Yum! Brands Inc. Reports Strong Third-Quarter 2007 EPS Growth of 20% or $0.50 Per Share

Yum! Brands Inc. Reports Strong Third-Quarter 2007 EPS Growth of 20% or $0.50 Per Share

Raises Full-Year EPS Growth Forecast to 13% from 12%; Plans $4 Billion in Share Repurchases Over Next Two Years

LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 8, 2007--Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 8, 2007.

THIRD-QUARTER HIGHLIGHTS

* Worldwide system-same-store-sales growth of 4%, including 11% growth in mainland China, 7% growth in Yum! Restaurants International Division (YRI), and 1% growth in the U.S.
* Strong double-digit system-sales growth from mainland China, +33%, and YRI, +16%.
* Continued strong international restaurant unit growth: mainland China, +20%; YRI, +4%, the nineteenth consecutive quarter of at least 3% year-over-year YRI unit growth, our ongoing growth target.
* Strong worldwide operating-profit growth of +16% led by our international divisions: China, +28%, and YRI, +21%.
* Worldwide operating margin improved by 0.5 percentage point to 15.6%.
* Average diluted shares outstanding reduced by 2%, the thirteenth consecutive quarter with year-over-year share reduction as a result of substantial share buybacks. Over the past three years, the company's regular share-repurchase program has reduced share count by a net 12%.
* Favorable foreign currency conversion impact of about $0.02 EPS.

Note: All preceding comparisons are versus the same period a year ago unless noted.

FULL-YEAR 2007 OUTLOOK

We have raised our full-year EPS growth forecast to 13% from 12% based on the continued strong growth from our China and YRI divisions. The new full-year EPS forecast is $1.65 per share.


CONSOLIDATED FINANCIAL HIGHLIGHTS

Third Quarter Year To Date
---------------------- ----------------------
2007 2006 % Change 2007 2006 % Change
------ ------ -------- ------ ------ --------
Traditional Restaurants 32,858 32,146 +2 32,858 32,146 +2
System-Sales Growth +9% +5% NM +7% +5% NM
Reported EPS $0.50 $0.42 +20 $1.24 $1.05 +18

Note: Yum! has 34,917 restaurant locations around the world, which include 2,059 license units.


David C. Novak, Chairman and CEO, said, "I am pleased that we were once again able to demonstrate the power of our global portfolio to generate consistent growth. Driven by outstanding operating performance in our international businesses, China and YRI, we were able to deliver 16% growth in operating profit and 20% EPS growth for the third quarter.

"Strong unit expansion and same-store-sales growth led to system-sales growth well above our ongoing target for both our mainland China business and YRI. Our U.S. business performance improved versus the first half of the year; however, sales and profit growth remains below our target level due to results at Taco Bell. For the fourth quarter, we expect improved Taco Bell results, solid U.S. profit growth, and strong overall profit growth from the Yum! global portfolio. This would cap off a year of very strong operating performance by our company, especially given the challenge of heightened inflation pressure in several key markets. As a result of our confidence in our business, we are raising our full-year forecast for EPS growth from 12% to 13% or $1.65 per share.

"Importantly, we believe the strong free cash flow generated by all three of our businesses enables us to increase our leverage while achieving our target of remaining an investment-grade company. As a result, we intend to increase our debt level in the near term and dramatically increase our already strong pace of share buybacks. We expect to increase shareholder value by investing up to $4 billion in share repurchases by the end of 2009. This will substantially reduce the number of shares outstanding, potentially by up to 20%, adding to the 12% reduction we have achieved during the past three years. This further showcases our financial strength in a year in which we doubled our quarterly dividend.

"We expect this year will mark our sixth straight year of exceeding our +10% annual EPS growth target and look to continue to build on this track record in 2008 by executing against our four key strategies: (1) Building dominant restaurant brands in China; (2) Driving profitable international expansion at YRI; (3) Improving U.S. brand positioning and returns; and (4) Driving high ROIC and strong shareholder payout."


