百勝餐飲集團 (YUM) 2003 Q3 法說會逐字稿

Good morning, my name is Lisa and I will be your conference facilitator today.

At this time I would like to welcome to the YUM!

Brands 2003 third-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Tim Jerzyk, Vice President of Investor Relations.

Mr. Jerzyk, you may begin your conference.

Thanks, Lisa.

Good morning everyone, thanks for joining us on the call.

Before we begin I'd like to go through a few items.

This call is being recorded and will be available for playback.

We are broadcasting the conference call (technical difficulty) at www.YUM!.com.

Please be advised that if you ask (technical difficulty) it will be included in both our life conference and any future use of the recording.

I would also like to advise that this conference call will include 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 that's included in our earnings release from last night and make (technical difficulty) call remains in the active portion of the Company's Website which will be until midnight, August 1, 2003.

On our call today we have David Novak, Chairman and CEO, and Dave Deno, our CFO.

Both will follow with remarks and we will then take your questions.

I'll turn the call over to David Novak.

Good morning everybody.

I'm pleased to report that we ended the third-quarter with earnings ahead of our own target and 17 percent growth in EPS prior to special items.

Year-to-date through the third-quarter our growth is 11 percent.

An important factor is that our three largest businesses, YUM!

International, Taco Bell and Pizza Hut, closed the quarter with positive trends.

As a result of the third-quarter performance, we have raised our full year earnings commitment to at least $2.03 EPS prior to special items.

This is 3 cents above the commitment we made to shareholders last December and represents at least 11 percent growth despite a tough year in our category and in retail.

Just as importantly, we are confident we have plans in place and momentum is building for another solid year in 2004.

Now let me give you a perspective on results year-to-date.

In spite of challenges with growth in U.S. same-store sales at Pizza Hut earlier this year, and KFC year-to-date, we are exceeding our 2003 earnings commitment.

Importantly, we are continuing to expand our international base of restaurants at nearly a 6 percent rate.

This is the key target to be achieved to enable our company to reach our long-term commitment of at least 10 percent annual EPS growth.

Dave Deno, our CFO, will talk more about our third-quarter results and our full year forecast shortly, but let me update you on our key strategies.

First, international new restaurant expansion continues to be absolutely on track even in a challenging year with Middle East turmoil, short-term anti-American sentiment and SARS.

As you may recall, profitably adding 5 to 6 percent to our international restaurant base is the most important contributor to the YUM! earnings growth model.

This year we expect to grow our international restaurant base by a net 6 percent again.

Obviously this bodes well for continued international growth in 2004.

The Company and its franchise partners will open more than 1000 new international traditional restaurants for the third straight year.

The key drivers are continued rapid expansion in China, continued solid expansion in the UK, and continued growth in our franchise markets around the world, particularly in Asia, the Middle East, South Africa and Latin America.

We have a powerful international franchise base of over 500 franchisees, many of which are participating with us in the growth of our two global brands, KFC and Pizza Hut.

In fact, when you look at just our international franchise business, where virtually no company capital is employed, our international franchisees alone will open 600 to 700 new restaurants again this year.

Stepping back, that growth matches up quite well in the restaurant category.

Our international franchisees alone account for more openings than Wendy's U.S., more openings than Tim Horton's Canada, more openings than Panera Bread in the United States, and nearly as many openings as Starbucks North America.

Again, that's just our international franchise openings.

Our business teams and our franchise partners around the world are doing a great job of continuing to expand our KFC and Pizza Hut brands.

In China, our most significant company growth market, we'll open up over 250 KFC and Pizza Hut new restaurants this year.

Entering 2004 China will be a $1 billion business in terms of systemwide sales.

Just think of the companies in the U.S. who are striving to develop concepts that could generate $1 billion in sales.

The YUM! business in China is already there with over 20 percent returns on new units and we expect to grow units rapidly in the range of 20 to 25 percent per year for the foreseeable future.

