================================================================================
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 9, 2000
Commission file number 1-13163
-----------
TRICON GLOBAL RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 13-3951308
- --------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
of incorporation or organization) Identification No.)
1441 Gardiner Lane, Louisville, Kentucky 40213
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 874-8300
Former name or former address, if changed since last report: N/A
================================================================================
<PAGE>
Item 5. OTHER EVENTS
On February 9, 2000, TRICON Global Restaurants, Inc. issued a
press release with respect to earnings for the fourth quarter
and fiscal year ended December 25, 1999. 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 9, 2000 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 10, 2000 /s/ Matthew M. Preston
----------------- ------------------------------
Matthew M. Preston
Assistant Secretary
3
EXHIBIT 99
TRICON GLOBAL RESTAURANTS ANNOUNCES A 42 PERCENT INCREASE IN
ONGOING OPERATING EARNINGS TO $0.78 PER SHARE
FOR THE FOURTH QUARTER
LOUISVILLE, KY (February 9, 2000)- Tricon Global
Restaurants, Inc. (NYSE:YUM) reported fourth quarter ongoing operating
earnings of $122 million, or $0.78 per share, a 42 percent increase
for the quarter ended December 25, 1999. Full year ongoing operating
earnings increased 41 percent to $2.58 per share. Ongoing operating
EPS is from operations and does not include the impact of accounting
changes, facility action net gains, and unusual items.
Financial Highlights
Ongoing Operations
($MM except per diluted share amounts)
% Change % Change
vs. prior vs. prior
Q4 year Full Year year
-- --------- --------- ---------
System Sales 6,868 7 21,762 6
Revenues(a) 2,311 (9) 7,822 (8)
Operating Profit 243 11 881 15
Operating Earnings 122 41 412 44
=====================================================================
Operating EPS 0.78 42 2.58 41
=====================================================================
Reported EPS(b) 0.93 (2) 3.92 38
(a)As expected, our company revenues declined primarily due to our
strategic program to sell company restaurants to our franchise
partners.
(b)Reported results, which are more fully described in the financial
attachments, include the impact of accounting changes, facility
action net gains, and unusual items.
<PAGE>
David C. Novak, Chief Executive Officer said, "We are very pleased
that Tricon grew its ongoing operating earnings per share by more than
40 percent in both the fourth quarter, and full year. Fueled by Pizza
Hut's continued success, our full-year domestic blended same store
sales growth was four percent, and our international business
delivered its strongest increase in profits in almost a decade. These
results are a clear reflection that we are continuing to successfully
execute our operational and financial strategies. Stepping back, we
took a number of actions that strengthened our long-term growth
prospects and contributed to this year's outstanding results.
"We successfully entered three new product segments with considerable
long term growth potential: "on the go" with sandwiches at KFC,
"value" with The Big New Yorker at Pizza Hut and "big taste, hot
value" with Chalupas at Taco Bell. We have continued to improve our
cost base and have rapidly increased restaurant level margins to
industry standards through improvements in base operations.
Specifically, we dramatically improved our margins in 1999 which
included about 125 basis points from base operations, on top of about
70 basis points from base operations in 1998. Importantly, we're
confident we have the right programs in place to drive further
increases. Improved margins have helped raise our ROAE up from ten
percent to about 23 percent in just two years.
"Over the long-term, our future is even more promising based on the
results we are achieving with our international business and our
strategy to focus on key equity growth markets. In 1999 Tricon
achieved a 39 percent increase in international ongoing operating
profit. In fact, in 2000 over one-fourth of our total ongoing
operating profit will come from our international business and we
expect this to grow at about 15-20 percent annually. In addition to
our international development opportunities, we have also uncovered
significant new unit opportunity in the U.S. supported by the success
of our individual restaurants and multi-branding efforts. In 2000 we
expect to build over 1,300 new restaurants across our global system.
"On the financial front, we continue to put restaurants in the hands
of growth ready franchisees. In 1999, we reduced our ownership of the
system about five points to 23 percent, as we close in on our target
of about 20 percent company ownership. Cash from operations and this
refranchising strategy have enabled us to pay down over $2.1 billion
in debt since year-end 1997, strengthening our balance sheet and
increasing our financial flexibility, while also enabling us to invest
in the business and buy back shares.
