Exhibit 99.1
Yum! Brands Inc. Reports Third-Quarter Earnings Per Share,
EPS, of $0.61, an Increase of 12% Prior to Special Items
LOUISVILLE, Ky.--(BUSINESS WIRE)--xx--Yum! Brands Inc. (NYSE:
YUM):
-- Raises full-year 2004 EPS guidance $0.02 to $2.35 prior to
special items, an increase of 14%, and reported EPS to $2.38.
-- Reports Period 10 estimated international system sales
increased 13% in U.S. dollar terms or 8% prior to U.S. dollar
conversion.
-- Reports Period 10 (September) estimated U.S. blended
same-store sales at company restaurants increased 3% (Taco
Bell, +4%; Pizza Hut, +6%; KFC, (1)%).
Yum! Brands Inc. today reported results for the third quarter
ended September 4, 2004.
The following are key points relative to the current third-quarter
and year-over-year performance:
-- International operating profit grew 25% or 21% prior to
foreign currency conversion.
-- International system restaurants in operation at quarter's end
increased by 5%, the 17th consecutive quarter of at least 5%,
year-over-year growth.
-- System restaurants in operation at quarter's end grew 27% in
China, 7% in the U.K., 6% in international franchise-only
businesses.
-- International restaurant margin increased 1.1 percentage
points.
-- U.S. multibrand restaurants in operation expanded by 23%.
-- System same-store-sales grew 4% in the U.S.
-- U.S. restaurant margin declined 0.7 percentage points due to
significantly higher commodity costs.
-- The company's first dividend of $0.10 per share was paid
August 6, 2004.
Consolidated Financial Highlights
- ----------------------------------------------------------------------
Third Quarter Year To Date
---------------------------------------------------
2004 2003 % Change 2004 2003 % Change
------- ------- --------- ------- ------- ---------
System Restaurants 30,943 30,598 +1 30,943 30,598 +1
Worldwide System
Same-Store-Sales
Growth +5% Even NM +3% (1)% NM
Revenues (million) $2,179 $1,989 +10 $6,226 $5,727 +9
EPS prior to
Special Items $0.61 $0.54 +12 $1.63 $1.41 +15
Special Items EPS $0.00 $(0.01) NM $0.03 $(0.09) NM
Reported EPS $0.61 $0.53 +14 $1.66 $1.32 +25
- ----------------------------------------------------------------------
David C. Novak, Chairman and CEO, said: "I am pleased to report we
are raising our full-year 2004 EPS estimate to $2.35, or 14% growth
prior to special items. The underlying strength of our China and
international businesses coupled with continued strong
same-store-sales growth at Taco Bell and Pizza Hut is allowing us,
once again, to exceed our annual target of at least 10% growth in EPS.
We are especially pleased to achieve these results as we make major
G&A investments to support future growth opportunities and at the same
time offset significant inflation in U.S. commodities. Once again,
this demonstrates the power of our global portfolio of businesses.
"Looking ahead to 2005, we are confident of continuing to deliver
our stated goal of at least 10% growth in EPS. This reflects our
confidence that we will again open at least 1,000 new international
restaurants and grow U.S. same-store sales at our target rate of 1% to
2%.
"Shareholders should expect us to continue to build value by
executing 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
- ----------------------
- ----------------------------------------------------------------------
Third Quarter Year to Date
(million, % Change % Change
except unit ------------- -------------
counts and Reported Excl Reported Excl
percentages) 2004 2003 F/x 2004 2003 F/x
------- ------- -------- ---- ------ ------ -------- ----
Financial
Measures
Revenues $810 $652 +24 +21 $2,211 $1,810 +22 +17
Operating
Profit $143 $114 +25 +21 $382 $297 +28 +22
Operating
Metrics
Est. System-
Sales Growth +16 +12 +16 +9
System
Restaurants 12,448 11,845 +5 NM 12,448 11,845 +5 NM
- ------------ ------ ------- -------- ---- ------ ------ -------- ----
In the third quarter and year to date, continued profitable
expansion of our international brands -- KFC and Pizza Hut -- drove
international revenue, system-sales and operating-profit growth.
Third-quarter international system sales grew by 12% prior to
foreign currency conversion, exceeding the company's ongoing target
for growth with same-store-sales growth the most significant
contributing factor. An additional contributor to this strong
performance was the company's 5% growth in overall system restaurants.
Our two most profitable markets, China and the U.K., increased system
sales in local currency terms by 35% and 9% respectively. System
restaurants in operation increased 27% in China and 7% in the U.K. The
company's international franchise-only businesses, a high-return
growth segment representing 35% of international system restaurants,
had 13% growth in system sales prior to currency conversion and 6%
growth of system restaurants in operation.
