Tim Jerzyk - Senior Vice President, Investor Relations David C. Novak - Chairman of the Board, President, Chief Executive Officer Richard T. Carucci - Chief Financial Officer

Joe Buckley - Banc of America Steve West - Stifel Nicolaus John Glass - Morgan Stanley David Palmer - UBS Jeff Omohundro - Wachovia Jeffrey Bernstein - Lehman Brothers Rachael Rothman - Merrill Lynch Larry Miller - RBC Capital Markets Steven Kron - Goldman Sachs John Ivankoe - J.P. Morgan Jason West - Deutsche Bank Mitchell J. Speiser - Buckingham Research

Good morning. My name is Kristy and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter earnings conference call. (Operator Instructions) I will now turn today’s conference over to Mr. Tim Jerzyk, Senior Vice President of Investor Relations and Treasurer.

Thank you, Kristy. Good morning, everyone and thanks for joining us. This call is being recorded and will be available for playback. We are broadcasting the conference call via our website at www.yum.com. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. I would also like to advise that this conference call includes forward-looking statements that reflect management’s expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information in this conference call related to projections or other forward-looking statements may be relied on subject to our Safe Harbor statement included in the earnings release last night and may continue to be used while the call remains in the active portion of the company’s website at www.yum.com. In addition, we would like you to please be aware of two upcoming Yum! investor events. First, September 22nd and 23rd this year, we will host our fourth annual China investor conference in Shanghai. Please notify us if you plan to attend as soon as you can and if you do plan to attend, you need to make plans now to obtain your official visa. We would love to have all of you attend. It will be a great event. Second, Tuesday, October 7th, third quarter earnings will be released. Those are the two key dates ahead for us. Today on our call, you will hear from David Novak, Chairman and CEO, and Rick Carucci, our CFO. Following remarks from both, we will take your questions. Now I will turn the call over to David Novak. David C. Novak: Thank you, Tim and good morning, everyone. Last night we release our second quarter earnings and I am pleased to report we posted solid second quarter EPS growth of 16%, excluding special items, and confidently raised our full year EPS growth forecast to 12%, continuing to build our track record of consistent performance year after year. As you may know, I like to say that Yum! is not your ordinary restaurant company. We have had seven straight years of building more than 1,000 international units per year, making us consistently one of the largest global retailers. We are a truly global growth company with well over 50% of our profits coming from overseas, and that’s largely franchisee driven. We expect to report nearly $1.5 billion of franchise fees this year. KFC, Pizza Hut, and Taco Bell, our key brands, are each leaders in their respective categories and with this tremendous diversity in brands and geography, we have the ability to weather tough times and unexpected events like we’ve had in the past, and 2008 should be no exception. Our success continues to be driven by our two sizable high return international businesses, China and YRI, which is Yum! Restaurants International. Our rapid growth China division had profit growth of 38% this quarter and YRI, our broad-based, primarily franchised international business, grew profit by 18%. Importantly, these results were built on top of strong year-ago performances, a testament to the strength and growing power of our brands in the hundred-plus countries in which we operate. In the U.S., we saw profit decline in the quarter versus prior year as we weather record-breaking commodity inflation. For the longer term, I am pleased with the progress we are making on improving our brands positions, increasing consumer relevance, and growing sales with system same-store sales up 2% this quarter. That’s our fourth straight quarter of growth in this challenging environment. With the strength of the momentum we have in our China and YRI businesses and improving picture for the U.S., we are confident of continued growth overall for Yum! and its shareholders in 2008, which is why we are raising our 2008 earnings per share forecast a second time this year, reaffirming our annual commitment to deliver EPS growth of at least 10% year after year. We now expect to generate $1.89 per share, or 12% growth excluding special items. This is a $0.02 increase versus our previous guidance provided in our first quarter earnings release. This would be our seventh straight year of meeting and exceeding this annual EPS growth commitment. Next, let me cover each of our businesses in the context of our four key growth strategies. Number one, build leading brands in China in every significant category; number two, drive aggressive international expansion and build strong brands everywhere; three, dramatically improve U.S. brand positions, consistency, and returns; and number four, drive industry leading long-term shareholder and franchisee value. So I’ll start with China, where we continue to build and fortify our strong foundation in every significant restaurant category, which we expect will provide years of consistent growth in the future. Mainland China continues to hit the ball out of the park, with same-store sales growth of 14%, topping our spectacular first quarter performance. Importantly for the long-term development of our business in China, we continued very strong unit growth of 20% or nearly 100 new units. Putting into perspective our position, we expect to reach 3,000 restaurants on the ground in more than 500 cities in this mega-market by the end of the year. This is a phenomenal result and speaks to the power of our superior brand equity and maniacal execution in China. Our KFC team is leading the way on the development and implementation of sales growth initiatives, including new proteins like fish, day part expansion through delivery, and the continued expansion of our breakfast menu. KFC's pipeline is definitely full of exciting new products we rolled out in the first half of the year, such as our new Shrimp Sandwich, as well as others coming in the second half. Our Pizza Hut casual dining concept is the undisputed leader in Mainland China’s western casual dining category with over 380 units. We expect to end the year with over 400 units, up over 50 new units versus the prior year. Pizza Hut casual dining is also working on building sales growth initiatives, including the tea time day part, and is upgrading its menu approach to add quality, variety with menu updates targeted every six months. Our exciting new growth brand, Pizza Hut home service, also continues to perform well. By year-end, we expect to add over 20 new units, bringing our total to about 80 in over 10 cities. Home service is a rapidly emerging growth area of the mainland China restaurant industry and we are working to capitalize on this opportunity with a business model geared specifically for that at-home occasion. And finally, we continue to make great progress on our emerging growth brand, East Dawning, our Chinese fast food concept which now has 14 units. We continue to expand in Shanghai and have also opened in Beijing with our newest location in Beijing’s international airport just in time for the Olympics. We expect to open three new units in Beijing during 2008, as we build what we expect will be China’s number one Chinese fast food brand. For those of you who have followed our success over the years in China, you know we have a huge strategic advantage and great headstart, with our stable and experienced management team in Shanghai, our expansive state-of-the-art distribution system, our dedicated manufacturing capabilities, and our large-scale development team, all of which combine to produce results that are unmatched by any company in Mainland China and gives us confidence in our long-term vision to build leading brands in every significant restaurant category. Finally, I’ve been inspired by the spirit and soul of the Chinese people as they responded to bravely and humanely to the earthquake in May. Our team members, along with the entire country, have worked 24/7 and volunteered both time and resources to support the recovery effort. Fortunately, the restaurants that were affected by this disaster have been reopened and most importantly, none of our team members were hurt during the earthquake. We saw an initial impact on consumer spending but as you’ve seen from our earnings report, the business rebounded quickly and had outstanding performance. The people of China have clearly faced a number of challenging natural disasters this year and are obviously now preparing for the Olympic Games. We expect the entire world to be impressed by the growth of this country and the heart of their people. Next on to YRI, where we are driving aggressive international expansion and building strong brands everywhere. Now as I noted earlier, YRI had another really good quarter, with profit growth of 18% fueled by a 15% growth in system sales. Importantly, YRI continues to build on strong performances each year and this quarter is another great example of the consistent, broad-based growth this business can produce. The key driver underlying YRI’s profit growth is the worldwide development capability of our 700-plus franchisees in over a hundred countries. We opened over 150 new restaurants in the second quarter and year-to-date, we are ahead of last year’s record pace, well on our way to another record this year. YRI same-store sales growth in the second quarter was an impressive 4% growth lapping a strong 5% growth a year ago. This performance is especially strong, given the pace of our new unit development and speaks to our strong unit economic model and the pull we get from franchisees to invest further in our brands. As a result of our development in same-store sales growth, our system sales grew by 8% excluding foreign currency benefit. Our franchise business units around the globe were a key factor in this performance, with the Middle East up 27%, South Africa up 19%, Europe up 16%, the Caribbean up 15%, and Asia up 7%, all excluding foreign currency impact. YRI is continuing to build on a strong competitive position, planning for future growth with three key strategies -- development of emerging mega-markets, building new and permanent sales growth initiatives, and adding new brands to their portfolio. In key emerging markets like India and Russia, we have over 150 units each, and Vietnam is now closing in on 50 units in a country with 85 million people with China like economics, a country where key U.S. competition has yet to even build a single unit. In Brazil, we found a strong partner who has the now-how to operate well in the country and is excited about expanding KFC and Brazil with nearly 200 million people to go after. Importantly, around the world our franchisees are as excited as we are about the future growth of our brands as we continue to develop in both new and existing markets. In various markets around the world, YRI is also testing and building new sales growth initiatives and seeing encouraging results, with the potential for these ideas to take our brands to even higher sales levels. Our KFC breakfast program in Asia and the United Kingdom, testing fish at KFC in the Middle East and the Caribbean, new drink innovation, beverage innovation in Australia, Pizza Hut tea time in Indonesia, marketing the Pizza Hut enhanced dine-in experience in Hong Kong -- these are all just basically represent a brief list of the flavor of the range of ideas we’re working on, as well as the geographical breadth of our business and how we leverage that to our benefit as we develop sales growth initiatives. YRI also continues to make progress on expanding our existing brand portfolio. We are growing Taco Bell in already successful markets like Costa Rica and Guatemala, and our new entry markets like Mexico and in the next 12 months, Spain, India, and the United Arab Emirates. PHD, our new delivery focused brand, is now in eight countries and seeing encouraging results as we test and prove out this pizza delivery concept with economics designed specifically to compete effectively in the delivery at-home occasion. To summarize, we are pleased with the momentum of YRI’s business as we well exceed our annual at least 5% growth target for system sales on a local currency basis, and open well over 750 new restaurants and exceed our annual commitment of at least 10% profit growth for that division. Turning to the U.S., where our strategy is to dramatically improve our brand position and returns through new major sales growth initiatives, product innovation, and meaningful differentiation versus