01—Abstract
Summary
Summary of the 10-K filed March 26, 1998. Cited figures are marked; the original filing is the authoritative source.
Tricon Global Restaurants, Inc. (now Yum!
Brands, Inc.) reported a net loss of $111 milliona for fiscal 1997 (ended December 27, 1997), following its October 6, 1997 spin-off from PepsiCo. Total revenues were $9.68 billion, down from $10.23 billion in 1996, and operating profit was $241 million after a $530 million fourth-quarter charge to refocus the business. Excluding the fourth-quarter charge, Core Business operating profit was described as increasing, with franchise fees and restaurant margins improving while G&A rose.
The company, which operates KFC, Pizza Hut and Taco Bell, described itself as the world's largest quick service restaurant company by system units, with almost 30,000 units in 103 countries. Year-end 1997 Company-owned units were 10,117, with the company stating its strategy is to shift toward franchise ownership. Cash flow from operations was $810 millionb, and refranchising generated $770 million.
The company carried $4.55 billionc of long-term debt after a $4.5 billion payment to PepsiCo, and shareholders' equity was a deficit of $1.62 billion. The company stated it does not presently intend to pay dividends. Key near-term considerations include Asian currency weakness, which the filing says is adversely affecting results, expected 1998 increases in net interest expense of $40 to $50 million and in G&A of about $20 million, and Year 2000 costs of $40 to $45 million through 1999.
02—Key points
Key Highlights
- Net loss of $111 million in 1997, or $.73 per basic share, versus a net loss of $53 million in 1996; the net loss includes a $530 million fourth-quarter charge ($425 million after tax).
- Total revenues of $9.68 billion in 1997, down from $10.23 billion in 1996, driven by fewer Company units from refranchising and store closures.
- Cash flow from operating activities of $810 million in 1997, plus $770 million from refranchising of restaurants.
- Long-term debt of $4.55 billion at year-end 1997 under a $5.25 billion bank credit agreement; the company stated it intends to reduce bank debt by up to $1 billion in 1998.
- Shareholders' deficit of $1.62 billion at year-end 1997, following the $4.5 billion repayment and dividend to PepsiCo at the Spin-off.
- Company-owned share of total system units declined to 38% at year-end 1997 from 44% at year-end 1996, reflecting the refranchising strategy.
- Asian economic turmoil and currency weakness were stated to have had an adverse effect on operating results beginning late in 1997, with Asia accounting for about 37% of international system sales.
03—Questions
Frequently Asked Questions
Why did the company report a net loss in 1997?
The filing attributes the loss primarily to a $530 million fourth-quarter charge ($425 million after tax) to close underperforming stores, record refranchising losses, impair certain restaurants and joint venture investments, and reduce personnel. Facility actions and unusual charges totaled $421 million pre-tax for the year.
What is the company's dividend policy?
The company stated it does not presently intend to pay dividends on its common stock. Under its bank credit facility it is currently limited in its ability to pay dividends, and it intends to use earnings to pay down debt and reinvest in the business.
What are the main risks the filing identifies?
The filing cites Asian currency and economic weakness, high leverage and substantial interest obligations, potentially substantial tax contingencies tied to the Spin-off that could require indemnifying PepsiCo, limited management experience running the company as an independent public company, Year 2000 remediation by third parties, and the ability to find qualified franchisees to buy Company restaurants at acceptable prices.
What does the company expect for 1998 costs and interest?
The company expects net interest expense to be $40 million to $50 million higher in 1998, and G&A to be about $20 million higher than the annualized PepsiCo allocation. Year 2000 testing and conversion costs are expected to be $40 to $45 million from 1997 through 1999, with about $35 million in 1998.
04—Continue