CHINA DIVISION

Third Quarter Year To Date
($ million, % %
except Change Change
restaurant -------------- --------------
counts and Excl Excl
percentages) 2007 2006 Reported F/x 2007 2006 Reported F/x
----- ----- -------- ----- ----- ----- -------- -----
Key Financial
Measures
System-Sales
Growth +31 +23 +27 +21
MAINLAND CHINA
(MLC) ONLY +33 +26 +30 +24
Same-Store-Sales
Growth MLC ONLY NA +11 NA +9
Company Sales 581 445 +30 +24 1,351 1,066 +27 +21
Restaurant
Margin % 23.2 23.7 (0.5) (0.5) 21.5 21.6 (0.1) (0.1)
Operating Profit 135 105 +28 +20 276 220 +25 +19
----------------------------------------------------------------------

----------------------------------------------------------------------
Key Development
Metrics for
MAINLAND CHINA
ONLY
Total YUM
Restaurants 2,347 1,962 +20 NA 2,347 1,962 +20 NA
KFC 1,995 1,695 +18 NA 1,995 1,695 +18 NA
Pizza Hut
Casual Dining 298 228 +31 NA 298 228 +31 NA
Pizza Hut Home
Service 43 33 +30 NA 43 33 +30 NA
----------------------------------------------------------------------


For the third quarter and year to date, China Division results were driven by strong system-sales growth from continued development of our brands in terms of both unit expansion and same-store-sales growth in mainland China. Our mainland China business generated +26% growth of system sales for the third quarter and 24% year to date, both in local currency terms.

Operating profit for China Division increased 28% in the third quarter, led by 29% growth in mainland China, including the favorable impact of foreign currency conversion for both measures. Strong top-line growth as noted above was the key factor. Restaurant margin declined slightly in the third quarter and year to date due to increased levels of inflation for key food ingredients and labor costs in mainland China. We expect these inflation factors to be more significant for the fourth quarter, resulting in up to a two-percentage-point decline in restaurant margin versus last year for the fourth quarter.


YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI)

Third Quarter Year To Date
($ million, % %
except Change Change
restaurant -------------- --------------
counts and Excl Excl
percentages) 2007 2006 Reported F/x 2007 2006 Reported F/x
------ ------ -------- ----- ------ ------ -------- -----
Key Financial
Measures
System-Sales
Growth +16 +11 +15 +10
Franchise &
License Fees 137 119 +15 +9 380 337 +13 +9
Franchisee
Sales 2,393 2,187 +9 +5 6,764 6,284 +8 +5
Company Sales 603 399 +51 +44 1,737 1,139 +53 +46
Operating
Margin % 17.2 20.2 (3.0) (3.2) 16.4 19.5 (3.1) (3.1)
Operating
Profit 127 105 +21 +14 347 288 +21 +16
----------------------------------------------------------------------

----------------------------------------------------------------------
Key Financial Measures Excluding Impact from Pizza Hut U.K.
Acquisition (September 2006)
Company Sales +6 Even +7 +1
Operating
Profit +17 +10 +19 +15
----------------------------------------------------------------------

----------------------------------------------------------------------
Key Development
Metrics
Traditional
Restaurants 11,993 11,551 +4 NA 11,993 11,551 +4 NA
KFC 6,760 6,410 +5 NA 6,760 6,410 +5 NA
Pizza Hut 4,753 4,673 +2 NA 4,753 4,673 +2 NA
Franchise
Restaurants 9,732 9,167 +6 NA 9,732 9,167 +6 NA
----------------------------------------------------------------------

System-sales increased 11% for the third quarter in local currency terms, another outstanding performance for the division. In particular, the KFC brand performed very well with system-sales growth of 15% in local currency terms led by strong performances around the globe. Overall for YRI, system-same-store-sales growth was +7%. Importantly, we are continuing to add new KFC and Pizza Hut restaurants around the world primarily through franchise development. YRI opened 193 new traditional restaurants during the third quarter 2007 and 515 year to date, of which 92% were opened by franchisees. For the full-year 2007, YRI is expected to break the previous record set in 2003 by opening over 850 new restaurants.

