Yum! Brands Inc. Announces Full Year 2010 EPS Growth of 17% or $2.53 Per Share, Excluding Special Items; Reported 2010 EPS was $2.38

LOUISVILLE, Ky.--(BUSINESS WIRE)--Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth quarter and year ended December 25, 2010.

FULL YEAR HIGHLIGHTS
●	Worldwide system sales grew 4%, prior to foreign currency translation, including 17% in China, 4% in Yum Restaurants International (“YRI”), and 2% in the U.S.
●	Same-store-sales grew 6% in China and 1% in the U.S. Same-store-sales were flat in YRI.
●	International development continued at a strong pace with 1,391 new restaurants including 507 new units in China and 884 new units in YRI.
●	Worldwide restaurant margin increased 1.3 percentage points to 17.0% including improvement in China, YRI, and the U.S.
●	Worldwide operating profit grew 15%, prior to foreign currency translation, including 26% in China, 11% in YRI, and 3% in the U.S.
●	Increased the quarterly dividend by 19% in the third quarter and repurchased 9.8 million shares totaling $390 million at an average price of $40 over the course of the year.

FOURTH QUARTER HIGHLIGHTS
●	Worldwide system sales grew 7%, prior to foreign currency translation, including 19% in China, 6% in YRI, and 5% in the U.S.
●	Same-store-sales grew 8% in China, 1% in YRI, and 5% in the U.S.
●	Worldwide restaurant margin increased 1.0 percentage point including improvement in YRI and the U.S. China restaurant margin was essentially flat.
●	Worldwide operating profit grew 13%, prior to foreign currency translation, including 15% in China, 18% in YRI, and 15% in the U.S.

	Fourth Quarter								Full Year
	2010			2009			% Change		2010			2009		% Change
EPS Excluding Special Items	$	0.63		$	0.50		27	%	$	2.53		$	2.17	17	%
Special Items Gain/(Loss)^1		($0.07	)		($0.05	)	NM			($0.15	)	$	0.05	NM
EPS	$	0.56		$	0.45		26	%	$	2.38		$	2.22	7	%
^1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items in 2010 are primarily losses from U.S. and Mexico refranchising. Special Item gains in Full Year 2009 were driven by Shanghai JV consolidation.
Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

David C. Novak, Chairman and CEO, said, “I’m pleased to report that 2010 was perhaps our best year as a public company. We finished the year with a strong fourth quarter that resulted in 27% EPS growth, excluding special items. We delivered 17% full year EPS growth, making 2010 the ninth consecutive year we exceeded our annual target of at least 10%. I’m particularly pleased that performance was driven by an impressive 15% increase in operating profit, before currency translation, including gains across all of our business divisions.

I am equally pleased that in addition to strong financial performance, we improved our competitive position around the world. The highlight of our year was the fantastic performance from our China business, as we increased operating profit 26%, prior to foreign currency translation. KFC added 414 new restaurants in China and now has over 3,200 units throughout the country. Pizza Hut Casual Dining further demonstrated that it is a growing, profitable, and respected force in the casual dining category. In addition to extending our lead in China, we also built upon our position as the global restaurant leader in other emerging markets. During 2010, over 1,000 of the 1,391 new international units we added were in emerging markets. Yum! now has over 10,000 restaurants in emerging markets throughout the world. Our leadership and growth potential in China and other emerging markets, coupled with the strength of our brands around the world, lead us to believe we’re on the ground floor of even more global growth.

As we enter 2011, we know that we face commodity inflation and a global economy that is still recovering. However, we are fortunate that the sizable unit development we achieved in 2010 provides us with a head start toward achieving our 2011 profit growth. I am very confident that we will build on our track record of double-digit EPS growth.”

CHINA DIVISION
	Fourth Quarter							Full Year
				% Change							% Change
	2010	2009		Reported		Ex F/X		2010	2009		Reported	Ex F/X
System Sales Growth				+21		+19					+18	+17
Same-Store-Sales Growth	+8	(3	)	NM		NM		+6	(1	)	NM	NM
Restaurant Margin (%)	18.2	18.3		(0.1	)	(0.1	)	22.1	21.0		1.1	1.1
Operating Profit ($MM)	173	147		+18		+15		755	596		+27	+26

●	China Division system sales grew 17% for the full year and 19% for the fourth quarter, prior to the benefit of foreign currency translation, driven by significant new unit development and strong same-store-sales growth. Several successful KFC sales-building initiatives, including breakfast, delivery and 24 hour operation produced solid growth in transactions. KFC same-store-sales increased 5% for the year. Pizza Hut Casual Dining continued to revamp its menu every six months and leverage various value initiatives. Same-store-sales increased 14% for the year at Pizza Hut Casual Dining.
○		China opened 507 new restaurants for the full year including a record 262 in the fourth quarter.

