TRICON RESTAURANTS INTERNATIONAL

A few years ago, PepsiCo consolidated the international operations of KFC, Pizza Hut and Taco Bell into a separate operating company, now called Tricon Restaurants International (TRI).  Representing 102 countries and territories, 9,100 restaurants and more than 120,000 employees, TRI serves the same great-tasting chicken, pizzas and tacos that our U.S. customers have come to love.

The global quick service restaurant business represents a tremendous growth opportunity for Tricon.  We now have a 13 percent share of a $160 billion market, and our goal is to grow that.  In 1997, we made tremendous strategic progress in our international business.  In the past, we reached for growth in far too many countries where we operated stores.  So shortly after the spin-off, we redirected our international business - focusing on building scale in high-growth potential company markets, while refranchising others.

The fourth quarter charge this year allowed us to write down the carrying value of 305 stores we plan to refranchise and 143 stores we plan to close in 1998.  All of this will clear the way for us to focus on further developing seven key markets where we have the opportunity - and resources - to take advantage of growth.   Those markets represent almost half of TRI's operating profit from company restaurants, and will receive 85 percent of our new  unit capital.  At the same time, we're exiting company ownership in several other countries where we lack the critical mass to operate profitably - refranchising these to new or existing franchisees who we expect will operate them more efficiently.
Lastly, as you know, the Asian market economy began having difficulties in late 1997.  Asia represents about 54 percent of our international operating profits and 37 percent of TRI's system sales.  The region's devaluation and economic downturn have hurt retail sales across most industry segments, including ours.   That said, Asia represents a huge growth opportunity, and we plan to take advantage of it.  We recognize our investment there is for the long-tern, as it was in other recently volatile currency markets like Mexico and Poland.

In those markets, we weathered the storm and now have the brands consumers love.  In fact, our sales in Mexico were up 39 percent in 1997, and we had strong growth in profits as well.  This experience helps illustrate why we're optimistic about our long-term potential in Asia, despite today's difficulties.  So, while we continue to monitor the market dynamics, experience tells us to be patient and optimistic about our potential.

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