Third-quarter operating profit for YRI increased +21% including the positive impact of foreign currency translation. Restaurant margin declined slightly primarily due to the inclusion of Pizza Hut U.K. as a company-owned business this year. Excluding the impact of the acquisition of Pizza Hut U.K., restaurant and operating margins would have increased by 0.7 and 1.4 percentage points respectively.

UNITED STATES BUSINESS

Third Quarter Year To Date
($ million, except
restaurant counts
and percentages) 2007 2006 % Change 2007 2006 % Change
------ ------ -------- ------ ------ --------
Key Financial Measures
Blended Same-Store-Sales
Growth %
Company (1) (2) NM (3) Even NM
System +1 (2) NM (1) +1 NM
Franchisee Sales 3,215 3,048 +5 9,244 8,927 +4
Company Sales 1,059 1,145 (8) 3,170 3,515 (10)
Franchise & License Fees 165 155 +6 472 454 +4
Restaurant Margin % 13.0 14.1 (1.1) 13.9 15.1 (1.2)
Operating Profit 187 183 +1 543 565 (4)
Operating Margin % 15.2 14.2 +1.0 14.9 14.2 +0.7
----------------------------------------------------------------------

----------------------------------------------------------------------
Key Development Metrics
Total Traditional
Restaurants 17,999 18,120 (1) 17,999 18,120 (1)
System Multibrand
Restaurants 3,565 3,277 +9 3,565 3,277 +9
Franchise Restaurants 14,029 13,662 +3 14,029 13,662 +3
----------------------------------------------------------------------

In the third quarter, system-same-store sales, which includes franchisees' sales, grew by 1% versus prior year as growth in franchise performance offset a 1% decline for company restaurants. The primary driver of the 1% decline in company same-store sales was a decline of 6% at Taco Bell.

For the third quarter, franchise sales and fees grew primarily as a result of the expansion of our franchise-restaurant base due to the sale of 479 company-owned restaurants to franchisees (refranchising) over the past four quarters. In the third quarter, 71 U.S. restaurants were refranchised, resulting in a shift of revenues from Company Sales to Franchise Fees. Company sales decreased by 8% in the third quarter, primarily due to refranchising; commensurately, franchise fees grew by 6%.

Third-quarter operating profit increased 1% primarily due to lower G&A expense. Restaurant margin for company restaurants declined primarily due to higher commodity costs ($16 million) and wage rates partially offset by increase in average guest check, which includes menu price increase.

For the full year 2007, we expect U.S. system-same-store sales and operating profit to be essentially even with last year.

U.S. REFRANCHISE PLAN UPDATE

Our current three-year U.S. refranchising plan, through 2008, is to sell approximately 1,500 company restaurants to franchisees, which will increase U.S. franchise ownership to approximately 83% of the system from 78% today. This will reduce the number of U.S. company-owned restaurants from 4,686, at the start of this program in 2006, to approximately 3,200 by year-end 2008, a reduction of more than 30% in restaurant count. This is a result of our regular review of company operations and our "Earn the Right to Own" principle.

Since the beginning of 2006, a total of 670 company-owned U.S. restaurants were sold to franchisees, including 218 U.S. restaurants year to date in 2007.

FREE CASH FLOW USAGE UPDATE

For 2007, we expect to again return over $1 billion to shareholders through both significant share buybacks and dividends. This would be the third consecutive year that we have returned more than 100% of the company's net income to our shareholders. As announced December 5, 2006, we doubled our quarterly dividend beginning with the second-quarter 2007 payment. During the third quarter 2007, we purchased 10.6 million shares at an average purchase price of $32.61, or a total of $344 million. For the year through October 5, 2007, we have purchased 29.7 million shares at an average purchase price of $31.80, or a total of $943 million.

