Exhibit 99.1
Yum! Brands Inc. Reports Second-Quarter Earnings Per Share, EPS, of
$0.55, an Increase of 16% Prior to Special Items.
LOUISVILLE, Ky.--(BUSINESS WIRE)--July 13, 2004--
Including a Special Items Gain of $0.03,
Reported EPS Was $0.58, Up 45%.
Yum! Brands Inc. (NYSE: YUM):
-- Raises full-year 2004 EPS guidance $0.03 to at least $2.33
prior to special items, an increase of 13%, and reported EPS
to at least $2.36.
-- Reports Period 7 estimated international system sales
increased 17% in U.S. dollar terms or 14% prior to U.S. dollar
conversion.
-- Reports Period 7 (June/July) estimated U.S. blended same-store
sales at company restaurants increased 4% (Taco Bell, +5%;
Pizza Hut, +6%; KFC, even).
Yum! Brands Inc. today reported results for the second-quarter
ended June 12, 2004.
The following are key points relative to the second quarter,
year-over-year performance:
-- International operating profit grew 23%; 14% prior to foreign
currency conversion.
-- International system restaurants in operation expanded by 5%,
the 16th consecutive quarter of at least 5% net,
year-over-year growth.
-- Growth of system restaurants in operation was +26% in China;
+8% in the U.K.; +5% in international franchise-only
businesses.
-- International restaurant margin increased 0.3 percentage
points.
-- U.S. multibrand restaurants in operation expanded by 24%.
-- U.S. blended systemwide same-store sales increased 2%.
-- U.S. restaurant margin declined 0.5 percentage points due to
significantly higher commodity costs.
-- Tax rate prior to special-items gains declined to 26.2% from
32.3%.
In May, the company announced the initiation of a quarterly
dividend. The first distribution ($0.10 per share) is payable August
6, 2004, to shareholders of record July 16, 2004.
Consolidated Financial Highlights
- ----------------------------------------------------------------------
Second Quarter Year To Date
---------------------------------------------------
2004 2003 % Change 2004 2003 % Change
------- ------- --------- ------- ------- ---------
System Restaurants 30,875 30,546 +1 30,875 30,546 +1
Worldwide System
Same-Store-Sales
Growth +2% Even NM +2% (1)% NM
Revenues (million) $2,077 $1,936 +7 $4,047 $3,738 +8
EPS prior to
Special Items $0.55 $0.48 +16 $1.02 $0.87 +17
Special Items EPS $0.03 $(0.08) NM $0.03 $(0.08) NM
Reported EPS $0.58 $0.40 +45 $1.05 $0.79 +33
- ----------------------------------------------------------------------
David C. Novak, Chairman and CEO, said: "I am pleased to report we
are raising our full-year 2004 EPS estimate to at least $2.33, or +13%
growth. This reflects our confidence that our largest and fastest
growing division, Yum! Restaurants International, will continue its
strong momentum, and that we will grow U.S. blended same-store sales
at least 2% for the balance of the year. The underlying strength of
our global base business is allowing us to offset significant
commodity inflation in the U.S. and, once again, exceed our annual
target of at least 10% growth in EPS.
"We were able to meet our operating earnings forecast for the
second quarter solely on the solid performance of our global portfolio
and exceed our EPS forecast due to a lower-than-expected tax rate.
"Given our substantial cash flow and investment-grade rated
balance sheet, we were pleased to announce the initiation of the
company's first dividend in its history. Payable August 6, 2004, our
first dividend checks of $0.10 per share will soon be sent to
shareholders.
"Shareholders should continue to expect us to execute against the
unique growth opportunities that make us anything but an ordinary
restaurant company: profitable international expansion, steady
improvement in operations, and multibranding category-leading brands."
INTERNATIONAL BUSINESS
- ----------------------
- ----------------------------------------------------------------------
Second Quarter Year to Date
(million, % Change % Change
except unit ------------- -------------
counts and Excl Excl
percentages) 2004 2003 Reported F/x 2004 2003 Reported F/x
------ ------ -------- ---- ------ ------ -------- ----
Financial
Measures
Revenues $728 $608 +20 +14 $1,401 $1,158 +21 +14
Operating
Profit $109 $88 +23 +14 $239 $183 +30 +21
Operating
Metrics
Est. System-
Sales Growth +15 +7 +16 +7
System
Restaurants 12,330 11,749 +5 NM 12,330 11,749 +5 NM
- ----------------------------------------------------------------------
A key growth driver for this business segment is profitable
new-restaurant expansion.
In the second quarter and year to date, continued expansion of our
international brands -- KFC and Pizza Hut -- drove international
revenue, system-sales and operating-profit growth. System same-store
sales were slightly positive for the second quarter and year to date
despite the avian-flu situation in Asia earlier in the second quarter.
Second-quarter international system-sales growth prior to foreign
currency conversion of 7% was equal to the ongoing target for growth
in this measure. Overall, system restaurants in operation grew 5%, a
significant contributing factor to this performance. Our two most
profitable markets, China and the U.K., increased system sales in
local currency terms by 19% and 7% respectively. System restaurants in
operation increased 26% in China and 8% in the U.K. The company's
international franchise-only businesses, representing 34% of
international system restaurants, had 12% growth in system sales prior
to currency conversion and 5% growth of system restaurants in
operation. This is a key segment in terms of high-return growth within
the company's international business.
