Fitch Ratings Upgrades YUM! Brands' to 'BBB-'; Revises Outlook to Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 12, 2004

Fitch Ratings has upgraded YUM! Brands, Inc.'s (YUM's) senior unsecured notes and unsecured $1 billion bank credit facility to 'BBB-' from 'BB+'. The Rating Outlook is revised to Stable. Approximately $2 billion of unsecured debt is affected by this rating change.

The upgrade reflects significant debt reduction, strong growth in international markets and an effective multibranding strategy for the competitive US quick service restaurant (QSR) market. YUM has significantly reduced its debt levels over the past five years to just over $2 billion at fiscal-year end (FYE) 2003 from $3.5 billion at FYE 1998. Debt levels are expected to remain relatively flat for 2004, but YUM plans to continue debt reduction as its debt matures in 2005 and 2006. YUM's adjusted leverage (as defined by total debt plus eight times rent divided by EBITDA plus rent) improved to 2.7 times (X) in 2003 from 3.0x in 2002. Cash flow has steadily increased and EBITDA margins have gradually improved over the past several years. Further gradual improvement is foreseen over the near-to-intermediate term.

YUM is experiencing significant growth in its foreign markets, especially in China, the UK, Australia/New Zealand and South Korea. The majority of YUM's new restaurants in 2003 were built in foreign markets. YUM's international segment represents about one-third of company revenue and operating profit and international revenue increased approximately 13% in both 2002 and 2003. Fitch anticipates that international sales and profit will continue to increase from unit expansion and organic sales growth.

Multibranding, the combination of one or more brands under one roof, has enabled YUM to maintain generally positive comparable sales growth in the US. It also diversifies the food offering for the multibranded locations, increases average unit volume and results in a remodeled unit. A multibrand roughly generates 25% in incremental sales growth and typically costs $350,000 - $500,000 per unit. The one-time incremental sales increase from multibranding is included in the same-store sales calculation.

Since its acquisition of A&W and Long John Silver's in May 2002, the majority of YUM's multibranding has shifted to combinations involving one of these brands. Although YUM's increasing reliance on A&W and Long John Silver's is of some concern since they are both mature brands, they have enabled YUM to greatly expand its multibranding opportunities. When YUM only owned KFC, Taco Bell and Pizza Hut, multibranding opportunities were limited due to the number of stand-alone units in existence amongst its core brands. Fitch believes that YUM can continue to multibrand in the US for many years going forward. Any concerns about multibranding with A&W and Long John Silver brands are mitigated by the fact that the added brand does not have to perform to the same level as a stand-alone restaurant. It only has to generate an incremental $200,000 - $300,000 in sales. On this basis, and with limited experience, multibranding is producing the requisite one-time sales increase.

YUM franchises, operates or licenses more than 33,000 restaurants in more than 100 countries and territories. Core brands include KFC, Taco Bell and Pizza Hut each of which is a leader in its respective segment.