our competition, we generated second quarter system same-store sales growth of 2%, our fourth consecutive quarter of growth. Profit was down 12%, primarily as a result of substantial commodity inflation and an under-performing KFC business. As we go forward, we have laser-like focus on better leveraging our substantial U.S. restaurant asset base with sales of growth initiatives in five areas, more options for consumers across our menus, more contemporary beverage options and unique desserts, expanded day parts, broader protein offerings, and contemporizing our assets. We are confident that we are taking the right choices and the right steps to lead us to stronger brand positioning, higher returns, and consistent growth performance to unlock the value inherent in our 18,000 U.S. stores. Our business in the U.S. is a tale of two cities -- Taco Bell and Pizza Hut are both having very good years, while KFC continues to struggle. More importantly, we are pleased that all three are making progress on our long-term strategies for sustainable growth. KFC quite simply just has more ground to cover. Now let’s briefly review the progress we’ve made thus far at each of our leading brands. The Taco Bell brand is as strong as ever with the introduction of why pay more, our new value oriented menu, and the Fruitista Freeze, our new beverage line. We’ve been happily surprised by the extent of our success in this tough environment as both have exceeded our expectations upon national launch. Why pay more is resonating with customers in today’s economic environment, and where else can you find a menu with $0.79, $0.89, and $0.99 price points and the great selection we have? Our $0.89 Cheesy Double Beef Burrito has 38% more food and 30% more beef than McDonald’s $0.99 Double-Cheeseburger, and so our customers realize it truly is a great value. Our Fruitista Freeze drinks are simply great products differentiated with real natural fruit that gives us a unique edge and helps drive transactions throughout the day. Look for more news in the future to build on the success of both why pay more and Fruitista Freeze. Also note that we will undergo more testing of our great taste, less fat and calories line of products call Fresco, breakfast and -- we’ll do that as well as test breakfast and premium proteins in possible areas like fish and chicken. As we build these successful sales layers, we plan to accelerate our development of Taco Bell in the U.S. Remember that Taco Bell has a little over 5,000 units versus McDonald’s 14,000 units within the U.S., and we’ll have net new unit growth this year at Taco Bell. We think Taco Bell can be a Mexican inspired concept that grows towards the scale of McDonald’s over the long-term. So in summary, Taco Bell is doing all the right things to build the business profitably, adding significant sales growth layers and generating profit growth in 2008. I really appreciate the aggressive focus of our team and we are on track for great things in the future. As I’ve said, Pizza Hut is also having a very good year and clearly outperforming its competitors. That’s because we are reinventing the brand and delivery category as we drive aggressively against our vision of the Pizza Hut brand providing America with pizza, pasta, and chicken, expanding beyond the pizza category into whole meal replacement. Tuscany Pasta, our exciting new premium pasta line launched earlier this year, is off to a roaring start and exceeding our expectations. We believe this is one of Pizza Hut's very best and one of its mot important product launches in its 50-year history. We launched with two pasta options, Cheesy Chicken Alfredo and Meaty Marinara as our two core products, and we’ve seen families looking for an alternative yet affordable break from kitchen duty choose our Tuscany Pasta and really enjoy it. It is receiving great review from food critics for both its taste and value. Remember, it’s three pounds of pasta for $11.99. That’s value. So we are optimistic this will be an important sales layer for Pizza Hut and our long-term bowl goal is to make it as big as pizza. We are thinking about pasta as a major new avenue to grow our business down the line. An important consumer barrier for Pizza Hut in the past has been everyday value. We believe that this year we have begun to make important steps to solve this issue for both families and individuals through Pizza Mia and the Pizzone. Our Pizza Mia is great for groups that want a lot of pizza -- the multiple pizza occasion for a low price, $5 per pizza and it’s a great tasting pizza, to boot. Pizzone is a great value for individuals weighing in at over a pound -- not the individuals weighing in over a pound but the Pizzone weighing in at over a pound for a price point of $5.99. I’d like to see that one-pound individual. We expect to add even more options to each of these sales growth layers in the near future. Our pipeline is full of new ways to grow both pasta and our value propositions. Longer term, we’re beginning to gain solid momentum with the rollout of Wing Street at Pizza Hut with nearly 400 units converted year-to-date and over 1,500 total units. Wing Street provides a great breaded line of flavored chicken wings and protein variety to our menu. The franchises are now fully behind the rollout of Wing Street and we are well on our way to bringing Wing Street to a national launch as an important sub-brand of Pizza Hut. We expect to be in position to advertise America’s largest wing brand on national TV in the fourth quarter of 2009. In summary for Pizza Hut, our new permanent sales layer approach is proving successful and we remain confident of our ability to grow the Pizza Hut brand in the U.S. in a very challenging category and transform it into a much broader home meal replacement business. Believe me, the team has a great vision and is making great progress at executing it. Now, our U.S. KFC business is our only major soft spot in the world and had a challenging quarter with the decline in sales. While sales were weak, we believe we have the right strategies to turn this brand around as we reinforce the heritage of our traditional delicious fried chicken and bring on great products like the new range of Kentucky grilled chicken products currently in test. The strategy is to move beyond fried chicken and offer chicken in more contemporary portable forums -- chicken any way you want it. We are in the very early stages of this work but we are right on track. Now, as you may have read, Greg [Deedrick] is retiring from KFC as President of KFC and will be actually retiring at the end of the year to pursue other interests. And I can’t tell you how pleased I am to be able to showcase the global strength of Yum!'s bench of capable management talent with the appointment of Roger Eden as KFC's new President. Roger brings tremendous experience leading our business, including seven years running our KFC business in Australia, where he delivered consistent, same-store sales growth in a highly competitive, highly penetrated market. You may know he most recently served as Yum!'s chief operating and development officer. Roger is a great leader and has hit the ground running. He’s already driving initiatives and leveraging successes we have had in other markets around the globe and the franchisees are very excited to have him at the helm. In summary, while this year’s performance at KFC is lagging our other brands, the KFC turnaround is underway. We have the right strategies and know what we need to do. We are laying an important long-term foundation for the future success of KFC, have significant testing underway right now, and expect to deliver much better results in 2009. To wrap up the U.S. business, give the macro environment in 2008, Taco Bell is clearly our best-positioned U.S. brand with its value leadership in the industry and its entry level QSR pricing for the individual eating occasion. Pizza Hut is having a very good year and making great progress with new permanent sales layers in value, pasta, and chicken. KFC will continue to test Kentucky Grilled Chicken during the balance of 2008 in preparation for the planned national launch in the first half of 2009. Most importantly, we are making steady progress in developing a broader range of customer options across all of our U.S. brands, which we believe will strengthen our brand positioning and lead to more consistent growth performance. Finally, we are driving even more urgency around operations and executing to our standards. We know we can run much better restaurants and provide much more consistent quality and service that we know our customers expect. Our final growth strategy is to drive industry-leading, long-term shareholder and franchisee value. The good news is that we are already a leader in returns, not only among restaurant companies but among large cap global consumer companies as well. On an after-tax basis, our return on invested capital is 18%, so we’re starting from a position of real strength. The fact is that Yum! Brands is an incredible cash machine, with each of our three businesses generating free cash flow, effectively funding their own capital investments. As this capital is deployed to high return opportunities, for example, new restaurants in China where the cash pay-back has been only two years, we expect our total returns to remain strong. These returns will improve further as we continue to refranchise restaurants in the U.S. and at Yum! Restaurants International and build our major sales growth initiatives to better utilize our restaurant assets. With our strong cash flow and balance sheet, we remain committed to returning $2 billion to the shareholders in 2008 through share buy-backs and our significant dividend program. We’ve already returned $1.1 billion in the first half of the year. We’re proud of the fact that we are one of the few companies that can make significant capital investments for growth year over year and make great investments in large scale share buy-backs while adding shareholder value, and pay a meaningful dividend and deliver double-digit EPS growth. Our commitment is to continue this tradition of rewarding our shareholders with superior returns. Before I wrap up, I’d like to share with you a brief perspective into how we are planning and preparing for 2009 as we look to continuing to build our track record of consistent growth in what may remain a very challenging global economic environment. First, the Yum! global development machine will deliver over 1600 new units this year, which we expect will provide incremental sales and profit growth in 2009. As well, we have a strong pipeline of new sites that we expect will deliver a similar number of new units in 2009. Second, you will see us continue to reinforce and introduce meaningful value-oriented sales initiatives into each of our businesses, like the why pay more menu at Taco Bell or Pizzone at Pizza Hut, which we believe will provide real value to our customers in these challenging economic times. At the same time, we are leveraging our extensive know-how on menu mix management, which allows us to take pricing in this high inflation environment on our premium products. Third, we are adding relevant new products for our customers, including the Fruitista Freeze, Tuscany Pasta and other, and we’re confident in our pipeline of new products for 2009. We will continue to expand the new Taco Bell Fruitista Freeze beverage line and the new Tuscany line of pastas at Pizza Hut. Watch for more product excitement around these new product lines later this year and get ready for the launch of Kentucky Grilled Chicken in 2009, as well as the expansion of beverages, breakfast, and multiple proteins in many parts of the globe. Finally, as you would expect in any well-managed company, we’re concentrating on aggressive G&A management and careful investment of resources around these activities that drive growth. We are proactively pursuing productivity gains as we pursue major initiatives in our business. We believe that all these will help us achieve the consistent financial performance our shareholders expect from Yum! in 2009 and fuel the growth machine that is Yum! Brands, a performer that consistently delivers at least 10% earnings per share growth every single year. That’s our goal, we’ve done it in the past, and we fully expect to do it in the future. Now I’ll hand it over to Rick Carucci, our CFO, for more on the financial performance. Rick. Richard T. Carucci: Thank you, David and good morning, everyone. In this section of our call, I’m going to comment on four items. First, Yum!'s second quarter results; second, a brief update of our U.S. refranchising program; third, our current full-year outlook for 2008; and fourth, a perspective on 2009. Starting with our second quarter results, I’d like to one more highlight two foundations of Yum!'s financial story, our consistency of our overall results and our global growth. First, our second quarter