This enables us to achieve our stated goal to deliver profitable, and I want to emphasize profitable, growth not just growth.

I just returned from stores and teaching a leadership class with our key business leaders in Europe.

Importantly there we are investing in Continental Europe to develop additional markets to contribute our international growth equation 3 to 5 years from now, and that's not all.

We have a new Pizza Hut franchise business in its early stage of development and we're carefully looking at Brazil and Eastern Europe, including Russia, for possible future development.

Additionally, we've added new brands including Long John Silver's, A&W, and Pasta Bravo which we believe could have global potential.

We are exploring and testing these now along with Taco Bell in various multibrand forms as we look to leverage our full brand portfolio and an international infrastructure set up to run restaurants around the world.

This could add even more to our profitable international new unit growth capability in future years.

We're working hard to make that happen.

I think it's fair to say there is no other global restaurant company as uniquely positioned as YUM!

Brands today.

We're the only global restaurant company already developing and profitably growing two major global brands.

All in all we continue to be confident YUM!

International's growth engine is on track, and we're looking to make it even stronger.

It's a huge strategic advantage for this Company.

In the United States market we continue to focus on our two key differentiation strategies, to ensure steady growth in a competitive market and maintain the very strong cash flow from this business our shareholders greatly appreciate.

The key is for us to continue to differentiate our brands and make them more relevant in every trade area in America.

We think that will come about as we execute our two key U.S. strategies -- one, multibrand innovation and expansion; and two, strongly differentiating our brands and dramatically improving our restaurant operations.

First, on multibranding.

We have really focused this year on determining the best brand combinations, improving the operating systems, running the restaurants extremely well, and on making multibrand facilities design more appealing to the QSR customer.

Our customers continue to tell us they love the look and feel of our new multibrand restaurants and the branded choices they offer.

Today we are testing multibrand combinations that include A&W/Long John Silver's, Taco Bell/A&W, KFC/Long John Silver's, and Pizza Hut with Pasta Bravo.

We're especially excited about the prospect of achieving national distribution with Long John Silvers, creating a national QSR brand in the fish category.

We've also make progress this year in establishing a young multibrand franchise contract for our new brands, operating and financial standards to allow for franchise participation in multibrand development, and a new YUM! building design for any brand combination to enable reduced capital investment through standardization.

We're pleased we have moved forward with multibranding this year and expect to continue to get better and better.

Our number one priority is building operating capability and systems to ensure outstanding execution of this breakthrough strategy that our customers tell us that they love.

Our second key strategy, differentiating our core brand portfolio by dramatically improving restaurant operations.

Aylwin Lewis updated you on our progress during the last call, we'll provide another formal update on our operations progress at our New York meeting this December 10th.

In case you missed it, QSR magazine's annual drive-through survey confirmed we're making progress.

Taco Bell and KFC both showed good improvement from last year.

We were proud to see Taco Bell rated as the number two chain in terms of overall drive-through effectiveness for the consumer.

Remember, just three years ago Taco Bell ranked 14th in this survey.

That team has made great strides over the last two years to bring a more trusted experience to Taco Bell customers.

KFC made good progress, moving up to ninth in the QSR magazine drive-through study survey from 19th last year, still a long way to go.

We just rolled out Taco Bell's drive-through and speed of service initiative at KFC and continue to expect to make more progress next year.

We want Taco Bell and KFC fighting it out for the top spot, and we're confident we can make that happen.

The key is for us to stay focused and execute better and better every day.

This is a multiyear journey and we're just beginning.

As we improve our operations we expect consistent same-store sales growth.

We believe we are poised to have a better year in 2004.

In addition to operations, we are more focused than ever to build strong brand positionings and outstanding product news pipelines.

Today we are extremely pleased with the progress at both Taco Bell and Pizza Hut.

Taco Bell is clearly positioned as the bull choice with it's highly impactful "Think Outside the Bun" advertising campaign.

We just reviewed the product pipeline for 2004 and we are very confident that the brand has the marketing arsenal, along with continued improvement in operations, to keep its same-store sales growth on track.

