o Same store sales at KFC grew four percent led by the successful
promotion of their new Popcorn Chicken and new advertising
campaign, which features an animated Colonel Sanders.
o Outside the U.S., we continued to effectively tackle the economic
turmoil in Asia. While same store sales in local currency
remained down in Asia, store level margins were up in China and
Taiwan. Also, other key markets such as Mexico and Puerto Rico
continued to post strong gains in same store sales.
Perspectives on 1998
Mr. Pearson continued: "We clearly ended 1998 with momentum, attaining
or exceeding virtually every one of the operational and financial
goals that we set for ourselves. In 1998 we executed against six key
growth drivers that we believe differentiate us from any other
restaurant company in the world:
o We know that it takes a motivated, well trained crew and
restaurant general manager to run a profitable store, so we
instituted a variety of financial incentives and training
programs aimed at the development and reward of these key
employees. We also put in place a number of recognition programs
so people know they are appreciated for what they contribute to
the organization.
2
<PAGE>
o In the U.S., we began to test a common operating measurement
system called "CHAMPS" which has had great success outside of the
U.S. This program lays out the key measurements we use to
evaluate the quality and performance of our restaurants. I'm
happy to say that many of our franchisees also have signed up for
CHAMPS.
o On the marketing and innovation side, in the U.S., we launched
three new products and introduced new ad campaigns at each of the
brands. These initiatives clearly helped drive growth in same
store sales.
o We initiated the first ever U.S. consolidated market planning
review. This review provides us with data to determine exactly
where we should keep stores, build stores and even close stores.
This review also allows us to identify where the optimal sites
are for our multi-branded units. We believe these units, which
are a combination of two or more of our brands, offer us an
unparalleled opportunity for future growth.
o We worked aggressively to leverage our scale, streamline
operations and eliminate redundancies between our companies. As
an example, we are well into the process of forming, along with
our KFC, Pizza Hut and Taco Bell franchisee groups, a single
unified purchasing cooperative for both company-owned and
franchise stores in the U.S. With $4 billion of annual purchasing
clout, we're confident this co-op will be able to drive cost
savings and add value to the entire system over the long-run. The
formation of this co-op also is a reflection of the dramatic
improvement in our relationship with our franchisees who we
recognize and value as an integral part of our system.
o The last key growth driver is focused international growth. We've
taken action to optimize our G&A structure outside of the U.S.
and also to focus company development in markets where we feel
there is opportunity for significant growth and improved returns.
In 1998, recognizing that two-thirds of our international profit
was coming from just seven countries, we decided to substantially
reduce our number of our primary equity markets from 27 to our
ultimate goal of about ten markets. By the end of 1999 we expect
to have only about 16 primary equity markets outside of the U.S."
Perspectives on 1999
"We believe we've laid the groundwork in 1998 for another powerful
year in 1999," Mr. Pearson said. "We expect system sales to grow four
to five percent, driven mostly by the 1,500 new units we expect the
system to build, mostly driven by our franchisees. Our company
revenues will continue to decline, reflecting the loss of sales from
the 800 to 900 stores that we expect to refranchise in 1999, and of
course the loss of revenues on the stores that we sold and closed in
1998. Franchise fees, however, should grow in the low-
3
<PAGE>
teen range as a result of franchisees building new units and acquiring
former company stores.
Cost savings, productivity enhancements and volume leverage, should
help generate about a 50 basis point improvement in base store level
margins, while the benefits of our portfolio actions should add
another 50 basis points to our store margins. Despite continued
spending on our Y2K initiatives and other system enhancements, G&A
should drop by about $50 million. In total, we expect operating profit
to grow in the mid-teen range and, when coupled with about an eight
percent decline in net interest, operating earnings should be up just
over 20 percent. Average diluted shares should increase to about 163
million.
