EXHIBIT 99
TRICON GLOBAL RESTAURANTS REPORTS A 28 PERCENT INCREASE
IN ONGOING OPERATING EARNINGS TO $0.64 PER SHARE
FOR THE FIRST QUARTER
LOUISVILLE, KY. (April 26, 2000) - Tricon Global Restaurants, Inc. (NYSE:YUM)
reported first quarter ongoing operating earnings of $96 million, or $0.64 per
share, a 28 percent increase for the quarter ended March 18, 2000.
Financial Highlights
Ongoing Operations
($MM Except Per Diluted Share Amounts)
% Change vs.
Q1 Prior Year
------ -----------
System Sales 4,926 2
Revenues(a) 1,597 (12)
Operating Profit 199 3
Operating Earnings 96 20
============================================================
Operating EPS(b) 0.64 28
============================================================
Reported EPS(c) 0.80 21
(a) As expected, revenues declined primarily due to Tricon's on-going
strategic program to sell company restaurants to its franchise
partners.
(b) Ongoing operating EPS is from operations and does not include the
impact of facility actions net gain, unusual items, and last
year's accounting changes.
(c) Reported results, which are more fully described in the financial
attachments, include the impact of facility actions net gain,
unusual items, and last year's accounting changes.
David C. Novak, Chief Executive Officer said, "Tricon is on its way to
achieving another outstanding year of operating and financial results.
Ongoing operating earnings per share were up 28%, and we view this as
one of the best overall indicators of our progress along with free
cash flow generation and return on investment. In fact, this is the
seventh straight quarter of over 20% growth in ongoing operating EPS.
This quarter's results were fueled by the continued strength of our
large and rapidly growing international business, significant
reductions in the general and administrative costs, and the ongoing
successful execution of our financial strategies. In addition we are
very pleased with Pizza Hut's strong sales and we are optimistic it is
well positioned to have a better-than-expected 2000. Based on the
progress Tricon is making, we are pleased to reaffirm our full-year
commitment of 2% to 3% U.S. blended same store sales growth and
ongoing operating EPS growth of 23% to 27%, before the impact, if any,
from the bankruptcy filing by AmeriServe. This continued strong
performance in ongoing operating EPS for 2000 builds on last year's
41% growth."
Tricon Restaurants International
- --------------------------------
Tricon's strongest performance in the quarter came from its
international business, which now represents over one-third of the
company's worldwide system sales. Ongoing operating profits were up a
solid 33%, on top of 34% growth last year. Ongoing operating profit
increases were driven primarily by a strong top-line, with system
sales up 9%. General and administrative costs were down significantly
and restaurant margins increased 140 basis points primarily from
improved base operations. Same store sales continue to be strong in
key countries, including China, Australia, the United Kingdom, and
Mexico. Tricon's international strategy to focus company ownership in
key countries, while expanding elsewhere around the globe with
growth-ready franchisees, is paying dividends.
U.S. Restaurants
- ----------------
In the U.S., Pizza Hut continues to deliver excellent results. While
same store sales in the quarter declined 2%, this was better than
expected as it overlapped the launch of the highly successful Big New
Yorker pizza, which drove same store sales up 14% in the quarter last
year. The Big New Yorker launch has added another concept sales layer
to Pizza Hut, as sales and mix of the product continue to be strong.
Pizza Hut has solid momentum going forward.
Taco Bell's same store sales were slightly positive, with transactions
up for the quarter for the first time since late 1998. This
transaction growth reflects Taco Bell's renewed focus on great tasting
Mexican food and value leadership with products like Chalupas and the
recently reintroduced popular Enchiritos.
As expected, KFC's same store sales in the quarter were down 3%,
overlapping its strongest quarter in 1999. Sales from KFC's popular
chicken sandwiches continue to annualize at roughly $130,000 per
company restaurant, adding a new concept sales layer. KFC's challenge
going forward is to make sandwich sales incremental to the
2
base business. The KFC system remains firmly committed to sandwiches
as a long-term strategy, given consumer trends toward portable food
and the strong sales success KFC has experienced with chicken
sandwiches around the world. During the second quarter KFC will
continue to build and invest in the all-important chicken sandwich
segment.
