01—Abstract
Summary
Summary of the 10-K filed March 23, 1999. Cited figures are marked; the original filing is the authoritative source.
Tricon Global Restaurants, Inc. reported fiscal 1998 (year ended December 26, 1998) net income of $445 milliona, or $2.84 per diluted share, compared with a net loss of $111 million in 1997.
Operating profit rose to $1,028 millionb from $241 million, aided by a $275 million facility actions net gain, including $54 million of favorable adjustments to the 1997 fourth-quarter charge. Revenues fell to $8,468 million from $9,685 million, reflecting refranchising of 1,389 restaurants in 1998 and the portfolio strategy of shifting toward franchisee ownership. System sales were roughly flat at $20.6 billion, and ongoing operating profit increased to $768 million from $672 million.
The company is the world's largest quick service restaurant company by number of system units, with almost 30,000 units in 101 countries across its KFC, Pizza Hut and Taco Bell concepts. Company ownership fell to 32% of system units at year-end 1998. Debt declined to $3.53 billionc from $4.68 billion, as net cash used for financing of $1.12 billion went largely to repaying bank term and revolving debt.
Operating cash flow was $674 milliond, down from $810 million, and management expects combined operating and refranchising cash flow in 1999 to be lower than in 1998 because of reduced refranchising. Key risks disclosed include Year 2000 remediation (estimated total cost of $62 to $65 million, up from $40 to $45 million), pending wage-and-hour class actions at Pizza Hut and Taco Bell, unfinished disposal of 531 units from the 1997 charge, and a restriction on dividends under the bank credit facility, so the company does not intend to pay dividends.
02—Key points
Key Highlights
- Net income of $445 million, or $2.84 per diluted share, versus a net loss of $111 million in 1997
- Revenues of $8.47 billion, down from $9.69 billion, as refranchising reduced Company sales to $7.85 billion
- Operating profit of $1.03 billion, including a $275 million facility actions net gain; ongoing operating profit rose 14% to $768 million
- System sales of $20.6 billion, with 29,763 total system units at year-end 1998
- Total debt reduced to $3.53 billion from $4.68 billion; operating cash flow of $674 million
- Company ownership of system units declined to 32%, with 1,389 units refranchised in 1998
- Year 2000 total cost estimate raised to $62 to $65 million; no dividends planned under the bank credit facility
03—Questions
Frequently Asked Questions
How did Tricon's profitability change in 1998?
Net income was $445 million ($2.84 diluted EPS) compared with a net loss of $111 million in 1997. The swing was driven by a $275 million facility actions net gain, lower unusual charges of $15 million versus $184 million, and higher ongoing operating profit of $768 million versus $672 million.
Why did revenues decline in 1998?
Revenues fell $1.2 billion, or 13%, to $8.47 billion, primarily because Company sales dropped 14% to $7.85 billion. The decline reflected the portfolio effect of refranchising 1,389 restaurants in 1998 and closing underperforming stores, partly offset by franchise and license fee growth of 7%.
Will Tricon pay dividends and how is it reducing debt?
The company does not presently intend to pay dividends on common stock. Its bank credit facility limits dividends, and management plans to use part of its earnings to pay down bank debt. During 1998 it reduced bank debt by over $1 billion and issued $600 million of Unsecured Notes due 2005 and 2008.
What are the main risks identified in the filing?
Key risks include Year 2000 remediation, with a total cost estimate of $62 to $65 million and concerns about international and supplier readiness; wage-and-hour class actions at Pizza Hut (Aguardo) and Taco Bell (Mynaf, Bravo, Ryder); difficulty disposing of the remaining 531 units from the 1997 fourth-quarter charge; and high leverage limiting future borrowing.
What is the outlook for 1999 cash flow and facility gains?
Management expects combined operating and refranchising cash flow in 1999 to be lower than 1998 because of reduced refranchising activity, though still sufficient for expected capital spending and significant debt repayment. Facility actions net gain in 1999 is expected to be half the 1998 level, unless market conditions allow sales of more than the 800-900 units currently forecast.
04—Continue