Why did YUM! Brands' net income and revenues increase in 2002?

Revenues rose to $7.76 billion from $6.95 billion, and the filing attributes much of the increase to the May 7, 2002 acquisition of Yorkshire Global Restaurants. Excluding the acquisition's favorable impact, Company sales increased 6% and franchise and license fees increased 4%. Net income grew to $583 million, helped by ongoing operating profit growth of 16% and a lower effective tax rate of 32.1%.

Does YUM! Brands pay a dividend?

No. The filing states that the company has not and does not presently intend to pay dividends on its common stock. Instead, it returned capital through share repurchases, including about $228 million in 2002 and a new $300 million authorization approved in November 2002.

How much debt does YUM! Brands carry, and how was it refinanced?

Total debt was $2.45 billion at December 28, 2002. The company replaced its Old Credit Facilities with a $1.4 billion New Credit Facility maturing June 25, 2005, which was later reduced to $1.2 billion, and issued $400 million of 7.70% Senior Unsecured Notes due 2012. Unused capacity under the revolving facility was $0.9 billion, net of $0.2 billion in letters of credit.

What are the main legal and financial contingencies disclosed?

The company disclosed potential lease guarantees with a present value of $278 million, largely tied to franchisees who are primary lessees. It also faces the Bravo wage-and-hour class action against Taco Bell, with damages pending for 938 claimants, and the Wrench advertising case, with trial expected in 2003. Management believes the Bravo and most other claims will not be material, but the Wrench outcome cannot be predicted.

What is the company's exposure to foreign currency and interest rates?

International operations represented about 32% of ongoing operating profit excluding unallocated and corporate expenses, and net foreign currency asset exposure was approximately $1 billion. A 10% weakening of all foreign currencies would have reduced operating profit by $43 million. A hypothetical 100 basis point rise in short-term interest rates would reduce annual pre-tax income by $6 million.

YUM 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 11, 2003. Cited figures are marked; the original filing is the authoritative source.

YUM!

Brands, Inc. (filed as TRICON Global Restaurants, Inc. until a May 16, 2002 name change) reported fiscal 2002 results for the year ended December 28, 2002. Total revenues rose to $7.76 billion^a from $6.95 billion, and net income increased to $583 million from $492 million, with diluted EPS of $1.88 versus $1.62. The growth was driven in large part by the May 7, 2002 acquisition of Yorkshire Global Restaurants (parent of Long John Silver's and A&W), which cost approximately $275 million in cash.

System sales reached $24.22 billion^b, and the company operated nearly 33,000 units in over 100 countries, with 11,798 international units. Operating cash flow was $1.09 billion, compared with $832 million in 2001, while capital spending was $760 million. The company repurchased about $228 million of common stock during 2002 and authorized a new $300 million buyback program in November 2002.

Total debt was $2.45 billion^c at year-end, and shareholders' equity rose to $594 million from $104 million. The company does not pay dividends on its common stock.

Key risk items disclosed include contingent lease liabilities of $278 million^d (present value), a Taco Bell wage-and-hour class action (Bravo) with damages still pending for 938 claimants, the Wrench advertising lawsuit set for trial in 2003, and an underfunded pension plan with a $250 million shortfall against the projected benefit obligation. Management states that franchisee financial issues are not expected to be material.

02—Key points

Key Highlights

Net income rose 18% to $583 million, and diluted EPS increased 16% to $1.88 for fiscal 2002.
Total revenues increased 12% to $7.76 billion, with Company sales of $6.89 billion and franchise and license fees of $866 million.
System sales grew 8% to $24.22 billion; excluding the YGR acquisition, system sales increased 5%.
The May 2002 acquisition of Yorkshire Global Restaurants added Long John Silver's and A&W, with approximately $275 million paid in cash.
Operating cash flow increased to $1.09 billion from $832 million, while capital spending was $760 million.
Shareholders' equity improved to $594 million from $104 million, and the company repurchased about $228 million of stock during 2002.
Pension plans were underfunded by $250 million against the projected benefit obligation; management expects pension expense to rise by approximately $14 million to $41 million in 2003.

03—Questions

Frequently Asked Questions

Why did YUM! Brands' net income and revenues increase in 2002?
Revenues rose to $7.76 billion from $6.95 billion, and the filing attributes much of the increase to the May 7, 2002 acquisition of Yorkshire Global Restaurants. Excluding the acquisition's favorable impact, Company sales increased 6% and franchise and license fees increased 4%. Net income grew to $583 million, helped by ongoing operating profit growth of 16% and a lower effective tax rate of 32.1%.
Does YUM! Brands pay a dividend?
No. The filing states that the company has not and does not presently intend to pay dividends on its common stock. Instead, it returned capital through share repurchases, including about $228 million in 2002 and a new $300 million authorization approved in November 2002.
How much debt does YUM! Brands carry, and how was it refinanced?
Total debt was $2.45 billion at December 28, 2002. The company replaced its Old Credit Facilities with a $1.4 billion New Credit Facility maturing June 25, 2005, which was later reduced to $1.2 billion, and issued $400 million of 7.70% Senior Unsecured Notes due 2012. Unused capacity under the revolving facility was $0.9 billion, net of $0.2 billion in letters of credit.
What are the main legal and financial contingencies disclosed?
The company disclosed potential lease guarantees with a present value of $278 million, largely tied to franchisees who are primary lessees. It also faces the Bravo wage-and-hour class action against Taco Bell, with damages pending for 938 claimants, and the Wrench advertising case, with trial expected in 2003. Management believes the Bravo and most other claims will not be material, but the Wrench outcome cannot be predicted.
What is the company's exposure to foreign currency and interest rates?
International operations represented about 32% of ongoing operating profit excluding unallocated and corporate expenses, and net foreign currency asset exposure was approximately $1 billion. A 10% weakening of all foreign currencies would have reduced operating profit by $43 million. A hypothetical 100 basis point rise in short-term interest rates would reduce annual pre-tax income by $6 million.

04—Continue

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