Operational and Financial Progress
- ----------------------------------
Tricon continued to drive operational progress in the quarter. Ongoing
operating profit increased 3%, driven by a 16% decline in ongoing G&A,
and a 13% increase in franchise fees, offset partially by a 110 basis
point decline in ongoing restaurant level margins. The margin decline
is primarily a result of overlapping a 125 basis point margin gain in
Q1 '99 from $21 million in self-insurance favorability. Margins were
favorably affected by portfolio benefits, lower cheese costs and
improved product cost management. This was offset by the impact of
sales deleverage and higher labor rates.
Tricon also continued to make substantial progress executing its
financial strategies, refranchising 183 restaurants in the quarter. In
addition, Tricon invested over $135 million in the first quarter to
buy back 3.9 million of its shares under a $350 million share
repurchase program announced in September 1999. Since the share
repurchase program was initiated, Tricon has invested over $270
million in buying back 7.2 million of its shares.
David Deno, Chief Financial Officer, said, "We are on track to deliver
23% to 27% growth in ongoing operating EPS by continuing to deliver on
our operational and financial strategies, before the impact, if any,
from the bankruptcy filing by AmeriServe. For the quarter, our ongoing
operating EPS was stronger than previously expected primarily because
we made considerable progress in reducing our general and
administrative costs. We are on track to reduce general and
administrative costs by about $50 million in 2000. Our Q1 year over
year reductions in ongoing general and administrative costs totaled
$36 million, and we expect most of the remaining planned reduction
will be realized by the end of the second quarter. It is clear we have
made excellent progress growing our international business, sustaining
the progress we have made at Pizza Hut since mid-1997, and reducing
our interest cost and income tax burdens. Restaurant margins were
below our expectations due in part to timing, and we have the programs
in place to improve our full year margins by 40 to 50 basis points."
Tricon has been working closely with AmeriServe, its suppliers and the
purchasing cooperative for the Tricon system to ensure that
restaurants continue to receive supplies in a timely and cost
effective manner. To date, Tricon has not experienced any significant
service interruptions. Tricon is directly purchasing store level
inventory for the system, while AmeriServe continues to distribute
products to stores and provide ordering, inventory, billing and
collection services to the Company for the same fee in effect prior to
the bankruptcy filing. Tricon remains committed to AmeriServe as it is
reorganized through the bankruptcy process - whether in the form of a
restructured company or through the sale of the business to another
distributor that is acceptable to
3
the Tricon system. However, Tricon has also undertaken contingency
planning and believes that sufficient capacity exists at competitive
rates with alternative distributors in the event AmeriServe is no
longer able to meet its distribution needs.
The term "ongoing" in the following section excludes the impact of
facility actions net gain, unusual items, and last year's accounting
changes.
Ongoing Results*
- ----------------
- - Ongoing operating profit was up 3%. The rate of growth was
negatively impacted by portfolio actions, primarily
refranchising, as company restaurants were sold to franchisees.
This negatively impacted year-over-year growth in ongoing
operating profit by about 6%. Within operating profits,
restaurant profits decreased as we sold restaurants which was
partially offset by higher franchisee fees and lower general and
administrative expenses. Additionally, refranchising proceeds
reduced debt and lowered our year-over-year interest expense.
- - System sales grew over 2% to over $4.9 billion, driven by the
opening of new restaurants.
-- U.S. system sales declined slightly.
-- International system sales increased 9%. Excluding the
favorable impact of currency translation, international
system sales grew 8%.
- - As expected, Tricon's refranchising efforts drove a decline in
worldwide company revenues despite adding new restaurants. The
impact of refranchising on revenue will continue throughout the
year.
-- U.S. revenues declined 15%.
-- International revenues decreased 3%.
-- Franchise and license fees increased 13% driven by existing
company restaurants acquired by franchisees from Tricon and
opening new restaurants.
- - Company restaurant level margins as a percent of sales decreased
110 basis points.
- - Base company restaurant level margins were down about 160 basis
points. Excluding the overlap impact of 125 basis points from
favorable self-insurance adjustments in 1999, base restaurant
margins were down 35 basis points driven by the impact of sales
deleverage on labor and occupancy and other costs, labor rate
increases and delayed timing of a new beverage contract,
partially offset by favorable cheese costs.