At Pizza Hut we've made some changes this year. "Family Sharing is Best with Pizza Hut" is the new positioning.

Families drive 85 percent of total pizza occasions.

We have launched a new family targeted advertising campaign, "Gather Around the Good Stuff" featuring Queen Latifah as the voiceover, and have been pleased with initial results.

Most importantly, this has also been a year of significant successful new product testing for Pizza Hut, so our marketing calendar for 2004 will be filled with proven product news.

The net is, we believe the table is being set for a very solid foundation and performance for Pizza Hut.

(technical difficulty) KFC has not made similar progress and the brand is having a very disappointing year.

We have taken action and new leadership is now in place.

We have appointed Greg Dedrick as President and Scott Bergren as Chief Marketing and Food Innovation Officer for KFC.

We have also conducted an advertising agency review and just charged Foote Cone & Belding to help us reposition KFC in a much more contemporary, more relevant fashion.

Let me tell you about KFC's new leadership team.

Gregg Dedrick is a proven executive who I have worked side-by-side with for over 10 years.

Gregg has my total confidence.

He was my right hand man when we turned KFC around when I was President of KFC from 1990 to 1994, he has served as the Chief People Officer for both KFC and Pizza Hot and then for YUM!

Brands.

He also headed our shared services functions and helped drive our restaurant focus culture in performance measurements working closely with Aylwin Lewis.

He is a result oriented leader with a strong understanding of the consumer and operations.

He knows the KFC brand and the KFC franchise system, so his learning curve will be short.

He is outstanding at both strategy and execution, which is a must in this category, and he is already energizing the KFC team.

Scott Bergren was hired by us two years ago when he was President of Chevy's, he has since been Chief Concept Officer of our international business.

He has deep restaurant experience, over 20 years, and a track record for creating outstanding marketing, advertising and new products.

His creative and concept building skills are exactly what we need at KFC and he is now working full-time on the KFC brand.

Together Greg and Scott form a dynamic combination that gives us the horsepower to revitalize KFC.

One of their first key decisions was to higher Foote Cone & Belding.

A new brand positioning and advertising campaign are in the works.

The team is working aggressively to turn around the business.

We are making significant investments in test marketing this quarter on both the value and new product front.

We are also testing bold new ways to feature our four fried chicken products.

You'll soon see signs of progress, but we do not expect a real significant turnaround until next summer.

We have some very weak overlaps, we could have some positive same-store sales growth, but we think it's going to take us until the summer to really know that we've got this business back on track and humming.

It will take some time, but we have every bit of confidence that the KFC U.S. business will build the right brand foundation just as we did at Taco Bell two and a half years ago.

With that, let me turn it over to Dave Deno, our CFO, to take you through the details of the (technical difficulty) forecast, how we will deliver at least 11 percent EPS growth, strong free cash flow again this year, continued growth in franchise fees, strong returns, and an even stronger balance sheet. 2003 will be a good, not great year.

We'll achieve at least 11 percent EPS growth before special items.

Just as importantly, we have set the table for continued growth another year, 2004, with at least 10 percent growth in EPS.

Let me turn it over to Dave.

Thank you, David, and good morning everybody.

Before I review our Q3 results, let me update you briefly on the full year picture for YUM!.

On the strength of our third-quarter results and momentum present in our largest business, we are looking at full year EPS of at least $2.03 a share prior to any special items, which is 3 cents better than what we told you last time and committed to last December.

That would be growth of at least 11 percent in EPS for 2003 in what has been an interesting and challenging year.

The forecast we will lay out for Q4 is based on continued strength in our international business and Taco Bell coupled with continued improvement at Pizza Hut.

The trends in these important businesses allow us to be comfortable with the consensus of the 62 cents a share.

Stepping back and looking at YUM!, the following six key observations and trends are important.

Number one, our international business, our largest and fastest-growing division, has rebounded (technical difficulty) from turmoil in the Middle East and a short-term impact of SARS.

