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