Restaurant margin as a percentage of sales increased 1.1
percentage points and 0.7 percentage points for the third quarter and
year to date respectively. This increase was primarily driven by
leverage from same-store-sales growth in company markets.
Overall, foreign currency conversion added $5 million to
international operating profit for the third quarter and $20 million
year to date.
UNITED STATES BUSINESS
- ----------------------
- ----------------------------------------------------------------------
Third Quarter Year to Date
(million, except
unit counts
and percentages) 2004 2003 % Change 2004 2003 % Change
------- ------- --------- ------- ------- ---------
Financial Measures
Revenues $1,369 $1,337 +2 $4,015 $3,917 +3
Operating Profit $196 $204 (5) $567 $571 (1)
Operating Metrics
Est. System-Sales
Growth +4% Even NM +4% +4% NM
System Restaurants 18,495 18,753 (1) 18,495 18,753 (1)
- ----------------------------------------------------------------------
In the third quarter and for the year to date, the primary drivers
of U.S. revenue growth were higher systemwide same-store-sales growth
and continued development of new, higher-volume restaurants that, 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 third quarter and year to date. U.S. system restaurants in
operation 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 that, on average, are higher volume.
For the third quarter and year to date, U.S. restaurant margin
declined by 0.7 and 0.2 percentage points respectively. This decline
is a result of much higher commodity costs (primarily meats and
cheese), which were partially offset by same-store-sales growth. This
was the primary factor in the operating profit decline for the third
quarter and equated to approximately 2 percentage points adverse
impact on restaurant margin.
The company expects continued above-average inflation rates for
key commodities in the U.S. for the fourth quarter. This is reflected
in the company's outlook for the fourth quarter.
WORLDWIDE NEW-RESTAURANT DEVELOPMENT
- ------------------------------------
- ----------------------------------------------------------------------
System New-Restaurant Openings Third Quarter Year to Date
-------------- -------------
Worldwide 292 829
Key Markets
United States 76 248
International Franchise-Only Businesses 89 227
China 66 182
U.K. 19 41
Australia/New Zealand 13 35
Japan 11 33
Pizza Hut South Korea 7 18
Mexico 4 16
- ----------------------------------------------------------------------
System new-restaurant openings for the third quarter and year to
date were primarily driven by growth in new international KFC and
Pizza Hut restaurants. Franchise and joint-venture partners opened 72%
of systemwide new international restaurants year to date.
In key markets with a company operations presence, restaurant
counts versus a year ago increased 27% in China, 7% in the U.K., 6% in
Mexico and 8% for Pizza Hut South Korea. For international
franchise-only businesses, year-over-year restaurant growth was 6%.
Specifically, Asia increased 8%; southern Africa, 6%; the Middle East,
5%; 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.
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 Third Quarter
2004 2003 Incr/(Decr)
------ ------ -----------
U.S. Systemwide 2,484 2,018 +23%
% U.S. System Restaurants 13% 11% +2 ppts.
- ----------------------------------------------------------------------
In the third quarter, 129 multibrand restaurants were added in the
U.S., bringing the year-to-date total of U.S. multibrand additions to
383. Year to date, the multibrand focus has been on expanded company
testing of Pizza Hut and WingStreet, a brand recently created by Yum!
Brands, and expansion of the Long John Silver's brand in combination
with A&W, Taco Bell or KFC in one restaurant location. Excluding the
company-only expanded testing of Pizza Hut and WingStreet multibrand
combinations, franchisees opened over 60% of multibrand additions year
to date.
In the U.S., the company's principal multibrand focus will combine
Long John Silver's with A&W or Taco Bell, operating two brands in one
restaurant location. In addition, Pizza Hut has expanded the testing
of multibrand combinations in delivery/carry-out restaurants with
WingStreet.
FRANCHISE GROWTH AND FEES
- -------------------------
- ----------------------------------------------------------------------
Third Quarter Year to Date
------------- -------------
Franchise Net New-Restaurant Growth +1% +1%
Total Franchise Fees ($ million) $244 $698
Growth Vs. 2003 +9% +9%
- ----------------------------------------------------------------------
For the third quarter, favorable foreign currency conversion added
2 percentage points of franchise-fee growth. Excluding this factor,
franchise fees increased 7%. Third-quarter and year-to-date growth was
primarily driven by worldwide franchise same-store-sales growth and
international franchise new-restaurant development.