China Units	Q4 2010	% Change
Traditional Restaurants	3,906	+13
KFC	3,244	+13
Pizza Hut Casual Dining	520	+14
Pizza Hut Home Service	120	+19

●	Restaurant margin increased 1.1 percentage points for the full year driven primarily by same-store-sales growth from higher transaction counts and commodity deflation. The impact of higher labor costs had a more negative impact on restaurant margin as the year progressed.
●	Full year operating profit benefited $16 million from our brands’ participation in the World Expo in Shanghai. This benefit will not occur in 2011.
●	Foreign currency translation benefited operating profit by $6 million for the full year and $4 million in the fourth quarter.
●	China Division includes solely the results of our operations in mainland China.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
	Fourth Quarter				Full Year
			% Change				% Change
	2010	2009	Reported	Ex F/X	2010	2009	Reported	Ex F/X
Traditional Restaurants	14,281	13,808	+3	NA	14,281	13,808	+3	NA
System Sales Growth			+8	+6			+10	+4
Franchise & License Fees	242	220	+11	+8	741	665	+11	+6
Operating Profit ($MM)	184	151	+22	+18	589	497	+19	+11
Operating Margin (%)	18.6	15.5	3.1	2.6	19.1	16.6	2.5	2.0

●	YRI system sales grew 4% for the full year, prior to the benefit of foreign currency translation, driven primarily by new unit development. Our emerging markets led the way with 9% system sales growth and net unit growth of 6%, while developed markets system sales grew 2% driven by 1% net unit growth.
●	In 2010 we opened 884 new units including 406 in the fourth quarter. The vast majority of these new units were opened by our franchisees.
●	Restaurant margins increased 0.8 percentage points to 11.7% for the full year and 1.9 percentage points to 12.2% in the fourth quarter. The annual increase was primarily driven by our equity business in Thailand and the refranchising of our Taiwan business in the first quarter.
●	Operating profit grew 11% for the full year and 18% for the fourth quarter, prior to foreign currency translation. The annual increase was primarily driven by growth across Asia.
●	In the fourth quarter, consistent with our strategy to shift resources to high growth, high return businesses, we refranchised all of our company-owned restaurants in Mexico including 222 KFCs and 123 Pizza Huts.
●	Foreign currency translation positively impacted operating profit by $36 million for the full year including $5 million in the fourth quarter.

Key YRI Markets	System-Sales Growth Ex F/X (%)
	Fourth Quarter	Full Year
Franchise Only Markets
Asia (ex China)	+4	+4
Continental Europe	+5	+1
Middle East	+9	+9
Latin America	+9	+8
Company/Franchise Markets
Australia	+3	+1
UK	+1	+2
New Growth Markets
France	+16	+15
Russia	+13	+9
India	+39	+39

YRI EMERGING MARKET ANNUAL UNIT GROWTH
●	In 2010 YRI opened 548 restaurants in emerging markets including 331 KFCs and 160 Pizza Huts. YRI has restaurants in 67 emerging market countries including Nigeria, which became a new KFC market in 2010.
●	Taco Bell International opened 15 restaurants in emerging markets in 2010 and by the end of the year had 81 restaurants in 9 emerging market countries.
●	Vietnam is one of our fastest growing emerging markets and ended the year with 102 units, up 19% from 2009. Unit growth included 13 KFCs and 4 Pizza Huts.