"Given this strong foundation, our outlook for 2000 remains very
positive. We're targeting about six percent systemwide sales growth
and expect to grow ongoing operating EPS 23 to 27 percent on top of
our higher 1999 base. It's too early to know for certain what the
impact to our results, if any, might be as a result of last month's
Chapter 11 bankruptcy filing by AmeriServe, our principal U.S.
distributor. We're pleased that we've been able to maintain service to
our restaurants in a cost effective manner to date. We believe
AmeriServe's filing should enable it to ultimately establish
2
<PAGE>
a new long-term financing plan. In the interim, along with another major
AmeriServe customer, we received Bankruptcy Court approval to extend a
debtor-in-possession line of credit to AmeriServe, under which our
commitment is $100 million, to fund AmeriServe's ongoing operations.
We have also arranged for direct payments to AmeriServe's vendors who
supply our system's restaurants," Mr. Novak concluded.
Tricon continued to achieve solid progress in its operations. In the
quarter, its ongoing operating profit increased 11 percent driven by a
16 percent increase in franchise fees, a five percent decline in
ongoing G&A and a 70 basis point increase in ongoing restaurant level
margins. Ongoing base restaurant level margins increased over ten
basis points in the quarter even though favorable insurance-related
adjustments were 75 basis points lower than the prior year. The
company's strong improvement in operating performance was fueled by
improved cost management and an increase in blended same store sales
in the U.S. of over two percent, driven by Pizza Hut, and a 29 percent
increase in ongoing operating profit from the international business.
Tricon also continued to make substantial progress executing its
financial strategies, refranchising almost 300 restaurants in the
quarter and paying down nearly $200 million of debt. Year-to-date
Tricon sold over 1,400 restaurants to its franchise partners reducing
its ownership to 23 percent of the system, generated almost $1 billion
in free cash flow, paid down over $1 billion in debt and invested
approximately $470 million in new and existing restaurants. Based on
the improved financial condition of the company, Duff and Phelps
upgraded Tricon's debt rating to investment grade in January of this
year. In addition, in the fourth quarter Tricon invested over $130
million to buy back 3.3 million of its own shares under the $350
million share repurchase program announced in September 1999.
David Deno, Chief Financial Officer, said, "Our ongoing operating EPS
in the quarter was stronger than previously forecast primarily because
of a lower effective tax rate, a benefit from insurance-related
adjustments, and importantly, stronger performance from the base
business. The lower tax rate was driven by a one-time item, however,
we continue to implement tax strategies to permanently reduce our
effective tax rate in the future. We expect to benefit from these
strategies this year, which will allow us to overlap the 1999 one-time
benefits reduction. A reduction in our tax rate provides an annual
cash benefit to Tricon which ultimately increases shareholder returns.
"In 2000 we'll continue to make measurable progress against our
financial strategies by selling 500 to 600 restaurants and generating
close to $500 million in free cash flow," said Mr. Deno.
Pizza Hut's six percent increase in same store sales was the tenth
consecutive quarter of growth. Driven by the success of The Big New
Yorker, launched in January of 1999, same store sales increased nine
percent for the year. By delivering on its competitive positioning to
have the "Best Pizzas Under One Roof", Pizza Hut led the industry for
the year in same store sales growth and grew market share in the key
traditional segment.
3
<PAGE>
KFC recorded a two percent increase in same store sales in the quarter
on top of four percent growth last year. Full-year 1999, same store
sales increased two percent. Starting in September, KFC introduced
five new freshly made chicken sandwiches: Tender Roast, Original
Recipe, Triple Crunch, Triple Crunch Zinger and Honey Barbecue. In
this short period of time, KFC's share of the chicken sandwich
category grew from under two percent to over eight percent. This
success fueled a 24 percent increase in the chicken sandwich category,
which was the strongest category growth in five years.
While sandwiches have not yet reached their full potential,
considerable trial upside remains and Tricon believes that this new
concept layer of sandwiches will help to drive profitability for the
system long term. The focus in 2000 will be to drive sales through
effective marketing of both the base chicken-on-the-bone business and
sandwiches. In particular, sandwich marketing will be focused on
building customer trial and repeat business long term.
