EX-99.1 3 a4570359ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 Yum! Brands, Inc. Reports Record Earnings Per Share in 2003 of $2.06, an Increase of 13% Prior to Special Items; Reported EPS Was $2.02 Including Special Items LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 11, 2004--Yum! Brands Inc. (NYSE: YUM): -- Announces record fourth-quarter Earnings Per Share (EPS) of $0.65 prior to special items, an increase of 16%. Including a special-items gain of $0.05, reported EPS was $0.70, an increase of 23%. -- Increases full-year 2004 EPS guidance by $0.04 to at least $2.27 prior to special items, or reported EPS to at least $2.29. Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 27, 2003. Key highlights for fourth-quarter 2003 performance versus fourth-quarter 2002: -- International system sales increased 10% prior to foreign currency conversion, its strongest quarterly performance of 2003. -- The number of international system restaurants in operation expanded by over 5% driven by record new-restaurant openings of 1,108. -- International franchise and license fees grew 25%. -- International restaurant margin increased to 15.9%, a fourth-quarter record. -- Taco Bell same-store sales increased 4%, its strongest quarterly performance of 2003. -- U.S. multibrand restaurants in operation expanded by 18%. The company ended the year with the lowest debt balance in its history -- $2.1 billion. The company recorded a $25 million pretax special-items gain related to recoveries from the AmeriServe bankruptcy estate in the fourth quarter. These potential recoveries have been previously discussed in Forms 10-Q and 10-K. Consolidated Financial Highlights Fourth % Change Full % Change Quarter Vs. Year Vs. 2003 Prior Year 2003 Prior Year -------- ---------- ------- ---------- System Restaurants 30,837 1 30,837 1 Systemwide Same-Store-Sales Growth 2% NM Even NM Revenues ($ million) $2,653 8 $8,380 8 EPS prior to Special Items $0.65 16 $2.06 13 Special Items EPS $0.05 NM $(0.04) NM Reported EPS $0.70 23 $2.02 7 David C. Novak, Chairman and CEO, said: "I'm pleased to report that in 2003 we showed the underlying strength of our global portfolio of leading brands. With continued profitable international restaurant expansion and Taco Bell's strong sales and profits, we achieved 13% growth in EPS prior to special items. This growth was achieved in spite of a difficult global environment, which included SARS, the war in Iraq and a soft economy early in 2003. Our ongoing goal is to continue to grow EPS at least 10% each year. We expect to do at least that in 2004. In the fourth quarter, our worldwide business achieved 16% EPS growth and record EPS of $0.65. We have solid plans in place to continue building on the unique growth opportunities that make us anything but your ordinary restaurant company: steady improvement in operations, profitable international expansion and multibranding category-leading brands. "Given the strength of our fourth-quarter performance we have raised our full-year 2004 EPS estimate $0.04 to at least $2.27 or at least 10% growth prior to special items. We expect to grow U.S. same-store sales on a blended basis at least 1% to 2%, open at least 1,400 new restaurants worldwide, and add at least 500 U.S. multibrand restaurants in 2004." INTERNATIONAL BUSINESS ---------------------- (million, Fourth Quarter Full Year except --------------------------- --------------------------- restaurant Incr/(Decr) Incr/(Decr) counts ------------- ------------- and Excl Excl percentages) 2003 2002 Reported F/x 2003 2002 Reported F/x ------------------------------------------------------- Financial Measures Revenues $915 $770 +19% +14% $2,725 $2,410 +13% +8% Operating Profit $144 $111 +28% +21% $441 $361 +22% +15% ---------------------------------------------------------------------- Operating Metrics Est. System- Sales Growth +17% +10% +14% +7% System Restaurants 12,171 11,538 +5% NA 12,171 11,538 +5% NA A key factor for this business segment is profitable new-restaurant expansion. Importantly, for 2003, a record 1,108 international system restaurants were opened. These included 663 KFC and 396 Pizza Hut restaurants. In the fourth quarter, continued expansion of our key international brands -- KFC and Pizza Hut -- and positive same-store sales were drivers of international revenue, system-sales and operating-profit growth. Markets and businesses with positive same-store sales included China, KFC Australia, the U.K., Pizza Hut Korea, the Middle East and KFC South Africa. Markets and businesses experiencing negative same-store sales included Japan, Mexico, Canada and KFC Taiwan. Fourth-quarter international system-sales growth prior to foreign currency conversion was 10%, one percentage point greater than previously estimated in our Period 13 sales release, issued January 6, 2004. Restaurant margin as a percentage of sales increased 0.3 percentage points in the quarter or 0.5 percentage points prior to the unfavorable impact from foreign currency translation. Restaurant margin of 15.9% was a fourth-quarter record. The increase was primarily driven by the positive impact of supply-chain savings initiatives (principally in China). For the full year, revenues, system-sales growth and operating profit were principally driven by growth in both KFC and Pizza Hut restaurants in company and franchise markets. More than 70% of the new restaurant openings were built by the company's franchise and joint-venture partners. Restaurant margin as a percentage of sales declined by 0.5 percentage points for the full year. Prior to the unfavorable impact of foreign currency