and first half results demonstrate that we are well on our way for the seventh straight year to meeting our annual commitment to deliver EPS growth of at least 10%. I am personally very proud of this consistent financial performance. Second, we continue to expand our business around the world, open 255 new units outside the U.S. in the second quarter. That’s equivalent to three new restaurants every day. Both our China and YRI businesses are on pace to match or exceed last year’s record development. Based on this performance, we are increasing our 2008 international development guidance from 1200 to 1300 units. Consistent and significant unit growth continues to be a critical component of our global growth story each year. Now I’d like to comment on the second quarter results of our three key businesses. First, our China division had another impressive quarter. Top line growth was led by exceptionally strong same-store sales growth of 14%, in addition to continued 20% unit growth in Mainland China. On the cost side, we remain challenged by the inflationary environment in Mainland China, driven by commodities. This resulted in an expected one point decline in restaurant margin. Overall, our strong top line performance generated extremely strong profit growth of 26% versus last year. That’s excluding a substantial foreign currency benefit. Importantly, this profit growth was achieved while we continue to make P&L investments in our future growth engines, Pizza Hut home service and East Dawning. As you would expect, we are very focused on our restaurant margin as we work to continue our strong performance and we expect a full year margin of about 20% in our Mainland China business. We are pleased we could maintain this type of margin performance in this highly inflationary environment while at the same time continuing our record pace of development. Importantly, our new stores continue to perform well with our overall Mainland China margin at 20% and our cash margins exceeding 25%. We are particularly pleased by our new store performance in tier three and tier four cities, which generate positive margins in the first year and pay-back on investment in two years. Yum! Restaurants international delivered another strong quarter. Profits were up 9% on a constant currency basis, lapping 11% growth in 2007. These results are even more impressive when you consider the loss of a VAT tax exemption in our Mexico business, which alone was an 11-point negative impact on growth. Clearly YRI has outperformed in the first half versus our income expectations. Importantly, like China, YRI also generated a strong top line performance with 4% same-store sales growth and 4% net unit growth. Additionally, due to the favorable impact of foreign currency conversion, we realized a profit upside of $9 million in the quarter. Ultimately, it is our established presence in a multitude of growing markets, coupled with our franchise business model that make YRI a crucial part of Yum!'s overall growth story. U.S. profit results declined 12% in the second quarter, driven by a continuation of significant commodity inflation, weak sales and profit growth at KFC, and as anticipated, lapping insurance favorability from 2007. Importantly, our same-store sales growth of 2% for the system and 4% for company restaurants in quarter two was in line with our full-year targets. However, this level of sales could not offset the impact of record level commodity inflation. Quarter two commodity inflation of $30 million is a level we have not seen in one quarter and would usually represent what we’d typically see in a full year. In our first quarter earnings call, we shared with you that we would be lapping insurance favorability from quarter two 2007. lapping this favorability in 2008 negatively impacted our U.S. operating profit growth by $18 million, therefore most of our second quarter profit downside in the U.S., or $18 million of the total $23 million, was due to this insurance lapping issue. On the financial side, Yum!'s second quarter results benefited from a lower effective tax rate and a lower average shares outstanding. Higher interest expense partially offset these positives, as we expected. Now let’s go through a brief update on U.S. refranchising. In December last year, we announced our intention to reduce our U.S. ownership to below 10% by the end of 2010. After refranchising 159 units in the second quarter, our year-to-date total now stands at 179 units. We are comfortable we will be able to refranchise at least 500 stores for the full year, given the solid deal pipeline we have in the balance of this year. Thus far in the third quarter, we have already refranchised an additional 90 units. Obviously the credit market conditions have affected refranchising efforts, and as a result the credit markets have increased their equity requirements for the buyer. Additionally, lenders have intensified their review process, which has added time to complete certain larger transactions. In this environment, therefore, it has become more difficult to complete larger deals, so we expect our transactions this year to be skewed towards smaller deals. Our strategy continues to be to find the best franchise partners that will drive business for the long-term and at the same time realize fair value for our assets. We will not compromise either one of these objectives. Our goal remains to potentially surpass 90% franchise ownership by 2010. This refranchising will result in positive benefits to U.S. restaurant margin, positive benefits to operating margin and Yum! ROIC, as well as less demand for capital from our U.S. business. With the first half now completed, let’s quickly cover our 2008 full-year outlook. As David already mentioned, on the back of our strong first half we have raised our full-year EPS growth forecast to $1.95 on a reported basis or $1.89 when we exclude special items. This forecast assumes the following: over-performance by our China and YRI divisions when compared to their long-term operating profit growth targets of 20% and 10% respectively. This over-performance reflects very strong year-to-date results, substantial for-ex benefits, above target same-store sales growth, and continued strong unit development. These items more than offset a one point decline in restaurant margin for both our China and YRI businesses. For the balance of the year, I would like to highlight YRI’s Q3 and Q4 profit growth rates. In the third quarter, we expect YRI will be below our first half profit growth rate as they lap strong year-ago performance. In the fourth quarter, we expect the growth rate to return to the normal range of our annual guidance. Also, while we expect China to meet or exceed our full-year profit growth targets, we cannot expect mid-teens same-store sales growth and 30% to 40% profit growth to continue. Our forecast for 2008 also assumes under-performance by our U.S. business when compared to its long-term operating profit growth target of 5%. We now expect a decline in full-year U.S. profit based on weakness in the first half performance. We also expect record U.S. commodity inflation of over $100 million for the year, well up from our original forecast of $55 million. We expect U.S. profit performance to improve in the second half of the year as our pricing actions will begin to catch up with commodity inflation. For the full-year, we expect company same-store sales growth of 3%, which is at the high-end of our target range. On the financial side, we expect a significant benefit from our share buy-backs leading to an approximately 8% reduction in our average shares outstanding. At this point, we expect a full-year effective tax rate of about 26%, which is lower than our previous expected range of 28% to 30%. This is based on strong year-to-date performance versus our earlier expectations. As we have mentioned before, you should not be surprised to see continued volatility quarter to quarter in our effective tax rate. Finally, it is also challenging to forecast the timing of special items related to the U.S. refranchising program and the U.S. business transformation. For example, it is difficult to pinpoint whether particular refranchising transaction or particular charge will occur in quarter four of this year or quarter one of next year. We have provided our best thoughts on what to expect balance of year in our full-year guidance, which was included in a link to our website in our earnings release last night. Before I wrap up, I would like to talk about our perspective on 2009. Given that commodity inflation is running at levels we’ve not seen in many years, and given that there are concerns about a potential slowdown in the U.S. and global economies, I think it’s especially important to step back and review what makes the Yum! growth model so unique and put the economic concerns into context for our business. Doing so should make all of us shareholders confident in our ability to continue our track record of growth in 2009. Let me explain why. First, we take great pride in our consistent financial performance. We have a track record of six straight years of meeting and exceeding our 10% EPS growth target. We fully expect 2008 to be year seven and our team is very determined to extend this record, given the underlying power of having a global portfolio. Second, unit development is a great foundation for future growth. As the largest international retail developer, we have a consistent track record of delivering over 1,000 international units per year through highly capable teams and franchise partners. At the same time, we have immense future opportunities. As I showed at our May investor conference in Louisville, we have 60 restaurants per million people in our well-developed U.S. business, while in China and YRI we have less than three restaurants per million people. So clearly we have a long runway for growth. For 2008, we are well on our way to match last year’s record development and we have a strong pipeline for 2009. Importantly, our international development generates high returns with primarily franchise development from YRI and strong cash-on-cash returns from China. Third, we believe our brands are well-positioned in all of our businesses. In China, the team has delivered their outstanding track record over the years despite obstacles they have faced. In 2008, as an example, we will meet or exceed our profit targets despite unusually high commodity inflation. We have been able to pass on strategically targeted price increases while maintaining transaction growth. We approach 2009 with confidence as we expect to leverage our outstanding team, our well-regarded brands in China, and our strategic advantages in development and distribution. At YRI, our business is very geographically diversified and because it is largely franchised, demands little capital and provides relatively predictable revenue. We have strong overall unit development momentum and as you heard from David earlier, we are continuing to make good progress in emerging markets like Russia, India, Brazil, and Vietnam. Given its characteristics, YRI is a highly enviable business and is poised to continue its track record of growth into 2009 and beyond. For the U.S. in 2009, although we don’t know how the economy will play out, we will plan to win assuming the macros will make 2009 another tough year. We are excited about the progress we are making on our major sales growth initiatives and we expect to end 2008 with sales and profit momentum. We expect to bring our A game to deliver value-oriented initiatives and deliver a pipeline of premium products to best manage our menu mix. One clear example of doing this in 2008 with Taco Bell’s simultaneous launch of the why pay more menu and the new premium Fruitista beverage line. In 2009, we will also be diligent in our approach to executing targeted price increases as prices are universally going up in restaurants and grocery stores. Finally, we will manage our costs aggressively and we will proactively reduce our G&A spending for 2009. Yum! overall is a very well capitalized company with a strong balance sheet and significant cash flow. This provides us with the flexibility we need to manage our business and doesn’t inhibit our growth in any way. Therefore, we believe we have the business model to succeed in most environments and that we are very well-positioned to successfully deliver growth in 2009. So to wrap up, we are very pleased with our overall second quarter and first half results. We expect 2008 and 2009 to be successful years as we generate consistent financial performance, impressive global growth, strong free cash flow, and substantial returns to shareholders. Back to you, David. David C. Novak: Thanks, Rick. I think that’s a good summary of why [inaudible] stated that Yum! brands in not your ordinary restaurant company. With that, why don’t we open it up for questions and answers and we look forward to talking to you.