As expected, Taco Bell posted a one percent decline in same store
sales in the fourth quarter, against a nine percent increase in same
store sales last year. This was Taco Bell's most difficult comparison
in almost six years. With the launch of the Chalupa in the fourth
quarter, Taco Bell successfully reignited transaction growth through
its focus on value oriented hot and fried high quality products.
Full-year 1999 same store sales were flat.
Tricon's international business delivered a 29 percent increase in
ongoing operating profits in the quarter on top of 27 percent growth a
year ago. On a local currency basis, same store sales were up at least
five percent or better at KFC in Mexico, Australia, the U.K. and China
and Pizza Hut in China and Singapore. Additionally, operating profits
were up over 50 percent in China and Korea due to product promotions,
new restaurants and improved cost controls. Consistent with its
strategy to focus company capital on key equity growth markets, in the
quarter Tricon entered agreements to transfer its restaurants in
Canada and Poland to new joint ventures with some of its largest
franchisees.
4
<PAGE>
The term "ongoing" in the following section excludes the impact of
accounting changes, facility action net gains, and unusual items.
Results*
- --------
- -- System sales grew seven percent to almost $6.9 billion, driven by
same store sales growth and net new restaurants. Year-to-date
system sales grew six percent to nearly $21.8 billion.
- U.S. system sales increased three percent for the quarter
and four percent year-to-date.
- International system sales increased 16 percent for the
quarter and ten percent for the year. Excluding the
favorable impact of currency translation, international
system sales grew 12 percent for the quarter and eight
percent year-to-date.
- -- As expected, Tricon's refranchising efforts drove a decline in
our worldwide company revenues despite net new restaurants.
- U.S. revenues declined 13 percent in the quarter and 11
percent year-to-date.
- International revenues increased three percent for the
quarter and two percent for the year. Excluding the
favorable impact of currency translation, international
revenues were up two percent for the quarter and one percent
year-to-date.
- Franchise and license fees increased 16 percent in the
quarter and 15 percent for the year driven by existing
restaurants acquired by franchisees from Tricon and net new
restaurants.
- -- Ongoing company restaurant level margins as a percent of sales
increased 70 basis points for the quarter.
- -- Ongoing base restaurant level margins were up over ten basis
points in the quarter. Excluding the net unfavorable overlap of
about 75 basis points of insurance-related adjustments, base
restaurant margins were up 85 basis points driven by improved
product cost management and new restaurants.
- -- Year-to-date, ongoing restaurant level margins increased
approximately 175 basis points; ongoing base margins contributed
125 basis points to this growth.
- -- Ongoing general and administrative expenses (G&A) declined five
percent in the quarter. Lower performance and incentive
compensation and savings from Tricon's portfolio actions drove
the decline. Ongoing operating G&A was flat for the year.
- -- Other income declined 43 percent for the quarter and 31 percent
for the year due to a net loss on foreign exchange transactions
versus a net gain last year.
5
<PAGE>
- -- In the fourth quarter, the favorable impact of previously
disclosed accounting changes totaled $0.03 per share. For the
year, the favorable impact of accounting changes totaled $0.11
per share.
- -- Net interest expense declined 24 percent in the quarter and 26
percent for the year primarily due to lower debt levels.
- -- The effective tax rate on ongoing operating income for the
quarter of 34.7 percent was lower than the anticipated rate of 39
percent primarily due to a one-time favorable international
benefit. This compares to a 40.4 percent rate last year. In the
quarter, the lower tax rate versus our previous forecast
contributed about $0.05 to the growth in ongoing operating
earnings per share. Tricon's full year effective tax rate on
ongoing operating income was 39.3 percent versus 42.3 percent in
1998. For 2000, Tricon currently anticipates a 38.5 percent
ongoing operating effective tax rate for the year.
- -- Tricon repurchased 3.3 million shares for over $130 million in
the fourth quarter under its $350 million share buy back program
announced in September 1999. The share repurchase program
decreased our average diluted shares outstanding by approximately
1.6 million and .5 million in the quarter and year-to-date
respectively. Year-to-date in 2000, Tricon has repurchased 3.2
million shares for approximately $120 million.
*These results should be read in conjunction with the attached
financial summary.