NEW SHARE-REPURCHASE AUTHORIZATION

The company's board of directors today authorized the repurchase of up to an additional $1.25 billion of the company's outstanding common stock under our share-repurchase program, either in the open market or through privately negotiated transactions, over a period of 12 months. In March 2007, the board authorized repurchases up to $500 million of the company's stock. As of October 5, 2007, we had approximately $25 million remaining under the March 2007 share-repurchase authorization.

This authorization is part of the company's overall plan to substantially increase the amount of share buybacks over the next two years, buying back a total of up to $4 billion of the company's outstanding common stock, reducing our share count further, by as much as 20%. We expect this two-year share-repurchase program will be funded by a combination of the company's ongoing free cash flow, additional debt and refranchising proceeds. The completion of this plan will depend on the company's cash flows, credit rating, proceeds from our refranchising efforts and availability of other investment opportunities, among other factors.

FOREIGN CURRENCY IMPACTS

(operating profit $ million) 2007
Division Third Quarter Year To Date
--------------------------
YRI +7 +13
China +8 +13
----------------------------------------------------------------------

FULL-YEAR 2007 UPDATE

* EPS growth of at least 13% or $1.65 per share.
* Yum! Brands fourth-quarter operating profit growth is expected to be in the range of 8% to 10%; however, due to lapping a record low Q4 2006 quarterly tax rate of 17.1%, we expect the fourth-quarter 2007 EPS growth to be negative.
* China Division's operating-profit growth is expected to be over 20%, driven by higher-than-expected revenue growth offset by higher commodity and labor costs.
* YRI Division's operating-profit growth is expected to exceed 15%.
* U.S. operating profit is expected to be even with the prior year, with better results during the second half of 2007.

YUM! ONGOING EARNINGS GROWTH MODEL
* China Division operating-profit growth of 20%. This growth is driven largely by new-unit development in mainland China. Our key metric for mainland China is system-sales growth with an annual target of +20% driven by at least 375 new-restaurant openings.
* YRI Division operating-profit growth of 10%. This growth is driven mainly by new-unit development, measured by system-sales growth of at least 5% (at least 3% unit growth and 2% to 3% same-store-sales growth) including 750 new-restaurant openings.
* U.S. operating-profit growth of 5% with same-store-sales growth of +2% to +3% and leverage of the G&A infrastructure.
* EPS growth of at least 10%. This assumes operating profit performance from our three lines of business as previously noted with additional benefit from reduction in shares outstanding due to substantial share buybacks.

For the updated version of our detailed full-year 2007 guidance table, please refer online to http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

2007 Third-Quarter End Dates 2007 Fourth-Quarter End Dates
---------------------------------- ---------------------------------
International Division 8/13/2007 International Division 12/3/2007
China Division 8/31/2007 China Division 12/31/2007
U.S. Business 9/8/2007 U.S. Business 12/29/2007
---------------------------------- ---------------------------------

CONFERENCE CALL

Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. ET Tuesday, October 9, 2007.

For U.S. callers, the number is 877/815-2029. For international callers, the number is 706/645-9271.

The call will be available for playback beginning at noon Eastern Time Tuesday, October 9, through 5 p.m. Friday, October 19. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 12027445.

The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site, www.yum.com, and selecting "3rd-Quarter Earnings Webcast."

For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors.

ADDITIONAL INFORMATION ONLINE

The updated version of our detailed full-year 2007 guidance table is available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