	2010 New Builds		Year-end 2010	Net Unit Growth
	KFC	Pizza Hut	Units	%
Africa
South Africa	38	-	614	+5
Egypt	10	3	161	+9
Asia
Indonesia	33	26	805	+9
Malaysia	53	17	778	+9
Thailand	24	-	527	+3
Philippines	27	9	367	+6
India	34	18	278	+21
Hong Kong	-	7	164	+1
Europe
Russia	10	-	163	(6)
Latin America
Mexico	4	3	498	(2)
Top 10 YRI EM	233	83	4,355	+6
Rest of YRI EM	98	77	1,995	+6
Total YRI EM	331	160	6,350	+6
Total YRI Developed	199	131	7,931	+1
Total YRI	530	291	14,281	+3
Note: Top 10 YRI emerging markets by 2010 year-end unit count.
To classify emerging markets, we use the World Bank definition of developing countries.
Taco Bell International had 21 total new builds
Long John Silver’s and A&W had 42 total new builds

U.S. DIVISION
	Fourth Quarter				Full Year
	2010	2009		% Change	2010	2009		% Change
Same-Store-Sales Growth (%)	+5	(8	)	NM	+1	(5	)	NM
Restaurant Margin (%)	14.1	13.5		+0.6	14.2	13.9		+0.3
Operating Profit ($MM)	173	150		+15	668	647		+3
Operating Margin (%)	14.1	11.8		+2.3	16.2	14.5		+1.7

●	Same-store-sales increased 1% for the full year driven by growth of 8% at Pizza Hut and 2% at Taco Bell, and offset by a decline of 4% at KFC. For the fourth quarter, same-store-sales increased 5% driven by growth of 10% at Pizza Hut, 4% at Taco Bell, and 1% at KFC.
●	Restaurant margin increased 0.3 percentage points for the full year and 0.6 percentage points for the fourth quarter, primarily due to refranchising lower margin restaurants.
●	Operating profit increased $21 million for the full year and $23 million for the fourth quarter. Operating profit for the full year benefited from lower closure and impairment expense partially offset by higher legal expenses.

U.S. REFRANCHISING UPDATE

●

In the fourth quarter, 306 company-owned U.S. restaurants were sold to franchisees. For the full year, we refranchised 404 units, including 278 Pizza Huts, 74 Taco Bells, and 52 KFCs. U.S. company ownership is now 14%, a 2 percentage point reduction from 2009, with Pizza Hut 8%, KFC 16% and Taco Bell 24%. U.S. refranchising proceeds in 2010 were $185 million. A net gain of $33 million for the fourth quarter and a net loss of $18 million for the full year were reported in Special Items.

REMINDER - DIVISION REPORTING REALIGNMENT

Beginning in the first quarter of 2010, Thailand and KFC Taiwan, previously part of China Division, are being reported as part of YRI. The China Division includes solely the results of our mainland China business. While our consolidated results are not impacted, our historical segment financial information for YRI and China Division has been restated for 2009 for consistent presentation.

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 Thursday, February 3, 2011. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at noon Eastern Time Thursday, February 3, 2011 through midnight Thursday, February 17, 2011. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 38585515.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q4 2010 Earnings Conference Call” under “Investors: Presentations.” A podcast will be available within 24 hours.

ADDITIONAL INFORMATION ONLINE

Fourth quarter end dates for each division, restaurant-count details, and definitions of terms including Key Markets are available online at www.yum.com under “Investors.”

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food borne-illness or food safety issues; economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world’s largest restaurant company in terms of system restaurants, with more than 37,000 restaurants in over 110 countries and territories. The company is ranked #216 on the Fortune 500 List, with revenues of nearly $11 billion in 2009. 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. Outside the United States in 2010, the Yum! Brands system opened nearly four new restaurants each day of the year, making it a leader in international retail development.

