Yum! Brands Inc. Reports First-Quarter 2008 EPS of $0.50 per share, 19% Growth Excluding Special Items

Raises Full-Year EPS Growth Forecast to 11% from 10%, Excluding Special Items

LOUISVILLE, Ky.(BUSINESS WIRE) -- Yum! Brands Inc. (NYSE: YUM) today reported results for the first quarter ended March 22, 2008. First-quarter Earnings Per Share (EPS) of $0.50 included the benefit of a one-time gain from the sale of our minority interest in KFC Japan, and charges related to our long-term plan for U.S. brands transformation, including refranchising losses and charges related to business restructuring. Excluding these special items, EPS was $0.42 or 19% growth, which the company believes is a better indication of the underlying first-quarter performance.

FIRST-QUARTER HIGHLIGHTS

  • Very strong system-sales growth of +40% in mainland China and +15% in Yum! Restaurants International (YRI), fueled by same-store-sales growth, strong unit development, and favorable foreign currency translation
  • Worldwide same-store-sales growth of +4%, including +12% in mainland China, +5% in YRI, and +3% in the U.S. (all figures are system-wide)
  • Operating profit growth of +33% in China Division and +18% in YRI. Worldwide operating profit growth of +13% excluding the benefit of special items
  • A quarterly record of nearly $1 billion in share buybacks
  • EPS growth as outlined below:


First Quarter
2008 2007 % Change
------ ----- --------
EPS $0.50 $0.35 +43
Less: Special Items(1) $0.08 - NM
EPS Excluding Special Items $0.42 $0.35 +19



(1) Special items of $0.08 include $100 million pre-tax gain from the sale of minority interest in KFC Japan, $26 million of U.S. refranchising pre-tax losses, and $6 million of pre-tax charges related to U.S. restructuring.

FULL-YEAR OUTLOOK

The Company raised its full-year 2008 EPS forecast from $1.85 to $1.87 per share or 11% growth. This is prior to full-year net gains from special items of up to $0.06 per share as previously announced in the Company's full-year 2007 earnings release on February 4, 2008. Full-year EPS is expected to total up to $1.93, including all items.

David C. Novak, Chairman and CEO, said, "I am pleased to report a strong start to 2008 with first-quarter EPS growth of +19% excluding special items, led by outstanding operating-profit growth from our China and YRI businesses. The global growth we are achieving in China and YRI is among the best in the retail sector as we are driving robust same-store-sales growth, record-level new-unit development and excellent returns. In fact, we fully expect in 2008, for the eighth straight year, to open at least 1,000 new restaurants outside the U.S., reinforcing our position as the leading international retail developer. While our U.S. profits are being challenged by significant commodity pressure, we achieved 3% system same-store-sales growth, and we remain confident in the steps we are taking to position the U.S. brands for sustainable growth. Importantly, we continue to return significant cash to our shareholders. During the first quarter, we repurchased $1 billion of our shares at a price we believe created significant shareholder value. Overall, this quarter again highlighted the power of our global portfolio, and on the strength of our first-quarter results, we are raising our full-year EPS forecast to 11% growth, or $1.87 per share excluding special items.

"Shareholders should expect us to continue building consistent value by differentiating our portfolio of brands and driving profitable global expansion through our four key strategies that make us not your ordinary restaurant company: building leading brands in China in every significant category; driving aggressive international expansion and building strong brands everywhere; dramatically improving U.S. brand positions, consistency and returns; and driving industry-leading, long-term shareholder and franchisee value."

CHINA DIVISION


($ million, except restaurant counts %
and percentages) First Quarter Change
-----------------
2008 2007 Reported Excl F/x
------- ----- -------- --------
Traditional Restaurants-Mainland China
(MLC) 2,640 2,202 +20 NA
KFC 2,201 1,881 +17 NA
Pizza Hut Casual Dining 362 273 +33 NA
Pizza Hut Home Service 59 39 +51 NA
System-Sales Growth % +38 +28
MLC system-sales growth % +40 +30
MLC Same-Store-Sales Growth % NA +12
Restaurant Margin % 21.3 22.9 (1.6) (1.7)
Operating Profit 101 76 +33 +23




CHINA DIVISION COMMENTS

  • Mainland China delivered an outstanding same-store-sales growth of 12%, lapping a strong 9% last year.
  • We opened 88 new units in mainland China, exceeding last year's development pace and further strengthening our leadership position in China's rapidly growing restaurant category.
  • Restaurant margin percentage declined due primarily to high food cost inflation. Commodity costs increased by approximately $11 million versus last year.
  • Foreign currency conversion benefited operating profit by $8 million.



YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI)


($ million, except restaurant counts %
and percentages) First Quarter Change
-----------------
2008 2007 Reported Excl F/x
------ ------ -------- --------
Traditional Restaurants 12,275 11,791 +4 NA
System-Sales Growth % +15 +9
Same-Store-Sales Growth % NA +5
Franchise & License Fees 145 121 +20 +14
Operating Margin % 20.0 17.4 +2.6 +2.3
Operating Profit 139 119 +18 +11




YRI DIVISION COMMENTS

  • YRI achieved same-store-sales growth of 5%, lapping 7% from 2007.
  • We opened 158 new restaurants in our YRI Division, 96% of which were opened by our franchise partners. YRI continues to build an enviable development track record.
  • Franchise fees, a key driver of our high-return business, grew by 20% and is expected to reach approximately $650 million for the full year.
  • The strength of foreign currencies versus the U.S. dollar benefited operating profit by $7 million.
  • The loss of a VAT exemption in our Mexico business adversely impacted restaurant margin percentage by approximately 1 percentage point and operating profit by $5 million during the first quarter. As previously communicated, this loss is expected to negatively impact restaurant margin percentage by 1.2 percentage points and operating profit by more than $30 million for the full-year 2008.



UNITED STATES BUSINESS

($ million, except restaurant counts First Quarter
and percentages) 2008 2007 % Change
------------- ------ --------
Traditional Restaurants 17,919 18,050 (1)
Same-Store-Sales Growth %
System +3 (3) NM
Company +3 (6) NM
Franchisee Sales 3,052 2,932 +4
Company Sales 1,034 1,051 (2)
Franchise & License Fees 157 149 +5
Restaurant Margin % 12.4 13.3 (0.9)
Operating Margin % 13.2 13.8 (0.6)
Operating Profit 157 165 (5)




U.S. BUSINESS COMMENTS

  • The U.S. business delivered same-store-sales growth of 3%, reversing last year's negative trend.
  • Restaurant margin percentage and operating profit declined due largely to significant commodity inflation (cheese, wheat and chicken costs). Overall, commodity costs increased $25 million compared to prior year.
  • As part of our long-term plan to transform our U.S. business -- which includes building permanent sales layers, investing in brand repositioning, refranchising and restructuring -- we previously guided that we are expanding our refranchising of U.S. company-owned restaurants, with company ownership to potentially reach below 10% by year-end 2010. We remain confident in our ability to achieve this goal, and expect subsequent quarters' activity in 2008 to be higher than the relatively low rate during the first quarter.



SHAREHOLDER PAYOUTS

During the first quarter of 2008, we purchased 27.7 million shares at an average price of $35.39, or a total of $981 million, a quarterly record.

For 2008, we expect to return over $2 billion to shareholders through both dividends and significant share buybacks.

Q2 2008 UPDATE

  • We expect a special item loss in the range of $0.01 to $0.03 per share due to the continuation of our U.S. business transformation, including refranchising losses and restructuring charges.
  • Tax rate is likely to be significantly higher than the second-quarter 2007 tax rate of 21.5%
  • U.S. restaurant margin will be adversely impacted by continued higher commodity costs (at a level similar to first-quarter's inflation) and dramatically higher insurance expenses.



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 425 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% (3% to 4% 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 reflects additional benefit from reduction in shares outstanding due to substantial share buybacks.



2008 First-Quarter End Dates 2008 Second-Quarter End Dates
----------------------------------- --------------------------------

International Division 2/25/2008 International Division 5/19/2008
China Division 2/29/2008 China Division 5/31/2008
U.S. Business 3/22/2008 U.S. Business 6/14/2008




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 Wednesday, April 23, 2008.

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 Wednesday, April 23, through midnight Friday, May 2. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 39484056.

The call and the playback can be accessed via the Internet by visiting Yum! Brands' Web site, www.yum.com, and selecting "1st-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

First-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 35,000 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 2007, 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."


