Pizza Hut 2000 Annual Report Download

Download and view the complete annual report

Please find the complete 2000 Pizza Hut annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

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
    ... at our International business, continued same store sales growth at Pizza Hut and by significant reductions in overhead, interest expense and the ongoing operating tax rate. While 16% growth is nothing to sneeze at, it fell well below our expectations for the year because of a decline of 2% in...

  • Page 4
    ...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 with you what they are doing to drive sustainable sales growth and bring customer mania to...

  • Page 5
    ... 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 not penetrate...

  • 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
    ... Declined 8% In millions Ongoing Operating Profit +32% In millions Ongoing Operating EPS +110% In dollars 15.1 11.6 956 879 672 888 1.42 2.98 97 00 97 00 97 00 97 00 general and administrative expenses over $50 million, improved ongoing operating Return on Invested Capital cash flow...

  • Page 8
    ... thing - 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...

  • Page 9
    ... - every customer, every restaurant, every time. "And we're driving this message home by executing the basics - focusing on CHAMPS, our core program for training, measuring and rewarding employee performance against key customer metrics. CHAMPS aligns all of our systems and processes around one...

  • Page 10
    Having a YUMMY

  • Page 11
    ... was turning 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...

  • Page 12
    ... in Greater China and 25% profit growth in the United Kingdom. International System Sales by Brand KFC 67% Taco Bell 2% Pizza Hut 31% and the continuing success of KFC's Twister in Australia and Korea. In Asia, we launched two delicious new product variants, Honey Mustard Twister and Spicy...

  • Page 13
    ... our business globally, developing the KFC brand in Germany and in other 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...

  • Page 14
    Going the extra

  • Page 15
    ...who live in La 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...

  • 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
    ... drive sales, develop new units, build out our delivery segment and satisfy our customers better than anyone. But we have the same old-fashioned formula for success: Great people, processes and products." Pizza Hut introduced a new logo and new look that will be showing up in our restaurants around...

  • Page 18
    ... 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 Olimpia, pictured here with some of her biggest fans, her customers! She's maniacal about making sure they aren't disappointed...

  • Page 19
    customers

  • Page 20
    ..., we extended this sandwich line with the Twister - a unique, zesty, hot-wrap sensation that's proving it can keep customers coming back. KFC has strategically invested in consumer learning and product development to ensure we have top-quality, consumer-preferred products across our menu. KFC 53...

  • Page 21
    ... 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 both. And under an exciting new arrangement with A&W Restaurants, Inc., we opened several KFC/A&W units and plan to build...

  • Page 22
    You can hear the

  • Page 23
    Team member Jeff Shine brightens the day of each customer who comes by his drive-thru window with his large smile, great attitude and outstanding service. This Customer Maniac often gives his customers... 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
    ... Restaurant General Managers so they will have the tools, resources and enhanced capabilities to improve restaurant operations. These initiatives are taking hold, and we should see positive results in 2001. Taco Bell continues to drive customer mania deep by giving our people the training programs...

  • Page 26
    ...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 Pizza...

  • Page 27
    ...Sales by Daypart (% of Sales) U.S. Sales by Distribution Channel (% of Sales) Sources of System Sales in International Restaurants Dinner 74% Lunch 24% Snacks/Breakfast 2% Dine Out 64% Dine In 36% Asia-Pacific 44% Europe, South Africa 23% Americas 21% Greater China 12% TM ® Dinner 61% Lunch...

  • Page 28
    Management's Discussion and Analysis Introduction 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 restaurant ("...

  • Page 29
    ... types of business and/or financial restructuring. Based on currently available information, we believe that this group of franchisees represents approximately 1,000 Taco Bell restaurants. In 2000, we charged approximately $26 million to ongoing operating profit for expenses related to the financial...

  • 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
    ... attributable to Effective Net Pricing in excess of cost increases (primarily higher wage rates) in the U.S. Restaurant margin also benefited from improved food and paper cost management in both the U.S. and certain key International equity markets. Volume increases at Pizza Hut in the U.S. and in...

