NOTE 15 - BUSINESS SEGMENTS

We are engaged principally in developing, operating, franchising and licensing the worldwide KFC, Pizza Hut and Taco Bell concepts. We also previously operated other non-core U.S. concepts, including CPK, Chevys, D'Angelo, ESM and HNN, all of which were sold in 1997 prior to the Spin-off.  See Note 4.

KFC, Pizza Hut and Taco Bell operate throughout the U.S. and in 78, 87 and 15 countries and territories outside the U.S., respectively. Principal international markets include Australia, Canada, Japan, Korea, Mexico, Poland, Puerto Rico, and the U.K. At year-end 1997, we had investments in several unconsolidated affiliates outside the U.S. which operate KFC and Pizza Hut restaurants, the most significant of which are corporate joint ventures located in Japan and the U.K.

GEOGRAPHIC AREAS

Revenues


1997 1996 1995
United States $ 7,363 $ 7,924 $8,163
International 2,318
______
2,308
______
2,087
______
$9,681 $10,232 $10,250

 

Operating Profit


1997(a) 1996(a) 1995(a)
United States $397 $304 $328
International (30) 144 (26)
Foreign exchange (16) (5) (1)
Unallocated corporate expenses (110)(b)
_____
(71)(b)
_____
(49)(b)
_____
$241 $372 $252

 

Identifiable Assets


1997 1996 1995
United States $ 3,637 $ 4,566 $4,883
International 1,461
_____
1,954
_____
2,025
_____
 $ 5,098 $6,520 $6,908

 

Depreciation and Amortization


1997 1996 1995
United States $393 $472 $519
International 143
_____
149
_____
152
_____
$536 $621 $ 671

 

Capital Spending


1997 1996 1995
United States $385 $466 $530
International 158
_____
161
_____
184
_____
$543 $627 $ 714

(a) Includes the fourth quarter charge in 1997 of $530 million (United States - $248 million, International - $282 million), other unusual charges related to disposal of the Non-core Businesses in 1997 and 1996 of $54 million and
$246 million, respectively, in the United States and the initial impact of adopting SFAS 121 in 1995 of $457 million (United States - $320 million, International - $137 million). See Note 4.

(b) Includes amounts allocated by PepsiCo prior to the Spin-off of $37 million, $53 million and $52 million in 1997, 1996 and 1995, respectively.

The financial data reported above is materially consistent with restaurant segment information previously reported by PepsiCo. Adjustments have been made to these amounts primarily to remove the impact of the restaurant distribution business previously included by PepsiCo in its restaurant segment, and to include the investment in and our equity income (loss) of unconsolidated affiliates within the international segment.This change was made to align our reporting with the way we view our international business.

Note 16 Pro Forma Financial Information
(Unaudited)

As discussed in Note 3, we became an independent, publicly owned company on October 6, 1997 as a result of the Spin-off from PepsiCo. In connection with the Spin-off, we paid $4.5 billion to PepsiCo as repayment of certain amounts due to PepsiCo and as a dividend.Such payment was funded by advances of $4.55 billion under a five-year $5.25 billion bank credit agreement drawn on October 6, 1997. See Note 9. The following unaudited pro forma information presents a summary of consolidated results of operations as if the Spin-off and related transactions had occurred at the beginning of fiscal 1997:

As Reported 1997 Pro Forma Adjustments Pro Forma 1997
Total revenues $9,681 $(268) $9,413
Total costs and expenses 9,440 (303) 9,137
Operating profit 241 35 276
Interest expense, net 276 41 317
Loss before income taxes (35) (6) (41)
Net loss (111) (6) (117)
Loss per common share $  (.73) $  (.77)

These unaudited pro forma results have been prepared for informational purposes only and include the following adjustments to historical results:

(1) Elimination of the effect of our Non-core Businesses.

(2) Additional estimated general,administrative and other expenses of $20 million, which we would have incurred as an independent, publicly owned company, based on our analysis, partially offset by non-recurring TRICON start-up costs of approximately $14 million.

(3) Elimination of the PepsiCo interest expense allocation of $188 million and recording of interest expense of $232 million based on the $4.55 billion of external debt.

(4) Estimation of the income tax impact for the pro forma adjustments (1), (2) and (3).

The shares used to compute pro forma loss per common share were based upon 152 million shares, assuming the shares issued at Spin-off had been outstanding from the beginning of fiscal 1997.The dilutive effect of any options has been excluded due to the loss from operations, as required by SFAS 128.

Pro forma balance sheet information has not been provided as the Spin-off and related transactions have been reflected in the accompanying 1997 Consolidated Balance Sheet.

These unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the transactions occurred at the beginning of fiscal 1997 or of our future results of operations.

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