YUM! Brands, Inc. Consolidated Summary of Results (amounts in millions, except per share amounts) (unaudited)
	Quarter						% Change	Year						% Change
	12/25/10			12/26/09			B/(W)	12/25/10			12/26/09			B/(W)
Company sales	$	3,071		$	2,911		5	$	9,783		$	9,413		4
Franchise and license fees and income		491			454		8		1,560			1,423		10
Total revenues		3,562			3,365		6		11,343			10,836		5
Company restaurants
Food and paper		979			922		(6)		3,091			3,003		(3)
Payroll and employee benefits		692			669		(3)		2,172			2,154		(1)
Occupancy and other operating expenses		922			898		(3)		2,857			2,777		(3)
Company restaurant expenses		2,593			2,489		(4)		8,120			7,934		(2)
General and administrative expenses		464			409		(13)		1,277			1,221		(5)
Franchise and license expenses		39			44		11		110			118		7
Closures and impairment (income) expenses		26			72		64		47			103		54
Refranchising (gain) loss		12			(17	)	NM		63			(26	)	NM
Other (income) expense		(12	)		(7	)	52		(43	)		(104	)	(59)
Total costs and expenses, net		3,122			2,990		(4)		9,574			9,246		(4)
Operating Profit		440			375		17		1,769			1,590		11
Interest expense, net		54			56		2		175			194		9
Income before income taxes		386			319		21		1,594			1,396		14
Income tax provision		109			101		(8)		416			313		(33)
Net income – including noncontrolling interest		277			218		27		1,178			1,083		9
Net income – noncontrolling interest		3			2		(39)		20			12		(60)
Net income – YUM! Brands, Inc.	$	274		$	216		27	$	1,158		$	1,071		8
Effective tax rate		28.1	%		31.5	%	3.4 ppts.		26.1	%		22.4	%	(3.7) ppts.
Basic EPS Data
EPS	$	0.58		$	0.46		26	$	2.44		$	2.28		7
Average shares outstanding		474			474		—		474			471		(1)
Diluted EPS Data
EPS	$	0.56		$	0.45		26	$	2.38		$	2.22		7
Average shares outstanding		488			485		—		486			483		(1)
Dividends declared per common share	$	0.50		$	0.42			$	0.92		$	0.80
See accompanying notes.

YUM! Brands, Inc. CHINA DIVISION Operating Results (amounts in millions) (unaudited)
	Quarter						% Change	Year						% Change
	12/25/10			12/26/09			B/(W)	12/25/10			12/26/09			B/(W)
Company sales	$	1,336		$	1,101		21	$	4,081		$	3,352		22
Franchise and license fees and income		16			15		9		54			55		—
Total revenues		1,352			1,116		21		4,135			3,407		21
Company restaurant expenses, net
Food and paper		453			379		(19)		1,362			1,175		(16)
Payroll and employee benefits		215			161		(32)		587			447		(31)
Occupancy and other operating expenses		425			359		(19)		1,231			1,025		(20)
		1,093			899		(21)		3,180			2,647		(20)
General and administrative expenses		80			71		(14)		216			188		(15)
Franchise and license expenses		—			—		NM		1			—		NM
Closures and impairment (income) expenses		11			3		NM		16			9		(65)
Other (income) expense		(5	)		(4	)	8		(33	)		(33	)	—
		1,179			969		(22)		3,380			2,811		(20)
Operating Profit	$	173		$	147		18	$	755		$	596		27
Company sales		100.0	%		100.0	%			100.0	%		100.0	%
Food and paper		33.9			34.5		0.6 ppts.		33.4			35.1		1.7 ppts.
Payroll and employee benefits		16.1			14.7		(1.4) ppts.		14.4			13.3		(1.1) ppts.
Occupancy and other operating expenses		31.8			32.5		0.7 ppts.		30.1			30.6		0.5 ppts.
Restaurant margin		18.2	%		18.3	%	(0.1) ppts.		22.1	%		21.0	%	1.1 ppts.
See accompanying notes.

As discussed in (d) in the accompanying notes, we began consolidating the operating entity that owns the KFC business in Shanghai, China, with 236 units, during the second quarter of 2009. This entity was previously accounted for as an unconsolidated affiliate.

As discussed in (g) in the accompanying notes, beginning in 2010 the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. We have restated the segment information for 2009 to be consistent with 2010.