Our pipeline of new products and marketing for 1999 is far more robust
than it was in 1998, beginning with the recent launch of Pizza Hut's
"The Big New Yorker". The new 16" pizza is aimed at the largest
segment of the category, traditional New York style pizza. At an
unbeatable value of $9.99, The Big New Yorker drove all-time record
sales at Pizza Hut in its first full week. Taco Bell launched a line
extension of their popular Gorditas with the new Baja Gordita and
we'll see some additional product news from Taco Bell later in the
year. Lastly, KFC will launch their much-anticipated line of chicken
sandwiches later in the year. Overlaying these new products is an
exclusive global restaurant tie-in with the new Star Wars movie,
Episode 1 - The Phantom Menace, scheduled to premier on May 21 in the
U.S. This tie-in will provide us with a unique opportunity to
encourage customers worldwide to try all three of our brands.
On the financial front we expect to refranchise at least 800 to 900
stores in 1999. If market conditions continue to be favorable, and we
can sell more than our current target, we will. After-tax proceeds
from the sale of these units of about $300 million, coupled with cash
from operations, will go to fund about $570 million in capital
spending and $400-$500 million of debt payments. By the end of 1999,
we expect our debt balance to be down to just over $3 billion.
It's clear we're aggressively executing against our goals on both the
operational and financial front. We believe we've created an
infrastructure to sustain our sales and profit momentum, which will
enable us to reach our goal of being the best restaurant company in
the world", said Mr. Pearson.
Results
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.
4
<PAGE>
Worldwide system sales for the core business were up one percent in
the quarter. System sales represent the combined sales of company,
franchised, licensed and joint venture units. Excluding the impact of
currency translation, worldwide system sales increased four percent as
new unit development and same store sales increases were partially
offset by the adverse impact of store closures. Domestic system sales
increased five percent while, excluding the impact of currency
translation, international system sales increased three percent.
Excluding the impact of currency translation, worldwide system sales
increased four percent year-to-date.
As expected, worldwide revenues declined ten percent in the quarter.
Revenues include company sales and franchise fees. Excluding the
impact of currency translation, worldwide revenues declined eight
percent. The decline was driven by refranchising and store closures,
which were partially offset by same store sales growth and new unit
development. Domestic revenues declined nine percent while
international revenues declined five percent, excluding the impact of
currency translation. Franchise and license fees increased ten percent
driven by new units. Year-to-date revenues declined 13 percent;
excluding the impact of currency translation, worldwide revenue
declined 11 percent.
Same store sales at Pizza Hut were up four percent driven by the
promotion of Stuffed Crust Pizza. Taco Bell's same store sales
increased nine percent driven by the continued success of their new
product Gorditas and the promotion of the Chihuahua plush toy. At KFC,
same store sales grew four percent driven by the introduction of their
new product Popcorn Chicken. Year-to-date same store sales were up six
percent at Pizza Hut, three percent at Taco Bell and three percent at
KFC.
Company store margins as a percent of sales increased 281 basis points
for the quarter. The portfolio effect of facility actions and benefits
from the fourth quarter charge in 1997 contributed 90 basis points to
the increase in margins. The 191 basis point increase in base margins
was driven by favorable pricing and mix shifts in excess of cost
increases. The increase in base store margins was depressed by record
high cheese prices. We estimate that the record high cost of cheese
impacted total margins by approximately 90 basis points. Higher cheese
costs, however, were mitigated by favorabilities in other commodities.
Year-to-date, margins increased 187 basis points driven by the
portfolio effect of facility actions and the benefits from the 1997
fourth quarter charge which contributed 119 basis points to the
increase.
General, administrative and other expenses (G&A), which includes
foreign exchange gains/losses and income/loss from joint ventures, was
flat in the quarter. The cost of our Y2K initiatives, and efforts to
improve and consolidate administrative and accounting systems were
offset by the favorable impact of stores refranchised and closed, the
overlapping of foreign exchange losses, and the disposal of our
non-core businesses. G&A was higher than expected in the quarter by
approximately $25 million primarily due to higher incentive and
stock-based compensation and strategic spending in the marketplace.
5
<PAGE>
Effective Tax Rate
The effective tax rate for the quarter of 38.6 percent was lower than
anticipated due to a decrease in foreign taxes and a favorable shift
in the mix of the components of our taxable income. Our operating tax
rate for the quarter was 40.4 percent. Our full year effective tax
rate was 41.1 percent and our operating tax rate was 42.3 percent.