translation, margin declined by 0.3 percentage points. A decline in same-store sales for company markets negatively impacted margins and was partially offset by the impact of supply-chain savings initiatives (principally in China). The favorable impact of foreign currency conversion added $7 million to operating profit for the fourth quarter and $23 million for the full year. UNITED STATES BUSINESS ---------------------- (million, except restaurant Fourth Quarter Full Year counts and --------------------------- --------------------------- percentages) 2003 2002 Incr/(Decr) 2003 2002 Incr/(Decr) ------------------------------------------------------- Financial Measures Revenues $1,738 $1,691 +3% $5,655 $5,347 +6% Operating Profit $241 $240 +1% $812 $802 +1% ---------------------------------------------------------------------- Operating Metrics System Restaurants 18,666 18,860 (1)% 18,666 18,860 (1)% Multibrand Restaurants 2,148 1,817 +18% 2,148 1,817 18% Systemwide Same-Store- Sales Growth +1% +1% NM Even +4% NM In the fourth quarter, continued development of new, higher-volume restaurants and positive same-store sales were the primary drivers of revenue growth. For the full year, the Long John Silver's/A&W acquisition drove revenue growth of 4%. Excluding the effect of the Long John Silver's/A&W acquisition, revenue growth of 2% was primarily driven by new-restaurant development. System restaurants decreased slightly due primarily to closures of certain lower-volume A&W single-brand mall units and Pizza Hut dine-in restaurants. The U.S. restaurant portfolio continues to be upgraded with new, higher-volume restaurants, on average, many of which are multibrand. Revenue growth attributed to the benefit of opening new restaurants with higher volumes than those restaurants that were closed was one and two percentage points respectively for the fourth quarter and the full year. Operating profit was positively impacted by these same revenue factors and lower franchise and license expenses partially offset by lower margin. In the fourth quarter, U.S. restaurant margin declined 0.5 percentage points versus the prior year, driven by higher commodity and occupancy expenses. Higher costs for beef and cheese were partially offset by a lower cost for chicken during the quarter. Occupancy costs increased, primarily due to the amendment of two Long John Silver's sale/lease-back agreements that were previously accounted for as financings now being accounted for as operating leases. As a result of these amendments, the payments made under these agreements that were previously recorded primarily as interest expense are now recorded as rent expense. For the full year, restaurant margins declined 1.4 percentage points versus 2002 primarily from increased occupancy expenses due to higher rent, including the item previously discussed, and higher utilities. Additional factors were unprofitable discounting and unfavorable product mix at both KFC and Pizza Hut, and sales deleverage at KFC. Sales deleverage occurs when inflation in restaurant costs is not offset by increases in same-store sales. WORLDWIDE NEW-RESTAURANT DEVELOPMENT ------------------------------------ System New-Restaurant Openings Full Year ----------------- Worldwide 1,498 Key Markets Franchise-Only International Markets 401 United States 390 China 268 U.K. 106 Australia/New Zealand 71 South Korea 47 Mexico 44 System new-restaurant openings for the full year were primarily driven by growth in new international KFCs and Pizza Huts in the key international markets noted in the preceding table. Franchise and joint-venture partners opened over 70% of systemwide new international restaurants for the full year. Restaurant counts increased 27% in China, 9% in Mexico, 8% in the U.K. and 2% in Korea versus the end of fourth-quarter 2002. In key franchise markets year-over-year restaurant growth was 14% in Asia, 5% in Caribbean/Latin America, 4% in the Middle East and 4% in South Africa. In the U.S. market, the majority of new-restaurant openings were KFC and Pizza Hut restaurants. Over 60% of the U.S. new-restaurant openings were franchised. KFC new-restaurant openings were almost 70% multibrand restaurants. Virtually all the Pizza Hut new-restaurant openings were delivery/carry-out restaurants. This discussion excludes changes in license-unit locations, which are expected to have no material impact on the company's overall profit performance in 2004. License locations are typically nontraditional sites, such as airports, that normally have substantially lower average unit volumes than traditional restaurant locations. MULTIBRANDING EXPANSION ----------------------- Fourth Quarter Multibrand Restaurants in Operation 2003 2002 Incr/(Decr) ------ ------ ----------- U.S. Systemwide 2,148 1,817 +18% % U.S. System Restaurants 12% 10% +2 ppts In the fourth quarter, 148 multibrand restaurants were added in the U.S., bringing the total to 382 U.S. multibrand additions for the full year. Of the 382 U.S. multibrand additions in 2003, 58% were conversions of existing single-brand restaurants, including 9% that were rebuilds on existing sites. The remaining 42% were new-restaurant openings of which 12% were relocations -- building a new restaurant in place of an older restaurant nearby. At year-end 2003, more than 50% of the 2,148 U.S. multibrand restaurants were franchised. Increasingly, the company's multibrand focus will be on combining two core brands -- Taco Bell and KFC -- with the recently acquired brands -- Long John Silver's and A&W. Additionally, Pizza Hut will expand testing of multibrand combinations with the newly