- - General and administrative expenses declined 16%. The reduction
of spending on conferences, lower stock based compensation costs
and Y2K spending along with savings from Tricon's refranchising
actions drove the decline.
4
- - Net interest expense declined 22%. This was primarily due to free
cash flow generated from refranchising over the past 12 months,
which was used to significantly reduce debt.
- - As expected, the effective tax rate on ongoing operating income
for the quarter was 39.0%. This compares to a 42.6% rate last
year. The decrease is primarily attributable to a reduction in
the tax on our international operations. For 2000, Tricon
currently anticipates an ongoing operating effective tax rate in
the range of 38% to 39%.
- - Tricon repurchased 3.9 million shares costing over $135 million
in the quarter under its $350 million share repurchase program
announced in September 1999. Since the share repurchase program
was initiated, Tricon has invested over $270 million in buying
back 7.2 million of its shares.
- - Since year-end, net debt increased by over $190 million as Tricon
opportunistically repurchased shares and, because of the
AmeriServe situation, funded the direct purchase of inventory for
the U.S. system and carried the receivables from U.S. franchisees
related to the sale of this inventory. Normally, free cash flow
is seasonally skewed to the last three quarters of the year. This
trend is expected to continue this year.
*These results should be read in conjunction with the attached
financial summary.
5
Financial Summary
First Quarter 2000
(MMs Except Per Share Amounts)
Quarter
----------------------- % Change
2000 1999 B/(W)
--------- --------- --------
System sales(a) $ 4,926 $ 4,806 2
Company revenues(b) $ 1,597 $ 1,813 (12)
Ongoing operating profit(c) $ 199 $ 192 3
Interest expense 41 52 22
Income tax provision 62 59 (3)
--------- ---------
Ongoing operating earnings(c) $ 96 $ 81 20
========= =========
Earnings per diluted share
components:
Ongoing operating earnings $ 0.64 $ 0.50 28
Accounting changes(d) - 0.04 NM
Facility actions net gain 0.18 0.12 44
Unusual items(e) (0.02) - NM
--------- ---------
Total $ 0.80 $ 0.66 21
========= =========
(a) Includes combined sales from company, franchisees, licensees, and
unconsolidated affiliates.
(b) Includes company sales and franchise and license fees.
(c) Before facility actions net gain, unusual items, and last year's
accounting changes.
(d) Includes both required and discretionary changes, which are more
fully described in our 1999 Form 10-K.
(e) Primarily includes direct incremental costs incurred by us as a
result of AmeriServe's bankruptcy filing and additional costs
related to wage and hour litigation.
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, ongoing business
viability of our key distributor, the ability to secure alternative
distribution to our restaurants at competitive rates, 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.
6
Tricon Global Restaurants will hold a conference call to review its
operating and financial performance at 12:00 noon EDT on Thursday,
April 27, 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 in the U.S. and
703-326-3020 internationally beginning Thursday, April 27 at 2:00 p.m.
EDT through Sunday, April 30 at 12:00 midnight EDT. The access code
for the playback is 3968910.
Analysts are invited to contact:
Tim Jerzyk, Vice President Business Planning at 502-874-8617
Larry Gathof, Director Investor Relations at 502-874-8918
Members of the media are invited to contact:
Amy Sherwood, Vice President Public Relations at 502-874-8200
Individual shareholders are invited to contact:
Mary Dossett, Shareholder Relations Analyst at 502-874-8294
7
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Income
(tabular amounts in millions, except per share amounts)
(unaudited)
%
% Pro Forma
12 Weeks Ended Change Change
------------------ B/(W) B/(W)
3/18/00 3/20/99 (a)(b) (a)(c)
-------- -------- --------- ---------
Revenues
Company sales $ 1,425 $ 1,662 (14) (14)
Franchise and license fees 172 151 13 13
-------- --------
1,597 1,813 (12) (12)
-------- --------
Costs and expenses, net
Company restaurants
Food and paper 441 528 16 16
Payroll and employee benefits 410 463 11 12
Occupancy and other operating
expenses 373 412 10 10
-------- --------
1,224 1,403 13 13
General and administrative
expenses(b) 181 213 15 16
Other (income) expense(d) (7) (5) 31 31
Facility actions net gain(e) (47) (34) 39 39
Unusual items(f) 4 - NM NM
------- -------
Total costs and expenses,
net(b)(g) 1,355 1,577 14 15
------- -------
Operating profit 242 236 2 7
Interest expense, net 41 52 22 22
-------- --------
Income before income taxes 201 184 9 15
Income tax provision(h) 81 78 (4) (9)
-------- --------
Net income $ 120 $ 106 13 20
======== ========
Basic EPS Data
- --------------
EPS $ 0.81 $ 0.69 17 24
======== ========
Average shares outstanding 149 153 3 3
======== ========
Diluted EPS Data
- ----------------
EPS $ 0.80 $ 0.66 21 28
======== ========
Average shares outstanding 151 161 6 6
======== ========
See accompanying notes.