Financial Summary
Fourth Quarter and YTD 1998
(MMs except per share amounts)
Q4
------------------------------
% Change
1998 1997 (a) B/(W)
-------- --------- ---------
System Sales $ 6,422 $ 6,358 1
Company revenues 2,526 2,794 (10)
Ongoing operating profit (b) $ 220 $ 165 33
Interest expense 74 88 16
Income tax provision 59 33 (77)
======== =========
Operating Earnings (b) $ 87 $ 44 97
======== =========
Earnings (loss) per share
components (1998 diluted;1997
basic) (c):
Operating Earnings - core $ 0.55 $ 0.30 NM
Operating Earnings - non-core - (0.01) NM
Unusual charges -core (0.04) (0.86) NM
Unusual charge - non-core - - NM
Facility Actions Net Gain/
(loss) (d) 0.44 (1.82) NM
======== =========
Total $ 0.95 $ (2.39) NM
======== =========
Full Year
------------------------------
% Change
1998 1997 (a) B/(W)
-------- --------- ---------
System Sales 20,620 $ 20,465 1
Company revenues 8,468 9,685 (13)
Ongoing operating profit (b) $ 768 $ 672 14
Interest expense 272 276 1
Income tax provision 210 179 (17)
======== =========
Operating Earnings (b) $ 286 217 32
======== =========
Earnings (loss) per share
components (1998 diluted;1997
basic) (c):
Operating Earnings - core $ 1.83 $ 1.37 NM
Operating Earnings - non-core - 0.05 NM
Unusual charges -core (0.02) (0.86) NM
Unusual charge - non-core - (0.22) NM
Facility Actions Net Gain/
(loss) (d) 1.03 (1.07) NM
======== =========
Total $ 2.84 $ (0.73) NM
======== =========
(a) 1997 includes the results of Tricon's non-core businesses which
were disposed of in 1997. Comparison of 1998 versus 1997 core
business results are reflected in the attached condensed
consolidated statement of operations.
(b) Before facility actions net gain and unusual charges.
(c) The shares used to compute pro forma basic loss per common share
for the 52 weeks ending December 27,1997 assumes the 152 million
shares of Tricon common stock issued on October 7, 1997 had been
outstanding for the entire year. The dilutive effect of any
options has been excluded because we incurred a net loss.
(d) 1997 includes a loss of $1.98 per basic share included in our
total fourth quarter charge of $2.80 per basic share.
6
<PAGE>
This announcement contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. 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 materially 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, the success of our refranchising strategy,
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
7
<PAGE>
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Operations
(tabular amounts in millions, except per share amounts)
(unaudited)
16 Weeks Ended % Change (a)
-------------------- ----------------
(c)
(b) Reported Core
12/26/98 12/27/97 B/(W) B/(W)
--------- --------- --------- -----
REVENUES
Company sales $ 2,326 $ 2,613 (11) (11)
Franchise and license fees (d) 200 181 10 10
--------- ---------
2,526 2,794 (10) (9)
--------- ---------
Costs and expenses, net
Company restaurants
Food and paper 759 847 10 10
Payroll and employee benefits
636 744 15 14
Occupancy and other operating
expenses 612 738 17 17
--------- ---------
2,007 2,329 14 13
General, administrative and
other expenses (e) 299 300 1 (1)
Facility actions net (gain)
loss (f) (119) 383 NM NM
Unusual charges (g) 20 130 NM NM
--------- ---------
Total costs and expenses, net 2,207 3,142 30 29
--------- ---------
Operating Profit (Loss) 319 (348) NM NM
Interest expense, net (e) 74 88 16 16
--------- ---------
Income (Loss) Before Income
Taxes 245 (436) NM NM
Income Tax Provision (h) 94 (73) NM NM
--------- ---------
Net Income (Loss) $ 151 $ (363) NM NM
========= =========
Basic EPS Data
- --------------
EPS $ 0.99 $ (2.39)
========= =========
Average Shares Outstanding 153 152
========= =========
Pro Forma EPS (i)
Pro Forma Average Shares
Outstanding (i)
Diluted EPS Data
- ----------------
EPS $ 0.95
=========
Average Shares Outstanding 159
=========
NM - Not Meaningful
See accompanying notes.