6
<PAGE>
Financial Summary
- -----------------
Fourth Quarter 1999
-------------------
(MMs except per share amounts)
Quarter %
-------------------- Change
1999 1998 B/(W)
-------- -------- --------
System sales(a) $ 6,868 $ 6,422 7
Company revenues(b) $ 2,311 $ 2,529 (9)
Ongoing operating $ 243 $ 220 11
profit(c)
Interest expense 57 74 24
Income tax provision 64 59 (10)
-------- --------
Ongoing operating $ 122 $ 87 41
earnings(c) ======== ========
Earnings per diluted share components:
Ongoing operating $ 0.78 $ 0.55 42
earnings
Accounting changes(d) 0.03 -- NM
Facility actions net gain 0.27 0.44 (38)
Unusual items(e) (0.15) (0.04) NM
-------- --------
Total $ 0.93 $ 0.95 (2)
======== ========
Year-to-Date %
--------------------- Change
1999 1998 B/(W)
--------- ---------- ---------
System sales(a) $ 21,762 $ 20,620 6
Company revenues(b) $ 7,822 $ 8,479 (8)
Ongoing operating $ 881 $ 768 15
profit(c)
Interest expense 202 272 26
Income tax provision 267 210 (27)
-------- --------
Ongoing operating $ 412 $ 286 44
earnings(c) ======== ========
Earnings per diluted share components:
Ongoing operating $ 2.58 $ 1.83 41
earnings
Accounting changes(d) 0.11 -- NM
Facility actions net gain 1.41 1.03 36
Unusual items(e) (0.18) (0.02) NM
-------- --------
Total $ 3.92 $ 2.84 38
======== ========
(a) Includes combined sales from company, franchisees, licensees, and
affiliates.
(b) Includes company sales and franchise and license fees.
(c) Before accounting changes, facility actions net gain and unusual
items.
(d) Includes both required and discretionary changes, which are more
fully described in our 1999 third quarter Form 10-Q.
(e) Primarily includes in the fourth quarter of 1999 write-offs of
amounts due from AmeriServe, additional costs related to wage and
hour litigation, and a favorable adjustment to our 1997 fourth
quarter charge.
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,
fluctuations in commodity prices, supplier contracts, business
viability of our key distributor, and actuarially determined casualty
loss estimates. 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.
7
<PAGE>
Tricon Global Restaurants will hold a conference call to review its
operating and financial performance at 12:00 noon EST on Thursday,
February 10, 2000. For U.S. callers the number is 877-679-9045. For
international callers the number is 612-556-2802. The call will be
available for playback by dialing 800-615-3210 for the U.S. and
703-326-3020 for international from February 10th through February
13th.
Analysts are invited to contact:
Lynn A. Tyson, Vice President Investor Relations 502-874-8617
Members of the media are invited to contact:
Amy Sherwood, Vice President Public Relations 502-874-8200
Individual shareholders are invited to contact:
Mary Dossett, Shareholder Relations Analyst 502-874-8294
8
<PAGE>
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Operations
(tabular amounts in millions, except per share amounts)
(unaudited)
%
% Proforma
16 Weeks Ended Change Change
------------------- B/(W) B/(W)
12/25/99 12/26/98 (a)(b) (a)(c)
--------- -------- ------- --------
REVENUES
Company sales $ 2,075 $ 2,326 (11) (11)
Franchise and
license fees 236 203 16 16
--------- --------
2,311 2,529 (9) (9)
--------- --------
Costs and expenses,
net
Company restaurants
Food and paper 663 759 13 13
Payroll and
employee benefits 565 636 11 11
Occupancy and
other operating
expenses 546 612 11 11
--------- --------
1,774 2,007 12 11
General and
administrative
expenses(b) 290 311 7 5
Other (income)
expense(d) (5) (9) (43) (43)
Facility actions net
gain(e) (70) (119) (41) (41)
Unusual items(f) 44 20 NM NM
--------- --------
Total costs and
expenses, net(b)(g) 2,033 2,210 8 8
--------- --------
Operating Profit 278 319 (13) (16)
Interest expense, net 57 74 24 24
--------- --------
Income Before Income
Taxes 221 245 (10) (13)
Income Tax
Provision(h) 76 94 20 23
--------- --------
Net Income $ 145 $ 151 (3) (7)
========= ========
Basic EPS Data
- --------------
EPS $ 0.95 $ 0.99 (3) (7)
========= ========
Average Shares
Outstanding 153 153 - -
========= ========
Diluted EPS Data
- ----------------
EPS $ 0.93 $ 0.95 (2) (6)
========= ========
Average Shares
Outstanding 157 159 1 1
========= ========
NM - Not Meaningful
See accompanying notes.
