UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

April 23, 2003

Commission file number 1-13163


YUM! BRANDS, INC.
(Exact name of registrant as specified in its charter)

North Carolina   13-3951308

 
(State or other jurisdiction   (IRS Employer
of incorporation or organization)   Identification No.)


1441 Gardiner Lane, Louisville, Kentucky                40213
(Address of principal executive offices)                 (Zip Code)


Registrant’s telephone number, including area code:       (502) 874-8300


Former name or former address, if changed since last report:   N/A






Item 12.   Results of Operations and Financial Condition (provided under “Item 9. Regulation FD Disclosure”).

The information required by Item 12 is being provided under Item 9 pursuant to SEC interim filing guidance provided in SEC press release No. 2003-41.

The information in this Form 8-K is furnished under “Item 12. Results of Operations and Financial Condition” in accordance with SEC Release No. 33-8216. The information in this Form 8-K and the Exhibit attached hereto shall not be deemed filed for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

On April 23, 2003 YUM! Brands, Inc. issued a press release announcing financial results for the quarter ended March 22, 2003. A copy of the press release is attached hereto as Exhibit 99.1.

99.1   Press release dated April 23, 2003 announcing financial results of the quarter ended March 22, 2003.




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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  YUM! BRANDS, INC.
         (Registrant)




Date:    April 23, 2003

  /s/        Brent A. Woodford                      

       Vice President and Controller
       (Principal Accounting Officer)



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YUM! BRANDS, INC. REPORTS FIRST-QUARTER EARNINGS PER SHARE OF $0.39

-   FULL YEAR 2003 EPS GUIDANCE OF AT LEAST $2.00 CONFIRMED
-   FIRST-QUARTER WORLDWIDE REVENUES INCREASED 12%
-   REPORTS PERIOD 4 INTERNATIONAL SYSTEM SALES INCREASED 12% IN TERMS OF U.S. DOLLARS OR 5% PRIOR TO CONVERSION TO U.S. DOLLARS; U.S. SAME-STORE SALES AT COMPANY RESTAURANTS INCREASED 1%


Louisville, Ky. (April 23, 2003) — Yum! Brands, Inc. (NYSE: YUM), today reported results for the first quarter ending March 22, 2003.

Key points are the following:

-   International revenues grew 10%, and international operating profit increased 15%, both in local currency terms. As reported in U.S. dollars, international revenues increased 15%, and international operating profit increased 21%.
-   The total number of traditional international restaurants in operation was 11,658, 8% higher than at the end of the first quarter 2002. The acquisition of Long John Silver’s and A&W Restaurant brands added 2 percentage points to international unit growth.
-   Over 2,000 multibrand restaurants are now operated worldwide, up 30% from one year ago.
-   Franchise fees increased 9%, totaling $205 million in the first quarter.

The company acquired, for $5 million, the Pasta Bravo brand, a full line of quality affordable pastas to enable Pizza Hut multibranding.

Financial Highlights
(million, except unit counts and per-diluted-share amounts)

First Quarter
2003
2002
Incr/(Decr)
System Units(a)   30,468   27,744   +10%  
System Sales  $  5,684   $  5,243   +8%  
Revenues  $  1,802   $  1,614   +12%  
Earnings before Special Items(b)  $     118   $     117   +1%  

EPS before Special Items(b)  $    0.39   $    0.38   $ 0.01  

Special Items EPS(b)  $    0.00   $    0.02   $(0.02 )

                   Reported EPS  $    0.39   $    0.40   $(0.01 )


(a)   Excluding license locations.
(b)   Special items include AmeriServe and other charges (credits), which were previously referred to as unusual items, and cumulative effect of accounting change, net of tax. See attachments to this press release for reconciliations of non-GAAP measurements to GAAP results.

Note: The company acquired the Long John Silver’s and A&W Restaurant brands in May 2002. For the first quarter 2003, this acquisition impacted the growth in system units +8 percentage points; system sales, +4 percentage points; and revenues, +8 percentage points.




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David C. Novak, Chairman and CEO, said, “The strength of our worldwide restaurant brands portfolio, which includes a large and growing international business, allowed us to achieve our targeted first-quarter earnings results. We are pleased we were able to meet our commitment within what is obviously a challenging operating environment.

“Our international business grew system sales 8% and profits 15% on a local currency basis. This helped us to offset performance from our U.S. portfolio, which experienced a 2% decline in system same-store sales and profits.

“Importantly, we remain focused on executing our three unique strategies that make us anything but an ordinary restaurant company.


Following is an update on Yum! Brands’ international and U.S. businesses as well as key business growth drivers, which include global expansion, multibranding expansion, portfolio of leading brands, franchise fees and cash generation with high returns:

INTERNATIONAL BUSINESS

First Quarter
Incr/(Decr)
(million, except unit counts and percentages) 2003
2002
Reported
Excl F/x(a)
System Units(b)   11,658   10,759   +8%   NM  
System Sales  $  2,078   $  1,816   +14%  +8% 
Restaurant Margin %  15.7   15.4   +0.3 ppts  +0.5 ppts 
Operating Profit  $       95   $       79   +21%  +15% 

(a)   Prior to foreign currency conversion to U.S. dollars.
(b)   Excluding license locations. The Long John Silver’s/A&W acquisition in May 2002 added +2 percentage points of growth.