GENERAL AND ADMINISTRATIVE EXPENSES
Worldwide general and administrative (G&A) expenses increased $38
million, or 18%, in the third quarter. The year-over-year comparison
was impacted by the company operating restaurants in Canada that were
previously owned by our Canada joint venture. This was approximately
$3 million. Factors contributing to the increase include costs
associated with investments in strategic initiatives in China and
other international growth markets. Additional costs include increased
compensation-related expenses such as higher pension costs, increased
surplus facility costs, and the unfavorable impact from foreign
currency conversion. These were also key factors in the year-to-date
increase in worldwide general and administrative expenses.
CASH FLOW
Year to date, the company generated $791 million in net cash
provided by operating activities. Capital spending, including the
acquisition of franchise restaurants, was $421 million. Additional
cash of $173 million was generated from employee stock-option
proceeds, proceeds from sales of property, plant and equipment, and
refranchising restaurants.
FOURTH-QUARTER 2004 OUTLOOK
The company currently estimates that it will achieve EPS of $0.72
prior to special items in the fourth quarter. Including all factors,
U.S. restaurant margin is expected to decrease by approximately 0.5
percentage points versus last year's fourth quarter. Inflation in U.S.
commodity costs (meats and cheese) is expected to drive a margin
decline of approximately 1.5 percentage points.
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 $2.35 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 dated
December 4, 2003, and updates were published with its first-quarter
release dated April 21, 2004, and second-quarter release dated July
13, 2004. Based on current information, the company believes that
those factors remain reasonable, and are updated by the following
full-year factors:
-- General and administrative expenses will increase at least $95
million or 10% versus 2003. Excluding the impact of foreign
currency conversion and change in ownership of our Canadian
business, G&A expenses will increase approximately $75 million
or 8% versus last year.
-- Reported worldwide system-sales growth of +7% to +8%; at least
+8% in local currency for international.
-- U.S. blended same-store-sales growth is expected to be in a
range of +3% to +4%.
-- U.S. operating profit approximately flat versus prior year
primarily due to much higher inflation in commodities.
-- International revenue growth of +18% to +20%; worldwide +7% to
+8%.
-- International reported operating profit growth of at least
+20%.
-- International restaurant margin expected to be slightly
favorable versus prior year.
-- Average shares outstanding to be in the range of 304 to 305
million.
For 2004, the company currently expects reported EPS of at least
$2.38 including a special-items gain of approximately $0.03 per share.
- ----------------------------------------------------------------------
Annual Outlook
----------------------------
Forecast Actual
2004 2003 Incr/(Decr)
-------- ------- -----------
EPS prior to Special Items $2.35 $2.06 +14%
Special Items EPS $0.03 $(0.04) NM
Reported EPS $2.38 $2.02 +18%
- ----------------------------------------------------------------------
PERIOD 10 SALES
Period 10 estimated international system sales increased 8% prior
to foreign currency conversion or 13% after conversion to U.S.
dollars. Estimated U.S. blended same-store sales at company
restaurants increased 3% versus last year for the comparable four-week
period ended October 2, 2004.
International System-Sales Growth (Estimated)
- ---------------------------------------------
- ----------------------------------------------------------------------
Prior-Year
Reported Local Currency Local Currency
(U.S.$) Basis Basis
--------- -------------- --------------
Period 10 +13% +8% +10%
- ----------------------------------------------------------------------
U.S. Company Same-Store-Sales Growth (Estimated)
- ------------------------------------------------
- ----------------------------------------------------------------------
Period 10 2004 Period 10 2003
-------------- --------------
U.S. BLENDED +3% +1%
Taco Bell +4% +3%
Pizza Hut +6% +1%
KFC (1)% (1)%
- ----------------------------------------------------------------------
CONFERENCE CALL
Yum! Brands Inc. will host a conference call to review the
company's strategies and financial performance at 9:15 a.m. EDT
Wednesday, October 6, 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 Wednesday,
October 6, at noon EDT through Friday, October 29, at 11:59 p.m. EDT.
To access the playback, dial 800/642-1687 in the U.S.A. and
706/645-9291 internationally. The playback pass code is 9665689.
The call and the playback can be accessed via the Internet by
visiting Yum! Brands' Web site: www.yum.com and selecting "3rd 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.)
2004 ANNUAL CONFERENCE FOR INVESTORS & ANALYSTS
Please note, Tuesday, December 7, Yum! Brands will host the
company's Annual Conference for Investors and Analysts from
approximately 8:00 a.m. to 1:00 p.m. EST, at The St. Regis Hotel in
New York. Online registration is required before 5:00 p.m. EST Friday,
December 3. To register, please access the link to the conference
online registration at www.yum.com. Click on "Register to Attend"
under "Upcoming Analyst/Investor Events."
If you have questions, call Yum! Brands Investor Relations at
888/298-6986.