created brand WingStreet. These various combinations represented 64% of the multibrand additions in 2003. The company expects this percentage to increase in 2004. FRANCHISE GROWTH AND FEES ------------------------- Fourth Quarter Full Year --------------- --------- Franchise Net New-Restaurant Growth +1% +1% Total Franchise Fees ($ million) $297 $939 Growth Vs. 2002 +9% +9% International markets contributing to the worldwide net expansion of new franchise restaurants were Asia, the Middle East, South Africa and Caribbean/Latin America. In the U.S. market, the KFC and Long John Silver's brands both had net positive franchise expansion. For the fourth quarter, favorable foreign currency conversion added 3 percentage points of franchise-fee growth. Excluding this factor, franchise fees increased 6%. This growth was primarily driven by new-restaurant development, worldwide franchise same-store-sales growth of 2% and increased international royalty rates. For the full year, favorable foreign currency conversion and the Long John Silver's/A&W acquisition added 3 percentage points and 1 percentage point of franchise-fee growth respectively. Excluding these factors, franchise fees increased 5%. This growth was primarily driven by new-restaurant development, increased international royalty rates and worldwide franchise same-store-sales growth of 1%. GENERAL AND ADMINISTRATIVE EXPENSES Worldwide general and administrative (G&A) expenses increased $25 million, or 8%, in the fourth quarter including a 1% unfavorable impact from foreign currency conversion. The increase was primarily driven by increases associated with international restaurant expansion and pension expense. Worldwide G&A expenses increased $32 million, or 3%, for the full year. Excluding the unfavorable impact from foreign currency conversion and the full-year impact of the Long John Silver's/A&W acquisition, G&A expenses were even with 2002. Lower management incentive costs were offset by increases in expenses associated with international restaurant expansion and pension expense. CASH-FLOW For the fourth quarter and year to date, the company more than funded capital spending with net cash provided by operating activities. Additional cash was generated from employee stock-option proceeds, proceeds from refranchising restaurants and sales of property, plant and equipment. The company expects these trends to continue for 2004. For 2003, as a result of all cash generated after capital spending, the company was able to continue reducing its debt balance by over $300 million and repurchased $278 million of its own shares as indicated in the attached Condensed Consolidated Statements of Cash Flow. FIRST-QUARTER 2004 OUTLOOK The company is comfortable with the current consensus estimate of $0.43 in EPS prior to special items in the first quarter, an increase of 10% compared to last year's performance. Additionally, the company expects a net special-items gain of approximately $0.02 primarily related to additional recoveries from the AmeriServe bankruptcy estate. It is our expectation that this will substantially complete the company's AmeriServe recoveries. ANNUAL OUTLOOK The company expects earnings per share to grow at least 10% each year with the continued execution of its three key strategies: (1) steady improvement in operations, (2) profitable international expansion and (3) multibranding category-leading brands. Projected factors contributing to the company's annual EPS expectations were published in the company's December 4, 2003, press release. All those specific expectations remain reasonable based on current information. The company now expects a net special-items gain for the year as noted in the following table. Annual Outlook Forecast Actual 2004 2003 Incr/(Decr) -------- ------- ----------- EPS prior to Special Items $2.27 $2.06 +10% Special Items EPS $0.02 $(0.04) NM Reported EPS $2.29 $2.02 +13% In several Asian markets, including Thailand, Taiwan, South Korea, Japan, Indonesia, Malaysia, Singapore and certain sections of China, avian flu has impacted retail sales trends and the company's sales trends at KFC. Based on information currently available, the company believes that the most likely effect of avian flu outbreaks in these markets will be short term and is reflected in the company's current annual and first-quarter outlooks previously noted. Additionally, the company currently does not expect that the avian flu outbreak will materially affect its chicken supply in Asia or other markets. Nevertheless, we want our shareholders to know that if, hypothetically, the avian flu outbreak affects the entire country of China for approximately one to two months with sales declines in the range of 20% at KFC, full-year EPS results for the company would be unfavorably impacted by approximately $0.01 to $0.02. Based on current trends in the total Yum! portfolio, the company believes it can offset any possible shortfall and maintain the $2.27 per share earnings estimate prior to special items for 2004. As always, the company will continue to update shareholders each four-week period on current sales trends worldwide. CONFERENCE CALL Yum! Brands Inc. will hold a conference call to review the company's financial performance and strategies at 9:15 a.m. EST Thursday, February 12, 2004. For U.S. callers, the number is 877/815-2029. For international callers, the number is 706/645-9271. The call will be available for playback beginning Thursday, February 12, at 12:15 p.m. EST through Friday, February 27, at midnight EST. To access the playback, dial 800/642-1687 in the U.S.A. and 706/645-9291 internationally. The