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In the first quarter for Yum! Brands’ international business, continued expansion of our key international brands - KFC and Pizza Hut - was the primary driver of system sales and operating profit growth. Company restaurant margins also improved slightly in the first quarter. Lower food and paper costs related to supply chain initiatives positively impacted margin. The favorable impact of foreign currency conversion added $5 million to operating profit for the first quarter.

UNITED STATES BUSINESS

First Quarter
(million, except unit counts and percentages) 2003
2002
Incr/(Decr)
System Units(a)   18,810   16,985   +11%  
Multibrand Units(a)  1,869   1,433   +30%  
System Sales  $   3,606   $  3,427   +5%  
Systemwide Same-Store Sales Growth %  (2)   6   NM  
Company Same-Store Sales Growth %  (3)   5   NM  
Restaurant Margin %  13.4   15.7   (2.3) ppts  
Operating Profit  $      163   $     166   (2)%  
  (a)   Excluding license locations.

The acquisition of Long John Silver’s and A&W contributed significantly to growth in U.S. system units and system sales for the first quarter. The acquisition of these two brands occurred during the second quarter of 2002. Excluding this impact, system units were down slightly versus last year, and system sales declined 2% for the first quarter.

In the first quarter, U.S. systemwide blended same-store sales decreased approximately 2%. Estimated U.S. blended same-store sales for franchise restaurants declined approximately 2%, slightly better than company results, which declined 3%.

In the first quarter, U.S. restaurant margin was negatively impacted by sales deleverage, unprofitable discounting, wage inflation and inclusion of the acquisition of Long John Silver’s and A&W. The acquisition of Long John Silver’s and A&W negatively impacted margin by 0.3 percentage points.

WORLDWIDE NEW-RESTAURANT DEVELOPMENT

New-Restaurant Openings(a) First Quarter
Worldwide   298  
International  211  
United States  87  

(a)   Excluding licensed locations.

Worldwide new-restaurant openings for the first quarter 2003 were driven by growth in new international restaurants from our global brands: KFC and Pizza Hut. Key growth drivers were the four high-growth, high-investment international markets - China, Korea, the U.K., and Mexico with 90 new openings. Franchise and joint-venture partners opened 62% of systemwide new international restaurants. Versus the end of the first quarter 2002, net traditional restaurant count increased 44% in China, 17% in Korea, 9% in the U.K., and 8% in Mexico.




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One point not reflected, which primarily affects U.S. net restaurant-growth statistics, is the impact of multibranding on our U.S. restaurant system. Multibrand conversions, while increasing the sales and points of distribution of the second brand added to a restaurant, result in no additional unit counts. Though no additional unit counts are realized, these conversions, on average, drive significant increases in same-store sales and result in upgraded, new-image restaurants for the U.S. business. Similarly, a newly opened multibrand restaurant, while increasing sales and points of distribution of two brands, results in just one additional unit count.

This discussion excludes changes in licensed-unit locations, which are expected to have no material impact on the company’s overall profit performance in 2003. License locations are typically nontraditional sites, such as airports, that normally have substantially lower average unit volumes than traditional restaurant locations.

MULTIBRANDING EXPANSION

First Quarter
2003
2002
Incr/(Decr)
U.S. Systemwide Multibrand Restaurants in Operation   1,869   1,433   +30%  
     % U.S. System Units(a)  10%   8%   +2 ppts 
Worldwide Multibrand Restaurants in Operation  2,037   1,566   +30% 
     % Worldwide System Units(a)  7%   6%   +1 ppts 

(a)   Excluding licensed locations.

In the first quarter, 72 gross multibrand restaurants were added in the U.S., and two internationally. In the U.S., company and franchise additions were 40 and 32 respectively. For information purposes, approximately 50% of the U.S. multibrand additions are expected to be conversions of existing single-brand restaurants, and 50% are expected to be new-restaurant openings for full year 2003.

FRANCHISE PARTNER GROWTH AND FEES

First Quarter
Franchise Restaurant Net Growth Vs. Q1 2002(a)   +8%  
Franchise Fees ($ million)(b)  $205 
     Growth Vs. 2002  +9% 

(a)   Includes joint ventures; excludes licensed restaurants.
(b)   Includes joint ventures, licensed restaurants, and the Long John Silver’s and A&W brand acquisitions.

For the first quarter, the acquisition of Long John Silver’s and A&W contributed 6 percentage points of franchise restaurant net growth and 3 percentage points of growth in franchise fees. Base-business growth in franchise fees was driven by net new-restaurant development. The favorable impact from foreign currency conversion added 2 percentage points of franchise-fee growth in the first quarter.




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CASH-FLOW GENERATION

($ million) First Quarter
Total Cash Generated(a)   $152  
Net Cash Provided by Operating Activities  $129  
Capital Spending and Franchise Acquisitions  $112  
Debt Net Proceeds/(Payments)  $  72  
Repurchase Shares of Common Stock(b)  $  48  
Proceeds from Refranchising Restaurants  $    2  

(a)   See attachments to this press release for reconciliations of non-GAAP measurements to GAAP results.
(b)   Number of shares repurchased: 1,997,700.