8
<PAGE>
52 Weeks Ended % Change (a)
-------------------- ----------------
(c)
(b) Reported Core
12/26/98 12/27/97 B/(W) B/(W)
--------- --------- --------- -----
REVENUES
Company sales $ 7,852 $ 9,112 (14) (11)
Franchise and license fees (d) 616 573 7 8
--------- ---------
8,468 9,685 (13) (10)
--------- ---------
Costs and expenses, net
Company restaurants
Food and paper 2,521 2,949 15 12
Payroll and employee benefits
2,243 2,614 14 11
Occupancy and other operating
expenses 2,030 2,491 19 17
--------- ---------
6,794 8,054 16 13
General, administrative and
other expenses (e) 906 959 6 3
Facility actions net (gain)
loss (f) (275) 247 NM NM
Unusual charges (g) 15 184 NM NM
--------- ---------
Total costs and expenses, net 7,440 9,444 21 19
--------- ---------
Operating Profit (Loss) 1,028 241 NM NM
Interest expense, net (e) 272 276 1 -
--------- ---------
Income (Loss) Before Income
Taxes 756 (35) NM NM
Income Tax Provision (h) 311 76 NM NM
--------- ---------
Net Income (Loss) $ 445 $ (111) NM NM
========= =========
Basic EPS Data
- --------------
EPS $ 2.92
=========
Average Shares Outstanding 153
=========
Pro Forma EPS (i) $ (0.73)
===========
Pro Forma Average Shares
Outstanding (i) 152
===========
Diluted EPS Data
- ----------------
EPS $ 2.84
=========
Average Shares Outstanding 156
=========
NM - Not Meaningful
See accompanying notes.
8a
<PAGE>
TRICON Global Restaurants, Inc.
Supplemental Schedule of Revenues and Operating Profit (Loss)
(tabular amounts in millions)
(unaudited)
16 Weeks Ended % Change (a)
-------------------- --------------------
(c)
(b) Reported Core
12/26/98 12/27/97 B/(W) B/(W)
--------- --------- ---------- ---------
SYSTEM SALES (c)
United States $ 4,366 $ 4,163 5 5
International 2,056 2,195 (6) (6)
--------- ---------
Total $ 6,422 $ 6,358 1 1
========= =========
REVENUES
United States $ 1,904 $ 2,096 (9) (9)
International 622 698 (11) (11)
--------- ---------
Total $ 2,526 $ 2,794 (10) (9)
========= =========
RESTAURANT MARGIN
United States $ 243 $ 213 14 15
International 76 71 7 7
--------- ---------
Total $ 319 $ 284 12 13
========= =========
United States 13.7% 10.8% 2.9 ppts 2.9 ppts
International 13.6% 11.2% 2.4 ppts 2.4 ppts
Total 13.7% 10.9% 2.8 ppts 2.8 ppts
OPERATING PROFIT
United States (d) $ 217 $ 162 35 33
International 61 48 27 27
--------- ---------
Total 278 210 33 32
Unallocated expenses(e) 62 44 (43) (43)
Foreign exchange gain
(loss) 4 (1) NM NM
--------- ---------
Ongoing operating profit 220 165 33 32
Facility actions net
gain (loss) (f) 119 (383) NM NM
Unusual charges (g) (20) (130) NM NM
--------- ---------
Total Operating Profit
(Loss) $ 319 $ (348) NM NM
========= =========
NM - Not Meaningful
See accompanying notes.
