Taco Bell 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
    ... Pizza Hut KFC Taco Bell Tricon Facts Financials Average U.S. Sales Per System Unit (in thousands) 2000 1999 1998 1997 1996 5-year growth (a) KFC Pizza Hut Taco Bell (a) $823 712 896 $837 696 918 $817 645 931 $786 630 902 $775 620 886 2% 2% (1)% Compounded annual growth rate Worldwide...

  • Page 3
    ... For the full year 2000, we achieved 16% growth in ongoing operating earnings per share, driven by strong performance 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...

  • Page 4
    ... 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 with you what they are doing to drive sustainable...

  • Page 5
    ... number one challenge as blended same store sales declined 2% in 2000 after two years of 4% growth. To upgrade our concept leadership, we successfully recruited Emil Brolick from Wendy's and Cheryl Bachelder from Domino's to be Presidents of Taco Bell and KFC, respectively. Both of these executives...

  • Page 6
    ... been able 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...

  • Page 7
    ... up 10 percentage points from 1997. In 2000, we invested in 370 new company restaurants, upgraded and remodeled 289 company restaurants, handled the AmeriServe problem and purchased over $200 million of our shares. We are confident we will continue to drive high returns going forward. Stepping back...

  • Page 8
    ... committed to one 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...

  • 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
    ... 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
    ... 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
    ... 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
    ...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
    ...-leading market share? By focusing on three things: Great people, processes and products. The Insider pizza, with its six-cheese blend, was one of the speciality pizzas that drove Pizza Hut's same store sales growth - up 1% during 2000 - on top of record-setting 9% growth. "Success in our business...

  • Page 17
    ... "S" in CHAMPS, Speed of service, by training managers throughout the Pizza Hut system in delivery fundamentals. Customers noticed: Pizza Hut Pizza Hut was named the #1 national pizza chain in America according to the "Restaurants & Institutions" annual survey. Pizza QSR Sales Pizza Hut 22% Domino...

  • Page 18
    ...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. For Olimpia, taking care of customers and her team is an uplifting experience. Carried away by

  • Page 19
    customers

  • Page 20
    ... Recipe, Tender Roast, Triple Crunch, Triple Crunch Zinger and Honey BBQ. And last fall, 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...

  • Page 21
    ..., 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 both. And under an exciting new arrangement with A&W Restaurants, Inc., we opened several KFC...

  • 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
    ... home the importance of executing our clean checklist every day. "To improve our speed of service, we're simplifying the ordering process at the The Cheesy Gordita Crunch is a crunchy taco wrapped in gordita flatbread and a melted blend of three cheeses - all spiked with zesty Pepper Jack Sauce. 22...

  • Page 25
    ... mania deep by giving our people the training programs and tools they need to differentiate the brand and keep our customers coming back for more. Mexican QSR Sales Taco Bell 72% Del Taco 3% Taco John's 3% Taco Bueno 2% Taco Time 1% Independents 19% "On the marketing front, we have taken steps to...

  • 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
    ...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
    ... 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
    ... our current estimates. Nor can there be any assurance that we will be successful in resolving financial issues relating to any specific franchise operator. Additionally, there can be no assurance that resolution of these financial issues will not result in Taco Bell purchasing a significant number...

  • Page 30
    ... franchise fees Reduction in total revenues $(1,065) 51 $(1,014) $(201) 9 $(192) $(1,266) 60 $(1,206) The following table summarizes the estimated impact on ongoing operating profit of the Portfolio Effect: 2000 U.S. International Worldwide Number of units closed Store closure costs (credits...

  • Page 31
    ... Worldwide Results of Operations 2000 % B(W) vs. 1999 1999 % B(W) vs. 1998 System 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...

  • 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
    ...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 for 2000 and 1999 are discussed in the respective...

  • 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
    ... 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 Results of Operations Ongoing...

  • Page 37
    ... of Asia, the improvement was driven by new 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...

  • Page 38
    ... temporarily purchase food and supply inventories directly from third party suppliers for the TRICON system and sell a portion of these supplies to franchisees and licensees (the "Temporary Direct Purchase Program") related to the AmeriServe bankruptcy reorganization process. These items resulted in...

  • Page 39
    ... on our ongoing operating profit will not be significant, this change is expected to result in higher Company sales, restaurant margin dollars and G&A as well as decreased franchise fees and equity income. Had this change occurred at the beginning of 2000, our International Company sales would have...

  • Page 40
    ... operating profit in 2001. See Note 21 for a discussion of our casualty loss programs and estimates. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Economic and Monetary Union ("EMU") adopted the Euro as a common legal currency and fixed conversion rates...

  • Page 41
    ... "plan" and other similar terminology. These "forward-looking statements" reflect our current expectations and are based upon data available at the time of the statements. Actual results involve risks and uncertainties, including both those specific to the Company and those specific to the industry...

  • 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
    ... 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 and Cash Equivalents - End of Year Supplemental Cash Flow Information Interest paid Income taxes paid Significant Non-Cash Investing and...