Total cash generated of $152 million for the first quarter included $11 million of sales of property, plant and equipment, $10 million of proceeds from employee stock-option exercises and $2 million of refranchising proceeds.

SECOND-QUARTER 2003 OUTLOOK

The company is comfortable with the current consensus estimate of $0.46 in reported EPS. This is an increase of $0.03 compared to last year’s performance, prior to a gain of $0.02 from special items in 2002.

Projected factors contributing to the company’s EPS expectations are . . .

-   International system-sales growth of 5% to 6% prior to foreign currency conversion, or 11% to 12% after conversion to U.S. dollars. Year-over-year net growth in international traditional restaurants of +5% to +6% will be the primary driver.

-   Based on current foreign currency rates, the company expects a benefit of $4 to $5 million from foreign currency conversion on operating profit for the second quarter. The Australian dollar, British pound sterling, Canadian dollar, Chinese renminbi, Japanese yen, Korean won, and Mexican peso are important currencies in the company’s international business.

-   U.S. blended same-store sales for company restaurants, up approximately 2%.

-   Worldwide company restaurant margin is expected to be down approximately 0.7 percentage points from second quarter last year, including the impact of the Long John Silver’s and A&W acquisition. Long John Silver’s and A&W will negatively impact margin approximately 0.2 percentage points.

-   General and administrative expenses flat in U.S. dollar terms versus last year, down 5% versus last year excluding the Long John Silver’s and A&W acquisition.

-   Interest expense up $8 to $9 million versus last year, or down slightly versus last year, excluding the Long John Silver’s and A&W acquisition impact.

-   A slight loss from refranchising activity versus a slight gain last year.

-   Assumes no net special items.

-   An operating profit tax rate targeted at 31% to 32%, slightly better than last year.




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ANNUAL OUTLOOK

The company expects earnings per share to grow at least 10% each year with the continued execution of its three key strategies: (1) drive international growth; (2) multibrand great brands; and (3) differentiate our core-brand portfolio. For 2003, Yum! Brands expects to earn at least $2.00 on a reported EPS basis. This is at least 10% growth versus last year’s $1.82, prior to special items. Net special items are currently not expected to be material for the full year 2003.

For 2003, the company expects worldwide revenue growth of 7% to 8% (including 2 percentage points from the favorable impact of the Long John Silver’s and A&W acquisition).

In several markets around the world, including Hong Kong, Singapore, Taiwan, Thailand and certain sections of China, an illness, SARS (Severe Acute Respiratory Syndrome), has impacted overall retail sales trends and the company’s sales trends. Based on information currently available, the company believes that the likely effect of SARS outbreaks in these markets is reflected in the company’s current annual outlook noted above. The company currently does not expect that the SARS outbreak will affect the entire country of China. Hypothetically, if SARS were to impact the entire country of China for approximately two to three months with sales declines in the range of 20%, full-year EPS results for the company would be impacted by approximately three to four cents. Based on current trends in the total Yum! portfolio, contingencies currently available would allow the company to offset this hypothetical shortfall and maintain the $2.00 per share earnings estimate for 2003. As always, the company will continue to update shareholders each four-week period on current sales trends worldwide.

COMPANY ADOPTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 143

Effective December 29, 2002, the company adopted SFAS 143, “Accounting for Asset Retirement Obligations” and recorded a cumulative effect adjustment of $2 million, or $1 million after tax, in the first quarter. This cumulative effect adjustment did not materially affect our reported EPS.

PERIOD 4 SALES

Period 4 estimated international system sales increased 5% prior to foreign currency conversion or 12% after conversion to U.S. dollars. Estimated U.S. blended same-store sales at company restaurants increased 1% during the four-week period ended April 19, 2003 (Period 4).

INTERNATIONAL SYSTEM SALES GROWTH (ESTIMATED)

Reported (U.S.$)
Local Currency Basis
Prior-Year
Local Currency Basis
Period 4   +12%   +5%   +17%  

The timing of the Chinese New Year in 2003 negatively impacted international Period 4 sales results by approximately 1 percentage point versus 2002.




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U.S. Company Same-Store Sales Growth (Estimated)

Period 4 2003 Period 4 2002
Current Year
Excluding Impact of
Holiday Shift
Prior Year
U.S. BLENDED   +1%   +1%   +2%  
Taco Bell  +1%  Even  +9% 
Pizza Hut  (3)  (4)  (3) 
KFC  +6%  +6%  +1% 

The timing of the Easter holiday in 2003 benefited Taco Bell and Pizza Hut Period 4 results by approximately 1 percentage point versus 2002.

NOTES

Sales results for Period 5 (the four-week period ending May 17, 2003), are scheduled to be released May 22, 2003.

U.S. same-store sales include only company restaurants that have been open one year or more. U.S. blended same-store sales include KFC, Pizza Hut, and Taco Bell company-owned restaurants only. U.S. same-store sales for Long John Silver’s and A&W are not included. U.S. franchise and system same-store sales results are reported quarterly within the company’s earnings release.

International system sales include the total of sales from over 11,000 company, franchise, license, and joint-venture restaurants in over 100 countries and territories outside the United States. The international business period close is one period, or one month, prior to the company’s period-end date to facilitate consolidated reporting.