NOTES & DEFINITIONS FOR TERMS USED THROUGHOUT THIS DOCUMENT
Note: Sales results for Period 11 (the four-week period ending
October 30, 2004) are scheduled to be released November 4, 2004,
before market hours.
Excl F/x, represents the percentage change excluding the impact of
foreign currency translation. These amounts are calculated by
translating current-year results at prior-year average exchange rates.
We believe elimination of the foreign currency translation impact
provides better year-to-year comparability without the distortion of
foreign currency fluctuations.
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 but 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.
System 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. blended
same-store sales include KFC, Pizza Hut, and Taco Bell Restaurants.
Long John Silver's and A&W Restaurants are not included.
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 2,600 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."
Yum! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
Quarter Year to date
--------------- % Change --------------- % Change
9/4/04 9/6/03 B/(W) 9/4/04 9/6/03 B/(W)
------- ------- --------- ------- ------- ---------
Total Revenues $2,179 $1,989 10 $6,226 $5,727 9
Costs and expenses
Company restaurant
expenses 1,640 1,498 (9) 4,707 4,337 (9)
General and
administrative
expenses 250 212 (18) 721 623 (16)
Franchise and
license expenses 8 7 (19) 16 20 18
Facility actions 3 9 NM 22 24 NM
Other (income)
expense (13) (10) 40 (35) (24) 48
Wrench litigation - 7 NM - 42 NM
AmeriServe and
other charges
(credits) - (3) NM (14) (1) NM
------- ------- ------- -------
Total costs and
expenses, net 1,888 1,720 (10) 5,417 5,021 (8)
------- ------- ------- -------
Operating profit 291 269 8 809 706 14
Interest expense,
net 29 39 27 96 123 22
------- ------- ------- -------
Income before
income taxes and
cumulative effect
of accounting
change 262 230 14 713 583 22
Income tax
provision 77 66 (16) 208 179 (16)
------- ------- ------- -------
Income before
cumulative effect
of accounting
change 185 164 13 505 404 25
Cumulative effect
of accounting
change, net of tax - - - - (1) NM
------- ------- ------- -------
Net income $185 $164 13 $505 $403 25
======= ======= ======= =======
Basic EPS Data
- --------------
EPS $0.64 $0.56 14 $1.74 $1.37 26
======= ======= ======= =======
Average shares
outstanding 291 294 1 290 293 1
======= ======= ======= =======
Diluted EPS Data
- ----------------
EPS $0.61 $0.53 14 $1.66 $1.32 25
======= ======= ======= =======
Average shares
outstanding 305 307 1 305 305 -
======= ======= ======= =======
Dividends declared
per common share $- $- 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
9/4/04 9/6/03 B/(W) 9/4/04 9/6/03 B/(W)
------- ------- ------------ ------- ------- ----------
Company sales $1,935 $1,765 10 $5,528 $5,085 9
Franchise and
license fees 244 224 9 698 642 9
------- ------- ------- -------
Revenues 2,179 1,989 10 6,226 5,727 9
------- ------- ------- -------
Company restaurants
Food and paper 618 544 (14) 1,746 1,568 (11)
Payroll and
employee
benefits 497 473 (5) 1,470 1,396 (5)
Occupancy and
other operating
expenses 525 481 (9) 1,491 1,373 (9)
------- ------- ------- -------
1,640 1,498 (9) 4,707 4,337 (9)
General and
administrative
expenses 250 212 (18) 721 623 (16)
Franchise and
license
expenses 8 7 (19) 16 20 18
Facility
actions 3 9 NM 22 24 NM
Other (income)
expense (13) (10) 40 (35) (24) 48
------- ------- ------- -------
1,888 1,716 (10) 5,431 4,980 (9)
------- ------- ------- -------
Operating
profit before
special items 291 273 6 795 747 6
Interest
expense, net 29 39 27 96 123 22
Income tax
provision 77 67 (14) 203 194 (5)
------- ------- ------- -------
Earnings before
special items $185 $167 11 $496 $430 15
======= ======= ======= =======
Tax rate before
special items 29.4% 29.0% (0.4) ppts. 29.1% 31.1% 2.0 ppts.
======= ======= ======= =======
Diluted EPS
before special
items $0.61 $0.54 12 $1.63 $1.41 15
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 31.9 30.8 (1.1) ppts. 31.6 30.8 (0.8) ppts.
Payroll and
employee
benefits 25.7 26.8 1.1 ppts. 26.6 27.5 0.9 ppts.
Occupancy and
other
operating
expenses 27.2 27.3 0.1 ppts. 27.0 27.0 -
------- ------- ------- -------
Restaurant
margin 15.2% 15.1% 0.1 ppts. 14.8% 14.7% 0.1 ppts.