(Operator Instructions) Your first question comes from the line of Joe Buckley of Banc of America. Joe Buckley - Banc of America: Thank you. I have a couple of questions. Rick, first just to follow-up on your 2009 comments, you talked about growth but I didn’t hear you mention the at least 10% EPS growth. Is that what you are thinking for 2009 at this point or are you trying to signal something else? Richard T. Carucci: Our target remains always at least 10% growth and 2009 is no exception. Joe Buckley - Banc of America: Okay, thanks for that clarification. Secondly, just on the second half, I know you talked about YRI and it sounds like the third quarter expectations are lower. You expect fourth quarter sort of back to normal. As I look at last year’s quarters, yeah, third quarter was good but it wasn’t off the charts, in my view. Could you talk a little bit more about why the second half expectations for YRI are slowing, and maybe specifically talk about the U.K., if there’s any issues or implications in the U.K. around that guidance?

First of all, I believe our lap for YRI I believe for last year is I think 14, plus 14 and then I think plus 3 in Q4, so the laps are pretty significantly different, so we wanted to make sure we pointed that out to you. And then also you have the continuing challenge of the elimination of the VAT exemption in Mexico, and if you go back to what Rick said in Q2, that was about an 11 point impact in terms of our year-over-year growth, so if you take that into account, YRI was actually up like 20 points on a constant-currency basis in Q2, which is clearly above their performance. So essentially what we’re talking about for the second half is YRI, we’re just expecting them to get back to what is more so their normal run-rate with the VAT exemption included as a negative factor. And as far as the U.K., we’ve had -- we don’t have any particular factors driving that in terms of the second half. The U.K. overall has been a modest performer for us. Pizza Hut U.K. has been down slightly, which is a continuation of the trends, and KFC U.K. has been slightly positive which is pretty much a continuation of their trends as well. We don’t foresee those trends going forward to change all that much, so it’s a little bit of a slower market for us but not dramatically. Joe Buckley - Banc of America: Okay. Thank you.

Your next question comes from the line of Steve West of Stifel Nicolaus. Steve West - Stifel Nicolaus: Just a couple of quick questions on China; when we look at the China margins, I know we’ve got a lot of inflation pressures, we’ve seen margins eroding for the last probably about four or five quarters or so, and now actually accelerating. How confident are you guys in really being able to stabilize or improve the margins as we go forward? It almost seems like we’re in the early stages of the classic growth story, where we have the boom on the top line, margins are going -- and then they start, margins start contracting here. Is this what we are seeing, the early stages of this? And then you know, the second question on that is what kind of impact do you think will happen post-Olympics in China? Do you guys anticipate any kind of consumer hangover from that? Thanks. Richard T. Carucci: Why don’t I take the margin question and I’ll also give my perspective on the Olympics, and David may want to chime in after I give those comments. Regarding the margins, there’s only been one issue regarding China margins and that really was the large increase in chicken pricing that occurred late last year. So when that occurred, and it was in the area of over 30% price increase, we had decisions to make on pricing. And what we did in the third quarter is we priced very significant -- it was about a six point, a six percentage point increase in pricing which didn’t cover all of that inflation because we expected prices to come back down. We’ve been fortunate enough that the sales remained terrifically strong through the fourth quarter, first quarter, and second quarter, so that’s how we’ve been able to generate such huge profit increases. So we’ve been able to get the profit increases without having to price all the way through that high chicken cost thing. Now, the chicken prices have been a little sticky. We were hoping they’d come down a little bit quicker. We still expect them to come down somewhat in the fourth quarter this year and obviously if chicken prices stay high, we have shown our ability to price up. So we feel very confident about China margins, Steve, in the long-term. We’re going to end this year with about 20% margins in Mainland China and I see no reason why we should expect that trend to change going forward.