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


Quarter % Change
----------------
3/22/08 3/24/07 B/(W)
------- ------- -----------
Company sales $2,094 $1,942 8
Franchise and license fees 314 281 12
------- -------
Total revenues 2,408 2,223 8
------- -------

Costs and expenses, net
Food and paper 669 586 (14)
Payroll and employee benefits 533 514 (4)
Occupancy and other operating
expenses 584 554 (5)
------- -------
Company restaurant expenses 1,786 1,654 (8)
General and administrative expenses 276 262 (5)
Franchise and license expenses 14 8 (81)
Closures and impairment (income)
expenses (2) 4 NM
Refranchising (gain) loss 25 (1) NM
Other (income) expense (115) (20) NM
------- -------
Total costs and expenses, net 1,984 1,907 (4)
------- -------
Operating profit 424 316 34
Interest expense, net 53 36 (45)
------- -------
Income before income taxes 371 280 33
Income tax provision 117 86 (37)
------- -------
Net income $ 254 $ 194 31
======= =======
Effective tax rate 31.6% 30.6% (1.0) ppts.
--------------------------------------- ======= =======
Basic EPS Data
---------------------------------------
EPS $ 0.52 $ 0.36 44
======= =======
Average shares outstanding 486 533 9
======= =======

Diluted EPS Data
---------------------------------------
EPS $ 0.50 $ 0.35 43
======= =======
Average shares outstanding 504 551 8
======= =======

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

See accompanying notes.



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


Quarter % Change
----------------
3/22/08 3/24/07 B/(W)
------- ------- -----------

Company sales $ 508 $ 331 53
Franchise and license fees 12 11 13
------- -------
Revenues 520 342 52
------- -------

Company restaurant expenses, net
Food and paper 190 119 (59)
Payroll and employee benefits 69 43 (63)
Occupancy and other operating
expenses 141 94 (50)
------- -------
400 256 (56)
General and administrative expenses 27 20 (31)
Franchise and license expenses -- -- NM
Closures and impairment expenses -- -- NM
Other (income) expense (8) (10) (20)
------- -------
419 266 (57)
------- -------
Operating profit $ 101 $ 76 33
======= =======

Company sales 100.0% 100.0%
Food and paper 37.4 36.1 (1.3)ppts.
Payroll and employee benefits 13.6 12.7 (0.9)ppts.
Occupancy and other operating expenses 27.7 28.3 0.6 ppts.
------- -------
Restaurant margin 21.3% 22.9% (1.6)ppts.
======= =======


See accompanying notes.

China Division includes mainland China, Thailand and KFC Taiwan

As discussed in (e) in the accompanying notes, we began consolidating an entity in China, with 182 units, in which we have a majority interest on January 1, 2008. This entity was previously accounted for as an unconsolidated affiliate. For the quarter ended March 22, 2008 the consolidation of this entity increased Company sales by $46 million, Company restaurant expenses by $36 million, general and administrative expenses by $1 million and operating profit by $1 million while decreasing franchise and license fees by $3 million.


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


Quarter % Change
----------------
3/22/08 3/24/07 B/(W)
------- ------- -----------

Company sales $ 552 $ 560 (1)
Franchise and license fees 145 121 20
------- -------
Revenues 697 681 2
------- -------

Company restaurant expenses, net
Food and paper 170 167 (2)
Payroll and employee benefits 142 145 2
Occupancy and other operating
expenses 168 175 4
------- -------
480 487 1
General and administrative expenses 76 71 (6)
Franchise and license expenses 4 3 (22)
Closures and impairment (income)
expenses (1) 4 NM
Other (income) expense (1) (3) (85)
------- -------
558 562 1
------- -------
Operating profit $ 139 $ 119 18
======= =======

Company sales 100.0% 100.0%
Food and paper 30.8 29.7 (1.1)ppts.
Payroll and employee benefits 25.7 25.9 0.2 ppts.
Occupancy and other operating expenses 30.5 31.3 0.8 ppts.
------- -------
Restaurant margin 13.0% 13.1% (0.1)ppts.
======= =======

Operating margin 20.0% 17.4% 2.6 ppts.
======= =======

See accompanying notes.



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


Quarter % Change
----------------
3/22/08 3/24/07 B/(W)
------- ------- ----------

Company sales $1,034 $1,051 (2)
Franchise and license fees 157 149 5
------- -------
Revenues 1,191 1,200 (1)
------- -------

Company restaurant expenses, net
Food and paper 309 300 (3)
Payroll and employee benefits 322 326 1
Occupancy and other operating expenses 275 285 4
------- -------
906 911 1
General and administrative expenses 119 122 2
Franchise and license expenses 10 5 (92)
Closures and impairment (income)
expenses (1) -- NM
Other (income) expense -- (3) NM
------- -------
1,034 1,035 --
------- -------
Operating profit $ 157 $ 165 (5)
======= =======

Company sales 100.0% 100.0%
Food and paper 29.8 28.4 (1.4)ppts.
Payroll and employee benefits 31.2 31.1 (0.1)ppts.
Occupancy and other operating expenses 26.6 27.2 0.6 ppts.
------- -------
Restaurant margin 12.4% 13.3% (0.9)ppts.
======= =======

Operating margin 13.2% 13.8% (0.6)ppts.
======= =======

See accompanying notes.