  • Page 33
    ... (income) expense declined $8 million or 31%. The decline was primarily due to foreign exchange losses in 1999 versus gains in 1998 related to U.S. dollar denominated short-term investments in Canada. Worldwide Facility Actions Net Gain The changes in U.S. and International ongoing operating profit...

  • Page 34
    ... 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 4 $÷4,533...

  • Page 35
    ... Same store sales at Pizza Hut increased 9% in 1999. The improvement was primarily driven by an increase in transactions of over 5%, resulting from the launch of "The Big New Yorker." Company sales Food and paper Payroll and employee benefits Occupancy and other operating expenses Restaurant margin...

  • Page 36
    ... margin improvement of 140 basis points and higher 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...

  • 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
    ... process. Changes in operating working capital reflected a net use of cash of $207 million. The primary drivers of the net use were receivables from the AmeriServe bankruptcy estate and franchisee receivables arising from the Company's program to temporarily purchase food and supply inventories...

  • Page 39
    ... will result in a decline in our Company sales, restaurant margin dollars and G&A expenses as well as higher franchise fees and equity income. In addition to the Portfolio Effect, franchise fees will be higher since the royalty rate was increased for those stores contributed by our partner...

  • Page 40
    ...our restaurants in late 2001. We expect to compensate employees in Euros beginning in 2002. We believe that the most critical activity regarding the conversion for our businesses is the completion of the rollout of Euro-ready point-of-sale equipment and software by the end of 2001. Our current plans...

  • Page 41
    ... our strategy to reduce the percentage of system units we operate; volatility of actuarially determined casualty loss estimates and adoption of new or changes in accounting policies and practices. Industry risks and uncertainties include, but are not limited to, global and local business, economic...

  • Page 42
    ...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 1,744...

  • Page 43
    ... Net change in operating working capital Net Cash Provided by Operating Activities Cash Flows - Investing Activities Capital spending Proceeds from refranchising of restaurants Acquisition of restaurants AmeriServe Funding, net Short-term investments Sales of property, plant and equipment Other...

  • Page 44
    ... 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 Investments in Unconsolidated...

  • Page 45
    ... liability adjustment (includes tax of $1 million) Comprehensive Income Adjustment to opening equity related to net advances from PepsiCo Repurchase of shares of common stock Stock option exercises (includes tax benefits of $14 million) Compensation-related events Balance at December 25, 1999 Net...

  • Page 46
    ...to Consolidated Financial Statements (tabular amounts 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...

  • Page 47
    ...-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 interpretations. We include pro forma information in Note 15 as required by Statement of Financial Accounting...

  • Page 48
    ...gains or losses from the sales of our restaurants to new and existing franchisees and the related initial franchise fees, reduced by transaction costs and direct administrative costs of refranchising. In executing our refranchising initiatives, we most often offer groups of restaurants. We recognize...

  • Page 49
    ... Assets New Accounting Pronouncement Not Yet Adopted We review our long-lived assets related to each restaurant to be held and used in the business, including any allocated intangible assets, semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying...

  • Page 50
    ... and • policy changes driven by our human resource and accounting standardization programs. Required Changes in GAAP Effective December 27, 1998, we adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP...

  • Page 51
    ... our investment strategies would be equally divided between U.S. government securities and high-quality corporate fixed income securities. The pension discount methodology change resulted in a one-time increase in our 1999 operating profit of approximately $6 million. Human Resource and Accounting...

  • Page 52
    ...249) 27 23 5 (194) Refranchising net (gains) losses (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) loss Worldwide 2 4 5 1 12 (17) 8 10 3 4 (22) 7 10...

  • Page 53
    ...sales and restaurant margin related to stores held for disposal at December 30, 2000 or disposed of through refranchising or closure during 2000, 1999 and 1998. Restaurant margin represents Company sales less the cost of food and paper, payroll and employee benefits and occupancy and other operating...

  • Page 54
    ... a portion of the proceeds from certain capital market transactions and refranchising of restaurants. Interest on amounts borrowed is payable at least quarterly at variable rates, based principally on the London Interbank Offered Rate ("LIBOR") plus a variable margin factor. At December 30, 2000 and...