The other thing I think, Steve, to keep in mind is that what -- you know, obviously there’s global inflation in commodities but there was a significant shock to that market because of the pork situation. That’s the number one protein in that market and there was a significant reduction in the pork supply mid- to late last year because of that blue ear disease. Those are not regular recurring kinds of things and the market is still recovering from that. David C. Novak: Regarding the Olympics, for us as a reseller, I never looked at the Olympics as a big event. We’ve got a few hundred units in Beijing and we’ve got 3,000 units by the end of this year in Mainland China in 500 cities, so I never looked at a two-week event as being a big deal to our business. The one thing we have seen on consumer sentiment is we did see a little bit of a pull-back with the earthquake and obviously as David talked about, that was a huge tragedy for the country there, so that’s been the only impact that we’ve seen regarding that, but we still expect in the 2008 to be a great year overall for China, given the great growth rate we’ve seen and as I mentioned before, we expect to end the year with 20% margin.

And also, just in that same regard to special events, we have the Olympics this year but also if you’re in Shanghai, you know, obviously I think it’s the largest city in China, they are very excited and getting ready for the world event in 2010, so there’s a series of things going on in China and it’s not -- I don’t view it as necessarily just a one-time thing. David C. Novak: I think we just look at China like we continue to look at China. Nothing’s changed. We just had an unbelievable quarter, one of the best I think anybody could ever expect out of any business. You know, same-store sales up 14% for the group. We had 100 units, 14% same-store sales growth. We’ve got the ability to take price, have taken price. We’re growing same-store sales and new units and transactions. So I think you’ve got a pretty strong business here that we’re in the first inning of a nine-inning ballgame and I think as [we said], we’re going to have ups and downs and deal with certain things certain years, but the good news here is that we’re going to have more KFCs in China than we think McDonald’s has in the U.S. someday if things continue to go how they are going. We’re going to have more casual dining outlets in China with Pizza Hut casual dining than the leading casual dining chain here. We think we’ll have more delivery units longer term. We’re developing East Dawning. You know, I don’t know how anybody could look at what’s going on in our China business without seeing we have one of the greatest retail businesses in the world, period. And that’s kind of how we are looking at it and it’s all full speed ahead and we feel very confident of our 20% profit growth model as we of forward in China and that’s what obviously makes us a very attractive company. There aren’t too many companies that have that kind of business that is basically on the ground floor. And remember, we have two-year cash-on-cash returns on this business and remember a couple of years ago, we had a short-term hit where our sales went down 20% and our margins stayed in that 18% range. Now that was for a six-month period of time, so we’ve got a very well-operated business in a country that is growing like crazy where we have the leading consumer brands in our category. So to me, when you look at our business short-term and long-term, it’s pretty damn good news. Steve West - Stifel Nicolaus: Okay, great. Thank you for the perspective. I appreciate it.

Your next question comes from the line of John Glass of Morgan Stanley. John Glass - Morgan Stanley: Thanks very much. A question first on commodities, and given that the food commodity environment is likely to stay high for some time, and I think vendors are maybe less likely to enter into longer term contracts, what are you doing to create greater visibility in food costs? Are you able to use financial instruments, for example, or willing to -- are you willing to look for more menu engineering? How can you provide greater visibility for yourselves in the next year on food cost, if there is any way? Richard T. Carucci: To your point, John, we don’t know what’s going to happen to commodities but we are planning as if they are going to stay high and what we’re going to try to do is just make sure we don’t get behind on it. You know, quite frankly, this year we went into the year assuming it was going to be $55 million. It ended up being $100 million in the U.S. and we got a little bit behind on pricing. We thought we were going to catch most of the [ramp] in Q2. When we talked at the end of the first quarter, we thought commodity inflation was going to be $50 million in the first half of the year, with $25 million in each quarter. It turned out that second quarter alone, we had an extra $5 million in commodity inflation and that was really -- we didn’t have that extra $5 million covered in pricing. As we go forward to the balance of this year and for 2009, we are going to ensure that we have pricing that offsets the commodity inflation, so that’s what we are going to do. We expect the commodity inflation on a per period basis to reduce somewhat in the fourth quarter because we started to see some of the commodity spike occur in the fourth quarter of last year, but we just have to stay on it. And to your point, which we included in the speech, is we are going to have to do all of the above regarding menu mix management. We are still going to have to provide value in these economic times, so you will still initiatives like the why pay more at Taco Bell. But at the same time, we have to launch premium products and handle that menu mix. The one silver lining in the commodity piece is everybody is facing it, so I don’t think anyone is going to really be able to get an advantage in this environment in terms of what products they sell, because pretty much everything is going up across the board. So it’s going to be the people who do the best job of managing new product introductions and value, and those are some of the platforms we’ve been working on since the beginning of this year. So we believe we’ll execute as well as anybody else on those things. John Glass - Morgan Stanley: And then just one other -- in the U.S., the company comps were stronger than the system comps for the first time in a couple of years. So why is that? Is that the mix of the type of businesses that you’ve got, company versus system? Or is that a pricing issue, that you may have exceeded pricing versus franchisees? Richard T. Carucci: I’m not going to read too much into the one point swing. We’ll keep an eye on that to see if there’s a trend there but also, they were outperforming us a year ago so I think it’s probably just more the normal lapping type of arrangement. John Glass - Morgan Stanley: Okay, and did you quantify the impact of the earthquake in China?

It was a little less than $5 million in terms of identifiable costs. We did not quantify the sales impact of that, particularly the week afterwards. John Glass - Morgan Stanley: Thank you.

