Items Affecting Comparability of Net Income and/or Cash Flows

Little Sheep Acquisition

On February 1, 2012 we acquired an additional 66% interest in Little Sheep Group Limited (“Little Sheep”) for $540 million, net of cash acquired of $44 million, increasing our ownership to 93%. The acquisition was driven by our strategy to build leading brands across China in every significant category. Prior to our acquisition of this additional interest, our 27% interest in Little Sheep was accounted for under the equity method of accounting. As a result of the acquisition we obtained voting control of Little Sheep, and thus we began consolidating Little Sheep upon acquisition. As required by GAAP, we remeasured our previously held 27% ownership in Little Sheep, which had a recorded value of $107 million at the date of acquisition, at fair value based on Little Sheep's traded share price immediately prior to our offer to purchase the business and recognized a non-cash gain of $74 million. This gain, which resulted in no related income tax expense, was recorded in Other (income) expense on our Condensed Consolidated Statement of Income during the quarter ended March 24, 2012 and was not allocated to any segment for performance reporting purposes.

We recorded the following assets acquired and liabilities assumed upon acquisition of Little Sheep as a result of our preliminary purchase price allocation:



Current assets, including cash of $44	$	113
Property, plant and equipment		68
Goodwill		332
Intangible assets, including indefinite-lived trademark of $428		452
Other assets		33
Total assets acquired		998

Deferred taxes		118
Other liabilities		54
Total liabilities assumed		172
Redeemable noncontrolling interest		45
Other noncontrolling interests		16
Net assets acquired	$	765

As part of the acquisition, YUM granted an option to the shareholder that holds the remaining 7% ownership interest in Little Sheep that would require us to purchase their remaining shares owned upon exercise. This noncontrolling interest has been recorded as a Redeemable noncontrolling interest in the Condensed Consolidated Balance Sheet. The Redeemable noncontrolling interest is reported at its fair value of $45 million at the date of acquisition, which is based on the Little Sheep traded share price immediately prior to our offer to purchase the additional interest.

Goodwill recorded results from the value expected to be generated from applying YUM's processes and knowledge in China to the Little Sheep business. The goodwill is not expected to be deductible for income tax purposes and has been allocated to the China segment as a separate reporting unit.

Under the equity method of accounting, we previously reported our 27% share of the net income of Little Sheep as Other (income) expense in the Consolidated Statements of Income. From the date of the acquisition, we have reported the results of operations for the entity in the appropriate line items of our Consolidated Statement of Income. We no longer report Other (income) expense as we did under the equity method of accounting. Net income attributable to our partner's ownership percentage is recorded as Net Income - noncontrolling interest. Little Sheep reports on a one month lag, and as a result, their consolidated results are included in the China Division from the beginning of the quarter ended June 16, 2012. The consolidation of Little Sheep increased China Division revenues by 4% and 2% for the quarter and year to date ended June 16, 2012 versus the prior periods, respectively. Other than the $74 million non-cash gain discussed above, the consolidation of Little Sheep was not significant to Operating Profit or Net Income - YUM! Brands, Inc. for the quarter and year to date ended June 16, 2012.

The pro forma impact on our results of operations if the acquisition had been completed as of the beginning of 2011 would not have been significant

LJS and A&W Divestitures

During the fourth quarter of 2011 we sold the Long John Silver's ("LJS") and A&W All American Food Restaurants ("A&W")brands to key franchise leaders and strategic investors in separate transactions. During the quarter ended March 19, 2011, we recognized $68 million of pre-tax losses and other costs primarily in Closures and impairment (income) expenses as a result of our decision to sell these businesses. In the full year 2011, these businesses contributed 5% and 1% to Franchise and license fees and income for the U.S. and YRI segments, respectively. While these businesses contributed 1% to both the U.S. and YRI segments' Operating Profit in full year 2011, the impact on our consolidated Operating Profit was not significant.

Refranchising (Gain) Loss

The Refranchising (gain) loss by reportable segment is presented below. We do not allocate such gains and losses to our segments for performance reporting purposes.