Other markets contributing positively to overall system-sales
growth prior to foreign currency conversion included Pizza Hut South
Korea, Mexico and developing markets in Europe for KFC. Performance in
Canada and Japan had an adverse impact on overall international
system-sales growth.
Second-quarter restaurant margin as a percentage of sales
increased 0.3 percentage points. This increase was primarily driven by
modest productivity gains in all restaurant cost categories as well as
positive same-store-sales growth.
Year-to-date restaurant margin of 15.3% increased 0.6 percentage
points prior to the unfavorable impact from foreign currency
translation of 0.2 percentage points. Positive same-store-sales growth
was the key factor as well as modest productivity gains.
Overall, foreign currency conversion added $8 million to
international operating profit for the second quarter and $16 million
year to date.
UNITED STATES BUSINESS
- -----------------------
- ----------------------------------------------------------------------
Second Quarter Year to Date
(million, except unit
counts and
percentages) 2004 2003 % Change 2004 2003 % Change
------ ------ -------- ------ ------ --------
Financial Measures
Revenues $1,349 $1,328 +2 $2,646 $2,580 +3
Operating Profit $199 $204 (3) $371 $367 +1
Operating Metrics
Est. System-Sales
Growth +3% +6% NM +4% +6% NM
System Restaurants 18,545 18,797 (1) 18,545 18,797 (1)
- ---------------------------------------------------------------------
In the second quarter and for the year to date, the primary
drivers of U.S. revenue growth were higher systemwide same-store sales
and continued development of new, higher-volume restaurants, which, on
average, more than offset reduced revenues associated with the closure
of lower-volume restaurants.
Opening new restaurants with higher volumes than those restaurants
that were closed contributed one percentage point of revenue growth in
the second quarter and year to date. U.S. system restaurants declined
by 1% due primarily to closures of certain Pizza Hut dine-in
restaurants and lower-volume A&W single-brand mall-location
restaurants. The U.S. restaurant portfolio continues to be upgraded
with new restaurants, which, on average, are higher volume. For Taco
Bell, KFC and Long John Silver's, many new restaurants are multibrand.
For the second quarter, U.S. restaurant margin declined by 0.5
percentage points versus the prior year mainly as a result of much
higher commodity costs (primarily cheese and meats). This was a key
factor in the operating profit decline for the second quarter and
equated to more than 2 percentage points adverse impact on restaurant
margin. The company expects continued above-average inflation rates in
key commodities in the U.S. for the third quarter and the full year.
This is reflected in the company's outlook for these periods.
WORLDWIDE NEW-RESTAURANT DEVELOPMENT
- ------------------------------------
- ----------------------------------------------------------------------
System New-Restaurant Openings Second Quarter Year to Date
-------------- ------------
Worldwide 257 537
Key Markets
United States 91 172
International Franchise-Only Businesses 61 138
China 42 116
Australia/New Zealand 11 22
U.K. 14 22
Japan 14 22
Mexico 5 12
Pizza Hut South Korea 8 11
- ----------------------------------------------------------------------
System new-restaurant openings for the second quarter and year to
date were primarily driven by growth in new international KFC and
Pizza Hut restaurants. Key international markets are noted in the
preceding table. Franchise and joint-venture partners opened 73% of
systemwide new international restaurants year to date.
In key markets with a company operations presence, restaurant
counts versus a year ago increased 26% in China, 8% in the U.K., 7% in
Mexico and 7% for Pizza Hut South Korea. For international
franchise-only businesses, year-over-year restaurant growth was 5%,
specifically, Asia, 7%; southern Africa, 6%; the Middle East, 4%; and
Caribbean/Latin America, 4%.
In the U.S. market, the majority of new-restaurant openings were
the KFC and Pizza Hut brands. Over 65% of year-to-date, new-restaurant
openings were franchised. For Taco Bell, KFC and Long John Silver's
year-to-date, more than 70% of new-restaurant openings for the system
were multibrand restaurants.
This discussion and the preceding table exclude 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.
MULTIBRAND EXPANSION
- --------------------
- ----------------------------------------------------------------------
Multibrand Restaurants in Operation Second Quarter
2004 2003 Incr/(Decr)
------ ------ -----------
U.S. Systemwide 2,375 1,917 +24%
% U.S. System Restaurants 13% 10% +3 ppts.
- ----------------------------------------------------------------------
In the second quarter, 163 multibrand restaurants were added in
the U.S., bringing the year-to-date total of U.S. multibrand additions
to 254. Year to date, the multibrand focus has been on expanded
company testing of Pizza Hut and Wing Street multibrand combinations
and expansion of the Long John Silver's brand in combination with KFC,
A&W or Taco Bell in one restaurant location. Excluding the
company-only expanded testing of Pizza Hut and Wing Street multibrand
combinations, franchisees opened over 55% of multibrand additions year
to date. Nearly 50% of the 2,375 U.S. multibrand restaurants in
operation at the end of the second quarter were franchised.
In the U.S., the company's principal multibrand focus will combine
Long John Silver's with A&W, Taco Bell or KFC, operating two brands in
one restaurant location. Additional multibrand combinations will
include KFC with A&W. Pizza Hut has expanded the testing of multibrand
combinations in delivery/carry-out restaurants with the newly created
brand WingStreet.