Your next question comes from the line of David Palmer of UBS. David Palmer - UBS: I want to ask you about the U.S. business -- I mean, obviously you want your -- the complexion of your earnings to look different as you head into 2009, something closer to that 3% comp, 5% plus profit growth. And in the first half, I think if we exclude that $18 million insurance gain, the algorithm looked like a 3% comp growth but a 4% profit decline. And if we look at things from a two-year basis, because there’s been such noise in the business, just embracing your guidance for the year, you have kind of a two-year decline of 5% in profit with flat two-year comps. So I guess my question is just what makes this algorithm turn around for you guys, where you can get the comps and get better traction and flow-through, even though it seems like these cost pressures will be sticking around? Richard T. Carucci: Well, I think I’ll just repeat what I said before, David, is that first of all, obviously we have to continue to get sales. And we’ve talked extensively about that and we are excited about the progress we’re making on sales layers but we have to keep executing quarter in and quarter out on that line. But I think we’re making very good progress. Regarding how we translate that into making more money, I think it comes back to what I said before about we got behind on the pricing versus commodity inflation piece of it, and going forward we’re determined not to get behind. So if we could continue to generate that type of same-store sales growth, the math of getting to 5% works if we could not get behind on the commodity side. So we just got behind on the commodity side this year. David C. Novak: The only thing I’d add to that, David, is -- I’ve got a real simple answer to this; turn around KFC. I think what’s going on at Taco Bell and Pizza Hut, we are extremely excited about. We think we’ve got things moving in the right direction, sales and profits, and we’ve got a lot of work to do at KFC and KFC has taken the [plume] off of what could have otherwise been a very good year, especially that along with commodities have taken the fun out of our U.S. business this year. But in terms of the long-term, we think we’re doing the right things to sustain growth at both Pizza Hut and Taco Bell and as we said at our conference in -- I think it was in May, that we have more room to cover at KFC and that’s basically what the issue is. We’ve got to turnaround sales and profits at KFC and that’s really the key. We do that and sustain what we’re doing at Taco Bell and Pizza Hut and I think everybody is going to be pretty happy with the progress that we’re making in the U.S. business. So I -- you know, I always say, David, and you know I’ve said this before -- in times like these, anytime in a competitive category, it’s what are you doing to yourself? You know, I mean, if you’ve got great programs, great initiatives in our industry, there’s trade down in this industry where people come to our products because of the value. And if you’ve got good value, great product news, you win. If you have poor value, not great product news, you lose. Taco Bell and Pizza Hut, we’re winning. KFC, we’re losing and there’s nobody to blame for that than us. I wish we had a better commodity situation but I wish we had a hell of a lot more product news and more excitement going on for the customer at KFC right now, and we don’t have it, okay? And when we get it, I think the brand will respond. And our challenge now is to keep it going at Taco Bell and Pizza Hut and get it at KFC, and that’s really what the issue is. You know, everybody in this industry is going to do what they’ve done for the last 50 years, is nobody is going to sit there and watch their margins decline forever without taking price, so everybody is going to have to take price and everybody is going to have to take price as smart as they can take it, and that’s what Rick is talking about in terms of price menu mix management. So we are going to be no different than McDonald’s, Burger King, Wendy’s, Papa John’s -- you pick the competitor, everybody is going to have to figure out how to protect their margins because this is all about profit and making money. So that’s going to happen, so what’s really going to make the difference over the longer term is what kind of news and excitement are you bringing to bear, and that’s frankly where I feel very good that we are making the right moves. And I fully admit the proof is in the pudding in the U.S. business. Our last two-year performance looking at what’s going on in the U.S. is not what we want to have happen and we’ve got to bend the curves. Having said that, China, YRI, the growth engines of our business, what really makes us unique is our global business. Those two businesses are humming along and the cash that we generate is humming along. What we’ve got to do to really take a plus 10% consistent business forward and get us to where we’re really happy as a company, okay, is we want to get YRI, China, and the U.S. all humming along together. That’s what we’re focused on getting done and we’ve got work to do and you did a nice job of laying out the challenge and I appreciate that and I think that everybody -- I hope everybody on the call heard that and I hope you are listening to what we are doing about it. David Palmer - UBS: Thank you.

Your next question comes from the line of Jeff Omohundro of Wachovia. Jeff Omohundro - Wachovia: Thanks. Just one question; I know tax rate visibility, quarterly tax rate visibility is tough but I’m just wondering if you have any directional thoughts on Q3 and Q4 as it relates to the full year guidance? Thank you. Richard T. Carucci: Jeff, no, I’ve made a career out of being wrong whenever I’ve tried to estimate a quarterly tax rate, so we’re just going to stick with our best estimate for the full year of about 26% and if I had to guess a number, I’d probably be wrong.

Since we’ve got this, you know, not such a desirable track record of predicting our tax rate on a quarter in a year, the one thing I did look back on was okay, so if I’m out there looking in, look at the quarterly tax rates and there is some seasonality, if you look at it, okay? And you might want to use that, barring anything else and generally, the first quarter is the -- I think the highest. I think the third quarter is the next highest, and Q2 and Q4 have generally been the lower points in the year. So that’s the only other thing I could tell you, just based on history. Jeff Omohundro - Wachovia: Great. Thanks for the help. David C. Novak: By the way, on the tax rate, I would like to compliment our tax team. I think they consistently do a good job of taking advantage of the opportunities we have, which I think are more than most companies, given the global nature of our business, so there’s nothing like making money.

Your next question comes from the line of Jeffrey Bernstein of Lehman Brothers. Jeffrey Bernstein - Lehman Brothers: Great. Thank you. A couple of questions; first just on the U.S., and I think it’s clear versus our estimates, comps came in pretty strong, the restaurant margin is still under pressure. I’m just wondering if you could talk about your confidence in margins for the full year being only down 1%, and perhaps kind of layer in there, and I know, David, you mentioned focus on great value. I’m just wondering if you can give some early feedback on Taco Bell with the $0.79 to $0.99 and Pizza Hut with the pasta push in terms of perhaps the impact to margins, maybe what’s incremental versus what’s cannibalization, just kind of see how much of the impact from margins is due to the push on value. And then I have a follow-up question. David C. Novak: Regarding what’s going on in the brand initiatives and how you are protecting margin with that is that people have been taking a balanced view when they’ve introduced these things, so we’ve talked before about the Fruitista Freeze at the same time as the why pay more for Taco Bell. Also the why pay more menu, 90% of the people who come in to buy those items are buying things on the regular menu, so the team sort of knew that as they were putting that together. Similarly on Pizza Hut, which introduced both Pizzones and Mia as value initiatives, we’re able to fund their menu mix by reducing discounting on core pizza items. So teams as they put these plans together are thinking about how it’s going to be profitable, so that’s sort of how we are managing that piece of it. In terms of why the margins -- we don’t expect -- the deterioration of the margins is what we said before, is that we got behind on pricing in the first half of the year and our plan is not to do that in the second half of the year. So I think the menu mix piece, we don’t expect to have a negative impact as they were designed to protect margin.

Also, Jeff, on commodities, based on what we know today, the commodities, kind of on a per period basis, the impact is going to be about the same in Q3 as it was in Q2, but it’s about $10 million a period. But it’s going to be, based on our expectations, more like 6 to 6.5 in Q4, so there is moderation that we expect in Q4 from commodities. And in terms of your question on the initiatives in the product cost and all that, the other thing to keep in mind is Taco Bell, as David mentioned earlier, Taco Bell simultaneously launched a premium product with the beverages with why pay more, and obviously the beverage line that they introduced is definitely a higher margin type of product, so keep that in mind. The other thing is I think from an analytical point of view and the way I look at it is you know, David talked about the initiatives; keep in mind that a fair amount of those initiatives really began to take hold during or towards the end of the quarter and we’re adding to those as the year goes on, so you’re going to get much more of a benefit we think from what’s going on in terms of longer term initiatives in the Q3 and Q4. So there’s a lot more positives going against what’s out there in terms of our pressures and we expect our pressures to moderate in Q4 in terms of commodities. Jeffrey Bernstein - Lehman Brothers: Okay, and just one follow-up question on YRI -- I know it’s -- you highlight it’s primarily franchise. It looks like it’s about 13% company-operated and you’ve got the restaurant margins well below, what appear to be well below the very depressed U.S. levels, kind of in the 10%, 11% range. I was wondering if you could talk about the benefit of ownership as you guys talk about the focus on the right to own, perhaps countries where refranchising might make sense and push that number even higher if the restaurant margins remain challenged. Richard T. Carucci: As you know, Jeff, we’ve continued to refranchise total markets at YRI and we continue to do that as we speak. So for example, Pizza Hut in France, we continue to refranchise that market. As we look at how we make decisions on where to own equity, we look at one is scale; second is where are we going to get growth; third is where are we going to get high returns over time. Now, what we’ve been doing is we have been investing in some high growth markets that today don’t give us a lot of margin, places like France and India, which we believe will be very good return markets for us in the long-term. So some of what happens is the margin on the YRI piece is a function of where we are investing. In terms of the margin hit this year, that’s really primarily driven by the VAT piece in Mexico, which has had an impact on margins, as well as what I talked about from a country mix perspective. Jeffrey Bernstein - Lehman Brothers: Great. Thank you.

