Taco Bell 2001 Annual Report Download

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Tricon Global Restaurants

Table of contents

  • Page 1
    Tricon Global Restaurants

  • Page 2
    FINANCIAL HIGHLIGHTS (in millions, except for store and per share amounts) Number of stores: 2001 2000 % B(W) change Company Unconsolidated affiliates Franchisees Licensees Total stores System sales Total revenues Ongoing operating profit Facility actions net loss (gain) Unusual items (income) ...

  • Page 3

  • Page 4
    ... we became a public company in October 1997. We've more than doubled our ongoing operating earnings per share and increased our ongoing operating profit at a 7% compound growth rate. We've grown system sales 9% and opened over 5,200 new restaurants, excluding license restaurants, around the world...

  • Page 5
    ... management teams we put in place in 2000 have generated significant same store sales momentum at both KFC and Taco Bell. As a result, Tricon shareholders enjoyed a 49% increase in the price of their shares in 2001. Just think what we will do when we simply do a better job running great restaurants...

  • Page 6
    ...distribution levels for both Taco Bell and KFC. Growing the core business is Job #1 for any company and it's Job #1 for us. Over the past 10 years we've averaged about We're approximately 550 KFCs and 65 Pizza 2% same store sales growth, and committed to Huts. We now have restaurants in we think we...

  • Page 7
    ... As a result, we have achieved significant increases in average unit volumes and profits. We're convinced this acquisition strengthens our business in every Tricon U.S. Average Unit Volumes vs. McDonald's KFC Pizza Hut Taco Bell McDonald's are also opening high-return new restaurants in trade areas...

  • Page 8
    ... to rename your company Yum! Brands, Inc. The name better reflects our future direction and reinforces our New York Stock Exchange ticker symbol every time you see it. Even more importantly, the name highlights the fun of our recognition culture and also reinforces our Customer Mania passion to...

  • Page 9
    7

  • Page 10
    ... Officer His restaurant sparkles. That's because Franchise RGM Terry Auld treats his customers as he would a guest in his own home. This 26-year veteran inspires his team to put the customer first, always. That's why they're the #1 CHAMPS restaurant with the second highest same store sales growth...

  • Page 11
    ... recognizes CHAMPS wins, talks about ways to improve service and teaches others to be mentors, too. Fernando Rocha Lopez KFC, Juarez Humboldt, Mexico Right the first time - every time. RGM Chris Avila coaches his team to pay close attention to their customers, listen and give them exactly what they...

  • Page 12
    ... service 100% of the time - with a YES! attitude. 11-year veteran, Steve Morozek knows keeping his restaurant wellmaintained and his equipment fine-tuned means perfect pizzas every time. And his customers noticed. Steve has increased sales by 50% in four years and is the second highest CHAMPS store...

  • Page 13
    ...guarantees repeat business. It must be working because her store has increased its' sales and received the highest CHAMPS evaluation in the Taco Bell system! Angella works alongside her team to ensure that her customers get fresh, delicious food - lightning fast! Angella Mahbeer Taco Bell, Miami, FL...

  • Page 14
    ...! my customers are important to me!" "YES! my customers are my job!" "YES! I can solve any issue you have!" Customer Mania is not just an idea, it's a mindset, a way of being. It's about thinking like our customers and winning their loyalty. It's being totally passionate about customer satisfaction...

  • Page 15
    ... that our kids enjoy it too. With both of us working, it's not always easy to come home and prepare a meal that everyone will eat. KFC is conveniently located for us, and we can get a complete, nutritious meal - hot and fresh!" The Hill Family Melody, Aaron, and children Jaalam, 4, and Lyric, 2 1/2

  • Page 16
    ... in Mexico, one of our key growth markets. Bottom: The United Kingdom is a key driver of our international business, growing ongoing operating profit by 33%. Over the years, our International business has successfully built a sandwich business via product innovation. One such example, KFC's Zinger...

  • Page 17
    ... added to our revenue growth. There's no doubt - our team's focus on Customer Mania is the fuel that has made this growth possible. We've launched the rollout of Pete Bassi President our quarterly Customer Mania training in all of our key markets. It's our commitment to build an operating culture...

  • Page 18
    ... meals with dividers to keep food separated. Popular menu items like Popcorn Chicken, meet our customers' on-the-go needs. When our customers told us they wanted us to return Popcorn Chicken to our menu in 2001, we listened. In turn, our customers gave KFC an all-time record-high week of sales...