FRANCHISE GROWTH AND FEES
- -------------------------
- ----------------------------------------------------------------------
Second Quarter Year to Date
-------------- ------------
Franchise Net New-Restaurant Growth +1% +1%
Total Franchise Fees ($ million) $231 $454
Growth Vs. 2003 +9% +9%
- ----------------------------------------------------------------------
For the second quarter, favorable foreign currency conversion
added 3 percentage points of franchise-fee growth. Excluding this
factor, franchise fees increased 6%. Second-quarter and year-to-date
growth was primarily driven by international franchise new-restaurant
development and worldwide franchise same-store-sales growth.
GENERAL AND ADMINISTRATIVE EXPENSES
Worldwide general and administrative (G&A) expenses increased $23
million, or 12%, in the second quarter prior to an unfavorable impact
from foreign currency conversion of $3 million. The increase was
partially attributed to approximately $2 million associated with the
company operating restaurants in Canada that were previously owned by
our Canada joint venture. Other factors contributing to the increase
include costs associated with increased compensation (pension and
incentives), international expansion and the implementation of new
financial and human-resource systems. These were key factors in the
year-to-date increase in worldwide general and administrative expenses
as well.
FACILITY ACTIONS
Expenses related to restaurant closures and impairment and
refranchising gains/losses increased $4 million for the quarter and
year to date. This included losses for upcoming refranchising
transactions.
TAX RATE
The tax rate prior to special items of 26.2% was 6.1 percentage
points lower than last year's second-quarter rate due to settlements
in connection with closure of regular audit cycles, a permanent rate
change in one of our international markets and other items. The lower
tax rate for the second quarter added $0.03 to EPS based on comparing
this quarter's actual rate to the full-year tax rate forecast range
included in the company's press release on December 4, 2003. The
company now expects the full-year 2004 tax rate, prior to special
items, will be in a range of 29% to 30%, slightly lower than in 2003.
CASH-FLOW
Year to date, the company generated $390 million in net cash
provided by operating activities. Capital spending, including the
acquisition of franchise restaurants, was $226 million. Additional
cash of over $130 million was generated from employee stock-option
proceeds, proceeds from sales of property, plant and equipment and
refranchising restaurants.
Year to date, $294 million of cash was used to repurchase the
company's stock. We have already invested more cash in share
repurchases in the first half of 2004 than we invested in any prior
fiscal year.
THIRD-QUARTER 2004 OUTLOOK
The company is comfortable with the current consensus estimate of
$0.60 in EPS prior to special items in the third quarter. Including
all factors, U.S. restaurant margin is expected to decline by
approximately 1 percentage point versus last year's third quarter. The
company expects the largest single factor contributing to the decline
to be above-average inflation in U.S. commodity costs (meats, cheese,
oil) to the extent of more than 2 percentage points of margin.
FULL-YEAR OUTLOOK
The company expects earnings per share to grow at least 10% each
year with the continued execution of its three key strategies: (1)
profitable international expansion, (2) steady improvement in
operations and (3) multibranding category-leading brands.
Based on year-to-date results and information currently available,
the company expects full-year EPS of at least $2.33 prior to special
items. As always, the company will continue to update shareholders
each four-week period on current sales trends worldwide and provide an
update to full-year EPS expectations if there are any material
changes.
Projected factors contributing to the company's original annual
2004 EPS guidance were published in the company's release on December
4, 2003, and updates were published with first-quarter earnings on
April 21, 2004. Based on current information, the company believes
that those factors remain reasonable, except that the company now
expects 2004 EPS of at least $2.33 prior to special items, which
incorporates year-to-date results and the following updated full-year
factors:
-- International revenue growth of +15% to +17%.
-- International operating profit growth of at least +18% in U.S.
dollar terms.
-- U.S. blended same-store-sales growth in a range of +2% to +3%.
-- U.S. restaurant margin for 2004 will be adversely affected by
substantially higher commodity costs resulting in a
year-over-year decline of about 0.5 percentage points.
-- Interest expense will be down approximately $30 to $35 million
versus 2003.
-- Effective tax rate of 29% to 30%, slightly lower than 2003's
rate. This rate is prior to special items.
For 2004, the company currently expects reported EPS of at least
$2.36 including a special-items gain of approximately $0.03 per share.
- ----------------------------------------------------------------------
Annual Outlook
----------------------------
Forecast Actual
2004 2003 Incr/(Decr)
-------- ------- -----------
EPS prior to Special Items $2.33 $2.06 +13%
Special Items EPS $0.03 $(0.04) NM
Reported EPS $2.36 $2.02 +17%
- ----------------------------------------------------------------------
PERIOD 7 SALES
Period 7 estimated international system sales increased 14% prior
to foreign currency conversion or 17% after conversion to U.S.
dollars. Estimated U.S. blended same-store sales at company
restaurants increased 4% versus last year for the comparable four-week
period ended July 10, 2004.
International System-Sales Growth (Estimated)
- ---------------------------------------------
- ----------------------------------------------------------------------
Prior-Year
Local Currency Local Currency
Reported (U.S.$) Basis Basis
---------------- --------------- ------------------
Period 7 +17% +14% +3%
- ----------------------------------------------------------------------
U.S. Company Same-Store-Sales Growth (Estimated)
- ------------------------------------------------
- ----------------------------------------------------------------------
Period 7 2004 Period 7 2003
------------- -------------
U.S. BLENDED +4% Even
Taco Bell +5% +2%
Pizza Hut +6% +4%
KFC Even (7)%
- ----------------------------------------------------------------------
CONFERENCE CALL
Yum! Brands Inc. will hold a conference call to review the
company's financial performance and strategies at 9:15 a.m. EDT
Wednesday, July 14, 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, July
14, at 12:15 p.m. EDT through Friday, July 30, at midnight EDT. To
access the playback, dial 800/642-1687 in the U.S.A. and 706/645-9291
internationally. The playback pass code is 8046200.