Your next question comes from the line of Rachael Rothman of Merrill Lynch. Rachael Rothman - Merrill Lynch: A little bit on pricing; can you talk a little bit about how the focus on value in the U.S. may impact your ability or would not impact your ability to take price? Does it change at all your pricing strategy? Does it change your pricing power? Richard T. Carucci: Well, it’s just -- to your point, Rachael, it’s really just a both game, is that we believe you have to do both, and so that’s why we try to play the menu mix we talked about and introducing premium products at the same time we provide value, which is what we did in the Taco Bell case, or in the Pizza Hut case we did it by reduced discounting is how we were able to provide value. So you have to figure out how to do both and we think that usually works better than just taking across-the-board type price increases, which the consumer feels more. So you just have to do both so it makes it a little harder game to play, but that’s just the environment we’re in right now. David C. Novak: The other thing, too, we don’t really do this stuff willy-nilly. There’s a lot of learning that we get. For example, we had Pizza Mia, we launched Pizza Mia to get us into the multiple pizza value game. We tested that. We made more money. The pasta, where we have three pounds of pasta for $11.99, that product was engineered so the trade-off versus pizza was minimal and we tested it and we made more money. We tested the $0.79, $0.89, $0.99 menu and we made more money. And I think what’s more important than the product, the margin economics by product is what’s happening to your overall concept. Is the value of your overall concept and the penny profit that you ultimately bring in, and all of our franchisees look at cash. They like making more money. So you can have a little bit of margin degradation as long as you are making more cash, and we’re trying obviously not to have any margin degradation and bring in more money. That’s the ultimate challenge here, but we feel that all of our concepts are better off today because of the moves that we’ve made and we’ve done an excellent job at Pizza Hut and Taco Bell managing the mix and the profitability by item. I think the thing that is challenging us at KFC is that we don’t have that as well-managed as we need to have managed, and we don’t have the news to go along with it and I think as a result of that, we’ve been hit on the bottom line there and we’re hell-bent on doing better. Rachael Rothman - Merrill Lynch: Great, and then can you just talk about how the weakness at KFC U.S. may be impacting the franchisee remodel plans and whether or not you guys are offering incentives to the franchisees to remodel and whether that will lead to greater-than-expected closures? I think you’d originally targeted maybe 200 to 300. David C. Novak: Well, effectively the remodeling plan is complete. There’s a few exceptions that are occurring and if anything, we may do a little better on the closures than what we originally thought, so no impact there. That was really a lot of work that had been done over the last several years.

And we’re not providing any incentives. Rachael Rothman - Merrill Lynch: Great, and then just finally, could you remind me, the price increases in China last year, was the price increase predominantly in the third quarter or the fourth quarter? And I believe you had said it was about 10 percentage points -- is that correct? Richard T. Carucci: No, it was around a -- it was in July of last year that we took about a 6% price increase and then earlier this year, we took about a 2% price increase.

So as we speak, basically, the only ongoing -- the current run-rate on pricing is about -- a little over 2%. That 6-plus from last year July just rolled off. Rachael Rothman - Merrill Lynch: Okay, and in terms of your outlook for pricing in China in the back half of the year, do you feel like you still have capacity to take more price? Richard T. Carucci: We probably have capacity. We’re still judging what we think is going to happen with chicken costs. So we’re going to look at the whole equation and obviously the team, because they’ve had such great sales results, has had the luxury of sort of waiting it out. Rachael Rothman - Merrill Lynch: Okay, great. Thank you so much.

Your next question comes from the line of Larry Miller with RBC Capital Markets. Larry Miller - RBC Capital Markets: My question was just asked and answered. Thank you very much.

Your next question comes from the line of Steven Kron of Goldman Sachs. Steven Kron - Goldman Sachs: Great, thanks a lot. I have a couple of questions; just going back to the U.S., there’s obviously a lot of focus on the business right now and I want to just go back to the margins for a second and we’ve talked about the commodity side of things. At the restaurant, company restaurant level, it seems as though there was incremental pressure or pressure that accelerated on the payroll line and the occupancy line. Now the occupancy line might be where that insurance on a year-over-year basis is hidden, but either way can you maybe just talk a little bit about the trends that you are seeing on those two lines? And then related to that, I guess as you think about the brands -- or can you talk a little bit about the drag maybe that KFC had on that restaurant margin line? Or asked another way, if you don’t want to get that specific, is if you combine Taco Bell and Pizza Hut at this point on a combined margin basis for those businesses that seemingly did pretty well, are those restaurant margins positive on a year-over-year basis?

First let me answer your question on the labor piece because on the insurance that we called out on the year-over-year lap issue that we called out on the U.S., that was split between labor and occupancy and other. So there was -- basically one’s workers’ comp, which goes into labor; the other one is mostly general liability, which goes into other occupancy. So that labor piece that you saw was due to the year-over-year insurance impact from workers’ comp. Steven Kron - Goldman Sachs: Okay, that’s helpful. So if I add that back last year, I think company restaurant margins were down about a percent. So I guess to the second question, I mean, how much of a drag was KFC in fact on that percent, and are the other two brands contributing positively to that line?

I’ll let Rick get into further detail but we’re not going to disclose by brand margin impact but obviously from what we’ve said and what we put in the release, you’re going to have negative operating leverage from KFC because their sales were down and you are going to have positive leverage from the other two because their sales were up. So you definitely had that impact within the overall margin picture in the U.S. just because of that. They were all impacted by the insurance lapse and they were all impacted actually pretty equally on the commodities. Richard T. Carucci: As Tim said, we’re not going to get into specifics but one thing, I don’t think anyone is having a lot of joy right now in the U.S. regarding increasing margins. But I think it would be fair to say most of the decline was driven by KFC. Steven Kron - Goldman Sachs: Okay. And then a follow-up on YRI, Rick; I’m still just a little confused on the back half guidance. Year-to-date, the profit growth has been 18% and I thought in your comments, you said third quarter would be below the first half performance which, understandably so with a plus 18, but your full year guidance is plus 11, so that’s like considerably low because I think you are signaling third quarter will be weaker than fourth quarter. So from a degree of magnitude, were you suggesting that the third quarter will be below the first half as you indicated, or are we really to expect that this profitability is going to essentially flat line or just be slightly positive on a year-over-year basis? I’m just trying to make sure I understand that subtlety. Richard T. Carucci: Well, in terms of the third quarter, we don’t expect -- we expect a fairly flattish kind of number and then we expect, as Tim said earlier, we expect a normal type of number in the fourth quarter, and again we’re getting hit overall for the full year, both first half and second half by the VAT. So again, you’re going to see sort of flattish type numbers in the third quarter and then a more normal number in the fourth quarter. Steven Kron - Goldman Sachs: Okay. Thanks for that.

Your next question comes from the line of John Ivankoe of J.P. Morgan. John Ivankoe - J.P. Morgan: Thanks. I just wanted to understand some of the opportunities to cut G&A in 2009. I mean, for as long as you’ve been a public company, it seems that G&A cost controls and spending the right way has been part of your mantra, so I just want to see what additional opportunity may be ’08 and ’09, and if there was anything structural there. And then secondly, and I’m sorry if you said this, could you give a CapEx number for 2009?

We have not yet for 2009. We’ll have to get you that probably later in the year. We’re at about 800 for the year right now. Most of that for this year, most of that is -- you are seeing increases in development in China and also at YRI, we are investing some money in the Pizza Hut U.K. business on the casual dining side of that, and we’re going to have to take a look and see what we are going to expect, primarily more so on the U.S. side for next year but in terms of mix, you are going to see the U.S. probably go down in CapEx requirement next year, but probably a little bit of upside pressure in terms of China and YRI. John Ivankoe - J.P. Morgan: Is it --

I’d use 800 as at least a starting point. John Ivankoe - J.P. Morgan: Okay. Richard T. Carucci: Sorry, and on the G&A side, we haven’t come up with a detailed plan yet on our approach but what we’ve said historically is as we refranchise that there’s a lag between taking the G&A out and the refranchising restaurants. We’ll probably push the edge of that envelope a little harder than what we have historically. John Ivankoe - J.P. Morgan: And would most of it therefore come out of the U.S. in unallocated, or is there opportunity to begin to see it more on the YRI side as well? Richard T. Carucci: You’ll see it on the -- most likely on the U.S. side and the Yum! side. John Ivankoe - J.P. Morgan: And YRI? Or I mean for Yum!, you mean corporate? Richard T. Carucci: Yum! Corporate. John Ivankoe - J.P. Morgan: Okay. All right. Thank you.

Your next question comes from the line of Jason West of Deutsche Bank. Jason West - Deutsche Bank: I was wondering if you guys are still planning to -- I think you talked about buy-backs of about $4 billion of stock over ’08 and ’09. I just want to see if that’s still what you are thinking and if you’d be willing to raise some debt to make that happen.