======= ======= ======= =======
Reconciliation of Segment Operating Profit
to Reported Operating Profit
- ----------------------------------------------------------------------
U.S.
operating
profit $196 $204 (5) $567 $571 (1)
International
operating
profit 143 114 25 382 297 28
Unallocated
and
corporate
expense (48) (38) (28) (140) (107) (32)
Unallocated
other income
(expense) (1) (1) NM (4) (1) NM
Unallocated
facility
actions 1 (6) NM (10) (13) NM
--------- ------- -------- -------
Operating
profit before
special items 291 273 6 795 747 6
Wrench
litigation - (7) NM - (42) NM
AmeriServe
and other
(charges)
credits - 3 NM 14 1 NM
--------- ------- -------- -------
Reported
operating
profit $291 $269 8 $809 $706 14
========= ======= ======== =======
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
9/4/04 9/6/03 B/(W) 9/4/04 9/6/03 B/(W)
------- ------- ------------ ------- ------- ----------
Company sales $1,225 $1,199 2 $3,599 $3,518 2
Franchise and
license fees 144 138 5 416 399 4
------- ------- ------- -------
Revenues 1,369 1,337 2 4,015 3,917 3
------- ------- ------- -------
Company
restaurants
Food and paper 371 344 (8) 1,069 1,010 (6)
Payroll and
employee
benefits 366 366 - 1,099 1,093 (1)
Occupancy and
other
operating
expenses 314 311 (1) 917 905 (1)
------- ------- ------- -------
1,051 1,021 (3) 3,085 3,008 (3)
General and
administrative
expenses 115 108 (7) 347 325 (7)
Franchise and
license
expenses 7 4 NM 11 10 (15)
Facility
actions - - NM 5 3 NM
------- ------- ------- -------
1,173 1,133 (4) 3,448 3,346 (3)
------- ------- ------- -------
Operating
profit $196 $204 (5) $567 $571 (1)
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 30.3 28.7 (1.6) ppts. 29.7 28.7 (1.0) ppts.
Payroll and
employee
benefits 29.9 30.6 0.7 ppts. 30.5 31.1 0.6 ppts.
Occupancy and
other
operating
expenses 25.7 25.9 0.2 ppts. 25.5 25.7 0.2 ppts.
------- ------- ------- -------
Restaurant
margin 14.1% 14.8% (0.7) ppts. 14.3% 14.5%(0.2) ppts.
======= ======= ======= =======
See accompanying notes.
Yum! Brands, Inc.
INTERNATIONAL Operating Results
(amounts in millions)
Quarter Year to date
--------------- % Change --------------- % Change
9/4/04 9/6/03 B/(W) 9/4/04 9/6/03 B/(W)
------- ------- ---------- ------- ------- ----------
Company sales $710 $566 25 $1,929 $1,567 23
Franchise and
license fees 100 86 16 282 243 16
------- ------- ------- -------
Revenues 810 652 24 2,211 1,810 22
------- ------- ------- -------
Company
restaurants
Food and paper 247 200 (24) 677 558 (22)
Payroll and
employee
benefits 131 107 (23) 371 303 (22)
Occupancy and
other operating
expenses 211 170 (24) 574 468 (23)
------- ------- ------- -------
589 477 (23) 1,622 1,329
General and
administrative
expenses 87 67 (28) 234 192 (22)
Franchise and
license expenses 1 2 48 5 9 45
Facility actions 4 3 NM 7 8 NM
Other (income)
expense (14) (11) 28 (39) (25) 52
------- ------- ------- -------
667 538 (24) 1,829 1,513 (21)
------- ------- ------- -------
Operating profit $143 $114 25 $382 $297 28
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 34.8 35.2 0.4 ppts. 35.1 35.6 0.5 ppts.
Payroll and
employee
benefits 18.5 18.9 0.4 ppts. 19.2 19.3 0.1 ppts.
Occupancy and
other operating
expenses 29.7 30.0 0.3 ppts. 29.8 29.9 0.1 ppts.
------- ------- ------- -------
Restaurant margin 17.0% 15.9% 1.1 ppts. 15.9% 15.2% 0.7 ppts.