The call and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site: www.yum.com and selecting "2nd 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
Note: Sales results for Period 8 (the four-week period ending
August 7, 2004) are scheduled to be released August 12, 2004, before
market hours.
Excl F/x is prior to foreign currency conversion to U.S. dollars.
Franchise Fees include fees from unconsolidated affiliates (joint
ventures) and franchise and license restaurants. Fees include ongoing
royalty and license fees, initial fees for new restaurants and
contract-renewal fees.
Franchise Restaurants include unconsolidated affiliates (joint
ventures) and franchise restaurants and exclude license restaurants.
Franchise Net New-Restaurant Growth is the year-over-year total of
franchise restaurant openings less franchise restaurant closings
divided by the prior year's franchise restaurant total.
New-Restaurant Openings include unconsolidated affiliates (joint
ventures), company-owned and franchise restaurants and exclude license
restaurants.
Special Items include AmeriServe and other charges (credits),
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 unconsolidated affiliates (joint
ventures), company-owned and franchise restaurants and exclude license
restaurants.
System-Sales Growth includes the results of all restaurants
regardless of ownership including unconsolidated affiliates,
company-owned, franchise and license restaurants. Sales of
unconsolidated affiliates (joint ventures), franchise and license
restaurants generate franchise and license fees for the company
(typically at a rate of 4% to 6% of sales). Unconsolidated affiliates
(joint ventures), franchise and license restaurant sales are not
included in company sales we present on the Condensed Consolidated
Statements of Income; however, the franchise fees previously defined
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 unconsolidated affiliates (joint
ventures), company-owned, franchise and license restaurants.
U.S. Same-Store Sales include only company restaurants that have
been open one year or more. U.S. blended same-store sales include KFC,
Pizza Hut, and Taco Bell company-owned restaurants only. U.S.
same-store sales for Long John Silver's and A&W Restaurants are not
included.
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 2,500 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. For the past two
years, the company has been 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
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 % Year to date %
----------------- Change ----------------- Change
6/12/04 6/14/03 B/(W) 6/12/04 6/14/03 B/(W)
-------- -------- -------- -------- -------- ------
Total revenues $2,077 $1,936 7 $4,047 $3,738 8
Costs and expenses
Company restaurant
expenses 1,576 1,467 (7) 3,067 2,839 (8)
General and
administrative
expenses 234 208 (13) 471 411 (15)
Franchise and
license expenses 6 6 22 8 13 36
Facility actions 10 6 NM 19 15 NM
Other (income)
expense (10) (8) 27 (22) (14) 52
Wrench litigation - 35 NM - 35 NM
AmeriServe and
other charges
(credits) (14) 2 NM (14) 2 NM
-------- -------- -------- --------
Total costs and
expenses 1,802 1,716 (5) 3,529 3,301 (7)
-------- -------- -------- --------
Operating profit 275 220 24 518 437 18
Interest expense,
net 32 42 23 67 84 20
-------- -------- -------- --------
Income before
income taxes and
cumulative effect
of accounting
change 243 178 36 451 353 27
Income tax
provision 65 56 (16) 131 113 (16)
-------- -------- -------- --------
Income before
cumulative effect
of accounting
change 178 122 45 320 240 33
Cumulative effect
of accounting
change, net of tax - - - - (1) NM
-------- -------- -------- --------
Net income $178 $122 45 $320 $239 33
======== ======== ======== ========
Basic EPS Data
- --------------
EPS $0.61 $0.42 46 $1.10 $0.82 35
======== ======== ======== ========
Average shares
outstanding 290 293 1 290 293 1
======== ======== ======== ========
Diluted EPS Data
- ----------------
EPS $0.58 $0.40 45 $1.05 $0.79 33
======== ======== ======== ========
Average shares
outstanding 304 304 - 305 303 -
======== ======== ======== ========
Dividends declared
per common share $ 0.10 $ - NM $ 0.10 $ - NM
======== ======== ======== ========
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 Year to date
----------------- % Change ----------------- % Change
6/12/04 6/14/03 B/(W) 6/12/04 6/14/03 B/(W)
-------- -------- -------- -------- -------- --------
Company sales $1,846 $1,723 7 $3,593 $3,320 8
Franchise and
license fees 231 213 9 454 418 9
-------- -------- -------- --------
Revenues 2,077 1,936 7 4,047 3,738 8
-------- -------- -------- --------
Company
restaurants
Food and
paper 588 532 (11) 1,128 1,024 (10)
Payroll
and
employee
benefits 493 473 (4) 973 923 (5)
Occupancy
and other
operating
expenses 495 462 (7) 966 892 (8)
-------- -------- -------- --------
1,576 1,467 (7) 3,067 2,839 (8)
General and
administrative
expenses 234 208 (13) 471 411 (15)
Franchise
and license
expenses 6 6 22 8 13 36
Facility
actions 10 6 NM 19 15 NM
Other
(income)
expense (10) (8) 27 (22) (14) 52
-------- -------- -------- --------
1,816 1,679 (8) 3,543 3,264 (9)
-------- -------- -------- --------
Operating
profit
before
special
items 261 257 2 504 474 6
Interest
expense,
net 32 42 23 67 84 20
Income tax
provision 60 70 14 126 127 -
-------- -------- -------- --------
Earnings
before
special
items $169 $145 16 $311 $263 18
======== ======== ======== ========
Tax rate
before
special
items 26.2% 32.3% 6.1 ppts. 28.9% 32.4% 3.5 ppts.
