Kentucky Fried Chicken 2000 Annual Report Download

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2000 Annual Report
TM
®
®
TRICON GLOBAL RESTAURANTS, INC.

Table of contents

  • Page 1
    2000 Annual Repor t TRICON GLOBAL RESTAURANTS, INC. TM ® ®

  • Page 2
    Financial Highlights (in millions, except per share and unit amounts) Number of stores: 2000 1999 % B(W) Company Affiliates Franchisees Licensees Total stores System sales Company revenues Ongoing operating profit Accounting changes Facility actions net gain Unusual items Operating profit Net ...

  • Page 3
    ... store sales, driven by a 5% decline at Taco Bell and 3% decline at KFC. The year was further complicated by the bankruptcy of AmeriServe, our primary food distributor. Our team worked around the clock to arrange for interim financing and to set David C. Novak Chairman and Chief Executive Officer

  • Page 4
    ...Customer Maniacs, team members who are obsessed to go the extra mile to make sure we put a YUM on our customers' faces every time they eat our food. This is the key to sales and profitability. In this report, the presidents of KFC, Pizza Hut, Taco Bell and Tricon Restaurants International will share...

  • Page 5
    ... of these executives have proven track records for driving sustainable same store sales growth and building customer-focused organizations. They will join Next, we generate higher cash flow per unit in multibranded units. And finally, we are able to add new restaurants in trade areas that we could...

  • Page 6
    ... to open these units and generate good returns. The biggest news for us in 2000 was the development of "We plan to add 280 Personal Pan Pizza Expresses to new and existing units this year that allow us to provide our customers individual size pizzas through Taco Bell and KFC drive-thrus." Personal...

  • Page 7
    ...50 million, improved ongoing operating Return on Invested Capital cash flow for reinvestment and the leaders around the world to make it happen. We are targeting to consistently deliver 2% to 3% U.S. blended same store sales growth, open more than 1,300 new worldwide restaurants each year, continue...

  • Page 8
    ... - building an operating culture where everything is centered on our customers. Together, we're creating a force of over 725,000 CUSTOMER MANIACS in KFC, Pizza Hut and Taco Bell restaurants around the world - focused on satisfying our customers better than any other restaurant company. We are custo...

  • Page 9
    ...rewarding employee performance against key customer metrics. CHAMPS aligns all of our systems and processes around one set of standards and encourages everyone, at every level, to take accountability for not CHAMPS = Cleanliness Hospitality Accuracy Maintenance Product Quality Speed of Service mer...

  • Page 10
    Having a YUMMY

  • Page 11
    ... five. He told his mom he wanted only one gift - to spend his birthday at KFC with Chicky - the lovable, colorful KFC mascot. Chicky has put a YUM on millions of kids' faces around the globe, celebrating hundreds of birthday parties at each of our KFC international restaurants every year. birthday!

  • Page 12
    ... Pizza Hut and KFC are world leaders in the pizza and chicken categories, and we believe we'll drive consistent profit growth from here on out, as seen by a 47% increase in Greater China and 25% profit growth in the United Kingdom. International System Sales by Brand KFC 67% Taco Bell 2% Pizza Hut...

  • Page 13
    ... European markets, and exploiting the power of our Pizza Hut brand through home delivery service to strengthen our category leadership. "What's ahead? We'll continue to boost profits by growing system sales, attacking margin improvement, leveraging the benefits of CHAMPS to strengthen operations and...

  • Page 14
    Going the extra

  • Page 15
    ... Porte, Ind., know and love Pizza Hut RGM LuAnne DeVall. That's because she truly cares about the customers of her deliveryonly restaurant. LuAnne is a Customer Maniac who goes the extra mile to please her customers. That occasionally means making a few pizza home delivery trips of her own - taking...

  • Page 16
    ... sacrificing profitability. In fact, restaurant margins increased more than a full percentage point. "How did we drive our third straight year of sales growth and bolster our category-leading market share? By focusing on three things: Great people, processes and products. The Insider pizza, with...