YUM! Brands, Inc. YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results (amounts in millions) (unaudited)
	Quarter						% Change	Year						% Change
	12/25/10			12/26/09			B/(W)	12/25/10			12/26/09			B/(W)
Company sales	$	745		$	756		(1)	$	2,347		$	2,323		1
Franchise and license fees and income		242			220		11		741			665		11
Total revenues		987			976		1		3,088			2,988		3
Company restaurant expenses, net
Food and paper		237			245		3		753			758		1
Payroll and employee benefits		187			193		2		591			586		(1)
Occupancy and other operating expenses		229			241		5		727			724		—
		653			679		4		2,071			2,068		—
General and administrative expenses		130			119		(8)		378			362		(4)
Franchise and license expenses		12			10		(10)		36			39		9
Closures and impairment (income) expenses		8			17		49		14			22		34
Other (income) expense		—			—		NM		—			—		NM
		803			825		3		2,499			2,491		—
Operating Profit	$	184		$	151		22	$	589		$	497		19
Company sales		100.0	%		100.0	%			100.0	%		100.0	%
Food and paper		31.9			32.4		0.5 ppts.		32.1			32.7		0.6 ppts.
Payroll and employee benefits		25.1			25.4		0.3 ppts.		25.2			25.2		— ppts.
Occupancy and other operating expenses		30.8			31.9		1.1 ppts.		31.0			31.2		0.2 ppts.
Restaurant margin		12.2	%		10.3	%	1.9 ppts.		11.7	%		10.9	%	0.8 ppts.
Operating margin		18.6	%		15.5	%	3.1 ppts.		19.1	%		16.6	%	2.5 ppts.
See accompanying notes.

As discussed in (g) in the accompanying notes, beginning in 2010 the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. We have restated the segment information for 2009 to be consistent with 2010.

YUM! Brands, Inc. UNITED STATES Operating Results (amounts in millions) (unaudited)
	Quarter						% Change	Year						% Change
	12/25/10			12/26/09			B/(W)	12/25/10			12/26/09			B/(W)
Company sales	$	990		$	1,054		(6)	$	3,355		$	3,738		(10)
Franchise and license fees and income		233			219		6		765			735		4
Total revenues		1,223			1,273		(4)		4,120			4,473		(8)
Company restaurant expenses, net
Food and paper		289			298		3		976			1,070		9
Payroll and employee benefits		290			315		8		994			1,121		11
Occupancy and other operating expenses		272			298		9		908			1,028		12
		851			911		7		2,878			3,219		11
General and administrative expenses		169			152		(12)		492			482		(2)
Franchise and license expenses		24			34		28		70			79		11
Closures and impairment (income) expenses		7			26		72		17			46		62
Other (income) expense		(1	)		—		NM		(5	)		—		NM
		1,050			1,123		6		3,452			3,826		10
Operating Profit	$	173		$	150		15	$	668		$	647		3
Company sales		100.0	%		100.0	%			100.0	%		100.0	%
Food and paper		29.1			28.2		(0.9) ppts.		29.1			28.6		(0.5) ppts.
Payroll and employee benefits		29.4			29.9		0.5 ppts.		29.6			30.0		0.4 ppts.
Occupancy and other operating expenses		27.4			28.4		1.0 ppts.		27.1			27.5		0.4 ppts.
Restaurant margin		14.1	%		13.5	%	0.6 ppts.		14.2	%		13.9	%	0.3 ppts.
Operating margin		14.1	%		11.8	%	2.3 ppts.		16.2	%		14.5	%	1.7 ppts.
See accompanying notes.

YUM! Brands, Inc. Consolidated Balance Sheets (amounts in millions)
	(unaudited)
	12/25/10			12/26/09
ASSETS
Current Assets
Cash and cash equivalents	$	1,426		$	353
Accounts and notes receivable, less allowance: $33 in 2010 and $35 in 2009		256			239
Inventories		189			122
Prepaid expenses and other current assets		269			314
Deferred income taxes		61			81
Advertising cooperative assets, restricted		112			99
Total Current Assets		2,313			1,208
Property, plant and equipment, net of accumulated depreciation and amortization of $3,273 in 2010 and $3,348 in 2009		3,830			3,899
Goodwill		659			640
Intangible assets, net		475			462
Investments in unconsolidated affiliates		154			144
Other assets		519			544
Deferred income taxes		366			251
Total Assets	$	8,316		$	7,148
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,602		$	1,413
Income taxes payable		61			82
Short-term borrowings		673			59
Advertising cooperative liabilities		112			99
Total Current Liabilities		2,448			1,653
Long-term debt		2,915			3,207
Other liabilities and deferred credits		1,284			1,174
Total Liabilities		6,647			6,034
Shareholders’ Equity
Common stock, no par value, 750 shares authorized; 469 shares issued in 2010 and 2009		86			253
Retained earnings		1,717			996
Accumulated other comprehensive income (loss)		(227	)		(224	)
Total Shareholders’ Equity – YUM! Brands, Inc.		1,576			1,025
Noncontrolling interest		93			89
Total Shareholders’ Equity		1,669			1,114
Total Liabilities and Shareholders’ Equity	$	8,316		$	7,148
See accompanying notes.