======== ======== ======== ========
Diluted EPS
before
special
items $0.55 $0.48 16 $1.02 $0.87 17
======== ======== ======== ========
Company
sales 100.0% 100.0% 100.0% 100.0%
Food and
paper 31.9 30.9 (1.0) ppts. 31.4 30.8 (0.6) ppts.
Payroll and
employee
benefits 26.7 27.4 0.7 ppts. 27.0 27.8 0.8 ppts.
Occupancy
and other
operating
expenses 26.8 26.9 0.1 ppts. 26.9 26.9 -
-------- -------- -------- --------
Restaurant
margin 14.6% 14.8% (0.2) ppts. 14.7% 14.5% 0.2 ppts.
======== ======== ======== ========
Reconciliation of Segment Operating Profit to Reported
Operating Profit
- ----------------------------------------------------------------------
U.S.
operating
profit $199 $204 (3) $371 $367 1
International
operating
profit 109 88 23 239 183 30
Unallocated
and
corporate
expense (44) (34) (32) (92) (69) (35)
Unallocated
other
income
(expense) - (1) NM (3) - NM
Unallocated
facility
actions (3) - NM (11) (7) NM
-------- -------- -------- --------
Operating
profit
before
special
items 261 257 2 504 474 6
Wrench
litigation - (35) NM - (35) NM
AmeriServe
and other
(charges)
credits 14 (2) NM 14 (2) NM
-------- -------- -------- --------
Reported
operating
profit $275 $220 24 $518 $437 18
======== ======== ======== ========
See accompanying notes and reconciliations of non-GAAP measurements to
GAAP results.
Yum! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
Quarter Year to date
----------------- % Change ----------------- % Change
6/12/04 6/14/03 B/(W) 6/12/04 6/14/03 B/(W)
-------- -------- -------- -------- -------- --------
Company sales $1,208 $1,193 1 $2,374 $2,319 2
Franchise
and license
fees 141 135 4 272 261 4
-------- -------- -------- --------
Revenues 1,349 1,328 2 2,646 2,580 3
-------- -------- -------- --------
Company
restaurants
Food and
paper 365 343 (6) 698 666 (5)
Payroll
and employee
benefits 367 368 - 733 727 (1)
Occupancy
and other
operating
expenses 299 301 1 603 594 (1)
-------- -------- -------- --------
1,031 1,012 (2) 2,034 1,987 (2)
General and
administrative
expenses 112 108 (4) 232 217 (7)
Franchise
and license
expenses 3 2 (36) 4 6 29
Facility
actions 4 2 NM 5 3 NM
-------- -------- -------- --------
1,150 1,124 (2) 2,275 2,213 (3)
-------- -------- -------- --------
Operating
profit $199 $204 (3) $371 $367 1
======== ======== ======== ========
Company
sales 100.0% 100.0% 100.0% 100.0%
Food and
paper 30.2 28.7 (1.5) ppts. 29.4 28.7 (0.7) ppts.
Payroll
and employee
benefits 30.3 30.8 0.5 ppts 30.9 31.3 0.4 ppts.
Occupancy
and other
operating
expenses 24.8 25.3 0.5 ppts. 25.4 25.7 0.3 ppts.
-------- -------- -------- --------
Restaurant
margin 14.7% 15.2% (0.5) ppts. 14.3% 14.3% -
======== ======== ======== ========
See accompanying notes.
Yum! Brands, Inc.
INTERNATIONAL Operating Results
(amounts in millions)
Quarter Year to date
----------------- % Change ----------------- % Change
6/12/04 6/14/03 B/(W) 6/12/04 6/14/03 B/(W)
-------- -------- -------- -------- -------- --------
Company sales $638 $530 20 $1,219 $1,001 22
Franchise and
license fees 90 78 16 182 157 16
-------- -------- -------- --------
Revenues 728 608 20 1,401 1,158 21
-------- -------- -------- --------
Company
restaurants
Food and paper 223 189 (18) 430 358 (20)
Payroll and
employee
benefits 126 105 (20) 240 196 (22)
Occupancy and
other
operating
expenses 196 161 (22) 363 298 (22)
-------- -------- -------- --------
545 455 (20) 1,033 852 (21)
General and
administrative
expenses 78 66 (20) 147 125 (18)
Franchise and
license
expenses 3 4 46 4 7 44
Facility
actions 3 4 NM 3 5 NM
Other (income)
expense (10) (9) 5 (25) (14) 69
-------- -------- -------- --------
619 520 (19) 1,162 975 (19)
-------- -------- -------- --------
Operating
profit $109 $88 23 $239 $183 30
======== ======== ======== ========
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 35.1 35.7 0.6 ppts. 35.3 35.7 0.4 ppts.