9
<PAGE>
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Operations
(tabular amounts in millions, except per share amounts)
(unaudited)
%
% Proforma
52 Weeks Ended Change Change
------------------- B/(W) B/(W)
12/25/99 12/26/98 (a)(b) (a)(c)
--------- -------- ------- --------
REVENUES
Company sales $ 7,099 $ 7,852 (10) (10)
Franchise and
license fees 723 627 15 15
--------- --------
7,822 8,479 (8) (8)
--------- --------
Costs and expenses,
net
Company restaurants
Food and paper 2,238 2,521 11 11
Payroll and
employee benefits 1,956 2,243 13 12
Occupancy and
other operating
expenses 1,814 2,030 11 11
--------- --------
6,008 6,794 12 11
General and
administrative
expenses(b) 920 941 2 -
Other (income)
expense(d) (16) (24) (31) (31)
Facility actions net
gain(e) (381) (275) 38 38
Unusual items(f) 51 15 NM NM
--------- --------
Total costs and
expenses, net(b)(g) 6,582 7,451 12 11
--------- --------
Operating Profit 1,240 1,028 21 18
Interest expense, net 202 272 26 26
--------- --------
Income Before Income
Taxes 1,038 756 37 33
Income Tax
Provision(h) 411 311 (32) (28)
--------- --------
Net Income $ 627 $ 445 41 37
========= ========
Basic EPS Data
- --------------
EPS $ 4.09 $ 2.92 40 36
========= ========
Average Shares
Outstanding 153 153 - -
========= ========
Diluted EPS Data
- ----------------
EPS $ 3.92 $ 2.84 38 34
========= ========
Average Shares
Outstanding 160 156 (2) (2)
========= ========
NM - Not Meaningful
See accompanying notes.
9a
<PAGE>
TRICON Global Restaurants, Inc.
Supplemental Schedule of Reportable Operating Segments'
Revenues and Operating Profit
(in millions)
(unaudited)
16 Weeks Ended % Change
------------------ B/(W)
12/25/99 12/26/98 (a)
-------- -------- ---------
SYSTEM SALES
United States $ 4,488 $ 4,366 3
International 2,380 2,056 16
-------- --------
Worldwide $ 6,868 $ 6,422 7
======== ========
REVENUES
United States
Company sales $ 1,508 $ 1,769 (15)
Franchise and license
fees 161 139 16
-------- --------
Total United States 1,669 1,908 (13)
-------- --------
International
Company sales 567 557 2
Franchise and license
fees 75 64 16
-------- --------
Total International 642 621 3
-------- --------
Worldwide $ 2,311 $ 2,529 (9)
======== ========
52 Weeks Ended % Change
------------------ B/(W)
12/25/99 12/26/98 (a)
-------- -------- --------
SYSTEM SALES
United States $14,516 $14,013 4
International 7,246 6,607 10
------- -------
Worldwide $21,762 $20,620 6
======= =======
REVENUES
United States
Company sales $ 5,253 $ 6,013 (13)
Franchise and license
fees 495 426 16
------- -------
Total United States 5,748 6,439 (11)
------- -------
International
Company sales 1,846 1,839 -
Franchise and license
fees 228 201 13
------- -------
Total International 2,074 2,040 2
------- -------
Worldwide $ 7,822 $ 8,479 (8)
======= =======
NM - Not Meaningful
See accompanying notes.
10
<PAGE>
TRICON Global Restaurants, Inc.
Supplemental Schedule of Reportable Operating Segments'
Revenues and Operating Profit
(in millions)
(unaudited)
%
% Proforma
16 Weeks Ended Change Change
----------------- B/(W) B/(W)
12/25/99 12/26/98 (a)(b) (a)(c)
-------- -------- ------- ---------
RESTAURANT MARGIN
United States(b)(g) $ 220 $ 243 (9) (10)
International(b) 81 76 8 8
-------- --------
Worldwide $ 301 $ 319 (5) (6)
======== ========
RESTAURANT MARGIN AS A
PERCENT OF COMPANY SALES
United States 14.6% 13.7% 0.9 ppts. 0.7 ppts.