YUM! Brands, Inc. Consolidated Statements of Cash Flows (amounts in millions) (unaudited)
	Year
	12/25/10			12/26/09
Cash Flows – Operating Activities
Net income – including noncontrolling interest	$	1,178		$	1,083
Depreciation and amortization		589			580
Closures and impairment (income) expenses		47			103
Refranchising (gain) loss		63			(26	)
Contributions to defined benefit pension plans		(52	)		(280	)
Gain upon consolidation of a former unconsolidated affiliate in China		—			(68	)
Deferred income taxes		(116	)		72
Equity income from investments in unconsolidated affiliates		(42	)		(36	)
Distributions of income received from unconsolidated affiliates		34			31
Excess tax benefit from share-based compensation		(69	)		(59	)
Share-based compensation expense		47			56
Changes in accounts and notes receivable		(12	)		3
Changes in inventories		(68	)		27
Changes in prepaid expenses and other current assets		67			(7	)
Changes in accounts payable and other current liabilities		61			(62	)
Changes in income taxes payable		104			(95	)
Other, net		137			82
Net Cash Provided by Operating Activities		1,968			1,404
Cash Flows – Investing Activities
Capital spending		(796	)		(797	)
Proceeds from refranchising of restaurants		265			194
Acquisitions and investments		(62	)		(139	)
Sales of property, plant and equipment		33			34
Other, net		(19	)		(19	)
Net Cash Used in Investing Activities		(579	)		(727	)
Cash Flows – Financing Activities
Proceeds from long-term debt		350			499
Repayments of long-term debt		(29	)		(528	)
Revolving credit facilities, three months or less, net		(5	)		(295	)
Short-term borrowings by original maturity
More than three months – proceeds		—			—
More than three months – payments		—			—
Three months or less, net		(3	)		(8	)
Repurchase shares of Common Stock		(371	)		—
Excess tax benefit from share-based compensation		69			59
Employee stock option proceeds		102			113
Dividends paid on Common Stock		(412	)		(362	)
Other, net		(38	)		(20	)
Net Cash Used in Financing Activities		(337	)		(542	)
Effect of Exchange Rate on Cash and Cash Equivalents		21			(15	)
Net Increase in Cash and Cash Equivalents		1,073			120
Change in Cash and Cash Equivalents due to Consolidation of an Entity in China		—			17
Cash and Cash Equivalents - Beginning of Year	$	353		$	216
Cash and Cash Equivalents - End of Year	$	1,426		$	353
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 2010 and 2009 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the depreciation reduction from the KFC restaurants impaired upon our offer to refranchise in 2010, charges relating to U.S. General and Administrative (“G&A”) productivity initiatives and realignment of resources, investments in our U.S. Brands, the losses recognized as a result of refranchising equity markets outside the U.S., a 2009 U.S. Goodwill impairment charge, and the 2009 gain upon our acquisition of additional ownership in, and consolidation of, the operating entity that owns the KFCs in Shanghai, China. These amounts are described in (d), (e) and (f) 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 2010 and 2009 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