  • Page 44
    ... Common stock, no par value, 750 shares authorized; 147 and 151 shares issued in 2000 and 1999, respectively Accumulated deficit Accumulated other comprehensive income Total Shareholders' Deficit Total Liabilities and Shareholders' Deficit See accompanying Notes to Consolidated Financial Statements...

  • Page 45
    ... 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 $1,271 $(2,763) 445 $(128...

  • 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
    ... in our advertising expense is primarily due to fewer Company stores as a result of our refranchising program. Research and Development Expenses Research and development expenses, which we expense as incurred, were $24 million in both 2000 and 1999 and $21 million in 1998. Stock-Based Employee...

  • Page 48
    ...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 substantially...

  • Page 49
    ..."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 fair market value by discounting...

  • Page 50
    ...than the average market price of our Common Stock during the year. Note 5 Items Affecting Comparability of Net Income Accounting Changes In 1998 and 1999, we adopted several accounting and human resource policy changes (collectively, the "accounting changes") that impacted our 1999 operating profit...

  • Page 51
    ... 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 Standardization Programs In 1999, our vacation policies were...

  • 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
    ...franchise fees from stores refranchised; (b) lower field general and administrative expenses; and (c) the estimated interest savings from the reduction of average debt with net after-tax refranchising proceeds. Unusual items in 2000 included: (a) $170 million of charges and direct incremental costs...

  • Page 54
    ... Borrowings Current 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...

  • Page 55
    ...with financial institutions while our commodity contracts are generally exchange traded. We enter into interest rate swaps, collars, and forward rate agreements with the objective of reducing our exposure to interest rate risk for a portion of our debt and to lower our overall borrowing costs. Reset...

  • Page 56
    ... range. Open commodity future and option contracts and deferred gains and losses at year-end 2000 and 1999, as well as gains and losses recognized as part of cost of sales in 2000, 1999 and 1998, were not significant. Concentrations of Credit Risk Fair Value Excluding the financial instruments...

  • Page 57
    ...-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 of funded status is as follows: Pension Benefits 2000...

  • Page 58
    ... Benefits 2000 1999 1998 2000 Postretirement Medical Benefits 1999 1998 Discount rate Long-term rate of return on plan assets Rate of compensation increase 8.0% 10.0% 5.0% 7.8% 10.0% 5.5% 6.8% 10.0% 4.5% 8.3% - 5.0% 7.6% - 5.5% 7.0% - 4.5% We have assumed the annual increase in cost of...

  • Page 59
    ... annual salary. As defined by the benefit programs, we credit the amounts deferred with earnings based on certain investment options selected by the participants. The EID Plan includes an investment option that allows participants to defer certain incentive compensation to purchase phantom shares...

  • Page 60
    ... 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. Participants may elect to...

  • Page 61
    ... a result of stock option exercises. In addition, goodwill and other intangibles were reduced by $2 million and $22 million in 2000 and 1999, respectively, as a result of the settlement of a disputed claim with the Internal Revenue Service relating to the deductibility of reacquired franchise rights...

  • Page 62
    ...worldwide KFC, Pizza Hut and Taco Bell concepts. KFC, Pizza Hut and Taco Bell operate throughout the U.S. and in 84, 87 and 13 countries and territories outside the U.S., respectively. Our five largest international markets based on ongoing operating profit in 2000 are Australia, China, Japan, Korea...

  • Page 63
    ... 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 results of these agency...

  • Page 64
    ...standby letter of credit would then be fully secured by franchisee loan collateral. We have provided for our estimated probable exposures under these contingent liabilities largely through charges to refranchising gains (losses). Casualty Loss Programs and Estimates We are currently self-insured for...

  • Page 65
    ... 1,300 current and former California restaurant general managers of Pizza Hut and PacPizza, LLC. The lawsuit alleges violations of state wage and hour laws involving unpaid overtime wages and vacation pay and seeks an unspecified amount in damages. On January 12, 2000, the Court certified a class of...

  • Page 66
    ... 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. The complaint...

  • Page 67
    ... Data (Unaudited) 2000 First Quarter Second Quarter Third Quarter Fourth Quarter 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: Facility actions...

  • Page 68
    ..., designed to provide reasonable assurance as to the reliability of the financial statements, as well as to safeguard assets from unauthorized use or disposition. The system is supported by formal policies and procedures, including an active Code of Conduct program intended to ensure employees...

  • Page 69
    ... 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 at year end (in millions) Market price per share at year end N/A - Not Applicable. $14...

  • Page 70
    ... Stock Option Plan Services P.O. Box 30446 New Brunswick, NJ 08989-0446 Telephone: (800) 637-2432 (U.S., Puerto Rico and Canada) (732) 560-9444 (all other locations) In all correspondence, please provide your account number (for U.S. citizens, this is your social security number), your address...

  • Page 71
    ... 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 L. Weinberg 76 Director, Goldman Sachs Group, Inc. Senior Vice President...

  • 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 ® ®