International 14.3% 13.6% 0.7 ppts. 0.7 ppts.
Worldwide 14.5% 13.7% 0.8 ppts. 0.7 ppts.
OPERATING PROFIT
United States(b)(g) $ 230 $ 217 6 5
International(b) 79 61 30 29
-------- --------
Total(b) 309 278 11 10
Unallocated
expenses(b) (56) (62) 11 3
Foreign exchange
net (loss) gain (1) 4 NM NM
Facility actions
net gain(e) 70 119 (41) (41)
Unusual items(f) (44) (20) NM NM
-------- --------
Total Operating
Profit(b)(g) $ 278 $ 319 (13) (16)
======== ========
%
52 Weeks Ended % Proforma
------------------ Change Change
B/(W) B/(W)
12/25/99 12/26/98 (a)(b) (a)(c)
-------- -------- ------- --------
RESTAURANT MARGIN
United States(b)(g) $ 825 $ 819 1 (1)
International(b) 266 239 11 11
-------- --------
Worldwide $1,091 $1,058 3 2
======== ========
RESTAURANT MARGIN AS A
PERCENT OF COMPANY SALES
United States 15.7% 13.6% 2.1 ppts. 1.9 ppts.
International 14.4% 13.0% 1.4 ppts. 1.4 ppts.
Worldwide 15.4% 13.5% 1.9 ppts. 1.7 ppts.
OPERATING PROFIT
United States(b)(g) $ 828 $ 740 12 10
International(b) 265 191 39 39
-------- --------
Total(b) 1,093 931 17 16
Unallocated
expenses(b) (180) (169) (6) (14)
Foreign exchange
net (loss) gain (3) 6 NM NM
Facility actions
net gain(e) 381 275 38 38
Unusual items(f) (51) (15) NM NM
-------- --------
Total Operating
Profit(b)(g) $1,240 $1,028 21 18
======== ========
NM - Not Meaningful
See accompanying notes.
10a
<PAGE>
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
SUPPLEMENTAL SCHEDULE OF REPORTABLE OPERATING SEGMENTS' REVENUES AND
OPERATING PROFIT:
(tabular dollar amounts in millions, except per share amounts)
Certain items have been reclassified in the condensed consolidated
financial statements for prior periods to conform with the fiscal 1999
presentation. These reclassifications had no effect on previously
reported net income.
(a) Percentages may not recompute due to rounding.
(b) Included in our 1999 operating results are several accounting and
human resource policy changes. These changes fall into three
categories:
-- Required changes in Generally Accepted Accounting Principles
("GAAP") resulting in a benefit of approximately $3 million
and $7 million for the quarter and year-to-date,
respectively,
-- Discretionary methodology changes implemented to more
accurately measure certain liabilities resulting in a
benefit of approximately $1 million and $14 million, for the
quarter and year-to-date, respectively, and
-- Policy changes driven by our accounting and human resource
standardization programs resulting in a benefit of
approximately $4 million and $8 million for the quarter and
year-to-date, respectively.
These changes impacted our results as follows:
16 Weeks 52 Weeks
Ended Ended
12/25/99 12/25/99
---------- ----------
Restaurant margin $ 3 $ 11
General and administrative expenses 5 18
---------- ----------
Operating profit $ 8 $ 29
========== ==========
U.S. $ 3 $ 15
International 1 -
Unallocated 4 14
---------- ----------
Total $ 8 $ 29
========== ==========
After-tax impact $ 5 $ 18
========== ==========
Per diluted share $ 0.03 $ 0.11
========== ==========
(c) Proforma % B/(W) excludes the effects of the accounting and human
resource policy changes described in Note (b) above.