Third-quarter restaurant-count details, definitions of terms, and segment-results reconciliation are available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include those identified by such words as may, will, expect, project, anticipate, believe, plan and other similar terminology. These "forward-looking" statements reflect management's current expectations regarding future events and operating and financial performance and are based on currently available data. However, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in this announcement. Accordingly, you are cautioned not to place undue reliance on forward-looking statements. Factors that can cause actual results to differ materially include, but are not limited to, changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates, including the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences or perceptions concerning the products of the company and/or our competitors, spending patterns and demographic trends; the impact that any widespread illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and marketing, advertising and promotional efforts; new-product and concept development by Yum! Brands and other food-industry competitors; the success of our strategies for refranchising and international development and operations; the ongoing business viability of our franchise and license operators; our ability to secure distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; unexpected disruptions in our supply chain; publicity that may impact our business and/or industry; severe weather conditions; effects and outcomes of pending or future legal claims involving the company; changes in effective tax rates; our actuarially determined casualty loss estimates; new legislation and governmental regulations or changes in legislation and regulations and the consequent impact on our business; and changes in accounting policies and practices. Further information about factors that could affect Yum! Brands' financial and other results are included in the company's Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.

Yum! Brands Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with over 34,000 restaurants, which includes over 2,000 licensed restaurants, in more than 100 countries and territories. Four of the company's restaurant brands -- KFC, Pizza Hut, Taco Bell and Long John Silver's -- are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories respectively. Yum! Brands is the worldwide leader in multibranding, which offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver's brands. The company and its franchisees today operate over 3,500 multibrand restaurants. Outside the United States in 2006, the Yum! Brands' system opened about three new restaurants each day of the year, making it one of the fastest growing retailers in the world. For the past four years, the company has been recognized as one of Fortune Magazine's "Top 50 Employers for Minorities." It also has been recognized as one of the "Top 50 Employers for Women" by Fortune, one of the "40 Best Companies for Diversity" by Black Enterprise Magazine for the past three years, one of Black Enterprise Magazine's "30 Hottest Franchises for 2006," one of the "Corporate 100 Companies Providing Opportunities for Hispanics" by Hispanic Magazine, one of the "Top 50 Corporations for Supplier Diversity" by Hispanic Trends Magazine and by BusinessWeek as one of the "Top 15 Companies for In-Kind Corporate Philanthropy."


Analysts are invited to contact
Tim Jerzyk, Senior Vice President, Investor Relations/Treasurer,
at 502/874-8006
Quan Nghe, Director Investor Relations, at 502/874-8918
Members of the media are invited to contact
Amy Sherwood, Vice President Public Relations, at 502/874-8200

Yum! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)

Quarter % Change Year to date % Change
-------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------ ------ -------- ------ ------- --------
Company sales $2,243 $1,989 13 $6,258 $ 5,720 9
Franchise and
license fees 321 289 11 896 825 9
------ ------ ------ -------
Total revenues 2,564 2,278 13 7,154 6,545 9
------ ------ ------ -------

Costs and expenses
Food and paper 700 606 (16) 1,924 1,746 (10)
Payroll and
employee
benefits 544 492 (11) 1,585 1,461 (9)
Occupancy and
other
operating
expenses 646 570 (13) 1,798 1,607 (12)
------ ------ ------ -------
Company restaurant
expenses 1,890 1,668 (13) 5,307 4,814 (10)
General and
administrative
expenses 281 271 (4) 830 789 (5)
Franchise and
license expenses 12 7 (84) 30 24 (26)
Closures and
impairment
(income) expenses (1) 1 NM 12 25 NM
Refranchising
(gain) loss -- 4 NM (5) (7) NM
Other (income)
expense (19) (17) 13 (47) (33) 42
------ ------ ------ -------
Total costs and
expenses 2,163 1,934 (12) 6,127 5,612 (9)
------ ------ ------ -------
Operating profit 401 344 16 1,027 933 10
Interest expense,
net 38 34 (12) 112 105 (7)
------ ------ ------ -------
Income before
income taxes 363 310 17 915 828 10
Income tax
provision 93 80 (15) 237 236 --
------ ------ ------ -------
Net income $ 270 $ 230 17 $ 678 $ 592 15
====== ====== ====== =======

Effective tax rate 25.5% 25.8% 25.9% 28.5%
------------------ ====== ====== ====== =======

Basic EPS Data
------------------
EPS $ 0.52 $ 0.43 20 $ 1.28 $ 1.09 18
====== ====== ====== =======
Average shares
outstanding 523 537 3 528 544 3
====== ====== ====== =======

Diluted EPS Data
------------------
EPS $ 0.50 $ 0.42 20 $ 1.24 $ 1.05 18
====== ====== ====== =======
Average shares
outstanding 541 555 2 546 563 3
====== ====== ====== =======

Dividends declared
per common share $ -- $ -- $ 0.15 $0.1325
====== ====== ====== =======

See accompanying notes.