======= ======= ======= =======
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
9/4/04 12/27/03
------- ---------
ASSETS
Current Assets
Cash and cash equivalents $387 $192
Short-term investments, at cost 61 15
Accounts and notes receivable, less allowance:
$18 in 2004 and $25 in 2003 168 150
Inventories 72 67
Assets classified as held for sale 97 96
Prepaid expenses and other current assets 98 65
Deferred income taxes 153 165
Advertising cooperative assets, restricted 70 56
------- ---------
Total Current Assets 1,106 806
Property, plant and equipment, net 3,317 3,280
Goodwill 559 521
Intangible assets, net 351 357
Investments in unconsolidated affiliates 189 184
Other assets 462 472
------- ---------
Total Assets $5,984 $5,620
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,176 $1,157
Income taxes payable 147 238
Short-term borrowings 375 10
Advertising cooperative liabilities 70 56
------- ---------
Total Current Liabilities 1,768 1,461
Long-term debt 1,699 2,056
Other liabilities and deferred credits 1,003 983
------- ---------
Total Liabilities 4,470 4,500
------- ---------
Shareholders' Equity
Preferred stock, no par value, 250 shares authorized;
no shares issued - -
Common stock, no par value, 750 shares authorized;
292 shares issued in 2004 and 2003, respectively 823 916
Retained earnings 890 414
Accumulated other comprehensive income (loss) (199) (210)
------- ---------
Total Shareholders' Equity 1,514 1,120
------- ---------
Total Liabilities and Shareholders' Equity $5,984 $5,620
======= =========
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
Year to date
---------------
9/4/04 9/6/03
------- -------
Cash Flows - Operating Activities
Net income $505 $403
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change, net of tax - 1
Depreciation and amortization 302 273
Facility actions 22 24
Wrench litigation - 42
AmeriServe and other charges (credits) - (3)
Other liabilities and deferred credits (30) (24)
Deferred income taxes 28 2
Other non-cash charges and credits, net 22 30
Changes in operating working capital, excluding effects
of acquisitions and dispositions:
Accounts and notes receivable (12) 3
Inventories (5) (4)
Prepaid expenses and other current assets (19) (17)
Accounts payable and other current liabilities 27 (19)
Income taxes payable (49) 58
------- -------
Net change in operating working capital (58) 21
------- -------
Net Cash Provided by Operating Activities 791 769
------- -------
Cash Flows - Investing Activities
Capital spending (383) (358)
Proceeds from refranchising of restaurants 14 11
Acquisition of restaurants from franchisees (38) (30)
Short-term investments (46) 3
Sales of property, plant and equipment 32 29
Other, net 30 9
------- -------
Net Cash Used in Investing Activities (391) (336)
------- -------
Cash Flows - Financing Activities
Revolving Credit Facility activity
Three months or less, net - (153)
Repayments of long-term debt (9) (15)
Short-term borrowings-three months or less, net - (50)
Repurchase shares of common stock (294) (121)
Employee stock option proceeds 127 70
Dividends paid on common shares (29) -
------- -------
Net Cash Used in Financing Activities (205) (269)
------- -------
Effect of Exchange Rates on Cash and Cash Equivalents - 4
------- -------
Net Increase in Cash and Cash Equivalents 195 168
Cash and Cash Equivalents - Beginning of Period 192 130
------- -------
Cash and Cash Equivalents - End of Period $387 $298
======= =======
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 (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 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
--------------- ---------------
9/4/04 9/6/03 9/4/04 9/6/03
------- ------- ------- -------
Detail of Special Items
- -----------------------
Wrench litigation $- $(7) $- $(42)
AmeriServe and other (charges) credits - 3 14 1
Cumulative effect of accounting change - - - (2)
------- ------- ------- -------
Total special items - (4) 14 (43)
Tax on special items - 1 (5) 16
------- ------- ------- -------
Special items, net of tax $- $(3) $9 $(27)
======= ======= ======= =======
Average shares outstanding 305 307 305 305
======= ======= ======= =======
Special items diluted EPS $- $(0.01) $0.03 $(0.09)
======= ======= ======= =======
Reconciliation of Earnings Before
Special Items to Net Income
---------------------------
Earnings before special items $185 $167 $496 $430
Special items, net of tax - (3) 9 (27)
------- ------- ------- -------
Net income $185 $164 $505 $403
======= ======= ======= =======
Reconciliation of EPS Before Special
Items to Reported EPS
---------------------
Diluted EPS before special items $0.61 $0.54 $1.63 $1.41
Special items diluted EPS - (0.01) 0.03 (0.09)
------- ------- ------- -------
Reported diluted EPS $0.61 $0.53 $1.66 $1.32
======= ======= ======= =======
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
9/4/04 9/6/03 B/(W) 9/4/04 9/6/03 B/(W)
-------- ------- --------- ------- ------- ---------
United States
Company sales $1,225 $1,199 2 $3,599 $3,518 2
Franchisee sales 2,832 2,697 5 8,145 7,804 4
International
Company sales $710 $566 25 $1,929 $1,567 23
Franchisee sales 1,932 1,702 14 5,559 4,878 14
Worldwide
Company sales $1,935 $1,765 10 $5,528 $5,085 9
Franchisee sales 4,764 4,399 8 13,704 12,682 8
(c) Facility actions included the following:
Quarter Year to date
--------------- ---------------
9/4/04 9/6/03 9/4/04 9/6/03
------- ------- ------- -------
Store closure costs $2 $- $(3) $(2)
Asset impairment charges 2 3 15 13
Refranchising net losses (gains) (1) 6 10 13
------- ------- ------- -------
Facility actions $3 $9 $22 $24
======= ======= ======= =======
In the previous year's reporting of results for the quarter and
year to date ended September 6, 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 for the quarter
and year to date ended September 4, 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.