(d) Other (income) expense includes:
16 Weeks Ended
------------------
12/25/99 12/26/98
-------- --------
Equity income from investments in
unconsolidated affiliates $ (6) $ (5)
Foreign exchange net loss (gain) 1 (4)
-------- --------
Total other (income) expense $ (5) $ (9)
======== ========
52 Weeks Ended
-----------------
12/25/99 12/26/98
-------- --------
Equity income from investments in
unconsolidated affiliates $ (19) $ (18)
Foreign exchange net loss (gain) 3 (6)
-------- --------
Total other (income) expense $ (16) $ (24)
======== ========
11
<PAGE>
(e) Facility actions net gain includes the following:
16 Weeks Ended
------------------
12/25/99 12/26/98
-------- --------
Refranchising gains $ 90 $ 107
Store closure (costs) reductions (11) 35
Impairment charges for stores that will
continue to be used in the business (6) (23)
Impairment charges for stores to
be closed in the future (3) -
-------- --------
$ 70 $ 119
======== ========
U.S. $ 79 $ 112
International (9) 7
-------- --------
Total $ 70 $ 119
======== ========
After-tax net gain $ 43 $ 70
======== ========
Per diluted share $ 0.27 $ 0.44
======== ========
52 Weeks Ended
-----------------
12/25/99 12/26/98
-------- --------
Refranchising gains $ 422 $ 279
Store closure (costs) reductions (13) 27
Impairment charges for stores that will
continue to be used in the business (16) (31)
Impairment charges for stores to
be closed in the future (12) -
-------- --------
$ 381 $ 275
======== ========
U.S. $ 385 $ 256
International (4) 19
-------- --------
Total $ 381 $ 275
======== ========
After-tax net gain $ 226 $ 162
======== ========
Per diluted share $ 1.41 $ 1.03
======== ========
These net gains in 1999 and 1998 include the following favorable
adjustments to our 1997 fourth quarter charge:
16 Weeks Ended 52 Weeks Ended
------------------ -----------------
12/25/99 12/26/98 12/25/99 12/26/98
-------- -------- -------- --------
Refranchising gains $ (2) $ (3) $ 4 $ (2)
Store closure costs 6 54 9 56
-------- -------- -------- --------
$ 4 $ 51 $ 13 $ 54
======== ======== ======== ========
U.S. $ 7 $ 59 $ 19 $ 62
International (3) (8) (6) (8)
-------- -------- -------- --------
Total $ 4 $ 51 $ 13 $ 54
======== ======== ======== ========
After-tax net gain $ 3 $ 31 $ 10 $ 33
======== ======== ======== ========
Per diluted share $ 0.02 $ 0.20 $ 0.06 $ 0.21
======== ======== ======== ========
These adjustments relate to lower-than-expected losses from
stores disposed of, decisions to retain certain stores originally
expected to be disposed of and changes in estimated disposal
costs.
12
<PAGE>
(f) Unusual items of $44 million ($24 million after-tax or $0.15 per
diluted share) in the quarter and $51 million ($29 million
after-tax or $0.18 per diluted share) year-to-date 1999 primarily
include:
-- The write-off of amounts owed to TRICON from AmeriServe of
approximately $41 million, which includes a $15 million
unsecured loan from TRICON,
-- An increase in the estimated costs of settlement of certain
wage and hour litigation and associated defense and other
costs incurred,
-- Favorable adjustments to our 1997 fourth quarter charge
related to lower actual costs,
-- The write-down to estimated fair market value less cost to
sell of our idle Wichita processing facility,
-- Costs associated with the pending formation of certain
international affiliates,
-- Impairment of enterprise-level goodwill in one of our
international businesses and
-- Additional severance and other exit costs related to 1998
strategic decisions to streamline the infrastructure of our
international business.
12a
<PAGE>
Unusual items of $20 million ($6 million after-tax or $0.04 per
diluted share) in the quarter and $15 million ($3 million
after-tax or $0.02 per diluted share) year-to-date 1998 include:
-- Severance and other exit costs related to 1998 strategic
decisions to streamline the infrastructure of our
international business,
-- An increase in the estimated costs of settlement of certain
wage and hour litigation and associated defense and other
costs incurred,
-- Favorable adjustments to our 1997 fourth quarter charge
related to anticipated actions that were not taken,
primarily severance,
-- 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 and
-- Write-down to estimated fair market value less costs to sell
of our minority interest in a privately held non-core
business, previously carried at cost.
(g) Our quarter and year-to-date restaurant margin and operating
profit in 1999 and 1998 include the following favorable
self-insurance adjustments as determined by our independent
actuary and other insurance-related adjustments. These
self-insurance adjustments reflect improved casualty loss trends
across all three of our U.S. operating companies.