  • Page 19
    ... 600 multibranded stores, conveniently offering KFC and Taco Bell under one roof. At the same time, we're stepping up multibrand units of KFC and A&W All-American food, where hamburgers, hot dogs and unique root beer floats complement KFC's menu and offer more choice for the entire family. Finally...

  • Page 20
    ... a "Rip and Dip" breadstick crust delivered a whole new, fun way to eat pizza. With Twisted Crust, we said to our customers, "Go ahead, play with your food!" Home meal replacement represents the defining battle in the pizza category with delivery making up 50% of Pizza Hut's annual business.

  • Page 21
    ... the year, and 7% in the fourth quarter, while also improving our productivity. While we're not there yet, we're getting closer every day to consistently delivering an extraordinary experience to all of our customers. What's more, almost 25% of company-owned restaurants have either been re-built, or...

  • Page 22
    ... to reduce labor, improve food quality and ensure customer satisfaction! In 2001, Taco Bell successfully launched a number of exciting new products. Step up to the great taste of grilled, marinated steak with our new Grilled Steak Tacos! And if that's not enough, the Grilled Stuft Burrito sizzles...

  • Page 23
    ... menu items. We also introduced three new bold and delicious products - Grilled Stuft Burritos, Grilled Chicken Quesadillas and Grilled Steak Tacos, which drove sales and created new customers for The Bell. Working as one system with our outstanding franchisees and company restaurant operators...

  • Page 24
    ... International KFC Pizza Hut Taco Bell Total International 8.2 7.1 5.9 6 16.1 11.7 Total (a) Compounded annual growth rate Domino's Pizza Dairy Queen Burger King McDonald's Wendy's Tricon Subway BREAKDOWN OF WORLDWIDE SYSTEM UNITS Unconsolidated Affiliate Franchised Year-end 2001 Company...

  • Page 25
    ...Snacks/Breakfast 13% Dine Out 71% Dine In 29% Sales across our brands are driven by dinner and lunch. Marketing innovations such as new dayparts can help grow sales. Most of our sales come from offpremises dining, which reflects customers' desire for convenient food. SOURCE: CREST CREST employed...

  • Page 26
    ... STATEMENTS OF CASH FLOWS CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS REPORT OF INDEPENDENT AUDITORS 25 38 39 40 41 42 65 65 24

  • Page 27
    ... 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 ("QSR") company based on the number of...

  • Page 28
    ... in a decline in our Company sales, restaurant margin dollars and G&A as well as higher franchise fees. We also record equity income (losses) from investments in unconsolidated affiliates ("equity income") and, in Canada, higher franchise fees since the royalty rate was increased for those stores...

  • Page 29
    ... this affiliate. This change resulted in higher Company sales, restaurant margin dollars and G&A as well as decreased franchise fees and equity income. This previously unconsolidated affiliate operates over 100 stores. In addition to our refranchising program, we have been closing restaurants over...

  • Page 30
    ...17 (1) $ (47) WORLDWIDE RESULTS OF OPERATIONS 2001 % B(W) vs. 2000 2000 % B(W) vs. 1999 System sales(a) Company sales Franchise and license fees Revenues Company restaurant margin % of Company sales Ongoing operating profit Facility actions net (loss) gain Unusual items income (expense) Operating...

  • Page 31
    ... of the fifty-third week, system sales increased 1%. This increase was driven by new unit development, partially offset by store closures and same store sales declines. WORLDWIDE COMPANY RESTAURANT MARGIN 2001 2000 1999 Company sales Food and paper Payroll and employee benefits Occupancy and...

  • Page 32
    ... vs. 1999 2001 2000 1999 United States International Unallocated and corporate expenses Foreign exchange net loss Ongoing operating profit $ 722 318 (148) (3) $ 889 (3) 3 9 NM - $ 742 309 (163) - $ 888 (9) 16 16 NM 1 Reported Income taxes Effective tax rate Ongoing(a) Income taxes Effective...

  • Page 33
    ... impact of the fifty-third week, system sales decreased 2%. The decrease was due to same stores sales declines at Taco Bell and KFC as well as store closures, partially offset by new unit development. EARNINGS PER SHARE The components of earnings per common share ("EPS") were as follows: 2001...