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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. Factors that can cause actual results to differ materially include changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences, spending patterns and demographic trends; the effectiveness of our operating initiatives and advertising and promotional efforts; new-product and concept development by Yum! Brands and other food-industry competitors; the success of our refranchising strategy; the ongoing business viability of our franchise and license operators; our ability to secure alternative distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; the impact that Severe Acute Respiratory Syndrome (SARS) may have on our business and the economy of the countries in which we operate; our actuarially determined casualty loss estimates; changes in legislation and governmental regulation; 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 units with nearly 33,000 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. Since 1919, A&W All-American Food has been serving a signature frosty mug root beer float and all-American pure-beef hamburgers and hot dogs, making it the longest running quick-service franchise chain in America. 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 2,000 multibrand restaurants, generating nearly $2 billion in annual system sales. Outside the United States in 2002, 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. In 2002, the company changed its name to Yum! Brands, Inc., from Tricon Global Restaurants, Inc., to reflect its expanding portfolio of brands and its ticker symbol on the New York Stock Exchange.

Yum! Brands, Inc. will hold a conference call to review the company’s financial performance and strategies at 9:15 a.m. EDT Thursday, April 24, 2003.

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 Thursday, April 24, at 12:15 p.m. EDT through Friday, May 9, at midnight EDT. To access the playback, dial 800/642-1687 in the U.S.A. and 706/645-9291 internationally. The playback pass code is 9727691.

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 Web Cast.” (Windows Media Player is required, which can be downloaded at no charge from the following link: http://www.microsoft.com/windows/windowsmedia/players.asp. The process could take several minutes.)

Analysts are invited to contact

Tim Jerzyk, Vice President Investor Relations, at 502/874-2543

Individual shareholders are invited to contact

Lynn Schweinfurth, 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



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YUM! Brands, Inc.
Condensed Consolidated Statements of Income
(amounts in millions, except per share amounts)
(unaudited)

Quarter Ended
% Change
3/22/03
3/23/02
B/(W)
Revenues        
Company sales  $ 1,597   $ 1,426   12  
Franchise and license fees  205   188   9  


 
Revenues  1,802   1,614   12  


 
Costs and expenses, net 
Company restaurants 
   Food and paper  492   439   (12 )
   Payroll and employee benefits  450   395   (14 )
   Occupancy and other operating expenses  430   369   (16 )


 
   1,372   1,203   (14 )
General and administrative expenses  203   182   (12 )
Franchise and license expenses  7   10   45  
Other (income) expense  (4 ) 7   NM  
Refranchising net loss (gain)  7   (3 ) NM  
AmeriServe and other charges (credits)  -   (11 ) NM  


 
Total costs and expenses, net  1,585   1,388   (14 )


 
Operating profit  217   226   (4 )
Interest expense, net  42   34   (25 )


 
Income before income taxes and cumulative effect of accounting change  175   192   (9 )
Income tax provision  57   68   16  


 
Income before cumulative effect of accounting change  118   124   (5 )
Cumulative effect of accounting change, net of tax  (1 ) -   NM  


 
Net income  $    117   $    124   (6 )


 
Basic EPS Data 
  EPS  $   0.40   $   0.42   (6 )


 
  Average shares outstanding  293   294   -  


 
Diluted EPS Data 
  EPS  $   0.39   $   0.40   (4 )


 
  Average shares outstanding  303   310   2  


 

See accompanying notes.

AmeriServe and other charges (credits) and Cumulative effect of accounting change, net of tax have been summed and referred to as “Special Items” throughout this press release. See accompanying reconciliations of non-GAAP measurements to GAAP results.




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YUM! Brands, Inc.
WORLDWIDE Operating Results
(amounts in millions)
(unaudited)

Quarter Ended
% Change
3/22/03
3/23/02
B/(W)
System sales   $ 5,684   $ 5,243   8  


 
Company sales  $ 1,597   $ 1,426   12  
Franchise and license fees  205   188   9  


 
   Revenues  1,802   1,614   12  


 
Company restaurants 
   Food and paper  492   439   (12 )
   Payroll and employee benefits  450   395   (14 )
   Occupancy and other operating expenses  430   369   (16 )


 
   1,372   1,203   (14 )
General and administrative expenses  203   182   (12 )
Franchise and license expenses  7   10   45  
Other (income) expense  (4 ) 7   NM  
Refranchising net loss (gain)  7   (3 ) NM  


 
   1,585   1,399   (13 )


 
Operating profit before special items  217   215   1  
Interest expense, net  42   34   (25 )
Income tax provisions  57   64   10  


 
Earnings before special items  $    118   $    117   1  


 
Tax rate before special items and cumulative effect of accounting change  32.6 % 35.3 % 2.7  ppts.


 
Company sales  100.0 % 100.0 %
Food and paper  30.8   30.8   -  
Payroll and employee benefits  28.2   27.7   (0.5)  ppts.
Occupancy and other operating expenses  26.9   25.9   (1.0)  ppts.


 
Restaurant margin  14.1 % 15.6 % (1.5)  ppts.