9
<PAGE>
52 Weeks Ended % Change (a)
--------------------- --------------------
(c)
(b) Reported Core
12/26/98 12/27/97 B/(W) B/(W)
---------- --------- ---------- ---------
SYSTEM SALES (c)
United States $ 14,013 $ 13,502 4 4
International 6,607 6,963 (5) (5)
--------- ---------
Total $ 20,620 $ 20,465 1 1
========== =========
REVENUES
United States $ 6,428 $ 7,365 (13) (9)
International 2,040 2,320 (12) (12)
--------- ---------
Total $ 8,468 $ 9,685 (13) (10)
========== =========
RESTAURANT MARGIN
United States $ 819 $ 816 - 5
International 239 242 (1) (1)
--------- ---------
Total $ 1,058 $ 1,058 - 4
========== =========
United States 13.6% 11.7% 1.9 ppts 2.0 ppts
International 13.0% 11.4% 1.6 ppts 1.6 ppts
Total 13.5% 11.6% 1.9 ppts 2.0 ppts
OPERATING PROFIT
United States (d) $ 740 $ 603 23 26
International 191 172 11 11
---------- ---------
Total 931 775 20 22
Unallocated expenses(e) 169 87 (93) (93)
Foreign exchange gain
(loss) 6 (16) NM NM
---------- ---------
Ongoing operating profit 768 672 14 17
Facility actions net
gain (loss) (f) 275 (247) NM NM
Unusual charges (g) (15) (184) NM NM
---------- ---------
Total Operating Profit
(Loss) $ 1,028 $ 241 NM NM
========== =========
NM - Not Meaningful
See accompanying notes.
9a
<PAGE>
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
SUPPLEMENTAL SCHEDULE OF REVENUES AND OPERATING PROFIT (LOSS):
(tabular dollar amounts in millions, except per share amounts)
TRICON Global Restaurants, Inc. and Subsidiaries was created as an
independent, publicly owned company on October 6, 1997 via a tax-free
spin-off by PepsiCo, Inc. ("PepsiCo") of our Common Stock to the
shareholders of our former parent, PepsiCo.
Certain items have been reclassified in the condensed consolidated
financial statements for prior periods to conform with the fiscal 1998
presentation. These reclassifications had no effect on previously
reported net income.
(a) Percentages may not recompute due to rounding.
(b) Results for 1997 include the non-core businesses disposed of in
1997. Excluding the 1997 unusual charges of $54 million, the
non-core businesses contributed the following:
16 Weeks Ended 52 Weeks Ended
12/27/97 12/27/97
------------- -------------
Revenues $ 16 $ 268
Operating (loss) profit (2) 13
Net (loss) income (1) 8
Pro forma basic earnings
per common share (i) $ - $ 0.05
(c) Excludes the non-core businesses.
(d) Franchise and license fees for the quarter and year-to-date 1997
include $1 million and $24 million, respectively ($1 and $14
million after-tax or $.01 and $.10 per pro forma basic share)
received under a special KFC U.S. franchise contract renewal
program.
(e) Includes PepsiCo's allocations through the spin-off date of
interest expense of $17 million and general and administrative
expenses of $3 million for the 16 weeks ended December 27, 1997
and $188 million and $37 million, respectively, for the 52 weeks
ended December 27, 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.
(f) Facility actions net loss in 1997 includes $410 million ($300
million after-tax or $1.98 per basic share) of our fourth quarter
charge of $530 million ($425 million after-tax or $2.80 per basic
share) taken to refocus our business. Facility actions included
in the charge were as follows:
U.S. International
---------------- ------------------
Units Pre-tax Units Pre-tax
------ -------- ------- ---------
Stores to be refranchised 362 $ 77 305 $ 59
Stores to be closed 596 141 143 72
Impairment charges for stores
to be used in the business N/A 12 N/A 49
------ -------- ------- ---------
Total 958 $ 230 448 $ 180
====== ======== ======= =========
Facility actions net gain in 1998 include favorable adjustments
to our 1997 fourth quarter charge of $51 million ($31 million
after-tax or $.20 per diluted share) in the quarter and $54
million ($33 million after-tax or $.21 per diluted share)
year-to-date. These adjustments primarily relate to decisions to
retain certain stores originally expected to be disposed of, and
better-than-expected proceeds from stores disposed of.