(f) An insignificant amount was recorded as AmeriServe and other
charges (credits) for the quarter ended September 4, 2004. Income
of $14 million was recorded as AmeriServe and other charges
(credits) for the year to date ended September 4, 2004. The amount
primarily resulted from cash recoveries related to the AmeriServe
bankruptcy reorganization process.
(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 recorded a cumulative effect adjustment of $2 million ($1
million after tax) during 2003.
(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 reported 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. 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 as of September 4, 2004. We
have reclassified those amounts in the Condensed Consolidated
Balance Sheet as of December 27, 2003 for comparative purposes.
(i) For the quarter ended September 4, 2004, we purchased an
insignificant amount of shares of our Common Stock. For the year
to date ended September 4, 2004, we repurchased approximately 8.1
million shares of our Common Stock at an average price of $36.
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to Date Ended September 4, 2004
Total
Unconsolidated Excluding
Company Affiliates Franchisees Licensees(a)
------- -------------- ----------- ------------
Total U.S.
Beginning of Year 5,094 6 13,566 18,666
New Builds 78 - 170 248
Acquisitions 58 - (58) -
Refranchising &
Licensing (17) - 17 -
Closures & Divestitures (150) (6) (266) (422)
Other - - 3 3
------- -------------- ----------- ------------
End of Quarter 5,063 - 13,432 18,495
======= ============== =========== ============
% of Total 27% - 73% 100%
Total International
Beginning of Year 2,760 1,506 7,905 12,171
New Builds(b) 161 94 326 581
Acquisitions 15 3 (18) -
Refranchising &
Licensing (15) - 15 -
Closures & Divestitures (80) (21) (190) (291)
Other (2) (8) (3) (13)
------- -------------- ----------- ------------
End of Quarter 2,839 1,574 8,035 12,448
======= ============== =========== ============
% of Total 23% 13% 64% 100%
Total System
Beginning of Year 7,854 1,512 21,471 30,837
New Builds(b) 239 94 496 829
Acquisitions 73 3 (76) -
Refranchising &
Licensing (32) - 32 -
Closures & Divestitures (230) (27) (456) (713)
Other (2) (8) - (10)
------- -------------- ----------- ------------
End of Quarter 7,902 1,574 21,467 30,943
======= ============== =========== ============
% of Total 26% 5% 69% 100%
(a) The total excludes 2,123 U.S. and 209 International licensee
units. The U.S. licensee unit count includes 1,155 Pizza Huts, 903
Taco Bells and 65 KFCs. The International licensee unit count
includes 99 Pizza Huts, 65 KFCs, 43 Taco Bells, 1 John Silver's
and 1 A&W.
(b) The total includes 1 Company new build for an Asian food concept
in China.
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to Date Ended September 4, 2004
United States
- ----------------------------------------------------------------------
Total
Excluding
Company Franchisees Licensees
------- ----------- ---------
Pizza Hut U.S.
Beginning of Year 1,776 4,624 6,400
New Builds 26 63 89
Acquisitions 56 (56) -
Refranchising & Licensing (2) 2 -
Closures & Divestitures (44) (131) (175)
Other - - -
------- ----------- ---------
End of Quarter 1,812 4,502 6,314
======= =========== =========
% of Total 29% 71% 100%
KFC U.S.
Beginning of Year 1,252 4,204 5,456
New Builds 24 56 80
Acquisitions 1 (1) -
Refranchising & Licensing - - -
Closures & Divestitures (20) (63) (83)
Other - - -
------- ----------- ---------
End of Quarter 1,257 4,196 5,453
======= =========== =========
% of Total 23% 77% 100%
Taco Bell U.S.
Beginning of Year 1,284 3,743 5,027
New Builds 8 37 45
Acquisitions 1 (1) -
Refranchising & Licensing (3) 3 -
Closures & Divestitures (14) (32) (46)
Other - - -
------- ----------- ---------
End of Quarter 1,276 3,750 5,026
======= =========== =========
% of Total 25% 75% 100%
Long John Silver's U.S.