We are fully committed and full expect to meet our commitment for the year, which is returning at least $2 billion to shareholders through dividends and buy-back. You know, the thing that I think for us as we felt coming into the year that there would be a fair amount of volatility in the market, so we would be more opportunistic this year. And obviously also we have to be mindful of our liquidity, so we fully expect to meet that commitment. As far as debt, we just added a $375 million term loan to our debt profile. There is a possibility that we may go to the market the balance of the year. We’re basically, just to put it a little bit in perspective, we’re continuing to progress with the execution of what we announced last October with basically a [mini-recap]. We added $1.2 billion in bonds, [10 and third-year] bonds last October. We just added the $375 million three-year term loan. We’re going to be just as we are with shareholder repurchases, being opportunistic. We’re going to be opportunistic with the timing and how we access the capital markets. So again, depending on the conditions in the market, which as you know have been very volatile. We may or may not -- we’re going to make sure we do it the right way, so we’ll be patient. Jason West - Deutsche Bank: Okay, thanks, guys.

Your next question comes from the line of Mitch Speiser of Buckingham Research. Mitchell J. Speiser - Buckingham Research: Thanks very much. A few questions; first, I noticed you didn’t buy back any stock in the second quarter. Any particular reason for that?

No, basically we just said, Mitch, we’re going to be opportunistic and we’re going to also be mindful and keep in mind when we bought back $1 billion in the first quarter, that put us way ahead of our plan and that was basically because the market gave us a huge opportunity to add a lot of shareholder value with the buy-back, and we’re going to continue to do that. But we’ll make our commitment of $2 billion in buy-back and dividend for the year for sure. Mitchell J. Speiser - Buckingham Research: Okay, thanks. And in the U.S., that 4% comp for company-operated, could you break out the pricing traffic mix for us?

It was all essentially -- it was driven by mix and pricing at Pizza Hut and Taco Bell. Mitchell J. Speiser - Buckingham Research: Okay, is that --

There will be more details in the Q but basically it was not transaction driven for the quarter. It was pricing and menu mix driven. Mitchell J. Speiser - Buckingham Research: Okay. If I could ask when the value menu was introduced at Taco Bell, did that swing traffic positive at Taco Bell from that point, or --

Yes, it did. Mitchell J. Speiser - Buckingham Research: Okay. And in China in the first quarter you did break out the pricing and mix. Can you do that for us for the second quarter?

I don’t know the mix part but the pricing piece was roughly about eight to nine, which as we said -- you know, that will drop off based on where we are right now considerably in Q3 but about eight to nine of pure pricing and I’m not sure about the menu mix piece. We’ll have that in the Q. Transactions were also -- were positive. Mitchell J. Speiser - Buckingham Research: Got it. And my last question, just on that $100 million in incremental commodity costs in the U.S., the incremental 50 was the first half and that’s behind us now, but what visibility do you have on that? Is there any risk that that might go higher? Or do you think you are pretty much fully loading all I guess risks into that $100 million number?

Well, we thought we did with the last estimate last quarter, I think was 82. The biggest swing factor pretty much always for us, especially when you’re earlier in the year, is going to be cheese. We generally, throughout a number of different methods, kind of lock in about 30% to 40% of our usage in a given year. Chicken is usually pretty well locked through contracts, so when the two big items that will affect us, cheese and chicken, cheese is where we are most exposed and it’s because we really can’t lock in much beyond that 30% to 40%. So if there’s volatility beyond what we expect in cheese, that’s what will drive positive or negative on commodities. So that would be still our primary remaining exposure, depending on if cheese goes one way or the other. Mitchell J. Speiser - Buckingham Research: Got it. Thanks very much.

Your next question is a follow-up from the line of Joe Buckley of Banc of America. Joe Buckley - Banc of America: I’m set. Thank you.

We actually have time for one more question. Your final question is a follow-up from the line of David Palmer of UBS. David Palmer - UBS: Thanks. Where are you seeing slowing, if at all, in your International business, or is momentum in the last quarter and even intra-quarter really remaining fairly stable?

Well, I think as David mentioned in his remarks, opening remarks, the franchise business units were all solidly positive. I mean, we can go back and read through those but they were all I believe at least seven points of growth to as high as in the 20s in the Middle East. In terms of softness, I think we remarked the last quarter that Japan and Canada were probably -- and the Korea Pizza Hut business were our softest spots, and that’s pretty much still the case in Q2. David Palmer - UBS: So in terms of momentum or sequential changes in growth rates, is there anything that you could call out as being different that would feel like it’s more than just you had a particularly good or bad promotion that feels a little bit more macro?

No, I think part of what we’re -- on the international side, the markets that we just talked about and earlier, a couple of them had a particularly good Q3 last year. Sequentially, there’s not any -- really any change but we are lapping a pretty strong performance at Pizza Hut U.K. and Pizza Hut Korea last year Q3. Other than that, and from a sequential basis, no. Richard T. Carucci: I’d say the one macro thing, David, that’s out there, I don’t know it’s specific to our business but developing countries, the economies that continue to do well, you’re seeing -- there’s been general softness that’s Tim pointed [inaudible] stepped up, but you’ve seen general softness in some of the more developed markets, like Canada, the U.K., those developed economies.

And let me just reread what David said earlier, because these are very impressive numbers. The Middle East was up 27%, South Africa was up 19, Europe up 16, the Caribbean/Latin America up 15, and Asia up 7 -- those are all constant currency system sales growth numbers. David Palmer - UBS: I ask these questions because Coke was reporting some numbers just this morning and they had some slowdown, at least -- you know, and it’s arguable that they are because of tough comparisons but in some markets in the Eastern Europe and Brazil, their growth rates were not quite as strong as they had been, and so that’s generally trying to probe into whether there would be cracks in the international consumer front, even in emerging markets. That’s why I asked.

We haven’t seen any and those are obviously -- for us, those are not big markets. David Palmer - UBS: Thank you. David C. Novak: Okay, well, just let me wrap it up. I think stepping back and looking at the entire Yum! story, it remains remarkably consistent. Nothing has really changed from what we’ve been talking about in the past year, past few years, as a matter of fact. Our global business is strong, with the second quarter EPS growth of 16% excluding special items and year-to-date growth of 17%. Second, the confidence we have in the business allows us to raise our 2008 earnings per share forecast to $1.89, or 12% growth, excluding special items, which once again reaffirms our annual commitment to deliver EPS of at least 10% year after year and in fact, we’re going to exceed it one more time. Third, each of our businesses continue to generate free cash flow, giving us the global capability to return over $2 billion to our shareholders through share repurchases and dividends. And as Tim said, we’re well on our way to doing that. And fourth, we’re already preparing for 2009 to do it again. We’ve got an extreme focus on maintaining our pace of development, rolling out the differentiated products and sales layers that I’ve been talking about the value options, and we are fully aware of the challenges associated with managing food inflation and we’re dealing with that through the smart kind of pricing and the kind of G&A management you’d expect from any well-managed company and hopefully we want to be in that camp. So with all these things underway, in spite of the macros and in spite of all the challenges that people see out there, we believe that we will continue to achieve our EPS growth commitment of at least 10% in 2009 as we go forward and beyond. You know, like I said, I don’t know of any retailer who has a better longer term impact or ability to impact the three things that drive share price in the retail category. You know, same-store sales growth obviously with all the sales layers that we are working on and the fact that our asset base is clearly under-leveraged in terms of use throughout the day and also in terms of the variety that we offer. New unit development -- there’s no retailer in the world that’s developing more new units outside the United States than Yum! Brands, and we are doing that now with three brands, admittedly Taco Bell is just getting started there. And then return on invested capital, top tier, you know, arguably the highest in our industry. So we’ve got all those working for us. Those are the long-term factors that make us a great investment and have all of us in Yum! excited about the future. So frankly, if you go back and you listen to any call we’ve had in the last five years, you know, this is kind of our story, we’re sticking to it and we’ve just got to execute and stay after the things that are clearly opportunities for us as we go forward. So really appreciate the call, the spirit of the questions. I hope we answered the questions that you had and go back to running the business and delivering the goods. Talk to you later.

Thank you again for participating in today’s conference call. You may now disconnect.