16 Weeks Ended 52 Weeks Ended
------------------ -----------------
12/25/99 12/26/98 12/25/99 12/26/98
-------- -------- -------- --------
Insurance-related adjustments $ 9 $ 23 $ 30 $ 23
======== ======== ======== ========
After-tax insurance-related
adjustments $ 6 $ 14 $ 19 $ 14
======== ======== ======== ========
Per diluted share $ 0.04 $ 0.09 $ 0.12 $ 0.09
======== ======== ======== ========
(h) The effective tax rates were 34.2% and 38.6% for the 16 weeks
ended December 25, 1999 and December 26, 1998, respectively. The
effective tax rates were 39.5% and 41.1% for the 52 weeks ended
December 25, 1999 and December 26, 1998, respectively.
13
<PAGE>
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary
For the 52 Weeks Ended December 25, 1999
(unaudited)
Affil- Fran- Li-
Company iates chisees censees Total
---------- ------ ------- ------- -------
KFC U.S.
Balance at December 26,
1998(a) 1,633 - 3,414 58 5,105
New openings and
acquisitions 78 - 142 2 222
Refranchising and licensing (218) - 218 - -
Closures and divestitures (54) - (31) (11) (96)
---------- ------ ------- ------- -------
Balance at December 25, 1999 1,439 - 3,743 49 5,231
========== ====== ======= ======= =======
% of Total 27.5% 0.0% 71.6% 0.9% 100.0%
Pizza Hut U.S.
Balance at December 26,
1998(a) 2,985 - 3,982 1,445 8,412
New openings and
acquisitions(b) 30 - 107 373 510
Refranchising and licensing (524) - 524 - -
Closures and
divestitures(b) (133) - (165) (390) (688)
Other (3) - (2) (145) (150)
---------- ------ ------- ------- -------
Balance at December 25, 1999 2,355 - 4,446 1,283 8,084
========== ====== ======= ======= =======
% of Total 29.1% 0.0% 55.0% 15.9% 100.0%
Taco Bell U.S.
Balance at December 26,
1998(a) 1,614 - 3,466 1,772 6,852
New openings and
acquisitions 47 - 183 164 394
Refranchising and licensing (428) - 425 3 -
Closures and divestitures (43) - (52) (192) (287)
Other - - (101) 21 (80)
---------- ------ ------- ------- -------
Balance at December 25, 1999 1,190 - 3,921 1,768 6,879
========== ====== ======= ======= =======
% of Total 17.3% 0.0% 57.0% 25.7% 100.0%
Total U.S.
Balance at December 26,
1998(a) 6,232 - 10,862 3,275 20,369
New openings and
acquisitions 155 - 432 539 1,126
Refranchising and licensing (1,170) - 1,167 3 -
Closures and divestitures (230) - (248) (593) (1,071)
Other (3) - (103) (124) (230)
---------- ------ ------- ------- -------
Balance at December 25, 1999 4,984 - 12,110 3,100 20,194
========== ====== ======= ======= =======
% of Total 24.7% 0.0% 60.0% 15.3% 100.0%
International
Balance at December 26,
1998(a) 2,165 1,120 5,788 321 9,394
New openings and
acquisitions(b) 168 83 426 47 724
Refranchising and licensing (265) (5) 276 (6) -
Closures and
divestitures(b) (71) (20) (186) (53) (330)
---------- ------ ------- ------- -------
Balance at December 25, 1999 1,997 1,178 6,304 309 9,788
========== ====== ======= ======= =======
% of Total 20.4% 12.0% 64.4% 3.2% 100.0%
Worldwide
Balance at December 26,
1998(a) 8,397 1,120 16,650 3,596 29,763
New openings and
acquisitions(b) 323 83 858 586 1,850
Refranchising and licensing (1,435) (5) 1,443 (3) -
Closures and
divestitures(b) (301) (20) (434) (646) (1,401)
Other (3) - (103) (124) (230)
---------- ------ ------- ------- -------
Balance at December 25, 1999 6,981(c) 1,178 18,414 3,409 29,982
========== ====== ======= ======= =======
% of Total 23.3% 3.9% 61.4% 11.4% 100.0%
(a) A total of 114 units have been reclassified from U.S. to International to
reflect the transfer of management responsibility.
(b) Company new openings and acquisitions and franchisee closures and
divestitures include 12 stores acquired by the Company from a U.S.
franchisee and 9 stores acquired from an International franchisee.
(c) Includes 37 Company units approved for closure but not yet closed at
December 25, 1999.
14