10
<PAGE>
Exclusive of the 1998 favorable adjustments and the 1997 fourth
quarter charge, facility actions net gain includes the following:
16 Weeks Ended
12/26/98 12/27/97
----------- ------------
Refranchising gains $ 109 $ 45
Store closure costs (19) (7)
Impairment charges for stores
to be used in the business
or to be closed in 1999 (22) (11)
----------- ------------
$ 68 $ 27
=========== ============
After-tax net gain $ 38 $ 23
=========== ============
Per basic share $ .25 $ .15
=========== ============
Per fully diluted share $ .24
===========
52 Weeks Ended
------------------------------
12/26/98 12/27/97
------------ --------------
Refranchising gains $ 281 $ 248
Store closure costs (29) (35)
Impairment charges for stores
to be used in the business
or to be closed in 1999 (31) (50)
------------ --------------
$ 221 $ 163
============ ==============
After-tax net gain $ 129 $ 137
============ ==============
Per basic share $ .84 $ .90 (i)
============ ==============
Per fully diluted share $ .82
============
(g) Unusual charges of $15 million ($3 million after-tax or $.02 per
diluted share) in 1998 include:
o Charges relating to an increase in the estimated costs of
settlement of certain wage and hour litigation and
associated defense and other costs incurred,
o Severance and other exit costs related to strategic
decisions to streamline the infrastructure of our
international business,
o Favorable adjustments to our 1997 fourth quarter charge
related to anticipated actions that were not taken,
primarily severance,
o Write-down to estimated fair market value less costs to sell
of our minority interest in a privately held non-core
business now held for sale and
o Reversals of certain valuation allowances and lease
liabilities relating to better-than-expected proceeds from
the sale of properties and settlement of lease liabilities
associated with properties retained upon the sale of a
non-core business.
<PAGE>
Unusual charges of $184 million ($165 million after-tax or $1.08
per basic share) in 1997 include:
o $120 million ($125 million after-tax or $.82 per basic
share) of unusual asset impairment and severance charges
included in our 1997 fourth quarter charge,
o Charges to reduce the carrying amount of the non-core
businesses held for disposal to estimated market value, less
costs to sell and
o Charges relating to the estimated costs of settlement of
certain wage and hour litigation and the associated defense
and other costs incurred.
(h) The effective tax rates on reported income were 38.6% and 16.7%
for the 16 weeks ended December 26, 1998 and December 27, 1997,
respectively. The effective tax rate on reported income was 41.1%
for the 52 weeks ended December 26, 1998. The effective tax rate
on reported income for the 52 weeks ended December 27, 1997 was
not meaningful. Excluding reversals of the 1997 fourth quarter
charge and unusual charges, 1998 tax rates were 41.4% and 42.1%
for the quarter and year-to-date, respectively.
The 1997 income tax provision reflects the beneficial effect of
the tax-free gain of $100 million associated with the New Zealand
IPO in the second quarter of 1997 included in Refranchising gains
above. Excluding the effects of the tax-free gain, the 1997
fourth quarter charge and the remaining portion of the 1997
unusual charges, the effective tax rates were 34.4% and 45.9% for
the 16 and 52 weeks ended December 27, 1997, respectively.
(i) The shares used to compute pro forma basic loss per common share
for the 52 weeks ended December 27, 1997 assumed the 152 million
shares of TRICON common stock issued on October 7, 1997 had been
outstanding the entire year. The dilutive effect of any options
has been excluded because we incurred a net loss.
11
<PAGE>
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary
For the 16 Weeks Ended December 26, 1998
Company- Joint Fran- Li-
Operated Ventures chised censed Total
-------- -------- -------- ------ ------
Pizza Hut U.S.
Balance at September 5, 1998 3,205 - 3,877 1,420 8,502
New builds and acquisitions 15 - 20 73 108
Refranchising and licensing (178) - 178 - -
Closures (57) - (34) (48) (139)
-------- -------- -------- ------ -------
Balance at December 26, 1998 2,985 - 4,041 1,445 8,471
======== ======== ======== ====== =======
Taco Bell U.S.
Balance at September 5, 1998 1,797 - 3,213 1,757 6,767
New builds and acquisitions 1 - 107 93 201
Refranchising and licensing (181) - 186 (5) -
Closures (3) - (12) (73) (88)
-------- -------- -------- ------ -------
Balance at December 26, 1998 1,614 - 3,494 1,772 6,880
======== ======== ======== ====== =======
KFC U.S.
Balance at September 5, 1998 1,705 - 3,355 68 5,128
New builds and acquisitions 23 - 43 - 66
Refranchising and licensing (55) - 55 - -
Closures (40) - (12) (10) (62)
-------- -------- -------- ------ -------
Balance at December 26, 1998 1,633 - 3,441 58 5,132
======== ======== ======== ====== =======
Total U.S.