8
TRICON Global Restaurants, Inc.
Supplemental Schedule of Reportable Operating Segments'
Revenues and Operating Profit
(in millions)
(unaudited)
%
% Pro Forma
12 Weeks Ended Change Change
------------------ B/(W) B/(W)
3/18/00 3/20/99 (a) (a)(c)
-------- -------- --------- ---------
System Sales
United States $ 3,205 $ 3,220 - -
International 1,721 1,586 9 9
-------- --------
Worldwide $ 4,926 $ 4,806 2 2
======== ========
Revenues
United States
Company sales $ 1,047 $ 1,264 (17) (17)
Franchise and license
fees 115 102 12 12
-------- --------
Total United States 1,162 1,366 (15) (15)
-------- --------
International
Company sales 378 398 (5) (5)
Franchise and license
fees 57 49 16 16
-------- --------
Total International 435 447 (3) (3)
-------- --------
Worldwide $ 1,597 $ 1,813 (12) (12)
======== ========
Restaurant Margin
United States(b)(g) $ 144 $ 204 (29) (27)
International(b) 57 55 4 5
-------- --------
Worldwide $ 201 $ 259 (22) (20)
======== ========
Restaurant Margin As A
Percent Of Company Sales
United States(b)(g) 13.7% 16.1% (2.4) ppts. (2.0) ppts.
International(b) 15.2% 13.8% 1.4 ppts. 1.4 ppts.
Worldwide 14.1% 15.6% (1.5) ppts. (1.1) ppts.
Operating Profit
United States ongoing
operating profit(g) $ 156 $ 175 (11)
International ongoing
operating profit 75 56 33
Ongoing unallocated and
corporate expenses (32) (38) 16
Foreign exchange net gain
(loss) - (1) NM
-------- --------
Worldwide ongoing
operating profit 199 192 3
Accounting changes(b) - 10 NM
Facility actions net
gain(e) 47 34 39
Unusual items(f) (4) - NM
-------- --------
Reported operating
profit(b)(g) $ 242 $ 236 2
======== ========
See accompanying notes.
9
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AND
SUPPLEMENTAL SCHEDULE OF REPORTABLE OPERATING SEGMENTS' REVENUES AND
OPERATING PROFIT:
(tabular dollar amounts in millions, except per share amounts)
(a) Percentages may not recompute due to rounding.
(b) As more fully described in our 1999 Form 10-K, our first quarter
1999 operating results included the impact of several accounting
and human resource policy changes. The first quarter benefit of
approximately $10 million resulted primarily from discretionary
methodology changes, which were implemented to more accurately
measure certain liabilities.
12 Weeks
Ended
3/20/99
----------
Restaurant margin $ 6
General and administrative expenses 4
----------
Operating profit $ 10
==========
U.S. $ 9
International (1)
Unallocated 2
----------
Total $ 10
==========
After-tax impact $ 6
==========
Per diluted share $ 0.04
==========
(c) Pro Forma % B/(W) excludes the effects of the accounting and
human resource policy changes described in Note (b) above.