Yum! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)

Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------

Company sales $ 581 $ 445 30 $ 1,351 $ 1,066 27
Franchise and
license fees 19 15 35 44 34 31
------- ------- ------- -------
Revenues 600 460 31 1,395 1,100 27
------- ------- ------- -------

Company
restaurants
Food and paper 209 156 (34) 485 378 (28)
Payroll and
employee
benefits 68 51 (34) 172 133 (29)
Occupancy and
other
operating
expenses 170 133 (27) 404 325 (24)
------- ------- ------- -------
447 340 (31) 1,061 836 (27)
General and
administrative
expenses 35 30 (24) 90 71 (29)
Franchise and
license
expenses -- -- NM -- -- NM
Closures and
impairment
expenses 2 -- NM 4 2 NM
Other (income)
expense (19) (15) 21 (36) (29) 24
------- ------- ------- -------
465 355 (31) 1,119 880 (27)
------- ------- ------- -------
Operating
profit $ 135 $ 105 28 $ 276 $ 220 25
======= ======= ======= =======

Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 36.0 35.0 (1.0) ppts. 35.9 35.4 (0.5) ppts.
Payroll and
employee
benefits 11.7 11.4 (0.3) ppts. 12.7 12.5 (0.2) ppts.
Occupancy and
other
operating
expenses 29.1 29.9 0.8 ppts. 29.9 30.5 0.6 ppts.
------- ------- ------- -------
Restaurant
margin 23.2% 23.7% (0.5) ppts. 21.5% 21.6% (0.1) ppts.
======= ======= ======= =======

See accompanying notes.

China Division includes mainland China, Thailand and KFC Taiwan

Yum! Brands, Inc.
INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)

Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------

Company sales $ 603 $ 399 51 $ 1,737 $ 1,139 53
Franchise and
license fees 137 119 15 380 337 13
------- ------- ------- -------
Revenues 740 518 43 2,117 1,476 43
------- ------- ------- -------

Company
restaurants
Food and paper 180 131 (37) 518 377 (37)
Payroll and
employee
benefits 155 95 (63) 452 273 (65)
Occupancy and
other
operating
expenses 188 118 (58) 546 342 (60)
------- ------- ------- -------
523 344 (52) 1,516 992 (53)
General and
administrative
expenses 84 65 (26) 239 187 (28)
Franchise and
license
expenses 5 3 (72) 11 9 (20)
Closures and
impairment
expenses 1 1 NM 8 8 NM
Other (income)
expense -- -- NM (4) (8) (50)
------- ------- ------- -------
613 413 (48) 1,770 1,188 (49)
------- ------- ------- -------
Operating
profit $ 127 $ 105 21 $ 347 $ 288 21
======= ======= ======= =======

Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 29.9 33.0 3.1 ppts. 29.8 33.2 3.4 ppts.
Payroll and
employee
benefits 25.7 23.8 (1.9) ppts. 26.0 24.0 (2.0) ppts.
Occupancy and
other
operating
expenses 31.2 29.8 (1.4) ppts. 31.5 30.0 (1.5) ppts.
------- ------- ------- -------
Restaurant
margin 13.2% 13.4% (0.2) ppts. 12.7% 12.8% (0.1) ppts.
======= ======= ======= =======

Operating
margin 17.2% 20.2% (3.0) ppts. 16.4% 19.5% (3.1) ppts.
======= ======= ======= =======

See accompanying notes. As discussed further at note (e), Company
sales increased $179 million and $516 million, restaurant profit
increased $20 million and $53 million, franchise fees decreased $5
million and $17 million and general and administrative expenses
increased $10 million and $29 million compared to the quarter and
year to date ended September 9, 2006, respectively, due to the
ownership structure change of the Pizza Hut United Kingdom business.