Payroll and
employee
benefits 19.7 19.8 0.1 ppts. 19.6 19.6 -
Occupancy and
other
operating
expenses 30.7 30.3 (0.4) ppts. 29.8 29.8 -
-------- -------- -------- --------
Restaurant
margin 14.5% 14.2% 0.3 ppts. 15.3% 14.9% 0.4 ppts.
======== ======== ======== ========
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
6/12/04 12/27/03
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $183 $192
Short-term investments, at cost 42 15
Accounts and notes receivable, less allowance: $19
in 2004 and $25 in 2003 178 150
Inventories 73 67
Assets classified as held for sale 98 96
Prepaid expenses and other current assets 109 65
Deferred income taxes 165 165
Advertising cooperative assets, restricted 73 56
--------- ---------
Total Current Assets 921 806
Property, plant and equipment, net 3,251 3,280
Goodwill 526 521
Intangible assets, net 352 357
Investments in unconsolidated affiliates 178 184
Other assets 455 472
--------- ---------
Total Assets $5,683 $5,620
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,097 $1,157
Dividends payable 29 -
Income taxes payable 164 238
Short-term borrowings 379 10
Advertising cooperative liabilities 73 56
--------- ---------
Total Current Liabilities 1,742 1,461
Long-term debt 1,669 2,056
Other liabilities and deferred credits 999 983
--------- ---------
Total Liabilities 4,410 4,500
--------- ---------
Shareholders' Equity
Preferred stock, no par value, 250 shares
authorized; no shares issued - -
Common stock, no par value, 750 shares authorized;
290 shares and 292 shares issued in 2004 and 2003,
respectively 783 916
Retained earnings 705 414
Accumulated other comprehensive income (loss) (215) (210)
--------- ---------
Total Shareholders' Equity 1,273 1,120
--------- ---------
Total Liabilities and Shareholders' Equity $5,683 $5,620
========= =========
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
Year to date
-----------------
6/12/04 6/14/03
-------- --------
Cash Flows - Operating Activities
Net income $320 $239
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change, net of tax - 1
Depreciation and amortization 195 181
Facility actions 19 15
Wrench litigation - 35
Other liabilities and deferred credits 8 4
Deferred income taxes - (27)
Other non-cash charges and credits, net 19 23
Changes in operating working capital, excluding
effects of acquisitions and dispositions:
Accounts and notes receivable (14) (11)
Inventories (6) (3)
Prepaid expenses and other current assets (21) (25)
Accounts payable and other current liabilities (64) (107)
Income taxes payable (66) 39
-------- --------
Net change in operating working capital (171) (107)
-------- --------
Net Cash Provided by Operating Activities 390 364
-------- --------
Cash Flows - Investing Activities
Capital spending (221) (221)
Proceeds from refranchising of restaurants 8 11
Acquisition of restaurants from franchisees (5) (22)
Short-term investments (27) 2
Sales of property, plant and equipment 24 20
Other, net 23 2
-------- --------
Net Cash Used In Investing Activities (198) (208)
-------- --------
Cash Flows - Financing Activities
Revolving Credit Facility activity
Three months or less, net - (27)
Repayments of long-term debt (7) (6)
Short-term borrowings-three months or less, net - (48)
Repurchase shares of common stock (294) (82)
Employee stock option proceeds 102 34
-------- --------
Net Cash Used In Financing Activities (199) (129)
-------- --------
Effect of Exchange Rates on Cash and Cash
Equivalents (2) 7
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (9) 34
Cash and Cash Equivalents - Beginning of Period 192 130
-------- --------
Cash and Cash Equivalents - End of Period $183 $164
======== ========
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, in 2003, the Cumulative effect of
accounting change, net of tax. These amounts are described in (e), (f)
and (g) 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 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
------------------ ------------------
6/12/04 6/14/03 6/12/04 6/14/03
-------- -------- -------- --------
Detail of Special Items
- -----------------------
Wrench litigation $ - $ (35) $ - $ (35)
AmeriServe and other (charges)
credits 14 (2) 14 (2)
Cumulative effect of accounting
change - - - (2)
-------- -------- -------- --------
Total special items 14 (37) 14 (39)
Tax on special items (5) 14 (5) 15
-------- -------- -------- --------
Special items, net of tax $ 9 $ (23) $ 9 $ (24)
======== ======== ======== ========
Average shares outstanding 304 304 305 303
======== ======== ======== ========
Special items diluted EPS $ 0.03 $ (0.08) $ 0.03 $ (0.08)
======== ======== ======== ========
Reconciliation of Earnings
Before Special Items to Net
Income
- ----------------------------
Earnings before special items $ 169 $ 145 $ 311 $ 263
Special items, net of tax 9 (23) 9 (24)
-------- -------- -------- --------
Net income $ 178 $ 122 $ 320 $ 239
======== ======== ======== ========
Reconciliation of EPS Before
Special Items to Reported EPS
- ------------------------------
Diluted EPS before special
items $ 0.55 $ 0.48 $ 1.02 $ 0.87
Special items EPS 0.03 (0.08) 0.03 (0.08)
-------- -------- -------- --------
Reported EPS $ 0.58 $ 0.40 $ 1.05 $ 0.79
======== ======== ======== ========
Notes to the Consolidated Summary of Results, Condensed Consolidated
Statements of Cash Flows and Condensed Consolidated Balance Sheets
(amounts in millions, except per share amounts)
(a) Percentages may not recompute due to rounding.
(b) Franchisee sales represents the combined estimated sales of
unconsolidated affiliate, franchise and license restaurants.