 
Reconciliation of Segment Operating Profit to Reported Operating Profit 

U.S. operating profit  $    163   $    166   (2 )
International operating profit  95   79   21  
Unallocated and corporate expenses  (35 ) (33 ) (6 )
Unallocated other income (expense)  1   -   NM  
Refranchising net gain (loss)  (7 ) 3   NM  


 
Operating profit before special items  217   215   1  
AmeriServe and other (charges) credits  -   11   NM  


 
Reported operating profit  $    217   $    226   (4 )


 

See accompanying notes and reconciliations of non-GAAP measurements to GAAP results.




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

Quarter Ended
% Change
3/22/03
3/23/02
B/(W)
System sales   $ 3,606   $ 3,427   5  


 
Company sales  $ 1,126   $ 1,010   12  
Franchise and license fees  126   124   2  


 
   Revenues  1,252   1,134   10  


 
Company restaurants 
   Food and paper  323   286   (13 )
   Payroll and employee benefits  359   314   (14 )
   Occupancy and other operating expenses  293   251   (17 )


 
   975   851   (15 )
General and administrative expenses  109   99   (10 )
Franchise and license expenses  4   9   58  
Other (income) expense  1   9   NM  


 
   1,089   968   (13 )


 
Operating profit  $   163   $    166   (2 )


 
Company sales  100.0 % 100.0 %
Food and paper  28.7   28.4   (0.3)  ppts.
Payroll and employee benefits  31.9   31.1   (0.8)  ppts.
Occupancy and other operating expenses  26.0   24.8   (1.2)  ppts.


 
Restaurant margin  13.4 % 15.7 % (2.3)  ppts.


 

See accompanying notes.




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

Quarter Ended
% Change
3/22/03
3/23/02
B/(W)
System sales   $ 2,078   $ 1,816   14  


 
Company sales  $    471   $    416   13  
Franchise and license fees  79   64   24  


 
   Revenues  550   480   15  


 
Company restaurants 
   Food and paper  169   153   (10 )
   Payroll and employee benefits  91   81   (13 )
   Occupancy and other operating expenses  137   118   (15 )


 
   397   352   (13 )
General and administrative expenses  59   50   (17 )
Franchise and license expenses  3   1   (98 )
Other (income) expense  (4 ) (2 ) NM  


 
   455   401   (13 )


 
Operating profit  $      95   $      79   21  


 
Company sales  100.0 % 100.0 %
Food and paper  35.8   36.7   0.9  ppts.
Payroll and employee benefits  19.4   19.4   -  
Occupancy and other operating expenses  29.1   28.5   (0.6)  ppts.


 
Restaurant margin  15.7 % 15.4 % 0.3  ppts.


 

See accompanying notes.




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

3/22/03
12/28/02
(unaudited)
ASSETS      
Current Assets 
Cash and cash equivalents  $    175   $    130  
Short-term investments, at cost  39   27  
Accounts and notes receivable, less allowance: $33 in 2003 and $42 in 2002  175   168  
Inventories  70   63  
Assets classified as held for sale  100   111  
Prepaid expenses and other current assets  128   110  
Deferred income taxes  121   121  


         Total Current Assets  808   730  
       
Property, plant and equipment, net  3,065   3,037  
Goodwill, net  485   485  
Intangible assets, net  364   364  
Investments in unconsolidated affiliates  233   229  
Other assets  583   555  


         Total Assets  $ 5,538   $ 5,400  


LIABILITIES AND SHAREHOLDERS’ EQUITY 
Current Liabilities 
Accounts payable and other current liabilities  $ 1,110   $ 1,166  
Income taxes payable  211   208  
Short-term borrowings  123   146  


         Total Current Liabilities  1,444   1,520  
Long-term debt  2,391   2,299  
Other liabilities and deferred credits  1,013   987  


         Total Liabilities  4,848   4,806  


Shareholders’ Equity 
Preferred stock, no par value, 250 shares authorized; no shares issued  -   -  
Common stock, no par value, 750 shares authorized; 293 shares and 294 shares  
    issued in 2003 and 2002, respectively  1,019   1,046  
Accumulated deficit  (86 ) (203 )
Accumulated other comprehensive income (loss)  (243 ) (249 )


         Total Shareholders’ Equity  690   594  


                    Total Liabilities and Shareholders’ Equity  $ 5,538   $ 5,400  



See accompanying notes.




16



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

Quarter Ended
3/22/03
3/23/02
Cash Flows - Operating Activities      
Net income  $ 117   $ 124  
Adjustments to reconcile net income to net cash provided by operating activities: 
    Cumulative effect of accounting change, net of taxes  1   -  
    Depreciation and amortization  87   78  
    Refranchising net loss (gain)  7   (3 )
    Other liabilities and deferred credits  7   4  
    Deferred income taxes  (13 ) (2 )
    Other non-cash charges and credits, net  19   16  
Changes in operating working capital, excluding effects of acquisitions and 
   dispositions: 
    Accounts and notes receivable  12   5  
    Inventories  (7 ) (4 )
    Prepaid expenses and other current assets  (25 ) 9  
    Accounts payable and other current liabilities  (80 ) (72 )
    Income taxes payable  4   32  


    Net change in operating working capital  (96 ) (30 )