Yum! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)

Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------

Company sales $ 1,059 $ 1,145 (8) $ 3,170 $ 3,515 (10)
Franchise and
license fees 165 155 6 472 454 4
------- ------- ------- -------
Revenues 1,224 1,300 (6) 3,642 3,969 (8)
------- ------- ------- -------

Company
restaurants
Food and paper 311 319 2 921 991 7
Payroll and
employee
benefits 321 346 7 961 1,055 9
Occupancy and
other
operating
expenses 288 319 10 848 940 10
------- ------- ------- -------
920 984 6 2,730 2,986 9
General and
administrative
expenses 114 129 13 353 380 7
Franchise and
license
expenses 7 4 (92) 19 15 (29)
Closures and
impairment
(income)
expenses (4) -- NM -- 15 NM
Other (income)
expense -- -- NM (3) 8 NM
------- ------- ------- -------
1,037 1,117 7 3,099 3,404 9
------- ------- ------- -------
Operating
profit $ 187 $ 183 1 $ 543 $ 565 (4)
======= ======= ======= =======

Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 29.4 27.8 (1.6) ppts. 29.0 28.2 (0.8) ppts.
Payroll and
employee
benefits 30.4 30.2 (0.2) ppts. 30.3 30.0 (0.3) ppts.
Occupancy and
other
operating
expenses 27.2 27.9 0.7 ppts. 26.8 26.7 (0.1) ppts.
------- ------- ------- -------
Restaurant
margin 13.0% 14.1% (1.1) ppts. 13.9% 15.1% (1.2) ppts.
======= ======= ======= =======

Operating
margin 15.2% 14.2% 1.0 ppts. 14.9% 14.2% 0.7 ppts.
======= ======= ======= =======

See accompanying notes.

Yum! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
-----------
9/8/07 12/30/06
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 507 $ 319
Accounts and notes receivable, less allowance:
$22 in 2007 and $18 in 2006 250 220
Inventories 96 93
Prepaid expenses and other current assets 139 138
Deferred income taxes 97 57
Advertising cooperative assets, restricted 76 74
----------- --------
Total Current Assets 1,165 901
Property, plant and equipment, net of
accumulated depreciation and amortization of
$3,261 in 2007 and $3,146 in 2006 3,600 3,631
Goodwill 675 662
Intangible assets, net 336 347
Investments in unconsolidated affiliates 140 138
Other assets 388 369
Deferred income taxes 294 305
----------- --------
Total Assets $6,598 $6,353
=========== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,400 $1,386
Income taxes payable 99 37
Short-term borrowings 291 227
Advertising cooperative liabilities 76 74
----------- --------
Total Current Liabilities 1,866 1,724

Long-term debt 2,124 2,045
Other liabilities and deferred credits 1,186 1,147
----------- --------
Total Liabilities 5,176 4,916
----------- --------

Shareholders' Equity
Preferred stock, no par value, zero shares and
250 shares authorized in 2007 and 2006,
respectively; no shares issued -- --
Common stock, no par value, 750 shares
authorized; 512 shares and 530 shares issued in
2007 and 2006, respectively -- --
Retained earnings 1,541 1,593
Accumulated other comprehensive loss (119) (156)
----------- --------
Total Shareholders' Equity 1,422 1,437
----------- --------
Total Liabilities and Shareholders' Equity $6,598 $6,353
=========== ========

See accompanying notes.