YUM!'s international business will grow its profits by at least 19 percent this year, up 14 percent prior to the benefit from foreign currency. (technical difficulty) This growth has been driven primarily by continued strong new unit expansion.

Additionally our markets and businesses with significant scale are doing quite well.

For example, China, the UK, Australia KFC are all doing well.

Clearly momentum is building as you saw in our release last night.

Period 10 estimated system sales growth of at least 10 percent local currently lapped a strong 9 percent a year ago.

This is the best period sales results for international all year.

Taco Bell, our largest U.S. business, continues to do extremely well.

We are now entering our third year of strong same-store sales growth.

Pizza Hut has bounced back after a very difficult first half and is now outperforming the category with one of its best quarters in same-store sales growth since the first half of 2001.

Number four, KFC is having a very challenging year.

We have made major changes there, as David noted, and put significant resources up against this U.S. business to get it back on track.

Number five, Long John Silver's is performing well.

It is completely integrated within our company and our multibranding plans are proceeding.

The Long John Silver's brand will play the lead role in U.S. multibranding.

And finally number six, our free cash flow will be better than expected and our balance sheet continues to strengthen.

Along with over $1 billion in cash flow from operations, we'll have about $50 million in after-tax refranchising proceeds and our capital spending will be less than what we expected coming into the year.

With this strong free cash flow we continue to repurchase shares and we will have the lowest year end debt balance we have ever had at YUM!.

Our balance sheet compares well with even the largest company in the restaurant category.

Turning to Q3, overall for Q3 before special item charges we came in at 54 cents per share, which is about 2 cents ahead of our own prior expectations.

As you saw from our third-quarter earnings release last night, stronger than expected international sales growth and margins helped offset weaker than expected U.S. comps and margins.

We especially hit our sales and margin targets at Taco Bell and Pizza Hut.

A short fall at KFC was the primary reason why U.S. blended results were less than expected.

Additionally, we had modest upsides in G&A expenses and the tax rate was in the range we expected, although at the lower end of the range.

Now let's talk about our lines of business for Q3 in a little more detail.

First, our international business.

On a local currency basis we had expected international system sales growth of 4 to 5 percent for the quarter.

Actual growth was 6 percent.

Importantly, the better than expected performance was driven by our large-scale markets where we have company ownership, China, the UK, Korea Pizza Hut and Australia KFC.

This resulted in an international restaurant margin that was better expect by about half a point.

Markets currently experiencing soft sales include Mexico, Japan, and the Taiwan KFC business.

For our (technical difficulty) U.S. blended same-store sales at company restaurants were slightly positive versus last year.

It was an essentially KFC weakness that kept us below our own expectations of 2.7 percent growth for the U.S.

On the cost side, our U.S. restaurant margin was lower than expected primarily as a result of lower comp sales growth at KFC.

Looking at the corporate and infrastructure aspect of our business for the third-quarter, G&A costs, which were $6 million better than expected, were lower -- were less than last year by $6 million.

We continue to work hard at identifying permanent opportunities to reduce G&A in taking costs of our business.

Store closure and impairment expenses were favorable versus our own expectations, however this will help offset the negative impact of a loss from refranchising during the quarter.

As we noted in our last earnings release, we had expected a modest gain from refranchising in the third-quarter.

The tax rate was at the lower end of the range we had expected.

Our tax strategy and structures will occasionally have upsides flowthrough in particular quarters.

We experienced the benefit of favorable tax upsides in our international business this quarter and we will once again in Q4.

In terms of cash flow, Q3 was a very good quarter.

We were able to reduce are debt by $137 million, buy back $39 million of our stock, and invest $145 million of capital into the business.

We continue to allocate our capital in a very disciplined manner, and any assets on the balance sheet must earn the right to remain on the balance sheet.

You should expect to see continued modest levels of refranchising the balance of the year and into next year.

We expect about $50 million of after-tax cash proceeds from refranchising for the full year 2003, a nice return on capital to our shareholders.