  • Page 34
    ... Pizza Hut increased 1%. A 3% increase in the average guest check was partially offset by transaction declines. Same store sales at KFC decreased 3%, primarily due to transaction declines. Same store sales at Taco Bell decreased 5% as a result of transaction declines. Franchise and license fees grew...

  • Page 35
    ... impact from the fifty-third week, franchise and license fees increased 16%. The increase was driven by new unit development, units acquired from us and same store sales growth. The increase was partially offset by store closures. INTERNATIONAL REVENUES Company sales increased $79 million or 5% in...

  • Page 36
    ... currency translation and lapping the fifty-third week in 2000, ongoing operating profit increased 12%. The increase was driven by new unit development and same store sales growth, partially offset by higher restaurant operating costs. Ongoing operating profit increased $44 million or 16% in 2000...

  • Page 37
    ... generate substantial cash ï¬,ows from the operations of our company stores and from our franchise operations, which require a limited TRICON investment in operating assets. Typically, our cash flows include a significant amount of discretionary capital spending. Though a decline in revenues could...

  • Page 38
    ...RISK The Company is exposed to financial market risks associated with interest rates, foreign currency exchange rates and commodity prices. In the normal course of business and in accordance with our policies, we manage these risks through a variety of strategies, which include the use of derivative...

  • Page 39
    ... from royalties. There were no such forward contracts outstanding as of December 29, 2001. Commodity Price Risk We are subject to volatility in food costs as a result of market risk associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited...

  • Page 40
    ... of Income Fiscal years ended December 29, 2001, December 30, 2000 and December 25, 1999 (in millions, except per share data) 2001 2000 1999 Revenues Company sales Franchise and license fees $ 6,138 815 6,953 $ 6,305 788 7,093 $ 7,099 723 7,822 Costs and Expenses, net Company restaurants Food...

  • Page 41
    ...-term debt 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 (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning of...

  • Page 42
    ...4,284 $ 978 148 90 1,216 2,397 848 10 4,471 Total Current Liabilities Long-term debt Other liabilities and deferred credits Deferred income taxes Total Liabilities Shareholders' Equity (Deficit) Preferred stock, no par value, 250 shares authorized; no shares issued Common stock, no par value, 750...

  • Page 43
    ...Issued Common Stock (in millions) Shares Amount Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Balance at December 26, 1998 Net income... Income Adjustment to opening equity related to net advances from PepsiCo Repurchase of shares of common stock Stock option...

  • Page 44
    ... (income) expense. 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 company based on the number of...

  • Page 45
    ... revenues over the year in which incurred and, in the case of advertising production costs, in the year first shown. Deferred direct marketing costs, which are classified as prepaid expenses, consist of media and related advertising production costs which will generally be used for the first time...

  • Page 46
    ... 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 estimated future cash ï¬,ows. In addition, when we decide to close a store beyond the quarter in...

  • Page 47
    ... over the amount the employee must pay for the stock. Our policy is to generally grant stock options at the average market price of the underlying Common Stock at the date of grant. Derivative Financial Instruments Our policy prohibits the use of derivative instruments for trading purposes, and we...

  • Page 48
    ... $ 3.36 147 $ 2.81 153 $ 4.09 Diluted EPS: Weighted-average common shares outstanding Shares assumed issued on exercise of dilutive share equivalents Shares assumed purchased with proceeds of dilutive share equivalents Shares applicable to diluted earnings Diluted EPS 147 27 (22) 152 $ 3.24 147 19...

  • Page 49
    ... estimates for the costs of closing stores; reductions to fair market value, less costs to sell, of the carrying amounts of certain restaurants we intended to refranchise; and impairments of certain restaurants intended to be used in the business. (b) Includes initial franchise fees in the U.S. of...

  • Page 50
    ...bankruptcy petition date; (b) an increase in the estimated costs of settlement of certain wage and hour litigation and associated defense and other costs incurred in 1999; (c) favorable adjustments to our 1997 fourth quarter charge; (d) the write-down to estimated fair market value less cost to sell...

  • Page 51
    ... insurance programs. The change in methodology resulted in a one-time increase in our 1999 operating profit of over $8 million. At the end of 1998, we changed our method of determining the pension discount rate to better reflect the assumed investment strategies we would most likely use to invest...