Yum! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)

Year to date
--------------
9/8/07 9/9/06
------ ------
Cash Flows - Operating Activities
Net income $ 678 $ 592
Depreciation and amortization 362 319
Closures and impairment expenses 12 25
Refranchising (gain) loss (5) (7)
Contributions to defined benefit pension plans -- (41)
Deferred income taxes (32) (47)
Equity income from investments in unconsolidated
affiliates (40) (37)
Distributions of income received from unconsolidated
affiliates 28 26
Excess tax benefit from share-based compensation (40) (40)
Share-based compensation expense 43 46
Changes in accounts and notes receivable (19) 22
Changes in inventories (1) 7
Changes in prepaid expenses and other current assets 4 (10)
Changes in accounts payable and other current
liabilities 39 (31)
Changes in income taxes payable 82 69
Other non-cash charges and credits, net 58 114
------ ------
Net Cash Provided by Operating Activities 1,169 1,007
------ ------

Cash Flows - Investing Activities
Capital spending (391) (323)
Proceeds from refranchising of restaurants 83 96
Acquisition of restaurants from franchisees -- (11)
Short-term investments 5 (79)
Sales of property, plant and equipment 42 33
Other, net 5 (16)
------ ------
Net Cash Used in Investing Activities (256) (300)
------ ------

Cash Flows - Financing Activities
Proceeds from long-term debt -- 300
Repayments of long-term debt (11) (207)
Revolving credit facilities, three months or less, net 315 (26)
Short-term borrowings by original maturity
More than three months - proceeds 1 164
More than three months - payments (184) (2)
Three months or less, net (3) --
Repurchase shares of common stock (774) (853)
Excess tax benefit from share-based compensation 40 40
Employee stock option proceeds 78 93
Dividends paid on common shares (196) (104)
Other, net -- (2)
------ ------
Net Cash Used in Financing Activities (734) (597)
------ ------
Effect of Exchange Rate on Cash and Cash Equivalents 9 3
------ ------
Net Increase in Cash and Cash Equivalents 188 113
Cash and Cash Equivalents - Beginning of Period 319 158
------ ------
Cash and Cash Equivalents - End of Period $ 507 $ 271
====== ======

See accompanying notes.

Notes to the Consolidated Summary of Results, Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)

(a) Percentages may not recompute due to rounding.

(b) Amounts presented as of and for the quarter and year to date ended
September 8, 2007 are preliminary.

(c) On May 17, 2007, the Company announced that its Board of Directors
approved a two-for-one split of the Company's outstanding shares
of Common Stock. The stock split was effected in the form of a
stock dividend and entitled each shareholder of record at the
close of business on June 1, 2007 to receive one additional share
for every outstanding share of Common Stock held. The stock
dividend was distributed on June 26, 2007, with approximately 261
million shares of Common Stock distributed. All per share and
share amounts in the accompanying Consolidated Summary of Results
and Condensed Consolidated Balance Sheets have been adjusted to
reflect the stock split.

(d) Other (income) expense primarily includes equity income from our
investments in unconsolidated affiliates in our China and
International Divisions. In the quarter ended March 24, 2007,
other (income) expense also included recognition of income of $5
million associated with receipt of payment for a note receivable
arising from the 2005 sale of our fifty percent interest in the
entity that operated almost all KFCs and Pizza Huts in Poland and
the Czech Republic to our then partner in the entity. In the
quarter ended March 25, 2006, other (income) expense also included
an $8 million charge associated with the termination of a beverage
agreement in the United States segment.

(e) During the fourth quarter of 2006, we completed the acquisition of
the remaining fifty percent ownership interest of our Pizza Hut
United Kingdom ("PHUK") unconsolidated affiliate. This
unconsolidated affiliate owned over 500 restaurants in the United
Kingdom. Prior to this acquisition, we accounted for our interest
under the equity method. In 2007, our financial statements are
presented consolidating the PHUK's results of operations and cash
flows. As a result of this acquisition, company sales increased
$179 million and $516 million, restaurant profit increased $20
million and $53 million, franchise fees decreased $5 million and
$17 million and general and administrative expenses increased $10
million and $29 million compared to the quarter and year to date
ended September 9, 2006, respectively. The impacts on operating
profit and net income were not significant.


SOURCE: Yum! Brands, Inc.

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