So in summary, in the third-quarter with 17 percent growth in EPS prior to special items, it was a very good quarter considering the challenges we faced with SARS in some international markets early in the quarter and weaker performance at KFC.

This outstanding performance was led by our biggest businesses and we continue to make progress in our corporate and infrastructure costs.

Before wrapping up Q3, an important milestone for our company was achieved in this quarter.

With its continued rapid growth and high returns, our China business made more money than our KFC U.S. business this quarter.

The China market now with nearly 1000 YUM! restaurants is a major profit contributor along with Taco Bell U.S. and Pizza Hut U.S.

This is quite an achievement and speaks to the dynamics of this huge Asian market and the changing nature of our company in our large and growing international business.

We all need to think about our company now in global terms, especially now that China is so large.

We'll talk more in-depth about our China business in our upcoming December meeting.

Now let's talk about the remainder of 2003.

The fourth-quarter is our longest quarter, 16 weeks long.

For the fourth-quarter we're fine with a consensus estimate of 62 cents a share, 11 percent growth compared to last year.

As noted in our release last night, achieving 62 cents per share for Q4 has keyed an international system sales growth of 8-9% in local currently terms and blended the company's same-store sales growth of about 1 percent versus last year.

As always, you can track our progress during the quarter as we provide you with both international and U.S. sales updates (technical difficulty).

We provided you with all the necessary details related to our expectations for the fourth-quarter in our earnings release last night.

Please refer to do that for further details if you missed it.

Now let's briefly look at our key businesses for Q4, how the full year 2003 looks, and a few comments on our longer-term trends.

First, on international.

In China the business rebounded very nicely in the third quarter after a short-term impact from SARS.

In KFC China we just launched a roasted platform which will help to further expand our chicken offering there and build on our market leadership.

The launch began as we entered Q4.

Most importantly for this market we expect to open over 250 new restaurant fare this year, mostly KFC, but also some Pizza Huts.

Unit growth in China is currently running 31 percent ahead of last year.

Our China business continues to expand rapidly.

As we told you last December, China is our biggest single market for international business.

As of Q3 there will be -- at the end of Q3 there were 885 KFCs and 113 Pizza Huts in China.

When looking long term as to how many units there could be in China, a key retail metric, urban population in China, is about 250 million people, very close to the entire U.S. urban population.

Turning to the UK, both the Pizza Hut and KFC businesses are having good years with solid unit growth.

Currently -- units are currently up 9 percent versus last year in the market as a whole.

Additionally, comp sales have been modestly positive.

KFC UK has just recently launched salads and Pizza Hut UK is expanding delivery while doing well in their dine in businesses.

The UK market is another very big market for us.

Both the KFC and Pizza Hut brands each have over 500 restaurants.

Based on what we know today, we think both brands can reach scale of 1000 restaurants, about double the current scale.

There's plenty of room for us to grow these brands in the UK.

China and the UK have been and will continue to be key growth markets for YUM!.

In Australia the KFC business, another important business with about 500 restaurants, continues to do very well.

Comp sales have been solidly positive all year and remain so in Q4.

This is a well-run business that gets better and better each year and the macros there are looking better.

In South Korea our Pizza Hut business, with nearly 300 units, has bounced back nicely after months of soft sales performance.

Our key challenges internationally are in the markets such as Mexico, which is primarily a company market, and Japan, which is a joint venture.

Looking ahead to 2004, for our very important international businesses same store sales momentum looks good, and most importantly we expect to open 1000 new traditional restaurants again this year including well over 400 openings in this fourth quarter alone.

We expect 5 to 6 percent compound growth in our big international restaurant base for the foreseeable future.

This is a very significant driver of YUM!'s EPS growth.

Now turning to the U.S.

For the U.S. market while we'll continue to generate substantial cash flow and modest profit growth, blended comp sales for the U.S. company restaurants in the fourth-quarter is expected to be about 1 percent.