  • Page 17
    ... Pizza Hut's delicious sixcheese blend. The Insider increased market share among Echo Boomers (ages 5-22), especially high school students. "As we enter a new century, we have new strategies in place to drive sales, develop new units, build out our delivery segment and satisfy our customers better...

  • Page 18
    ... the busiest day of the year for KFC restaurants. That day last year, KFC RGM Olimpia Rosas knew almost half the entire town of Berwyn, Ill. would be showing up at her KFC restaurant for a chicken dinner. So Olimpia arrived extra early to fire up the cookers and get a jump on the day. That's typical...

  • Page 19
    customers

  • Page 20
    ...strategically invested in consumer learning and product development to ensure we have top-quality, consumer-preferred products across our menu. KFC 53% Popeye's 9% Church's 6% Regional's 4% Independents 28% 20% of KFC system restaurants had a brighter, slicker look in 2000, and more upgraded units...

  • Page 21
    generation of chicken lovers; accelerated unit development; and other initiatives, such as multibranding, designed to fuel sales and increase shareholder value in our brand. "By the end of 2000, 13% of all U.S. KFC restaurants were multibrand units, either partnered with Pizza Hut or Taco Bell, or ...

  • Page 22
    You can hear the

  • Page 23
    ... an experience to remember - whether rhyming their orders or asking them to "Have an exhilarating afternoon, now." His enthusiasm and creativity keep them coming back for more. Jeff can be found practicing his own special brand of customer mania at a Taco Bell in Huntsville, Ala. smile in his voice

  • Page 24
    ... developing a pipeline of products that will broaden our appeal and improve our ingredient quality. We've already scored key customer wins with our new mouthwatering gooey Cheesy Gordita Crunch. Taco Bell "We've had a challenging year at Taco Bell - no doubt about it. Same store sales declined...

  • Page 25
    ... year, we're making progress. We now have the strategies, the focus and the people in place to deliver the kind of performance results you'd expect from Taco Bell. We're confident we'll soon be back on track." Emil J. Brolick President and Chief Concept Officer Bob Nilsen Chief Operating Officer

  • Page 26
    ... KFC Pizza Hut Taco Bell Total International 6 Total (a) Compound annual growth rate Domino's Pizza Dairy Queen Subway McDonald's Burger King Tricon Wendy's Breakdown of Worldwide System Units Unconsolidated Affiliates Franchised Year-end 2000 Company Licensed Total United States KFC...

  • Page 27
    ...Marketing innovations such as new dayparts can help grow sales. Most of our sales come from off-premises dining, which reflects customers' desire for convenient food. Contents 26 Management's Discussion and Analysis 40 Consolidated Financial Statements 44 Notes to Consolidated Financial Statements...

  • Page 28
    ... worldwide operations of KFC, Pizza Hut and Taco Bell ("the Concepts") and is the world's largest quick service restaurant ("QSR") company based on the number of system units. Separately, each brand ranks in the top ten among QSR chains in U.S. system sales and units. Our 10,400 international units...

  • Page 29
    ... to proactively work with financially troubled franchise operators in an attempt to positively resolve their issues. Taco Bell has established a $15 million loan program for those franchisees in need of short-term assistance due to the recent sales declines in the Taco Bell system. Through February...

  • Page 30
    ... U.S. Pizza Hut delivery units consolidated with a new or existing dine-in traditional store within the same trade area. The following table summarizes Company store closure activities for the last three years: 2000 1999 1998 1999 U.S. International Worldwide Reduced sales Increased franchise fees...

  • Page 31
    ... sales (a) Revenues Company sales Franchise and license fees Total Revenues Company restaurant margin % of sales Ongoing operating profit Accounting changes (b) Facility actions net gain Unusual items Operating Profit Interest expense, net Income Tax Provision Net Income Diluted Earnings Per Share...