Net Cash Provided by Operating Activities  129   187  


Cash Flows - Investing Activities 
Capital spending  (112 ) (113 )
Proceeds from refranchising of restaurants  2   19  
Acquisition of restaurants  -   (1 )
Short-term investments  (11 ) (7 )
Sales of property, plant and equipment  11   11  
Other, net  (9 ) 2  


Net Cash Used In Investing Activities  (119 ) (89 )


Cash Flows - Financing Activities 
Revolving Credit Facility activity 
  Three months or less, net  97   (94 )
Repayments of long-term debt  (2 ) (22 )
Short-term borrowings-three months or less, net  (23 ) 7  
Repurchase shares of common stock  (48 ) (8 )
Employee stock option proceeds  10   46  
Other, net  -   (2 )


Net Cash (Used In) Provided by Financing Activities  34   (73 )


Effect of Exchange Rates on Cash and Cash Equivalents  1   1  


Net Increase in Cash and Cash Equivalents  45   26  
Cash and Cash Equivalents - Beginning of Period  130   110  


Cash and Cash Equivalents - End of Period  $ 175   $ 136  



See accompanying notes.




17



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 on a basis before special items. Special items include the GAAP income statement captions of AmeriServe and other charges (credits) and, in 2003, the Cumulative effect of accounting change, net of tax. Net amounts recorded as AmeriServe and other charges (credits) for the twelve weeks ended March 22, 2003 were not material. The amount reflected as Cumulative effect of accounting change is described in (d) in the accompanying notes. Amounts recorded as AmeriServe and other charges (credits) for the twelve weeks ended March 23, 2002, which were previously referred to as unusual items, primarily resulted from recoveries related to the AmeriServe bankruptcy reorganization process.

The Company uses earnings before special items as a key performance measure of results of operations for purposes 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 facilitate the comparison of past and present operations, excluding items that the Company does not believe are indicative of our ongoing operations

Quarter Ended
3/22/03
3/23/02
Detail of Special Items      

AmeriServe and other (charges) credits  $   -   $  11  
Cumulative effect of accounting change  (2 ) -  


Total special items  (2 ) 11  
Tax on special items  1   (4 )


Special items, net of tax  $  (1 ) $    7  


Average shares outstanding  303   310  


Special items EPS  $   -   $.02  


Reconciliation of Earnings Before Special Items to Net Income 

Earnings before special items  $ 118   $117  
Special items, net of tax  (1 ) 7  


Net income  $ 117   $124  


Reconciliation of EPS Before Special Items to Reported EPS 

EPS before special items  $ 0.39   $0.38  
Special items EPS  -   0.02  


Reported EPS  $ 0.39   $0.40  






18



Reconciliation of Non-GAAP Measurements to GAAP Results
(amounts in millions)
(unaudited)

The Company has also provided a non-GAAP measurement - total cash generated - which is intended to measure cash flow inclusive of certain items not contained in the GAAP measurement of net cash provided by operating activities. This non-GAAP measurement is not intended to replace presentations of cash flows in accordance with GAAP. Rather, we use total cash generated to measure Company cash flow internally, and the presentation of total cash generated provides additional information as to cash available to the Company to fund such items as capital spending, repurchases of shares of common stock and debt repayments.

Reconciliation of Net Cash Provided by Operating Activities to Total Cash Generated
Quarter Ended
3/22/03
Net cash provided by operating activities   $   129  
Proceeds from refranchising of restaurants  2  
Sales of property, plant and equipment  11  
Employee stock option proceeds  10  

Total cash generated  $   152  




19



Notes to The Condensed Consolidated Statements of Income,
Operating Results, Cash Flow and Condensed Consolidated Balance Sheets
(amounts in millions, except per share amounts)

(a)   Percentages may not recompute due to rounding.

(b)   Other (income) expense included the following:

Quarter Ended
3/22/03
3/23/02
               Store closure costs   $ -   $ 8  
               Store impairment charges  2   4  
               Equity income from investments in unconsolidated affiliates  (5 ) (5 )
               Foreign exchange net loss (gain)  (1 ) -  


               Other (income) expense  $ (4 ) $ 7  



(c)   Refranchising net loss (gain) in 2003 includes a write-down of approximately $10 million ($6 million after tax) associated with our Puerto Rico business which is held for sale.


(d)   Effective December 29, 2002, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143"). SFAS 143 addresses the financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. As a result of obligations under certain leases that are within the scope of SFAS 143 the Company has recorded a cumulative effect adjustment of $2 million ($1 million after tax). The adoption of SFAS 143 did not materially affect the results of our operations for the twelve weeks ended March 22, 2003, nor did we anticipate that it will materially affect the results of operations in future periods.

(e)   Per share and share amounts have been adjusted to reflect the two-for-one stock split distributed on June 17, 2002.