This is based on continued solid execution at Taco Bell, positive results (technical difficulty) but we do not expect positive performance at KFC in the fourth quarter.

Taco Bell, our largest U.S. business, continues on a path for a very good year with steady same-store sales growth of at least 2 percent for Q4 lapping in solid +3 growth in the fourth quarter, and another positive year before that.

This is the beginning of the third straight year of strong growth for Taco Bell.

Taco Bell's performance continues to be among the very best in the restaurant business.

Expect no major changes for the balance of 2003 at Taco Bell with continued focus on better execution of restaurant operations, brand positioning, and relevant product news like spicy chicken burrito to keep the consumer excited about the bold choice at Taco Bell.

As David mentioned earlier, Taco Bell's drive through service leadership, noted in a recent survey, is a key factor in this business.

We expect they'll continue to get better and better.

Longer-term indications continue to be positive.

Based on the recent product review at Taco Bell the pipeline for 2004 looks full and its marketing calendar is in place for next year.

Expect more "Think Outside the Bun" product news from Taco Bell in coming months.

On to Pizza Hut. (technical difficulty) said earlier this year, the new team led by (technical difficulty) extremely hard to improve brand performance and our expectation was for progress to begin to show in the second half.

So far (technical difficulty) happy to say they are on target.

Comp sales results for the third quarter are up 3 percent, their best quarterly performance since the first half of 2001.

A new brand positioning and ad campaign were launched with a large pizza and DVD offering in period seven.

As David said earlier, Pizza Hut is implementing a definite shift to targeting families with the positioning of "Family Sharing is Best with Pizza Hut".

This coupled with differentiated relevant value offers the time starved family looking for whole meal replacement solutions.

Expect improving execution along these lines, better operations execution, especially around improved customer access, and of course exciting new product news and innovation.

Company store sales growth at Pizza Hut for the balance of the year will be in the 1 to 2 percent range with the biggest challenge being period 11.

Last year we launched the Chicago dish in period 11 with strong results.

For the full year same-store sales are expected to be slightly positive versus last year.

We are pleased with the progress to date made by the Pizza Hut team in the U.S.

They have more work to do at Pizza Hut, however, and looking ahead this team has also done a very good job of locking plans in place for 2004, ahead of normal timing.

Their product pipeline looks good.

At KFC expect continued focus on improved restaurant level execution in terms of speed of service.

Additionally the KFC team is working on a new way to sell fried chicken in their introduction of non fried products.

This will be supported with a new advertising campaign to be introduced later this quarter.

As you've already seen, the team decided to change ad agencies.

From period 11 through year end we expect to see negative same-store sales growth which is built into our forecast.

The numbers will be negative while they are working on rebuilding the product pipeline and testing for more impactful product news later in 2004.

As David said, we may see a positive blip from time to time because the overlaps are weak, but we'll be working hard between now and the balance of the year and into next year to get the pipeline and marketing going.

For the full year KFC comps will be down about 3 to 4 percent and represents our single biggest challenge in the U.S. going into 2004.

We are working as hard and as quickly as possible to change (technical difficulty) The team at KFC recently decided to invest in additional test markets during the balance of 2003.

These additional test markets will cost YUM! about 1 cent in earnings during 2004 and will have about 20 basis point impact on margins in the fourth-quarter.

Excuse me, 2003, I'm sorry.

For the U.S. business this means blended same-store sales growth for 2003 will likely be about even with last year versus our targets of up 2 percent.

We have had our challenges, but we believe that our two biggest brands, Taco Bell and Pizza Hut, will finish 2003 and enter 2004 with improved levels of differentiation, strong brand positioning and product offerings.

At KFC U.S. we believe we've made the right investments and the right decisions to turn around this performance in (technical difficulty) Importantly for the U.S. as a whole we (technical difficulty) to get better and better, especially regarding customer service and speed.

Finally turning to our corporate expenses.

We continue to make progress in the overhead and infrastructure cost in our business, specifically G&A, interest and tax.