  • Page 32
    ... key International equity markets were fully offset by volume declines at Taco Bell and the unfavorable impact of the introduction of lower margin chicken sandwiches at KFC in the U.S. Worldwide General & Administrative Expenses Company sales Food and paper Payroll and employee benefits Occupancy...

  • Page 33
    ... in unusual items. In 1999, our net interest expense decreased $70 million or 26%. The decline was primarily due to the reduction of debt through use of after-tax cash proceeds from our refranchising activities and cash from operations. Worldwide Income Taxes 2000 1999 1998 Reported 2000 % B(W) vs...

  • Page 34
    ...our 1997 fourth quarter charge of $0.07 per diluted share in 1999. U.S. Results of Operations % B(W) vs. 1999 % B(W) vs. 1998 2000 1999 System sales Revenues Company sales Franchise and license fees Total Revenues Company restaurant margin % of sales Ongoing operating profit $14,514 - $14,516...

  • Page 35
    .... Franchise and license fees increased $69 million or 16% in 1999. The increase was driven by units acquired from us, new unit development and franchisee same store sales growth, primarily at Pizza Hut. These increases were partially offset by store closures. U.S. Company Restaurant Margin 2000 1999...

  • Page 36
    ... franchise fees primarily from new unit development, partially offset by higher G&A, net of field G&A savings from the Portfolio Effect. This increase in G&A was largely due to higher spending on conferences at Pizza Hut and Taco Bell. International Results of Operations Ongoing operating profit...

  • Page 37
    ...unit development and same store sales growth. The increases were partially offset by store closures primarily by franchisees in Canada, Latin America and Japan. International Revenues Company sales Food and paper Payroll and employee benefits Occupancy and other operating expenses Restaurant margin...

  • Page 38
    ... settlement of working capital liabilities (primarily accounts payable and property taxes) related to the units refranchised and payment of taxes on the gains. The after-tax proceeds can be used to pay down debt or repurchase shares. After-tax proceeds were approximately $261 million in 2000 which...

  • Page 39
    ... an increase in accrued income taxes. We believe the Company has adequate financial resources to meet its requirements in 2001 and beyond. Consistent with our strategy to focus our capital on key international markets, we entered into an agreement in 1999 to form a new venture during 2000 in Canada...

  • Page 40
    ... countries in which we operate stores. This is a reduction from our previous estimate of $10 million, primarily due to the refranchising of Company stores in certain EMU countries. Approximately 45% of these expenditures relate to capital expenditures for new point-of-sale and back-of-restaurant...

  • Page 41
    ...regulatory restrictions which limit our ability to utilize these funds outside the country in which they are held. At December 30, 2000, a hypothetical 100 basis point increase in short-term interest rates would result in a reduction of $19 million in annual income before income taxes. The estimated...

  • Page 42
    ... (in millions, except per share amounts) 2000 1999 1998 Revenues Company sales Franchise and license fees $6,305 788 7,093 $7,099 723 7,822 $7,852 627 8,479 Costs and Expenses, net Company restaurants Food and paper Payroll and employee benefits Occupancy and other operating expenses 1,942...

  • Page 43
    ... Short-term borrowings - three months or less, net Repurchase shares of common stock Other, net Net Cash Used in Financing Activities Effect of Exchange Rate Changes on Cash and Cash Equivalents Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning of Year Cash...

  • Page 44
    ... Assets Cash and cash equivalents Short-term investments, at cost Accounts and notes receivable, less allowance: $82 in 2000 and $13 in 1999 Inventories Prepaid expenses and other current assets Deferred income tax assets Total Current Assets Property, Plant and Equipment, net Intangible Assets, net...

  • Page 45
    ..., 1999 Net income Foreign currency translation adjustment Comprehensive Income Repurchase of shares of common stock Stock option exercises (includes tax benefits of $5 million) Compensation-related events Balance at December 30, 2000 See accompanying Notes to Consolidated Financial Statements. 152...