Franchisee sales, which are not included in the Company sales we
present on the Condensed Consolidated Statements of Income,
generate franchise and license fees (typically at a rate of 4% to
6% of sales) that are included in the Company's revenues.
Quarter % Year to date %
----------------- Change ----------------- Change
6/12/04 6/14/03 B(W) 6/12/04 6/14/03 B(W)
-------- -------- ------ -------- -------- ------
United States
Company sales $1,208 $1,193 1 $2,374 $2,319 2
Franchisee sales 2,736 2,627 4 5,313 5,107 4
International
Company sales $638 $530 20 $1,219 $1,001 22
Franchisee sales 1,781 1,569 13 3,627 3,176 14
Worldwide
Company sales $1,846 $1,723 7 $3,593 $3,320 8
Franchisee sales 4,517 4,196 8 8,940 8,283 8
(c) Facility actions included the following:
Quarter Year to date
------------------- -------------------
6/12/04 6/14/03 6/12/04 6/14/03
-------- -------- -------- --------
Store closure costs $ (5) $ (2) $ (5) $ (2)
Asset impairment charges 12 8 13 10
Refranchising net loss (gain) 3 - 11 7
-------- -------- -------- --------
Facility actions $ 10 $ 6 $ 19 $ 15
======== ======== ======== ========
In the previous year's reporting of results for the quarter and year
to date ended June 14, 2003, store closure costs and asset impairment
charges were included in other (income) expense.
(d) Other (income) expense primarily includes equity income from
investments in unconsolidated affiliates.
(e) An insignificant amount of expense was recorded as Wrench
litigation for the quarter and year to date ended June 12, 2004
reflecting interest related to the yet to be paid legal judgment
against Taco Bell Corp. on June 4, 2003 in Wrench v. Taco Bell
Corp. Our total recorded liability for this judgment, including
interest, at June 12, 2004 was approximately $42 million.
(f) The amounts recorded as AmeriServe and other charges (credits) for
the quarter and year to date ended June 12, 2004, primarily
resulted from recoveries related to the AmeriServe bankruptcy
reorganization process. The amounts recorded as AmeriServe and
other charges (credits) for the quarter and year to date ended
June 14, 2003, primarily included integration costs related to our
acquisition of Yorkshire Global Restaurants.
(g) 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).
(h) We participate in various advertising cooperatives with our
franchisees and licensees. In certain of these cooperatives we
possess majority voting rights, and thus control the cooperatives.
We have previously included the related assets and liabilities of
those advertising cooperatives we control in accounts and notes
receivable, prepaid expenses and other current assets and accounts
payable and other current liabilities, as appropriate, on a gross
basis. We have now summed all assets and liabilities of these
advertising cooperatives and reported the amounts as advertising
cooperative assets, restricted and advertising cooperative
liabilities in the Condensed Consolidated Balance Sheet for June
12, 2004. We have reclassified those amounts in the Consolidated
Balance Sheet at December 27, 2003 for comparative purposes.
(i) For the quarter and year to date ended June 12, 2004, we
repurchased approximately 2.1 million shares and 8.1 million
shares of our Common Stock, respectively, at an average price of
$38 per share and $36 per share, respectively.
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to Date Ended June 12, 2004
Total
Unconsolidated Excluding
Company Affiliates(a) Franchisees Licensees(b)
------- -------------- ----------- ------------
Total U.S.
Beginning of Year 5,094 6 13,566 18,666
New Builds 55 - 117 172
Acquisitions 8 - (8) -
Refranchising &
Licensing (2) - 2 -
Closures &
Divestitures (123) (3) (170) (296)
Other - - 3 3
------- -------------- ----------- ------------
End of Quarter 5,032 3 13,510 18,545
======= ============== =========== ============
% of Total 27% - 73% 100%
Total International
Beginning of Year 2,760 1,506 7,905 12,171
New Builds 99 62 204 365
Acquisitions 3 2 (5) -
Refranchising &
Licensing (12) - 12 -
Closures &
Divestitures (62) (13) (117) (192)
Other (3) (8) (3) (14)
------- -------------- ----------- ------------
End of Quarter 2,785 1,549 7,996 12,330
======= ============== =========== ============
% of Total 23% 12% 65% 100%
Total System
Beginning of Year 7,854 1,512 21,471 30,837
New Builds 154 62 321 537
Acquisitions 11 2 (13) -
Refranchising &
Licensing (14) - 14 -
Closures &
Divestitures (185) (16) (287) (488)
Other (3) (8) - (11)
------- -------------- ----------- ------------
End of Quarter 7,817 1,552 21,506 30,875
======= ============== =========== ============
% of Total 25% 5% 70% 100%
(a) Total U.S. and Total System include 3 Yan Can units.
(b) The total excludes 2,104 U.S. and 206 International licensee
units. The U.S. licensee unit count includes 1,120 Pizza Huts, 917
Taco Bells and 67 KFCs. The International licensee unit count
includes 94 Pizza Huts, 66 KFCs, 44 Taco Bells, 1 Long John
Silver's and 1 A&W.
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to Date Ended June 12, 2004
United States
- ----------------------------------------------------------------------
Total
Excluding
Company Franchisees Licensees
------------- ------------- ------------
Pizza Hut U.S.