playback pass code is 4852207. The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site: www.yum.com and selecting "4th Quarter Earnings Webcast." (Windows Media Player is required, which can be downloaded at no charge from the following URL: http://www.microsoft.com/windows/windowsmedia/players.asp. The process could take several minutes.) NOTES & DEFINITIONS FOR TERMS USED THROUGHOUT THIS DOCUMENT Excl F/x is prior to foreign currency conversion to U.S. dollars. Franchise Fees include fees from franchise, joint venture and license restaurants. Fees include ongoing royalty and license fees and initial fees. Franchise Restaurants include franchise and joint-venture restaurants and exclude license restaurants. Franchise Net New-Restaurant Growth is the total of franchise restaurant openings less franchise restaurant closings divided by the prior period's franchise restaurant total. New-Restaurant Openings include company-owned, franchise and joint-venture restaurants and exclude license restaurants. Special Items include AmeriServe and other charges (credits), which were previously referred to as unusual items in 2002, Wrench litigation and cumulative effect of accounting change, net of tax. See attachments to this press release for reconciliations of non-GAAP measurements to GAAP results. System Restaurants include company-owned, franchise and joint-venture restaurants and exclude license restaurants. System-Sales Growth includes the results of all restaurants regardless of ownership, including company-owned, franchise, joint-venture and license restaurants. Sales of franchise, joint-venture and license restaurants generate franchise and license fees for the company (typically at a rate of 4% to 6% of sales). Franchise, joint-venture and license restaurant sales are not included in company sales we present on the Condensed Consolidated Statements of Income; however, the fees are included in the company's revenues. Systemwide Same-Store-Sales Growth is the estimated growth in sales of all restaurants that have been open one year or more regardless of ownership including company-owned, franchise, joint-venture and license restaurants. 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 statements include those identified by such words as may, will, expect, project, anticipate, believe, plan and other similar terminology. These "forward-looking" statements reflect management's current expectations regarding future events and operating and financial performance and are based on currently available data. However, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in this announcement. Factors that can cause actual results to differ materially include changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates, including the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences, spending patterns and demographic trends; the impact that any widespread illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and advertising and promotional efforts; new-product and concept development by Yum! Brands and other food-industry competitors; the success of our refranchising strategy; the ongoing business viability of our franchise and license operators; our ability to secure alternative distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; publicity that may impact our business and/or industry; severe weather conditions; effects and outcomes of legal claims involving the company; changes in effective tax rates; our actuarially determined casualty loss estimates; changes in legislation and governmental regulations; and changes in accounting policies and practices. Further information about factors that could affect Yum! Brands' financial and other results are included in the company's Forms 10-Q and 10-K, filed with the Securities and Exchange Commission. Yum! Brands Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with more than 33,000 restaurants in more than 100 countries and territories. Four of the company's restaurant brands -- KFC, Pizza Hut, Taco Bell and Long John Silver's -- are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories respectively. Yum! Brands is the worldwide leader in multibranding, which offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver's brands. The company and its franchisees today operate over 2,000 multibrand restaurants. Outside the United States in 2003, the Yum! Brands' system opened about three new restaurants each day of the year, making it one of the fastest growing retailers in the world. In 2002, the company changed its name to Yum! Brands Inc. from Tricon Global Restaurants Inc. to reflect its expanding portfolio of brands and its ticker symbol on the New York Stock Exchange. In 2003 the company was recognized in Fortune Magazine's top 50 "Best Companies for Minorities," claiming the number-one spot for "managerial diversity." Analysts are invited to contact Tim Jerzyk, Vice President Investor Relations, at 888/298-6986 Individual shareholders and analysts are invited to contact Lynn Schweinfurth, Director Investor Relations, at 888/298-6986 Members of the media are invited to contact Amy Sherwood, Vice President Public Relations, at 502/874-8200 Yum! Brands, Inc. Consolidated Summary of Results (amounts in millions, except per share amounts) Quarter % Change Year to date % Change ------------------ ------------------ 12/27/03 12/28/02 B/(W) 12/27/03 12/28/02 B/(W) -------- -------- ------- -------- -------- ------- Total revenues $2,653 $2,461 8 $8,380 $7,757 8 Costs and expenses Company restaurant expenses 2,000 1,854 (8) 6,337 5,790 (9) General and administrative expenses 322 297 (8) 