	Quarter ended						Year to date
	6/16/2012			6/11/2011			6/16/2012			6/11/2011
China	$	(2	)	$	(2	)	$	(4	)	$	(3	)
YRI^(a)	(2		)	(1		)	19			(1		)
U.S.^(b)	(9		)	8			(54		)	7
India	—			—			—			—
Worldwide	$	(13	)	$	5		$	(39	)	$	3

(a)

During the quarter ended September 3, 2011, we decided to refranchise or close all of our remaining company operated Pizza Hut dine-in restaurants in the UK market. While the asset group comprising approximately 350 stores we anticipate selling did not meet the criteria for held for sale classification as of September 3, 2011, our decision to sell was considered an impairment indicator. As such we reviewed the asset group for potential impairment and determined that its carrying value was not fully recoverable based upon our estimate of expected refranchising proceeds and holding period cash flows anticipated while we continue to operate the restaurants as company units. Accordingly, we wrote the asset group down to our estimate of its fair value, which was based on the sales price we would expect to receive from a buyer. This fair value determination considered current market conditions, trends in the Pizza Hut UK business, and prices for similar transactions in the restaurant industry and resulted in a non-cash write down of $74 million which was recorded to Refranchising (gain) loss. The decision to refranchise or close all remaining Pizza Hut dine-in restaurants in the UK was considered to be a goodwill impairment indicator. We determined that the fair value of our Pizza Hut UK reporting unit exceeded its carrying value and as such there was no goodwill impairment.

Based on bids received in 2012, we recorded an additional non-cash pre-tax impairment charge of $20 million to Refranchising (gain) loss in the quarter ended March 24, 2012. While we continue to market the Pizza Hut dine-in restaurants in the UK for sale, the asset group continues not to meet all of the held for sale criteria as of June 16, 2012.

These impairment charges decreased depreciation expense versus what would have otherwise been recorded by $3 million and $6 million for the quarter and year to date ended June 16, 2012, respectively. Neither the impairment charges nor the depreciation reduction were allocated to the YRI segment, resulting in depreciation expense in the YRI segment results continuing to be recorded at the rate at which it was prior to these impairment charges being recorded for these restaurants.


(b)	In the quarter and year to date ended June 16, 2012, U.S. Refranchising (gain) loss primarily relates to gains on the sales of Taco Bell restaurants.

Store Closure and Impairment Activity

Store closure (income) costs and Store impairment charges by reportable segment are presented below. This table excludes $66 million of net losses recorded in the year to date ended June 11, 2011 related to the decision to divest the LJS and A&W businesses. This amount was not allocated to segments for performance reporting purposes.



	Quarter ended June 16, 2012
	China			YRI			U.S.			India		Worldwide
Store closure (income) costs ^(a)	$	(2	)	$	(2	)	$	(1	)	$	—	$	(5	)
Store impairment charges	4			1			4			—		9
Closure and impairment (income) expenses	$	2		$	(1	)	$	3		$	—	$	4



	Quarter ended June 11, 2011
	China		YRI		U.S.		India		Worldwide
Store closure (income) costs ^(a)	$	—	$	—	$	2	$	—	$	2
Store impairment charges	3		7		7		—		17
Closure and impairment (income) expenses	$	3	$	7	$	9	$	—	$	19



	Year to date ended June 16, 2012
	China			YRI			U.S.			India		Worldwide
Store closure (income) costs^(a)	$	(2	)	$	(2	)	$	(2	)	$	—	$	(6	)
Store impairment charges	5			2			4			—		11
Closure and impairment (income) expenses	$	3		$	—		$	2		$	—	$	5



	Year to date ended June 11, 2011
	China			YRI		U.S.		India		Worldwide
Store closure (income) costs^(a)	$	(1	)	$	1	$	3	$	—	$	3
Store impairment charges	4			8		7		—		19
Closure and impairment (income) expenses	$	3		$	9	$	10	$	—	$	22


(a)	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.