20



YUM! Brands, Inc.
Restaurant Units Activity Summary
For the 12 Weeks Ended March 22, 2003
(unaudited)

Company
Unconsolidated Affiliates(a)
Franchisees
Total
Excluding
Licensees
Licensees
Total Units
Total U.S.              
Beginning of Year  5,193   4   13,663   18,860   2,266   21,126  
  New Builds  29   -   58   87   52   139  
  Acquisitions  -   -   (3 ) (3 ) 3   -  
  Refranchising & Licensing  (1 ) -   1   -   -   -  
  Closures & Divestitures  (42 ) -   (92 ) (134 ) (59 ) (193 )
   Other  -   -   -   -   -   -  






End of Quarter  5,179   4   13,627   18,810   2,262   21,072  






% of Total  24 % -   65 % 89 % 11 % 100 %
               
Total International              
Beginning of Year  2,333   2,144   7,061   11,538   260   11,798  
  New Builds  80   26   105   211   1   212  
  Acquisitions  2   -   (2 ) -   -   -  
  Refranchising & Licensing  (4 ) -   4   -   -   -  
  Closures & Divestitures  (17 ) (12 ) (59 ) (88 ) (7 ) (95 )
   Other  -   (1 ) (2 ) (3 ) -   (3 )






End of Quarter  2,394   2,157   7,107   11,658   254   11,912  






% of Total  20 % 18 % 60 % 98 % 2 % 100 %
               
Total System 
Beginning of Year  7,526   2,148   20,724   30,398   2,526   32,924  
  New Builds  109   26   163   298   53   351  
  Acquisitions  2   -   (5 ) (3 ) 3   -  
  Refranchising & Licensing  (5 ) -   5   -   -   -  
  Closures & Divestitures  (59 ) (12 ) (151 ) (222 ) (66 ) (288 )
   Other  -   (1 ) (2 ) (3 ) -   (3 )






End of Quarter  7,573   2,161   20,734   30,468   2,516   32,984  






% of Total  22 % 7 % 63 % 92 % 8 % 100 %

(a)   Total U.S. and Total System include 4 Yan Can units.




21



YUM! Brands, Inc.
Restaurant Units Activity Summary
For the 12 Weeks Ended March 22, 2003
(unaudited)


  United States

Company
Franchisees
Total
Excluding
Licensees
Licensees
Total Units
Pizza Hut U.S.            
Beginning of Year  1,760   4,743   6,503   1,096   7,599  
  New Builds  10   28   38   35   73  
  Acquisitions  -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -  
  Closures & Divestitures  (11 ) (46 ) (57 ) (35 ) (92 )
   Other  -   -   -   -   -  





End of Quarter  1,759   4,725   6,484   1,096   7,580  





% of Total  24 % 62 % 86 % 14 % 100 %
             
Taco Bell U.S. 
Beginning of Year  1,284   3,759   5,043   1,122   6,165  
  New Builds  1   5   6   9   15  
  Acquisitions  -   (3 ) (3 ) 3   -  
  Refranchising & Licensing  -   -   -   -   -  
  Closures & Divestitures  (2 ) (15 ) (17 ) (24 ) (41 )
   Other  -   -   -   -   -  





End of Quarter  1,283   3,746   5,029   1,110   6,139  





% of Total  21 % 61 % 82 % 18 % 100 %
             
KFC U.S. 
Beginning of Year  1,284   4,140   5,424   48   5,472  
  New Builds  18   18   36   8   44  
  Acquisitions  -   -   -   -   -  
  Refranchising & Licensing  (1 ) 1   -   -   -  
  Closures & Divestitures  (15 ) (15 ) (30 ) -   (30 )
   Other  -   -   -   -   -  





End of Quarter  1,286   4,144   5,430   56   5,486  





% of Total  23 % 76 % 99 % 1 % 100 %
             
Long John Silver’s U.S. 
Beginning of Year  741   480   1,221   -   1,221  
  New Builds  -   5   5   -   5  
  Acquisitions  -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -  
  Closures & Divestitures  -   (4 ) (4 ) -   (4 )
   Other  4   -   4   -   4  





End of Quarter  745   481   1,226   -   1,226  





% of Total  61 % 39 % 100 % -   100 %
             
A&W U.S. 
Beginning of Year  124   541   665   -   665  
  New Builds  -   2   2   -   2  
  Acquisitions  -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -  
  Closures & Divestitures  (14 ) (12 ) (26 ) -   (26 )
   Other  (4 ) -   (4 ) -   (4 )





End of Quarter  106   531   637   -   637  





% of Total  17 % 83 % 100 % -   100 %




22




YUM! Brands, Inc.
Restaurant Units Activity Summary
For the 12 Weeks Ended March 22, 2003
(unaudited)



International

Company
Unconsolidated
Affiliates
Franchisees
Total
Excluding
Licensees
Licensees
Total Units
Pizza Hut International              
Beginning of Year  779   941   2,557   4,277   154   4,431  
  New Builds  18   5   33   56   -   56  
  Acquisitions  2   -   (2 ) -   -   -  
  Refranchising & Licensing  (2 ) -   2   -   -   -  
  Closures & Divestitures  (12 ) (4 ) (28 ) (44 ) (3 ) (47 )
   Other  -   -   -   -   -   -  






End of Quarter  785   942   2,562   4,289   151   4,440  






% of Total  18 % 21 % 58 % 97 % 3 % 100 %
               
Taco Bell International 
Beginning of Year  38   28   138   204   63   267  
  New Builds  -   -   2   2   -   2  
  Acquisitions  -   -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -   -  
  Closures & Divestitures  -   (1 ) -   (1 ) (2 ) (3 )
   Other  -   -   4   4   -   4  