945 913 (3) Franchise and license expenses 8 18 52 28 49 42 Facility actions 12 - NM 36 32 NM Other (income) expense (17) (10) 84 (41) (30) 39 Wrench litigation - - - 42 - NM AmeriServe and other charges (credits) (25) (3) NM (26) (27) NM -------- --------- --------- --------- Total costs and expenses 2,300 2,156 (7) 7,321 6,727 (9) -------- --------- --------- --------- Operating profit 353 305 16 1,059 1,030 3 Interest expense, net 50 60 16 173 172 (1) -------- --------- --------- --------- Income before income taxes and cumulative effect of accounting change 303 245 23 886 858 3 Income tax provision 89 73 (20) 268 275 3 -------- --------- --------- --------- Income before cumulative effect of accounting change 214 172 24 618 583 6 Cumulative effect of accounting change, net of tax - - - (1) - NM -------- --------- --------- --------- Net income $214 $172 24 $617 $583 6 ======== ========= ========= ========= Basic EPS Data --------------- EPS $0.73 $0.58 25 $2.10 $1.97 7 ======== ========= ========= ========= Average shares outstanding 294 295 - 293 296 1 ======== ========= ========= ========= Diluted EPS Data ---------------- EPS $0.70 $0.56 23 $2.02 $1.88 7 ======== ========= ========= ========= Average shares outstanding 308 306 (1) 306 310 1 ======== ========= ========= ========= See accompanying notes. Wrench litigation, AmeriServe and other charges (credits) and Cumulative effect of accounting change, net of tax have been summed and referred to as "Special Items" throughout this press release. See accompanying reconciliation of non-GAAP measurements to GAAP results. Yum! Brands, Inc. WORLDWIDE Operating Results (amounts in millions) Quarter % Change Year to date % Change ----------------- ----------------- 12/27/03 12/28/02 B/(W) 12/27/03 12/28/02 B/(W) -------- -------- ------- -------- -------- ------- Company sales $2,356 $2,189 8 $7,441 $6,891 8 Franchise and license fees 297 272 9 939 866 9 ------- ------- ------- ------- Revenues 2,653 2,461 8 8,380 7,757 8 ------- ------- ------- ------- Company restaurants Food and paper 732 671 (9) 2,300 2,109 (9) Payroll and employee benefits 628 601 (4) 2,024 1,875 (8) Occupancy and other operating expenses 640 582 (10) 2,013 1,806 (12) ------- ------- ------- ------- 2,000 1,854 (8) 6,337 5,790 (9) General and administrative expenses 322 297 (8) 945 913 (3) Franchise and license expenses 8 18 52 28 49 42 Facility actions 12 - NM 36 32 NM Other (income) expense (17) (10) 84 (41) (30) 39 ------- ------- ------- ------- 2,325 2,159 (8) 7,305 6,754 (8) ------- ------- ------- ------- Operating profit before special items 328 302 9 1,075 1,003 7 Interest expense, net 50 60 16 173 172 (1) Income tax provision 80 71 (10) 274 265 (3) ------- ------- ------- ------- Earnings before special items $198 $171 17 $628 $566 11 ======= ======= ======= ======= Tax rate before special items 28.5% 29.8% 1.3 ppts. 30.3% 32.0% 1.7 ppts. ======= ======= ======= ======= Diluted EPS before special items $0.65 $0.55 16 $2.06 $1.82 13 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 31.1 30.6 (0.5) ppts. 30.9 30.6 (0.3) ppts. Payroll and employee benefits 26.6 27.5 0.9 ppts. 27.2 27.2 - Occupancy and other operating expenses 27.1 26.5 (0.6) ppts. 27.1 26.2 (0.9) ppts. ------- ------- ------- ------- Restaurant margin 15.2% 15.4% (0.2) ppts. 14.8% 16.0% (1.2) ppts. ======= ======= ======= ======= Reconciliation of Segment Operating Profit to Reported Operating Profit ---------------------------------------------------------------------- U.S. operating profit $241 $240 1 $812 $802 1 International operating profit 144 111 28 441 361 22 Unallocated and corporate expense (72) (59) (21) (179) (178) - Unallocated other income (expense) (2) - NM (3) (1) NM Unallocated facility actions 17 10 NM 4 19 NM ------- ------- ------- ------- Operating profit before special items 328 302 9 1,075 1,003 7 Wrench litigation - - - (42) - NM AmeriServe and other (charges) credits 25 3 NM 26 27 NM ------- ------- ------- ------- Reported operating profit $353 $305 16 $1,059 $1,030 3 ======= ======= ======= ======= See accompanying notes and reconciliations of non-GAAP measurements to GAAP results. Yum! Brands, Inc. UNITED STATES Operating Results (amounts in millions) Quarter % Change Year to date % Change ----------------- ----------------- 12/27/03 12/28/02 B/(W) 12/27/03 12/28/02 B/(W) -------- -------- ------- -------- -------- ------- Company sales $1,563 $1,516 3 $5,081 $4,778 6 Franchise and license fees 175 175 1 574 569 1 ------- ------- ------- ------- Revenues 1,738 1,691 3 5,655 5,347 6 ------- ------- ------- ------- Company restaurants Food and paper 453 430 (5) 1,463 1,346 (9) Payroll and employee benefits 483 474 (2) 1,576 1,479 (7) Occupancy and other operating expenses 398 381 (5) 1,303 1,189 (10) ------- ------- ------- ------- 1,334 1,285 (4) 4,342 4,014 (8) General and administrative expenses 144 151 5 469 469 - Franchise and license expenses 6 15 57 16 39 59 Facility actions 13 - NM 16 23 NM ------- ------- ------- ------- 1,497 1,451 (3) 4,843 4,545 (7) ------- ------- ------- ------- Operating profit $241 $240 1 $812 $802 1 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 28.9 28.4 (0.5) ppts. 28.8 28.2 (0.6) ppts. Payroll and employee benefits 30.8 31.2 0.4 ppts. 31.0 30.9 (0.1) ppts. Occupancy and other operating expenses 25.5 25.1 (0.4) ppts. 25.6 24.9 (0.7) ppts. ------- ------- ------- ------- Restaurant margin 14.8% 15.3% (0.5) ppts. 14.6% 16.0% (1.4) ppts. ======= ======= ======= ======= See accompanying notes. Yum! Brands, Inc. INTERNATIONAL Operating Results (amounts in millions) Quarter % Change Year to date % Change ---------------- ----------------- 12/27/03 12/28/02 B/(W) 12/27/03 12/28/02 B/(W) -------- -------- ------- -------- -------- ------- Company sales $793 $673 18 $2,360 $2,113 12 Franchise and license fees 122 97 25 365 297 23 ------- ------- ------- ------- Revenues 915 770 19 2,725 2,410 13 ------- ------- ------- ------- Company restaurants Food and paper 279 241 (17) 837 763 (10) Payroll and employee benefits 145 127 (14) 448 396 (13) Occupancy and other operating expenses 242 201 (20) 710 617 (15) ------- ------- ------- ------- 666 569 (17) 1,995 1,776 (12) General and administrative expenses 105 87 (22) 297 266 (12) Franchise and license expenses 3 3 21 12 10 (17) Facility actions 16 10 NM 24 28 NM Other (income) expense (19) (10) 84 (44) (31) 42 ------- ------- ------- ------- 771 659 (17) 2,284 2,049 (12) ------- ------- ------- ------- Operating profit $144 $111 28 $441 $361 22 ======= ======= ======= ======= Company sales 100.0% 100.0% 100.0% 100.0% Food and paper 35.3 35.7 0.4 ppts. 35.5 36.1 0.6 ppts. Payroll and employee benefits 18.3 18.9 0.6 ppts. 19.0 18.7 (0.3) ppts. Occupancy and other operating expenses 30.5 29.8 (0.7) ppts. 30.0 29.2 (0.8) ppts. ------- ------- ------- ------- Restaurant margin 15.9% 15.6% 0.3 ppts. 15.5% 16.0% (0.5) ppts. ======= ======= ======= ======= See accompanying notes. YUM! Brands, Inc. Condensed Consolidated Balance Sheets (amounts in millions) 12/27/03 12/28/02 --------- --------- ASSETS Current Assets Cash and cash equivalents $192 $130 Short-term investments, at cost 15 27 Accounts and notes receivable, less allowance: $28 in 2003 and $42 in 2002 169 168 Inventories 67 63 Assets classified as held for sale 96 111 Prepaid expenses and other current assets 102 110 Deferred income taxes 165 121 --------- --------- Total Current Assets 806 730 Property, plant and equipment, net 3,280 3,037 Goodwill 521 485 Intangible assets, net 357 364 Investments in unconsolidated affiliates 184 229 Other assets 472 555 --------- --------- Total Assets $5,620 $5,400 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities $1,213 $1,166 Income taxes payable 238 208 Short-term borrowings 10 146 --------- --------- Total Current Liabilities 1,461 1,520 Long-term debt 2,056 2,299 Other liabilities and deferred credits 983 987 --------- --------- Total Liabilities 4,500 4,806 --------- --------- Shareholders' Equity Preferred stock, no par value, 250 shares authorized; no shares issued - - Common stock, no par value, 750 shares authorized; 292 shares and 294 shares issued in 2003 and 2002, respectively 916 1,046 Retained earnings (accumulated deficit) 414 (203) Accumulated other comprehensive income (loss) (210) (249) --------- --------- Total Shareholders' Equity 1,120 594 --------- --------- Total Liabilities and Shareholders' Equity $5,620 $5,400 ========= ========= See accompanying notes. YUM! Brands, Inc. Condensed Consolidated Statements of Cash Flows (amounts in millions) Year to date ------------------- 12/27/03 12/28/02 --------- --------- Cash Flows - Operating Activities Net income $617 $583 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change, net of tax 1 - Depreciation and amortization 401 370 Facility actions 36 32 Wrench litigation 42 - AmeriServe and other charges (credits) (3) - Contribution to defined benefit pension plans (132) (26) Other liabilities and deferred credits 17 (12) Deferred income taxes (23) 21 Other non-cash charges and credits, net 32 36 Changes in operating working capital, excluding effects of acquisitions and dispositions: Accounts and notes receivable 2 32 Inventories (1) 11 Prepaid expenses and other current assets - 19 Accounts payable and other current liabilities (32) (37) Income taxes payable 96 59 --------- --------- Net change in operating working capital 65 84 --------- --------- Net Cash Provided by Operating Activities 1,053 1,088 --------- --------- Cash Flows - Investing Activities Capital spending (663) (760) Proceeds from refranchising of restaurants 92 81 Acquisition of Yorkshire Global Restaurants, Inc. - (275) Acquisition of restaurants from franchisees (41) (13) Short-term investments 13 9 Sales of property, plant and equipment 46 58 Other, net 34 15 --------- --------- Net Cash Used in Investing Activities (519) (885) --------- --------- Cash Flows - Financing Activities Proceeds from Senior Unsecured Notes - 398 Revolving Credit Facility activity Three months or less, net (153) 59 Repayments of long-term debt (17) (511) Short-term borrowings-three months or less, net (137) (15) Repurchase shares of common stock (278) (228) Employee stock option proceeds 110 125 Other, net - (15) --------- --------- Net Cash Used in Financing Activities (475) (187) --------- --------- Effect of Exchange Rate on Cash and Cash Equivalents 3 4 --------- --------- Net Increase in Cash and Cash Equivalents 62 20 Cash and Cash Equivalents - Beginning of Year 130 110 --------- --------- Cash and Cash Equivalents - End of Year $192 $130 ========= ========= See accompanying notes. Reconciliation of Non-GAAP Measurements to GAAP Results (amounts in millions, except per share amounts) In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present operating results on a basis before special items. Special items include the GAAP income statement captions of Wrench litigation, AmeriServe and other charges (credits) and the Cumulative effect of accounting change, net of tax. These amounts are described in (d), (e) and (f) in the accompanying notes. The Company uses earnings before special items as a key performance measure of results of operations for purposes of evaluating performance internally. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before special items provides additional information to investors to facilitate the comparison of past and present operations, excluding items that the Company does not believe are indicative of our ongoing operations. Quarter Year to date ------------------- ------------------- 12/27/03 12/28/02 12/27/03 12/28/02 --------- --------- --------- --------- Detail of Special Items ------------------------------ Wrench litigation $- $- $(42) $- AmeriServe and other (charges) credits 25 3 26 27 Cumulative effect of accounting change - - (2) - --------- --------- --------- --------- Total special items 25 3 (18) 27 Tax on special items (9) (2) 7 (10) --------- --------- --------- --------- Special items, net of tax $16 $1 $(11) $17 ========= ========= ========= ========= Average shares outstanding 308 306 306 310 ========= ========= ========= ========= Special items diluted EPS $0.05 $0.01 $(0.04) $0.06 ========= ========= ========= ========= Reconciliation of Earnings Before Special Items to Net Income ------------------------------ Earnings before special items $198 $171 $628 $566 Special items, net of tax 16 1 (11) 17 --------- --------- --------- --------- Net income $214 $172 $617 $583 ========= ========= ========= ========= Reconciliation of EPS Before Special Items to Reported EPS ------------------------------ Diluted EPS before special items $0.65 $0.55 $2.06 $1.82 Special items EPS 0.05 0.01 (0.04) 0.06 --------- --------- --------- --------- Reported EPS $0.70 $0.56 $2.02 $1.88 ========= ========= ========= ========= Notes to the Consolidated Summary of Results and Condensed Consolidated Cash Flows and Condensed Consolidated Balance Sheets (amounts in millions, except per share amounts) (a) Percentages may not recompute due to rounding. (b) Facility actions included the following: Quarter Year to date ------------------- ------------------- 12/27/03 12/28/02 12/27/03 12/28/02 --------- --------- --------- --------- Store closure costs $8 $(2) $6 $15 Asset impairment charges 21 12 34 36 Refranchising net loss (gain) (17) (10) (4) (19) --------- --------- --------- --------- Facility actions $12 $- $36 $32 ========= ========= ========= ========= Throughout 2003, store closure costs and asset impairment charges were previously included in Other (income) expense. (c) Other (income) expense primarily includes equity income from investments in unconsolidated affiliates. (d) The amounts recorded as Wrench litigation for the year to date ended December 27, 2003 reflect the legal judgment against Taco Bell Corp. on June 4, 2003 in Wrench v. Taco Bell Corp. and related interest. Interest recorded on the yet to be paid judgment was not material in the quarter ended December 27, 2003. (e) The amount recorded as AmeriServe and other charges (credits) for the quarter and year to date ended December 27, 2003 primarily resulted from recoveries related to the AmeriServe bankruptcy reorganization process. Amounts recorded as AmeriServe and other charges (credits) for the quarter and year to date ended December 28, 2002, which were referred to as unusual items in 2002, primarily resulted from recoveries related to the AmeriServe bankruptcy reorganization process, partially offset by integration costs related to the acquisition of Yorkshire Global Restaurants, Inc. and, for the full-year 2002, costs to defend certain wage and hour litigation. (f) Effective December 29, 2002, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses the financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. As a result of obligations under certain leases that are within the scope of SFAS 143, the Company has recorded a cumulative effect adjustment of $2 million ($1 million after tax). The adoption of SFAS 143 did not materially affect the results of our operations for the quarter or year to date ended December 27, 2003, nor do we anticipate that it will materially affect the results of operations in future periods. YUM! Brands, Inc. Restaurant Units Activity Summary For the Year to Date Ended December 27, 2003 Total Unconsolidated Excluding Company Affiliates(a) Franchisees Licensees(b) ------- -------------- ----------- ------------ Total U.S. Beginning of Year 5,193 4 13,663 18,860 New Builds 142 3 245 390 Acquisitions 106 - (108) (2) Refranchising & Licensing (150) - 148 (2) Closures & Divestitures (197) (1) (386) (584) Other - - 4 4 ------- -------------- ----------- ------------ End of Year 5,094 6 13,566 18,666 ======= ============== =========== ============ % of Total 27% - 73% 100% Total International Beginning of Year 2,333 2,144 7,061 11,538 New Builds 312 173 623 1,108 Acquisitions 283 (736) 453 - Refranchising & Licensing (78) (1) 79 - Closures & Divestitures (90) (74) (305) (469) Other - - (6) (6) ------- -------------- ----------- ------------ End of Year 2,760 1,506 7,905 12,171 ======= ============== =========== ============ % of Total 23% 12% 65% 100% Total System Beginning of Year 7,526 2,148 20,724 30,398 New Builds 454 176 868 1,498 Acquisitions 389 (736) 345 (2) Refranchising & Licensing (228) (1) 227 (2) Closures & Divestitures (287) (75) (691) (1,053) Other - - (2) (2) ------- -------------- ----------- ------------ End of Year 7,854 1,512 21,471 30,837 ======= ============== =========== ============ % of Total 25% 5% 70% 100% (a) Total U.S. and Total System include 6 Yan Can units. (b) The total excludes 2,156 U.S. and 206 International licensee units. These locations are typically nontraditional sites such as airports, kiosks, etc. YUM! Brands, Inc. Restaurant Units Activity Summary For the