  • Page 52
    ...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 29, 2001 and December 30, 2000, the weighted average...

  • Page 53
    ...no payments are made. If rates rise above the cap level, we receive a payment. If rates fall below the ï¬,oor level, we make a payment. At December 29, 2001 and December 30, 2000, we did not have any outstanding interest rate collars. Foreign Exchange We enter into foreign currency forward contracts...

  • Page 54
    ... 2011 as an increase to interest expense on this debt. Credit Risks Our credit risk from the interest rate swap, collar and forward rate agreements and foreign exchange contracts is dependent both on the movement in interest and currency rates and possibility of non-payment by counterparties. We...

  • Page 55
    ...$ $ - $ (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 as they have resulted primarily from refranchising and closure...

  • Page 56
    ...291 $ 42 21 - The assumptions used to compute the information above are set forth below: Pension Benefits 2000 Postretirement Medical Benefits 2001 2000 1999 2001 1999 Discount rate Long-term rate of return on plan assets Rate of compensation increase 7.6% 10.0% 4.6% 8.0% 10.0% 5.0% 7.8% 10...

  • Page 57
    ... the cap is reached, our annual cost per retiree will not increase. Assumed health care cost trend rates have a significant effect on the amounts reported for our postretirement health care plans. A one percent increase or decrease in the assumed health care cost trend rates would have increased or...

  • Page 58
    ... Weighted Average Exercise Options Price December 25, 1999 Weighted Average Exercise Options Price Outstanding at beginning of year Granted at price equal to average market price Exercised Forfeited Outstanding at end of year Exercisable at end of year Weighted average fair value of options at date...

  • Page 59
    ... deferred with earnings based on the investment options selected by the participants. The EID Plan includes an investment option that allows participants to defer incentive compensation to purchase phantom shares of our Common Stock at a 25% discount from the average market price at the date of...

  • Page 60
    ... from time to time in the open market or through privately negotiated transactions at the discretion of the Company. In 1999, our Board of Directors authorized the repurchase of up to $350 million (excluding applicable transaction fees) of our outstanding Common Stock. This share repurchase program...

  • Page 61
    ...961 1999 NOTE 21 REPORTABLE OPERATING SEGMENTS Long-lived Assets(e) United States International Corporate 2001 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 62
    ...on frequent replenishment of the food ingredients and paper supplies required by our restaurants. We and a large number of our franchisees and licensees operated under multi-year contracts, which were assumed by McLane Company, Inc. ("McLane"), that had required the use of AmeriServe to purchase and...

  • Page 63
    ... unpaid wages including overtime, and rest and meal period violations, and seeks an unspecified amount in damages. Under Oregon class action procedures, Taco Bell was allowed an opportunity to "cure" the unpaid wage and hour allegations by opening a claims process to all putative class members prior...

  • Page 64
    ... restaurant general managers purporting 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...

  • Page 65
    ... parties entered into a written settlement agreement pursuant to which C&F agreed to dismiss the case in exchange for a lump sum payment from Pizza Hut. This payment has been made and the case was dismissed with prejudice effective February 6, 2002. We have provided for the costs of this settlement...

  • Page 66
    NOTE 23 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter Third Quarter Fourth Quarter Total 2001 Revenues: Company sales Franchise and license fees Total revenues Total costs and expenses, net Operating profit Net income Diluted earnings per common share Operating pro...

  • Page 67
    ... 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 over financial...

  • Page 68
    ...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. TRICON Global Restaurants...

  • Page 69
    ..., LLC, an investment banking firm, Founder, Home Depot, Inc. Jackie Trujillo 66 Chairman of the Board, Harman Management Corporation Robert J. Ulrich 58 Chairman and Chief Executive Officer, Target Corporation and Target Stores Jeanette S. Wagner 72 Vice Chairman, Estee Lauder Companies, Inc. John...

  • Page 70
    ..., Investor Relations Tricon Global Restaurants, Inc. 1441 Gardiner Lane Louisville, KY 40213 Telephone: (502) 874-2543 In all correspondence or telephone inquires, please mention Tricon, your name as printed on your statement or stock certificate, your social security number, your address and...

  • Page 71
    Design: Sequel Studio, New York Hungry for more information? Contact: www.triconglobal.com

  • Page 72
    "Alone, we're delicious. Together, we're "