-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nf9e7xQcG+IH+nOKtFicPJgljmD9QRsD6rAQm0j8+3EFQxP0Rf0GAitMgzUVxNxa mewFsxCCcCgLDeLPVMDwzA== 0001041061-99-000002.txt : 19990226 0001041061-99-000002.hdr.sgml : 19990226 ACCESSION NUMBER: 0001041061-99-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990211 ITEM INFORMATION: FILED AS OF DATE: 19990225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRICON GLOBAL RESTAURANTS INC CENTRAL INDEX KEY: 0001041061 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 933951308 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13163 FILM NUMBER: 99549314 BUSINESS ADDRESS: STREET 1: 1900 COLONEL SANDERS LANE CITY: LOUISVILLE STATE: KY ZIP: 40213 BUSINESS PHONE: 5028748300 MAIL ADDRESS: STREET 1: 1900 COLONEL SANDERS LANE CITY: LOUISVILLE STATE: KY ZIP: 40213 FORMER COMPANY: FORMER CONFORMED NAME: GREAT AMERICAN RESTAURANT CO DATE OF NAME CHANGE: 19970618 8-K 1 CURRENT REPORT 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) 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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. 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----