Year to Date Ended December 27, 2003 United States ---------------------------------------------------------------------- Total Excluding Company Franchisees Licensees ------- ----------- ---------- Pizza Hut U.S. Beginning of Year 1,760 4,743 6,503 New Builds 46 91 137 Acquisitions 88 (88) - Refranchising & Licensing (63) 63 - Closures & Divestitures (55) (185) (240) Other - - - ------- ----------- ---------- End of Year 1,776 4,624 6,400 ======= =========== ========== % of Total 28% 72% 100% KFC U.S. Beginning of Year 1,284 4,140 5,424 New Builds 68 95 163 Acquisitions 18 (18) - Refranchising & Licensing (65) 65 - Closures & Divestitures (53) (78) (131) Other - - - ------- ----------- ---------- End of Year 1,252 4,204 5,456 ======= =========== ========== % of Total 23% 77% 100% Taco Bell U.S. Beginning of Year 1,284 3,759 5,043 New Builds 19 29 48 Acquisitions - (2) (2) Refranchising & Licensing (7) 7 - Closures & Divestitures (12) (50) (62) Other - - - ------- ----------- ---------- End of Year 1,284 3,743 5,027 ======= =========== ========== % of Total 26% 74% 100% Long John Silver's U.S. Beginning of Year 741 480 1,221 New Builds 9 19 28 Acquisitions - - - Refranchising & Licensing (13) 13 - Closures & Divestitures (40) (11) (51) Other 4 1 5 ------- ----------- ---------- End of Year 701 502 1,203 ======= =========== ========== % of Total 58% 42% 100% A&W U.S. Beginning of Year 124 541 665 New Builds - 11 11 Acquisitions - - - Refranchising & Licensing (2) - (2) Closures & Divestitures (37) (62) (99) Other (4) 3 (1) ------- ----------- ---------- End of Year 81 493 574 ======= =========== ========== % of Total 14% 86% 100% YUM! Brands, Inc. Restaurant Units Activity Summary For the Year to Date Ended December 27, 2003 International ---------------------------------------------------------------------- Total Unconsolidated Excluding Company Affiliates Franchisees Licensees ------- -------------- ----------- ---------- KFC International Beginning of Year 1,516 1,175 4,156 6,847 New Builds 239 113 311 663 Acquisitions(a) 5 (479) 474 - Refranchising & Licensing (30) (1) 31 - Closures & Divestitures (45) (43) (130) (218) Other - 8 (7) 1 ------- -------------- ----------- ---------- End of Year 1,685 773 4,835 7,293 ======= ============== =========== ========== % of Total 23% 11% 66% 100% Pizza Hut International Beginning of Year 779 941 2,557 4,277 New Builds 72 60 264 396 Acquisitions(a) 261 (239) (22) - Refranchising & Licensing (48) - 48 - Closures & Divestitures (43) (26) (136) (205) Other - (3) (3) (6) ------- -------------- ----------- ---------- End of Year 1,021 733 2,708 4,462 ======= ============== =========== ========== % of Total 23% 16% 61% 100% Taco Bell International Beginning of Year 38 28 138 204 New Builds 1 - 8 9 Acquisitions(a) 17 (18) 1 - Refranchising & Licensing - - - - Closures & Divestitures (2) (5) (1) (8) Other - (5) 4 (1) ------- -------------- ----------- ---------- End of Year 54 - 150 204 ======= ============== =========== ========== % of Total 26% - 74% 100% A&W International Beginning of Year - - 182 182 New Builds - - 35 35 Acquisitions - - - - Refranchising & Licensing - - - - Closures & Divestitures - - (35) (35) Other - - - - ------- -------------- ----------- ---------- End of Year - - 182 182 ======= ============== =========== ========== % of Total - - 100% 100% Long John Silver's International Beginning of Year - - 28 28 New Builds - - 5 5 Acquisitions - - - - Refranchising & Licensing - - - - Closures & Divestitures - - (3) (3) Other - - - - ------- -------------- ----------- ---------- End of Year - - 30 30 ======= ============== =========== ========== % of Total - - 100% 100% (a) Includes the effect of the dissolution of our joint venture in Canada during the quarter ended December 27, 2003. We now operate 258 units previously operated by this joint venture while our former joint venture partner operates 475 units previously operated by the joint venture. YUM! Brands, Inc. United States Multibrand Restaurants For the Year to Date Ended December 27, 2003 United States(a) ---------------------------------------- Multibrand Restaurants in Operation at 12/27/03 ------------------------ Gross Additions Year to Date 12/27/03 Company Franchise Total --------------- ------- --------- ------ KFC Taco Bell 36 182 481 663 Pizza Hut 10 111 45 156 A&W 97 116 142 258 Taco Bell/Pizza Hut 3 n 1 2 20 25 45 Long John Silver's 47 29 31 60 Wing Works 2 26 - 26 --------------- ------- --------- ------ 194 484 724 1,208 Taco Bell Pizza Hut 18 312 281 593 Long John Silver's 41 39 9 48 Backyard Burgers 5 8 - 8 A&W 2 2 - 2 --------------- ------- --------- ------ 66 361 290 651 Pizza Hut KFC - - 1 1 Taco Bell 1 - 6 6 Wing Works 2 1 - 1 Pasta Bravo 3 2 2 4 WingStreet 57 59 - 59 --------------- ------- --------- ------ 63 62 9 71 Long John Silver's A&W 59 125 93 218 --------------- ------- --------- ------ Total 382 1,032 1,116 2,148 =============== ======= ========= ====== Multibrand conversions increase the sales and points of distribution for the second brand added to a restaurant but do not result in an additional unit count. Similarly, a new multibrand restaurant, while increasing sales and points of distribution for two brands, results in just one additional unit count. (a) Amounts do not reflect International multibrand units, 193 of which were in operation at year end. CONTACT: Yum! Brands Inc. Analysts: Tim Jerzyk, Vice President Investor Relations 888/298-6986 or Individual shareholders and analysts: Lynn Schweinfurth, Director Investor Relations 888/298-6986 or Media: Amy Sherwood, Vice President Public Relations 502/874-8200