Yum! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)


(unaudited)
-----------
3/22/08 12/29/07
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 481 $ 789
Accounts and notes receivable, less allowance:
$23 in 2008 and $21 in 2007 268 225
Inventories 130 128
Prepaid expenses and other current assets 197 142
Deferred income taxes 129 125
Advertising cooperative assets, restricted 95 72
----------- --------
Total Current Assets 1,300 1,481
Property, plant and equipment, net of
accumulated depreciation and amortization of
$3,420 in 2008 and $3,283 in 2007 3,807 3,849
Goodwill 661 672
Intangible assets, net 327 333
Investments in unconsolidated affiliates 33 153
Other assets 477 464
Deferred income taxes 308 290
----------- --------
Total Assets $6,913 $7,242
=========== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,468 $1,650
Income taxes payable 85 52
Short-term borrowings 312 288
Advertising cooperative liabilities 95 72
----------- --------
Total Current Liabilities 1,960 2,062


Long-term debt 3,372 2,924
Other liabilities and deferred credits 1,202 1,117
----------- --------
Total Liabilities 6,534 6,103
----------- --------

Shareholders' Equity
Common Stock, no par value, 750 shares
authorized; 473 shares and 499 shares issued
in 2008 and 2007, respectively -- --
Retained earnings 374 1,119
Accumulated other comprehensive income 5 20
----------- --------
Total Shareholders' Equity 379 1,139
----------- --------
Total Liabilities and Shareholders' Equity $6,913 $7,242
=========== ========

See accompanying notes.


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

Quarter
----------------
3/22/08 3/24/07
------- -------
Cash Flows - Operating Activities
Net income $ 254 $ 194
Depreciation and amortization 120 112
Closures and impairment (income) expenses (2) 4
Refranchising (gain) loss 25 (1)
Gain on sale of interest in Japan unconsolidated
affiliate (100) --
Deferred income taxes 19 (11)
Equity income from investments in unconsolidated
affiliates (11) (13)
Excess tax benefit from share-based compensation (9) (12)
Share-based compensation expense 15 14
Changes in accounts and notes receivable (3) (12)
Changes in inventories 6 (4)
Changes in prepaid expenses and other current assets (5) (6)
Changes in accounts payable and other current
liabilities (53) (35)
Changes in income taxes payable 30 53
Other non-cash charges and credits, net 62 57
------- -------
Net Cash Provided by Operating Activities 348 340
------- -------

Cash Flows - Investing Activities
Capital spending (113) (93)
Proceeds from refranchising of restaurants 19 34
Sales of property, plant and equipment 7 12
Other, net 3 5
------- -------
Net Cash Used in Investing Activities (84) (42)
------- -------

Cash Flows - Financing Activities
Repayments of long-term debt (4) (2)
Revolving credit facilities, three months or less,
net 433 165
Short-term borrowings by original maturity
More than three months - proceeds -- 1
More than three months - payments -- (183)
Three months or less, net 24 (11)
Repurchase shares of Common Stock (994) (246)
Excess tax benefit from share-based compensation 9 12
Employee stock option proceeds 12 28
Dividends paid on Common Stock (75) (40)
------- -------
Net Cash Used in Financing Activities (595) (276)
------- -------
Effect of Exchange Rates on Cash and Cash
Equivalents 6 --
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (325) 22
Change in Cash and Cash Equivalents due to
Consolidation of an Entity in China 17 --
Cash and Cash Equivalents - Beginning of Period 789 319
------- -------
Cash and Cash Equivalents - End of Period $ 481 $ 341
======= =======

See accompanying notes.


Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions, except per share amounts)
(unaudited)

In addition to the results provided in accordance with U.S. Generally
Accepted Accounting Principles ("GAAP") throughout this document, the
Company has provided non-GAAP measurements which present operating
results in 2008 on a basis before Special Items. Included in Special
Items are the gain on the sale of our minority interest in our Japan
unconsolidated affiliate, U.S. refranchising (gain) loss, charges
relating to U.S. General and Administrative ("G&A") productivity
initiatives and realignment of resources, as well as investments in
our U.S. Brands. These amounts are described in (f) and (g) in the
accompanying notes.


The Company uses earnings before Special Items as a key performance
measure of results of operations for the purpose of evaluating
performance internally. This non-GAAP measurement is not intended to
replace the presentation of our financial results in accordance with
GAAP. Rather, the Company believes that the presentation of earnings
before Special Items provides additional information to investors to
facilitate the comparison of past and present operations, excluding
items in 2008 that the Company does not believe are indicative of our
ongoing operations due to their size and/or nature.



Quarter
-------
3/22/08
-------
Detail of Special Items
-------------------------------------------------------------
Gain of the sale of our interest in our Japan unconsolidated
affiliate $(100)
U.S. Refranchising (gain) loss 26
Charges relating to U.S. G&A productivity initiatives and
realignment of resources 5
Investments in our U.S. Brands 1
-------
Total Special Items Income (68)
Tax on Special Items 25
-------
Special Items Income, net of tax $ (43)
=======
Average diluted shares outstanding 504
=======
Special Items diluted EPS $0.08
=======

Reconciliation of Operating Profit Before Special Items to
Reported Operating Profit
-------------------------------------------------------------
Operating Profit before Special Items $ 356
Special Items Income 68
-------
Reported Operating Profit $ 424
=======

Reconciliation of EPS Before Special Items to Reported EPS
-------------------------------------------------------------
Diluted EPS before Special Items $0.42
Special Items EPS 0.08
-------
Reported EPS $0.50
=======



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 ended March 22, 2008
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 affected 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) China Division Other (income) expense includes equity income from
our investments in unconsolidated affiliates. In the quarter
ended March 22, 2008, Unallocated Other (income) expense includes
the pre-tax gain on the sale of our unconsolidated affiliate in
Japan (see Note f).

(e) On January 1, 2008 we began consolidating an entity in China in
which we have a majority interest. This entity was previously
accounted for as an unconsolidated affiliate. For the quarter
ended March 22, 2008 the consolidation of this entity increased
Company sales by $46 million, Company restaurant expenses by $36
million, G&A expenses by $1 million and Operating Profit by $1
million (net of a minority interest of $2 million) while
decreasing franchise and license fees by $3 million. Our
Condensed Consolidated Balance Sheet at March 22, 2008 reflects
the consolidation of this entity; with Investment in
unconsolidated affiliates reduced, the entity's balance sheet
consolidated and a minority interest reflected in Other
liabilities and deferred credits.

(f) During December 2007, we sold our interest in our unconsolidated
affiliate in Japan for $128 million in cash (includes the impact
of related foreign currency contracts that were settled in 2007).
Our international subsidiary that owned this interest operates on
a fiscal calendar with a period end that is approximately one
month earlier than our consolidated period close. Thus,
consistent with our historical treatment of events occurring
during the lag period, the pre-tax gain on the sale of this
investment was recorded in the quarter ended March 22, 2008 as
other income and was not allocated to any segment for reporting
purposes. However, the cash proceeds from this transaction were
transferred from our international subsidiary to the U.S. in
December 2007 and were thus reported on our Consolidated
Statement of Cash Flows for the year ended December 29, 2007.
Additionally, this transaction has been reflected as a Special
Item for certain performance measures (see accompanying
reconciliation to reported results). Our Investment in
unconsolidated affiliates decreased as a result of the sale of
our unconsolidated affiliate in Japan.

(g) As part of our plan to transform our U.S. business we are taking
several measures in 2008 that we do not believe are indicative of
our ongoing operations. These measures include: expansion of our
U.S. refranchising, potentially reducing our Company ownership in
the U.S. to below 10% by the year end 2010; charges relating to
G&A productivity initiatives and realignment of resources
(primarily severance and early retirement costs); and investments
in our U.S. Brands made on behalf of our franchisees such as
equipment purchases. We have traditionally not allocated
refranchising (gains) losses for segment reporting purposes and
will not allocate the costs associated with the productivity
initiatives, realignment of resources and investments in our U.S.
Brands to the U.S. segment. Additionally, these items have been
reflected as Special Items for certain performance measures (see
accompanying reconciliation to reported results).



SOURCE: Yum! Brands, Inc.

###

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