Beginning of Year 701 502 1,203
New Builds 20 11 31
Acquisitions - - -
Refranchising & Licensing (5) 5 -
Closures & Divestitures (17) (21) (38)
Other - 1 1
------- ----------- ---------
End of Quarter 699 498 1,197
======= =========== =========
% of Total 58% 42% 100%
A&W U.S.
Beginning of Year 81 493 574
New Builds - 3 3
Acquisitions - - -
Refranchising & Licensing (7) 7 -
Closures & Divestitures (55) (19) (74)
Other - 2 2
------- ----------- ---------
End of Quarter 19 486 505
======= =========== =========
% of Total 4% 96% 100%
YUM! Brands, Inc.
Restaurant Units Activity Summary
For the Year to date Ended September 4, 2004
International
- ----------------------------------------------------------------------
Total
Unconsolidated Excluding
Company Affiliates Franchisees Licensees
------- -------------- ----------- ---------
KFC International
Beginning of Year 1,685 773 4,835 7,293
New Builds 116 78 172 366
Acquisitions 11 - (11) -
Refranchising & Licensing (10) - 10 -
Closures & Divestitures (42) (16) (111) (169)
Other 2 (1) (13) (12)
------- -------------- ----------- ---------
End of Quarter 1,762 834 4,882 7,478
======= ============== =========== =========
% of Total 24% 11% 65% 100%
Pizza Hut International
Beginning of Year 1,021 733 2,708 4,462
New Builds 44 16 135 195
Acquisitions 4 3 (7) -
Refranchising & Licensing (3) - 3 -
Closures & Divestitures (36) (5) (67) (108)
Other 1 (7) 9 3
------- -------------- ----------- ---------
End of Quarter 1,031 740 2,781 4,552
======= ============== =========== =========
% of Total 23% 16% 61% 100%
Taco Bell International
Beginning of Year 54 - 150 204
New Builds - - - -
Acquisitions - - - -
Refranchising & Licensing (2) - 2 -
Closures & Divestitures (2) - (5) (7)
Other (5) - 1 (4)
------- -------------- ----------- ---------
End of Quarter 45 - 148 193
======= ============== =========== =========
% of Total 23% - 77% 100%
A&W International
Beginning of Year - - 182 182
New Builds - - 16 16
Acquisitions - - - -
Refranchising & Licensing - - - -
Closures & Divestitures - - (5) (5)
Other - - - -
------- -------------- ----------- ---------
End of Quarter - - 193 193
======= ============== =========== =========
% of Total - - 100% 100%
Long John Silver's
International
Beginning of Year - - 30 30
New Builds - - 3 3
Acquisitions - - - -
Refranchising & Licensing - - - -
Closures & Divestitures - - (2) (2)
Other - - - -
------- -------------- ----------- ---------
End of Quarter - - 31 31
======= ============== =========== =========
% of Total - - 100% 100%
YUM! Brands, Inc.
United States Multibrand Restaurants
For the Year to Date Ended September 4, 2004
United States(a)
-----------------------------------
Multibrand Restaurants
in Operation
at 9/4/04
------------------------
Gross
Additions
Year to
Date
9/4/04 Company Franchise Total
---------- ------- --------- ------
KFC
Taco Bell 12 180 486 666
Pizza Hut 4 100 43 143
A&W 43 126 170 296
Taco Bell/Pizza Hut 3 n 1 - 19 24 43
Long John Silver's 47 53 50 103
Wing Works - 26 - 26
---------- ------- --------- ------
106 504 773 1,277
Taco Bell
Pizza Hut 6 314 286 600
Long John Silver's 19 47 19 66
Backyard Burgers 1 9 - 9
A&W - 2 - 2
---------- ------- --------- ------
26 372 305 677
Pizza Hut
KFC - - 4 4
Taco Bell - - 1 1
Wing Works - 1 - 1
Pasta Bravo - 2 - 2
WingStreet 216 274 - 274
---------- ------- --------- ------
216 277 5 282
Long John Silver's
A&W 35 142 106 248
---------- ------- --------- ------
Total 383 1,295 1,189 2,484
========== ======= ========= ======
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 184 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.
MULTIMEDIA AVAILABLE:
http://www.businesswire.com/cgi-bin/mmg.cgi?eid=4733620
CONTACT: Yum! Brands Inc., Louisville
Investors/Analysts:
Tim Jerzyk, VP Investor Relations, 888-298-6986
or
Media:
Amy Sherwood, VP Public Relations, 502-874-8200