Balance at September 5, 1998 6,707 - 10,445 3,245 20,397
New builds and acquisitions 39 - 170 166 375
Refranchising and licensing (414) - 419 (5) -
Closures (100) - (58) (131) (289)
-------- -------- -------- ------ -------
Balance at December 26, 1998 6,232 - 10,976 3,275 20,483
======== ======== ======== ====== =======
Total International
Balance at September 5, 1998 2,237 1,105 5,540 321 9,203
New builds and acquisitions 66 34 209 - 309
Refranchising and licensing (53) (3) 56 - -
Closures (85) (16) (131) - (232)
-------- -------- -------- ------ -------
Balance at December 26, 1998 2,165 1,120 5,674 321 9,280
======== ======== ======== ====== =======
Total
Balance at September 5, 1998 8,944 1,105 15,985 3,566 29,600
New builds and acquisitions 105 34 379 166 684
Refranchising and licensing (467) (3) 475 (5) -
Closures (185) (16) (189) (131) (521)
-------- -------- -------- ------ -------
Balance at December 26, 1998 8,397(a) 1,120(a) 16,650 3,596 29,763
======== ======== ======== ====== =======
% of Total 28.2% 3.8% 55.9% 12.1% 100.0%
a) Includes 166 Company-Operated and 4 Joint Venture units approved
for closure but not yet closed at December 26, 1998.
12
<PAGE>
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary
For the 52 Weeks Ended December 26, 1998
Company- Joint Fran- Lic-
Operated Ventures chised censed Total
-------- -------- ------- ------ -------
Pizza Hut U.S.
Balance at December 27, 1997 3,823 - 3,581 1,294 8,698
New builds and acquisitions 32 - 57 274 363
Refranchising and licensing (553) - 553 - -
Closures (317) - (150) (123) (590)
-------- -------- -------- ------ -------
Balance at December 26, 1998 2,985 - 4,041 1,445 8,471
======== ======== ======== ====== =======
Taco Bell U.S.
Balance at December 27, 1997 2,149 - 2,826 1,793 6,768
New builds and acquisitions 7 - 191 232 430
Refranchising and licensing (511) - 508 3 -
Closures (31) - (31) (256) (318)
-------- -------- -------- ------ -------
Balance at December 26, 1998 1,614 - 3,494 1,772 6,880
======== ======== ======== ====== =======
KFC U.S.
Balance at December 27, 1997 1,850 - 3,190 80 5,120
New builds and acquisitions 38 - 94 2 134
Refranchising and licensing (185) - 185 - -
Closures (70) - (28) (24) (122)
-------- -------- -------- ------ -------
Balance at December 26, 1998 1,633 - 3,441 58 5,132
======== ======== ======== ====== =======
Total U.S.
Balance at December 27, 1997 7,822 - 9,597 3,167 20,586
New builds and acquisitions 77 - 342 508 927
Refranchising and licensing (1,249) - 1,246 3 -
Closures (418) - (209) (403) (1,030)
-------- -------- -------- ------ -------
Balance at December 26, 1998 6,232 - 10,976 3,275 20,483
======== ======== ======== ====== =======
Total International
Balance at December 27, 1997 2,295 1,090 5,500 241 9,126
New builds and acquisitions 189 94 567 42 892
Refranchising and licensing (131) (9) 63 77 -
Closures (188) (55) (456) (39) (738)
-------- -------- -------- ------ -------
Balance at December 26, 1998 2,165 1,120 5,674 321 9,280
======== ======== ======== ====== =======
Total
Balance at December 27, 1997 10,117 1,090 15,097 3,408 29,712
New builds and acquisitions 266 94 909 550 1,819
Refranchising and licensing (1,380) (9) 1,309 80 -
Closures (606) (55) (665) (442) (1,768)
-------- -------- -------- ------ -------
Balance at December 26, 1998 8,397(a) 1,120(a) 16,650 3,596 29,763
======== ======== ======== ====== =======
% of Total 28.2% 3.8% 55.9% 12.1% 100.0%
a) Includes 166 Company-Operated and 4 Joint Venture units approved
for closure but not yet closed at December 26, 1998.
13