End of Quarter  38   27   144   209   61   270  






% of Total  14 % 10 % 53 % 77 % 23 % 100 %
               
KFC International 
Beginning of Year  1,516   1,175   4,156   6,847   43   6,890  
  New Builds  62   21   61   144   -   144  
  Acquisitions  -   -   -   -   -   -  
  Refranchising & Licensing  (2 ) -   2   -   -   -  
  Closures & Divestitures  (5 ) (7 ) (23 ) (35 ) (2 ) (37 )
   Other  -   (1 ) (6 ) (7 ) -   (7 )






End of Quarter  1,571   1,188   4,190   6,949   41   6,990  






% of Total  22 % 17 % 60 % 99 % 1 % 100 %
               
Long John Silver’s 
   International 
Beginning of Year  -   -   28   28   -   28  
  New Builds  -   -   1   1   1   2  
  Acquisitions  -   -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -   -  
  Closures & Divestitures  -   -   -   -   -   -  
   Other  -   -   -   -   -   -  






End of Quarter  -   -   29   29   1   30  






% of Total  -   -   97 % 97 % 3 % 100 %
               
A&W International 
Beginning of Year  -   -   182   182   -   182  
  New Builds  -   -   8   8   -   8  
  Acquisitions  -   -   -   -   -   -  
  Refranchising & Licensing  -   -   -   -   -   -  
  Closures & Divestitures  -   -   (8 ) (8 ) -   (8 )
   Other  -   -   -   -   -   -  






End of Quarter  -   -   182   182   -   182  






% of Total  -   -   100 % 100 % -   100 %



23




YUM! Brands, Inc.
Systemwide Multibrand Restaurants
For the 12 Weeks Ended March 22, 2003
(Unaudited)


United States
Multibrand Restaurants in Operation
at 3/22/03
Gross Additions
12 Weeks Ended
3/22/03
Company
Franchise
Total
KFC          
   Taco Bell  11   186   467   653  
   Pizza Hut  4   115   39   154  
   A&W  20   85   97   182  
   Taco Bell/Pizza Hut 3 n 1  1   20   25   45  
   Long John Silver’s  4   4   12   16  
   Wing Works  -   24   -   24  




   40   434   640   1,074  
Taco Bell 
   Pizza Hut  8   310   279   589  
   Long John Silver’s  13   15   5   20  
   A&W  1   1   -   1  
   Backyard Burgers  -   3   -   3  




   22   329   284   613  
Pizza Hut 
   KFC  -   -   1   1  
   Taco Bell  -   -   5   5  
   WingWorks  2   3   -   3  
   Pasta Bravo  -   1   -   1  
   Backyard Burgers  -   2   -   2  




   2   6   6   12  
Long John Silver’s 
   A&W  8   110   60   170  




Total  72   879   990   1,869  








24




YUM! Brands, Inc.
Systemwide Multibrand Restaurants
For the 12 Weeks Ended March 22, 2003
(Unaudited)


International
Multibrand Restaurants in Operation
at 3/22/03
Gross Additions
12 Weeks Ended
3/22/03
Company
Franchise
Total
KFC          
   Taco Bell  -   10   45   55  
   Pizza Hut  2   20   65   85  
   A&W  -   -   -   -  
   Taco Bell/Pizza Hut 3 n 1  -   2   3   5  
   Long John Silver’s  -   -   -   -  
   Wing Works  -   -   -   -  




   2   32   113   145  
Taco Bell 
   Pizza Hut  -   11   10   21  
   Long John Silver’s  -   -   1   1  
   Backyard Burgers  -   -   -   -  




   -   11   11   22  
Pizza Hut 
   KFC  -   -   -   -  
   Taco Bell  -   -   -   -  
   WingWorks  -   -   -   -  
   Pasta Bravo  -   -   -   -  
   Backyard Burgers  -   -   -   -  




   -   -   -   -  
Long John Silver’s 
   A&W  -   -   1   1  




Total  2   43   125   168  







25



YUM! Brands, Inc.
Systemwide Multibrand Restaurants
For the 12 Weeks Ended March 22, 2003
(Unaudited)

Worldwide
Multibrand Restaurants in Operation
at 3/22/03
Gross Additions
12 Weeks Ended
3/22/03
Company
Franchise
Total
KFC          
   Taco Bell  11   196   512   708  
   Pizza Hut  6   135   104   239  
   A&W  20   85   97   182  
   Taco Bell/Pizza Hut 3 n 1  1   22   28   50  
   Long John Silver’s  4   4   12   16  
   Wing Works  -   24   -   24  




   42   466   753   1,219  
Taco Bell 
   Pizza Hut  8   321   289   610  
   Long John Silver’s  13   15   6   21  
   A&W  1   1   -   1  
   Backyard Burgers  -   3   -   3  




   22   340   295   635  
Pizza Hut 
   KFC  -   -   1   1  
   Taco Bell  -   -   5   5  
   WingWorks  2   3   -   3  
   Pasta Bravo  -   1   -   1  
   Backyard Burgers  -   2   -   2  




   2   6   6   12  
Long John Silver’s 
   A&W  8   110   61   171  




Total  74   922   1,115   2,037  







26