  • Page 55
    ... leases require us to pay related executory costs, which include property taxes, maintenance and insurance. Future minimum commitments and sublease receivables under non-cancelable leases are set forth below: Commitments Capital Operating Sublease Receivables Direct Financing Operating 2001 2002...

  • Page 56
    ...market rates. See Note 2 for recently issued accounting pronouncements relating to derivative financial instruments. Note 14 Pension Plans and Postretirement Medical Benefits Pension Benefits We sponsor noncontributory defined benefit pension plans covering substantially all full-time U.S. salaried...

  • Page 57
    ...$÷(3) 1 Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. Curtailment gains have generally been recognized in facility actions net gain. The change in benefit obligation and plan assets and reconciliation...

  • Page 58
    ...Employee Stock-Based Compensation At year-end 2000, we had four stock option plans in effect: the TRICON Global Restaurants, Inc. Long-Term Incentive Plan ("1999 LTIP"), the 1997 Long-Term Incentive Plan ("1997 LTIP"), the TRICON Global Restaurants, Inc. Restaurant General Manager Stock Option Plan...

  • Page 59
    ... 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 the "RDC Plan," respectively) for eligible employees and non...

  • Page 60
    ... of the Internal Revenue Code ("401(k) Plan") for eligible full-time U.S. salaried and certain hourly employees. Participants may elect to contribute up to 15% of their eligible compensation on a pre-tax basis. We are not required to make contributions to the Plan. In 1998, a Stock Ownership Program...

  • Page 61
    ... Program. The new Share Repurchase Program authorizes us to repurchase, over a two-year period, up to $300 million of our outstanding Common Stock, excluding applicable transaction fees. Based on market conditions and other factors, repurchases may be made from time to time in the open market...

  • Page 62
    ... Assets United States International (c) Corporate (d) $2,400 1,501 248 $4,149 $2,444 1,367 150 $3,961 1999 We are engaged principally in developing, operating, franchising and licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza Hut and Taco Bell operate throughout the...

  • Page 63
    ...additional debt required to finance the inventory purchases and the receivables arising from supply sales to our franchisees and licensees. These costs also included inventory obsolescence and certain general and administrative expenses. Under SFAS No. 45, "Accounting for Franchise Fee Revenue," the...

  • Page 64
    ... relates to our guarantees to support financial arrangements of certain unconsolidated affiliates and franchisees. The contingent liabilities related to financial arrangements of franchisees include partial guarantees of franchisee loan pools originated primarily in connection with the Company...

  • Page 65
    ... and incentive compensation plans. Wage and Hour Litigation We are subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. Like certain other large retail employers, Pizza Hut and Taco Bell have been faced...

  • Page 66
    ... to represent all current and former Taco Bell restaurant general managers and assistant restaurant general managers in California. The lawsuit alleged violations of California wage and hour laws involving unpaid overtime wages, and violations of the State Labor Code's record-keeping requirements...

  • Page 67
    ...: 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 changes Facility...

  • Page 68
    ..., related notes and other information included in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include certain amounts based upon our estimates and assumptions, as required. Other financial...

  • Page 69
    ... Operating working capital deficit Long-term debt Total debt Investments by and advances from PepsiCo Other Data Number of stores at year end(a) Company Unconsolidated Affiliates Franchisees Licensees System U.S. Company same store sales growth(a) KFC Pizza Hut Taco Bell Blended Shares outstanding...

  • Page 70
    ... to contact: Tim Jerzyk Vice President, Investor Relations Tricon Global Restaurants, Inc. 1441 Gardiner Lane Louisville, KY 40213 Telephone: (502) 874-2543 Independent Auditors KPMG LLP 400 West Market Street, Suite 2600 Louisville, KY 40202 Telephone: (502) 587-0535 Capital Stock Information Stock...

  • Page 71
    ..., Tricon Restaurants International Aylwin B. Lewis 46 Chairman of the Board, Harman Management Corporation J Robert J. Ulrich 57 Chief Operating Officer, Tricon Michael A. Miles 39 Chief Operating Officer, Pizza Hut, U.S.A. Robert T. Nilsen 41 Chief Operating Officer, Taco Bell, U.S.A. Denise...

  • 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 ® ®