Items Affecting Comparability of Net Income and/or Cash Flows

Planned Sale of LJS and A&W

During the quarter ended March 19, 2011 we decided to sell our LJS and A&W brands. While we do not believe the LJS and A&W asset groups comprising these brands meet the criteria for held for sale classification, our decision to sell is considered an impairment indicator. As such, we reviewed the LJS and A&W asset groups for potential impairment in both the quarters ended March 19, 2011 and June 11, 2011. In the quarter ended March 19, 2011 we determined that the asset groups' carrying values were not recoverable based on our estimates of holding period cash flows while we continue to own the brands and expected proceeds upon sale. Accordingly, we wrote the carrying values of the LJS and A&W asset groups down to our estimate of their fair values, which reflected the sales prices we would expect to receive from potential buyers. This resulted in a non-cash write down of the LJS and A&W asset groups’ carrying values totaling $66 million that was allocated to definite-lived trademarks and franchise contract rights. We determined that no further impairment was necessary in the quarter ended June 11, 2011, as the carrying amounts of the asset groups were deemed recoverable. We will continue to amortize the definite-lived trademarks and franchise contract rights until the LJS and A&W asset groups are considered held for sale. Additionally, we will continue to review the asset groups for any further necessary impairment through the date the brands are sold. The goodwill that was included in the LJS and A&W reporting unit was written off in a previous year.

Potential Acquisition of Additional Ownership in Little Sheep

We currently own 27% of the outstanding shares of Little Sheep Group Limited (“Little Sheep”), a Hot Pot concept headquartered in Inner Mongolia, China. On April 26, 2011, we announced that we had submitted a preliminary proposal to Little Sheep under which we would offer to acquire all outstanding shares of Little Sheep, other than a minority interest to be held by the chairman and other founding shareholders of Little Sheep. On May 12, 2011, we made a pre-conditional cash offer to acquire additional shares of Little Sheep for approximately $570 million. If approved, this would bring our total ownership to approximately 93% of the Little Sheep business. In connection with this potential acquisition, we have placed $300 million in escrow and provided a $300 million letter of credit to demonstrate availability of funds to acquire the additional shares in this business. The funds placed in escrow are restricted to the potential acquisition of Little Sheep and are separately presented in our Condensed Consolidated Balance Sheet as of June 11, 2011 and in our Condensed Consolidated Statement of Cash Flow for the year to date ended June 11, 2011.

Repayment of Senior Unsecured Notes

On April 15, 2011, we repaid $650 million of Senior Unsecured Notes upon their maturity primarily with existing cash on hand.

Facility Actions

Refranchising (gain) loss, Store closure (income) costs and Store impairment charges by reportable segment are as follows:



	Quarter ended June 11, 2011
	China			YRI			U.S.		Worldwide
Refranchising (gain) loss ^{(a) (e)}	$	(2	)	$	(1	)	$	8	$	5

Store closure (income) costs^(b)	$	—		$	—		$	2	$	2
Store impairment charges	3			7			7		17
Closure and impairment (income) expenses	$	3		$	7		$	9	$	19



	Quarter ended June 12, 2010
	China			YRI			U.S.			Worldwide
Refranchising (gain) loss ^(a)	$	(4	)	$	(1	)	$	(5	)	$	(10	)

Store closure (income) costs^(b)	$	—		$	(1	)	$	—		$	(1	)
Store impairment charges	5			2			6			13
Closure and impairment (income) expenses	$	5		$	1		$	6		$	12



	Year to date ended June 11, 2011
	China			YRI			U.S.		Worldwide
Refranchising (gain) loss ^(a)	$	(3	)	$	(1	)	$	7	$	3

Store closure (income) costs^(b)	$	(1	)	$	1		$	3	$	3
Store impairment charges	4			8			7		19
Closure and impairment (income) expenses^(c)	$	3		$	9		$	10	$	22



	Year to date ended June 12, 2010
	China			YRI			U.S.		Worldwide
Refranchising (gain) loss ^{(a) (d) (e)}	$	(4	)	$	6		$	51	$	53

Store closure (income) costs^(b)	$	—		$	(1	)	$	1	$	—
Store impairment charges	5			4			7		16
Closure and impairment (income) expenses	$	5		$	3		$	8	$	16


(a)	Refranchising (gain) loss is not allocated to segments for performance reporting purposes.


(b)	Store closure (income) costs include the net gain or loss on sales of real estate on which we formerly operated a Company restaurant that was closed, lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related expenses from previously closed stores.


(c)	During the quarter ended March 19, 2011, we recognized an impairment charge of $66 million resulting from the planned sale of the LJS and A&W businesses that was not allocated to segments for performance reporting purposes and is not included in this table.

(d)

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. This loss did not result in a related income tax benefit, and was not allocated to any segment for performance reporting purposes. The amount of goodwill write-off was based on the relative fair values of the Taiwan business disposed of and the portion of the business that was retained. The fair value of the business disposed of was determined by reference to the discounted value of the future cash flows expected to be generated by the restaurants and retained by the franchisee, which included a deduction for the anticipated royalties the franchisee will pay the Company associated with the franchise agreement entered into in connection with this refranchising transaction. The fair value of the Taiwan business retained consisted of expected net cash flows to be derived from royalties from franchisees, including the royalties associated with the franchise agreement entered into in connection with this refranchising transaction. We believed the terms of the franchise agreement entered into in connection with the Taiwan refranchising were substantially consistent with market. The remaining carrying value of goodwill related to our Taiwan business of $30 million, after the aforementioned write-off, was determined not to be impaired subsequent to the refranchising as the fair value of the Taiwan reporting unit exceeded its carrying amount.

(e)

U.S. refranchising loss for the year to date ended June 12, 2010 included $73 million in non-cash impairment charges related to our offer to refranchise a substantial portion of our Company operated KFCs in the U.S. We recorded an additional $12 million and $2 million in non-cash impairment charges related to these restaurants in the quarters ended December 25, 2010 and June 11, 2011, respectively. The majority of these restaurants offered for sale in 2010 continue to be Company operated at June 11, 2011. We believed in 2010 and continue to believe at June 11, 2011 that the restaurant groups for which we have not yet entered into agreements to sell do not meet the criteria to be classified as held for sale. Consistent with our historical policy, we are reviewing these restaurant groups for impairment on a held for use basis each quarter as a result of our intent to refranchise. To the extent the carrying value of these restaurant groups are not recoverable based upon our estimate of expected refranchising proceeds and holding period cash flows while we continue to operate the restaurants, they are written down to current estimates of their fair value. These fair value estimates, which are based on the sales price we would expect to receive for each restaurant group, consider current market conditions, real-estate values, trends in the KFC-U.S. business, prices for similar transactions in the restaurant industry and preliminary offers for any restaurant groups to date. We continue to depreciate the carrying values of the restaurant assets, net of the aforementioned impairment charges, and will continue to do so through the date we believe the held for sale criteria for any restaurant groups are met. The $85 million and $2 million in impairment charges recorded in 2010 and 2011, respectively, do not include any allocation of the KFC reporting unit goodwill in the restaurant groups’ carrying values. This additional non-cash write down is being recorded, consistent with our historical policy, when a restaurant group ultimately meets the criteria to be classified as held for sale. We will also be required to record a charge for the fair value of our guarantee of future lease payments for leases we assign to the franchisee upon any sale.

Assets held for sale at June 11, 2011 and December 25, 2010 total $22 million and $23 million, respectively, of U.S. property, plant and equipment and are included in Prepaid expenses and other current assets on our Condensed Consolidated Balance Sheets.