  • Page 46
    ... in millions, except share data) Note 1 Description of Business TRICON Global Restaurants, Inc. and Subsidiaries (collectively referred to as "TRICON" or the "Company") is comprised of the worldwide operations of KFC, Pizza Hut and Taco Bell (the "Concepts") and is the world's largest quick service...

  • Page 47
    ... $24 million in both 2000 and 1999 and $21 million in 1998. Stock-Based Employee Compensation We measure stock-based employee compensation cost for financial statement purposes in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and its related...

  • Page 48
    ... payment of a renewal fee, a franchisee may generally renew its agreement upon its expiration. Our direct costs of the sales and servicing of franchise and license agreements are charged to general and administrative expenses as incurred. We recognize initial fees as revenue when we have performed...

  • Page 49
    ... We evaluate restaurants using a "two-year history of operating losses" as our primary indicator of potential impairment. Based on the best information available, we write down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. We generally measure estimated...

  • Page 50
    ... Task Force Issue No. 97-11 ("EITF 97-11"), "Accounting for Internal Costs Relating to Real Estate Property Acquisitions," upon its issuance in March 1998. EITF 97-11 limits the capitalization of internal real estate acquisition costs to those site-specific costs incurred subsequent to the time that...

  • Page 51
    ...: 1999 Restaurant Margin G&A Operating Profit 1997 Fourth Quarter Charge In the fourth quarter of 1997, we recorded a $530 million unusual charge ($425 million after-tax). The charge included estimates for (a) costs of closing stores, primarily at Pizza Hut and Tricon Restaurants International...

  • Page 52
    ... 1997 4th Qtr. Charge Adjustments) Total Total Total U.S. Refranchising net gains (a) Store closure costs (credits) Impairment charges for stores that will continue to be used in the business Impairment charges for stores to be closed in the future Facility actions net gain International $(202...

  • Page 53
    ... million at December 30, 2000 and December 25, 1999, respectively. These assets included restaurants and in 1999, our idle processing facility in Wichita, Kansas, which was sold in 2000 for its approximate net book value. The following table summarizes Company sales and restaurant margin related to...

  • Page 54
    ...maturities of long-term debt International lines of credit Other Long-term Debt $÷÷«10 68 12 $«««««90 $÷÷«47 45 25 $«««117 Note 7 Other (Income) Expense 2000 1999 1998 Equity income from investments in unconsolidated affiliates Foreign exchange net loss (gain) $÷«(25) - $÷«(25...

  • Page 55
    ... At year-end 2000, the present value of minimum payments under capital leases was $74 million. Our policy prohibits the use of derivative instruments for trading purposes, and we have procedures in place to monitor and control their use. Our use of derivative instruments has included interest rate...

  • Page 56
    ... into these agreements with high-quality counterparties, netting swap and forward rate payments within contracts and limiting payments associated with the collars to differences outside the collared range. Open commodity future and option contracts and deferred gains and losses at year-end 2000 and...

  • Page 57
    ... Benefits 2000 1999 1998 Service cost Interest cost Amortization of prior service cost Expected return on plan assets Amortization of transition (asset) obligation Recognized actuarial loss Net periodic benefit cost Additional (gain) loss recognized due to: Curtailment Special termination benefits...

  • Page 58
    ... stock options and performance restricted stock units under the 1997 LTIP and have issued only stock options under the 1999 LTIP. We may grant options to purchase up to 7.5 million shares of stock under YUMBUCKS at a price equal to or greater than the average market price of the stock on the date...

  • Page 59
    ...in 2000 and $5.0 million in 1999 with a corresponding increase in our Common Stock account. Note 16 Other Compensation and Benefit Programs We sponsor two deferred compensation benefit programs, the Executive Income Deferral Program and the Restaurant Deferred Compensation Plan (the "EID Plan" and...