	Quarter						Year
	12/25/10			12/26/09			12/25/10			12/26/09
Detail of Special Items
Gain upon consolidation of a former unconsolidated affiliate in China		—			—			—			68
Losses as a result of refranchising equity markets outside the U.S.		(52	)		—			(59	)		(10	)
U.S. Refranchising gain (loss)		33			11			(18	)		34
Depreciation reduction from KFC restaurants impaired upon offer to sell		4			—			9			—
Charges relating to U.S. G&A productivity initiatives and realignment of resources		(4	)		(7	)		(9	)		(16	)
Long John Silver’s/A&W U.S. Goodwill impairment charge		—			(26	)		—			(26	)
Investments in our U.S. Brands		—			—			—			(32	)
Total Special Items Income (Expense)		(19	)		(22	)		(77	)		18
Tax Benefit (Expense) on Special Items		(12	)		(1	)		7			5
Special Items Income (Expense), net of tax	$	(31	)	$	(23	)	$	(70	)	$	23
Average diluted shares outstanding		488			485			486			483
Special Items diluted EPS	$	(0.07	)	$	(0.05	)	$	(0.15	)	$	0.05
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit
Operating Profit before Special Items	$	459		$	397		$	1,846		$	1,572
Special Items Income (Expense)		(19	)		(22	)		(77	)		18
Reported Operating Profit	$	440		$	375		$	1,769		$	1,590
Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS before Special Items	$	0.63		$	0.50		$	2.53		$	2.17
Special Items EPS		(0.07	)		(0.05	)		(0.15	)		0.05
Reported EPS	$	0.56		$	0.45		$	2.38		$	2.22
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate
Effective Tax Rate before Special Items		23.8	%		29.1	%		25.3	%		23.1	%
Impact on Tax Rate as a result of Special Items		4.3	%		2.4	%		0.8	%		(0.7	)%
Reported Effective Tax Rate		28.1	%		31.5	%		26.1	%		22.4	%

YUM! Brands, Inc. Segment Results (amounts in millions) (unaudited)
Quarter Ended 12/25/10	China Division			YRI		United States			Corporate and Unallocated			Consolidated
Total revenues	$	1,352		$	987	$	1,223		$	—		$	3,562
Company restaurant expenses		1,093			653		851			(4	)		2,593
General and administrative expenses		80			130		169			85			464
Franchise and license expenses		—			12		24			3			39
Closures and impairment (income) expenses		11			8		7			—			26
Refranchising (gain) loss		—			—		—			12			12
Other (income) expense		(5	)		—		(1	)		(6	)		(12	)
		1,179			803		1,050			90			3,122
Operating Profit (loss)	$	173		$	184	$	173		$	(90	)	$	440

Quarter Ended 12/26/09	China Division			YRI		United States		Corporate and Unallocated			Consolidated
Total revenues	$	1,116		$	976	$	1,273	$	—		$	3,365
Company restaurant expenses		899			679		911		—			2,489
General and administrative expenses		71			119		152		67			409
Franchise and license expenses		—			10		34		—			44
Closures and impairment (income) expenses		3			17		26		26			72
Refranchising (gain) loss		—			—		—		(17	)		(17	)
Other (income) expense		(4	)		—		—		(3	)		(7	)
		969			825		1,123		73			2,990
Operating Profit (loss)	$	147		$	151	$	150	$	(73	)	$	375

The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

YUM! Brands, Inc. Segment Results (amounts in millions) (unaudited)
Year Ended 12/25/10	China Division			YRI		United States			Corporate and Unallocated			Consolidated
Total revenues	$	4,135		$	3,088	$	4,120		$	—		$	11,343
Company restaurant expenses		3,180			2,071		2,878			(9	)		8,120
General and administrative expenses		216			378		492			191			1,277
Franchise and license expenses		1			36		70			3			110
Closures and impairment (income) expenses		16			14		17			—			47
Refranchising (gain) loss		—			—		—			63			63
Other (income) expense		(33	)		—		(5	)		(5	)		(43	)
		3,380			2,499		3,452			243			9,574
Operating Profit (loss)	$	755		$	589	$	668		$	(243	)	$	1,769

Year Ended 12/26/09	China Division			YRI		United States		Corporate and Unallocated			Consolidated
Total revenues	$	3,407		$	2,988	$	4,473	$	(32	)	$	10,836
Company restaurant expenses		2,647			2,068		3,219		—			7,934
General and administrative expenses		188			362		482		189			1,221
Franchise and license expenses		—			39		79		—			118
Closures and impairment (income) expenses		9			22		46		26			103
Refranchising (gain) loss		—			—		—		(26	)		(26	)
Other (income) expense		(33	)		—		—		(71	)		(104	)
		2,811			2,491		3,826		118			9,246
Operating Profit (loss)	$	596		$	497	$	647	$	(150	)	$	1,590