(d) Other (income) expense included the following:
12 Weeks Ended
--------------------------
3/18/00 3/20/99
----------- -----------
Equity income from investments in
unconsolidated affiliates $ (7) $ (6)
Foreign exchange net loss - 1
----------- -----------
Total other (income) expense $ (7) $ (5)
=========== ===========
10
(e) Facility actions net gain included the following:
12 Weeks Ended
--------------------------
3/18/00 3/20/99
----------- -----------
Refranchising net gains $ 47 $ 37
Store closure net costs (credits) 1 (1)
Impairment charges for stores to be
closed (1) (2)
----------- -----------
$ 47 $ 34
=========== ===========
U.S. $ 43 $ 33
International 4 1
----------- -----------
Total $ 47 $ 34
=========== ===========
After-tax net gain $ 26 $ 19
=========== ===========
Per diluted share $ 0.18 $ 0.12
=========== ===========
(f) Unusual items of $4 million ($2 million after-tax or $0.02 per
diluted share) for the first quarter of 2000 primarily included:
-- Direct incremental costs incurred by TRICON as a result of
AmeriServe's bankruptcy filing.
-- Additional costs of defending certain wage and hour
litigation which are expensed as incurred.
(g) Our restaurant margin and operating profit for the 12 weeks ended
March 20, 1999 included favorable self-insurance adjustments, as
determined by our independent actuary, and other
insurance-related adjustments of $21 million. The self-insurance
adjustments reflect improved casualty loss trends across all
three of our U.S. operating companies. Beginning in 2000,
casualty loss valuations will be provided by our independent
actuary and required adjustments will be recorded by us in the
second and fourth quarters of each year.
(h) The effective tax rates were 40.1% and 42.3% for the 12 weeks
ended March 18, 2000 and March 20, 1999, respectively.
11
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary
For the 12 Weeks Ended March 18, 2000
(unaudited)
Unconsol-
idated
Affil- Fran- Li-
Company iates chisees censees Total
--------- --------- ------- ------- ------
KFC U.S.
Balance at
December 25, 1999 1,439 - 3,743 49 5,231
Openings and
acquisitions 5 - 25 - 30
Refranchising and
licensing (8) - 8 - -
Closures (2) - (7) (3) (12)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 1,434 - 3,769 46 5,249
========= ========= ======= ======= =======
% of Total 27.3% - 71.8% 0.9% 100.0%
Pizza Hut U.S.
Balance at
December 25, 1999 2,355 - 4,446 1,283 8,084
Openings and
acquisitions 8 - 22 39 69
Refranchising and
licensing (105) - 105 - -
Closures (31) - (26) (25) (82)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 2,227 - 4,547 1,297 8,071
========= ========= ======= ======= =======
% of Total 27.6% - 56.3% 16.1% 100.0%
Taco Bell U.S.
Balance at
December 25, 1999 1,190 - 3,921 1,768 6,879
Openings 5 - 18 21 44
Refranchising and
licensing (9) - 11 (2) -
Closures (8) - (12) (45) (65)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 1,178 - 3,938 1,742 6,858
========= ========= ======= ======= =======
% of Total 17.2% - 57.4% 25.4% 100.0%
Total U.S.
Balance at
December 25, 1999 4,984 - 12,110 3,100 20,194
Openings and
acquisitions 18 - 65 60 143
Refranchising and
licensing (122) - 124 (2) -
Closures (41) - (45) (73) (159)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 4,839 - 12,254 3,085 20,178
========= ========= ======= ======= =======
% of Total 24.0% - 60.7% 15.3% 100.0%
International
Balance at
December 25, 1999 1,997 1,178 6,304 309 9,788
Openings and
acquisitions 13 8 89 9 119
Refranchising and
licensing (61) 1 60 - -
Closures (9) (8) (48) (10) (75)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 1,940 1,179 6,405 308 9,832
========= ========= ======= ======= =======
% of Total 19.7% 12.0% 65.1% 3.2% 100.0%
Worldwide
Balance at
December 25, 1999 6,981 1,178 18,414 3,409 29,982
Openings and
acquisitions 31 8 154 69 262
Refranchising and
licensing (183) 1 184 (2) -
Closures (50) (8) (93) (83) (234)
--------- --------- ------- ------- -------
Balance at
March 18, 2000 6,779(a) 1,179 18,659 3,393 30,010
========= ========= ======= ======= =======
% of Total 22.6% 3.9% 62.2% 11.3% 100.0%
(a) Includes 11 Company units approved for closure but not yet closed
at March 18, 2000.
12