  • Page 60
    ... annual compensation expense of $1 million in 2000, 1999 and 1998 for the RDC Plan. We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code ("401(k) Plan") for eligible full-time U.S. salaried and certain hourly employees...

  • Page 61
    ...Share Repurchase Program current and future years. In 1999, valuation allowances that related to deferred tax assets in certain foreign countries were reduced by $13 million as a result of establishing a pattern of profitability. U.S. and foreign income before income taxes are set forth below: 2000...

  • Page 62
    ...Operating Profit; Interest Expense, Net; and Income Before Income Taxes 2000 1999 1998 United States International (a) Foreign exchange (loss) gain Unallocated and corporate expenses Facility actions net gain (b) Unusual items (b) Total Operating Profit Interest expense, net Income before income...

  • Page 63
    ...for Franchise Fee Revenue," the results of these agency distribution activities are reported on a net basis in the Consolidated Statement of Income. At December 30, 2000, our remaining receivables from franchisees and licensees for sales of supplies under the TDPP were approximately $52 million, net...

  • Page 64
    ... a condition to the refranchising of Company restaurants and the contribution of certain Company restaurants to a new venture in Canada. The $333 million represented the present value of the minimum payments of the assigned leases, excluding any renewal option periods, discounted at our pre-tax cost...

  • Page 65
    ... annual results of operations, financial condition or cash flows. Any provisions have been recorded in unusual items. On October 2, 1996, a class action lawsuit against Taco Bell Corp., entitled Mynaf, et al. v. Taco Bell Corp. ("Mynaf "), was filed in the Superior Court of the State of California...

  • Page 66
    ... Hut, Inc. This action was originally filed in 1993 by C&F Packing Co., Inc., a Chicago meat packing company ("C&F"), in the United States District court for the Northern District of Illinois. This lawsuit alleges that Pizza Hut misappropriated various trade secrets relating to C&F's alleged process...

  • Page 67
    ...) Total Revenues: Company sales Franchise and license fees Total revenues Total costs and expenses, net Operating profit Net income Diluted earnings per common share Operating profit attributable to: Accounting changes Facility actions net gain Unusual items Net income attributable to: Accounting...

  • Page 68
    ... accounting principles generally accepted in the United States of America and include certain amounts based upon our estimates and assumptions, as required. Other financial information presented in the annual report is derived from the financial statements. We maintain a system of internal control...

  • Page 69
    Selected Financial Data Fiscal Year Ended (in millions, except per share and unit amounts) 2000 1999 1998 1997 1996 Summary of Operations System sales (a) U.S. International Total Revenues Company sales (b) Franchise and license fees Total Facility actions net gain (loss) (c) Unusual items (d)...

  • Page 70
    ... Auditors KPMG LLP 400 West Market Street, Suite 2600 Louisville, KY 40202 Telephone: (502) 587-0535 Capital Stock Information Stock Trading Symbol - YUM The New York Stock Exchange is the principal market for Tricon Common Stock. Shareholders At year-end 2000, there were approximately 157,000...

  • Page 71
    ... A. Miles 39 Chief Operating Officer, Pizza Hut, U.S.A. Robert T. Nilsen 41 Chief Operating Officer, Taco Bell, U.S.A. Denise L. Ramos 44 G D E Chairman and Chief Executive Officer, Target Corporation and Target Stores K Jeanette S. Wagner 71 Vice Chairman, Estee Lauder Companies, Inc. L John...

  • Page 72
    Hungry for more information? Contact: www.triconglobal.com SEULS NOUS SOMMES DÉLICIEUX, ENSEMBLE NOUS SOMMES YUM! EINZELN SIND WIR KÃ-STLICH, ZUSAMMEN SIND WIR YUM! SOLAS SOMOS D E L I C I O S A S, J U N TA S SOMOS YUM! ALONE WE'RE DELICIOUS, TOGETHER WE'RE YUM! TM ® ®