Beginning of Year 1,776 4,624 6,400
New Builds 14 43 57
Acquisitions 7 (7) -
Refranchising & Licensing (2) 2 -
Closures & Divestitures (32) (73) (105)
Other - - -
------------- ------------- ------------
End of Quarter 1,763 4,589 6,352
============= ============= ============
% of Total 28% 72% 100%
KFC U.S.
Beginning of Year 1,252 4,204 5,456
New Builds 20 38 58
Acquisitions - - -
Refranchising & Licensing - - -
Closures & Divestitures (17) (37) (54)
Other - - -
------------- ------------- ------------
End of Quarter 1,255 4,205 5,460
============= ============= ============
% of Total 23% 77% 100%
Taco Bell U.S.
Beginning of Year 1,284 3,743 5,027
New Builds 6 26 32
Acquisitions 1 (1) -
Refranchising & Licensing - - -
Closures & Divestitures (12) (28) (40)
Other - - -
------------- ------------- ------------
End of Quarter 1,279 3,740 5,019
============= ============= ============
% of Total 25% 75% 100%
Long John Silver's U.S.
Beginning of Year 701 502 1,203
New Builds 15 8 23
Acquisitions - - -
Refranchising & Licensing - - -
Closures & Divestitures (14) (15) (29)
Other - 1 1
------------- ------------- ------------
End of Quarter 702 496 1,198
============= ============= ============
% of Total 59% 41% 100%
A&W U.S.
Beginning of Year 81 493 574
New Builds - 2 2
Acquisitions - - -
Refranchising & Licensing - - -
Closures & Divestitures (48) (17) (65)
Other - 2 2
------------- ------------- ------------
End of Quarter 33 480 513
============= ============= ============
% of Total 6% 94% 100%
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to date Ended June 12, 2004
International
- ----------------------------------------------------------------------
Total
Unconsolidated Excluding
Company Affiliates Franchisees Licensees
------- -------------- ----------- ---------
KFC International
Beginning of Year 1,685 773 4,835 7,293
New Builds 73 52 116 241
Acquisitions 1 - (1) -
Refranchising & Licensing (11) - 11 -
Closures & Divestitures (30) (11) (59) (100)
Other 2 (1) (13) (12)
------- -------------- ----------- ---------
End of Quarter 1,720 813 4,889 7,422
======= ============== =========== =========
% of Total 23% 11% 66% 100%
Pizza Hut International
Beginning of Year 1,021 733 2,708 4,462
New Builds 26 10 76 112
Acquisitions 2 2 (4) -
Refranchising & Licensing - - - -
Closures & Divestitures (30) (2) (48) (80)
Other - (7) 9 2
------- -------------- ----------- ---------
End of Quarter 1,019 736 2,741 4,496
======= ============== =========== =========
% of Total 23% 16% 61% 100%
Taco Bell International
Beginning of Year 54 - 150 204
New Builds - - - -
Acquisitions - - - -
Refranchising & Licensing (1) - 1 -
Closures & Divestitures (2) - (3) (5)
Other (5) - 1 (4)
------- -------------- ----------- ---------
End of Quarter 46 - 149 195
======= ============== =========== =========
% of Total 24% - 76% 100%
A&W International
Beginning of Year - - 182 182
New Builds - - 10 10
Acquisitions - - - -
Refranchising & Licensing - - - -
Closures & Divestitures - - (5) (5)
Other - - - -
------- -------------- ----------- ---------
End of Quarter - - 187 187
======= ============== =========== =========
% of Total - - 100% 100%
Long John Silver's
International
Beginning of Year - - 30 30
New Builds - - 2 2
Acquisitions - - - -
Refranchising & Licensing - - - -
Closures & Divestitures - - (2) (2)
Other - - - -
------- -------------- ----------- ---------
End of Quarter - - 30 30
======= ============== =========== =========
% of Total - - 100% 100%
YUM! Brands, Inc.
United States Multibrand Restaurants
For the Year to Date Ended June 12, 2004
United States(a)
----------------------------------------
Multibrand Restaurants in
Operation at 6/12/04
---------------------------
Gross
Additions
Year to Date
6/12/04 Company Franchise Total
------------ -------- --------- --------
KFC
Taco Bell 10 180 490 670
Pizza Hut 4 100 44 144
A&W 29 125 160 285
Taco Bell/Pizza Hut 3 n 1 - 19 24 43
Long John Silver's 34 47 46 93
Wing Works - 26 - 26
------------ -------- --------- --------
77 497 764 1,261
Taco Bell
Pizza Hut 3 314 284 598
Long John Silver's 15 46 16 62
Backyard Burgers 1 9 - 9
A&W - 2 - 2
------------ -------- --------- --------
19 371 300 671
Pizza Hut
KFC - - 5 5
Taco Bell - - 1 1
Wing Works - 1 - 1
Pasta Bravo - 2 2 4
WingStreet 134 193 - 193
------------ -------- --------- --------
134 196 8 204
Long John Silver's
A&W 24 139 100 239
------------ -------- --------- --------
Total 254 1,203 1,172 2,375
============ ======== ========= ========
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 182 International multibrand units in
operation at the end of the period. The International multibrand
unit count reflects a decrease of 18 units from the 2003 year end
multibrand unit count, related to corrections, primarily in
Canada.
CONTACT: Yum! Brands Inc., Louisville
Analysts:
Tim Jerzyk, Vice President Investor Relations,
888/298-6986
or
Media:
Amy Sherwood, Vice President Public Relations,
502/874-8200