The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

Notes to the Consolidated Summary of Results, Consolidated Balance Sheets and 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 ended December 25, 2010 are preliminary.
(c)	China Division Other (income) expense includes equity income from our investments in unconsolidated affiliates. In the year ended December 26, 2009, Unallocated Other (income) expense includes the gain upon our acquisition of additional ownership in, and consolidation of, the operating entity that owns the KFCs in Shanghai, China (see Note d).
(d)	On May 4, 2009 we acquired an additional 7% ownership in the entity that operates more than 200 KFCs in Shanghai, China for $12 million, increasing our ownership to 58%. Prior to our acquisition of this additional interest this entity was accounted for as an unconsolidated affiliate under the equity method of accounting due to the effective participation of our partners in the significant decisions of the entity that were made in the ordinary course of business. Concurrent with the acquisition we received additional rights in the governance of the entity, and thus we began consolidating the entity upon acquisition. As required by GAAP, we remeasured our previously held 51% ownership in the entity, which had a recorded value of $17 million at the date of acquisition, at fair value and recognized a gain of $68 million accordingly. The gain which did not result in a related income tax expense, was recorded as unallocated other income during the quarter ended June 13, 2009 and has been reflected as a Special Item for certain performance measures (see accompanying reconciliation to reported results). For the year ended December 25, 2010 the consolidation of the existing restaurants upon acquisition increased Company sales by $98 million and decreased Franchise and license fees and income by $6 million. The consolidation of the existing restaurants upon acquisition increased Operating Profit by $3 million for the year ended December 25, 2010.
(e)	As part of our plan to transform our U.S. business we took several measures (“the U.S. business transformation measures”) in 2010 and 2009 including: expansion of our U.S. refranchising, potentially reducing our Company ownership in the U.S. to below 10%; a reduced emphasis on multi-branding as a long-term growth strategy; 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. As a result of a decline in future profit expectations for our Long John Silver’s (LJS) and A&W businesses due in part to the impact of the reduced emphasis on multi-branding, we recorded a non-cash charge of $26 million, which resulted in no related income tax benefit, in the fourth quarter of 2009 to write-off goodwill associated with these businesses. 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, LJS/A&W goodwill impairment 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). U.S. refranchising loss recorded in the year ended December 25, 2010 is the net result of gains from 404 restaurants sold and non-cash impairment charges related to our offers to refranchise restaurants in the U.S., principally a substantial portion of our Company operated KFCs. We have recorded the depreciation reduction for the quarter and year ended December 25, 2010 resulting from the non-cash impairment charge related to these KFCs as a Special Item, resulting in depreciation expense in the U.S. Segment results continuing to be recorded at the rate at which it was prior to the impairment charge being recorded. Investments in our U.S. Brands recorded in 2009 reflect our reimbursements to KFC franchisees for installation costs of ovens for the national launch of Kentucky Grilled Chicken and have been recorded as a reduction of Franchise and license fees and income.
(f)	During the quarter ended December 25, 2010, we recognized a $52 million loss on the refranchising of our Mexico equity market as we sold all of our company owned restaurants, comprised of 222 KFCs and 123 Pizza Huts, to an existing Latin American franchise partner. The buyer will also serve as the master franchisor for Mexico which had 102 KFC and 53 Pizza Hut franchise restaurants at the time of the transaction. During the quarter ended September 5, 2009 we recognized a $10 million refranchising loss as a result of our decision to offer to refranchise our KFC Taiwan equity market. During the quarter ended March 20, 2010 we refranchised all of our remaining company restaurants in Taiwan, which consisted of 124 KFCs. We included in our March 20, 2010 financial statements a non-cash write off of $7 million of goodwill in determining the loss on refranchising of Taiwan. These losses did not result in a related income tax benefit, were not allocated to any segment for performance reporting purposes and have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results).
(g)	In 2010 we began reporting information for our Thailand and KFC Taiwan businesses within our International Division as a result of changes to our management reporting structure. These businesses now report to the President of our YRI Division whereas previously they reported to the President of our China Division. Beginning in 2010, the China Division only consists of operations in mainland China and the International Division includes the remainder of our international operations. While this reporting change did not impact our Consolidated results, segment information for previous periods has been restated to be consistent with the current period presentation.

The following table summarizes the 2009 quarterly increases to selected line items within the YRI segment as a result of these segment reporting changes (with equal and offsetting decreases impacting the China Division segment):
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Total
Company sales	$	47	$	64	$	68	$	91	$	270
Company restaurant expenses		42		57		62		83		244
Operating Profit		3		—		1		2		6

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