It's in our culture to be stingy on G&A.

We'll always be looking for ways to reduce G&A cost particularly in nonstrategic areas.

However, as you've heard from me in the past, we are sure to be properly invested behind our key strategies and have actually stepped up spending in the past two years to support international expansion, multibrand innovation and dramatically improving operations.

I'm happy to report G&A costs will be very tightly controlled this year.

For full year we expect our G&A costs will only increase about $8 million versus last year, and that includes the absorption of a full year of G&A from our Long John Silver's requisition last May and roughly $20 million more of G&A in our fast growing international business.

Interest expense will likely be $9 million lower in Q4 than last year as we expect to reduce our debt levels.

And our Q4 tax rate we expect will be in the range of 29 to 31 percent, just about even with last year.

Turning to cash flow for 2003, we remain (technical difficulty) meeting or slightly exceeding our full year target.

We will generate over $1 billion of cash flow from operations, plan to spend about $750 million in capital including franchise aquisitions, which is down from our original plan of $825 million.

We will also generate $50 million in after-tax refranchising proceeds.

All in net investment to our balance sheet will be less than $700 million for the year.

Importantly, subsequent to the end of the third quarter, we made a sizable contribution of $130 million to our closed pension plan.

With all the free cash flow we will continue to pay down debt and buy back our stock.

We expect to end another year with a further strengthening of our balance sheet, even better financial ratios, and the lowest year debt level YUM! has ever had.

So finally, this year the challenges have come our way.

And we have been meeting and sometimes exceeding our own targets.

As a result, we now expect at least $2.03 in EPS or at least 11 percent in EPS prior to special items for 2003.

Our target has always been to meet or beat our commitment to shareholders as we detail each December in New York.

Back to you, David.

Just let me summarize.

The bottom line is 2003 will be a damn good year for YUM!

Brands.

We'll achieve at least 11 percent EPS growth before special items.

Just as importantly, we have set the table for continued growth another year in 2004 with at least 10 percent growth in EPS.

We are as focused as ever on executing our three key strategies and getting better and better every day.

International is doing very well, multibranding is gaining traction, operations are improving.

Most importantly, we have the best leadership teams we've ever had to execute our strategies.

We manage a global growing business.

Three out of our four major businesses are on track.

The KFC business is behind but is being attacked with new leadership.

We manage every line item like we're an owner, and within our portfolio we do have our ups and downs, but I think we do have a track record for getting after those downs faster than most.

We've said you can count on us for at least 10 percent growth each year, we're doing it and we'll continue to do it.

With that I'd like to open it up for any questions you have.

Lisa, we can do the questions.

(OPERATOR INSTRUCTIONS) Mitch Speiser with Lehman Brothers.

On restaurant margins in the fourth-quarter can you outline in the U.S. the biggest sources of margin pressure as well as international -- the biggest sources in the fourth-quarter and give us a sense of what we should expect for worldwide margins in 2004?

Thank you.

In the U.S. the biggest source of pressure are in two or three areas.

One, cheese costs are costing us some, and this year is kind of a normal cheese year as opposed to last year which was abnormally low.

We expect in 2004 to be a more normalized cheese cost year.

Beef costs are a bit higher, they've picked up lately, Mitch, versus prior expectations.

That may continue into part of 2004 and we're going to have to deal with that.

And then finally, the sales deleverage at KFC did cost us some in Q4.

And also, as I mentioned in my remarks, we are spending about 20 to 30 basis points in advertising for our test marketing at KFC.

So the only thing that long-term, Mitch, in the U.S. that we are concerned about are the beef prices and we'll continue to watch that and take actions where necessary.

Cheese we expect to be normalized and, obviously, we expect our sales trends at KFC to eventually pick up.

For next year in the U.S. we expect our margins to be up 20 to 30 basis points.

And if you look back on Q1 and Q2 of last year, we did have (technical difficulty) at KFC and Pizza Hut I don't think we're going to see again, and I think we've got an upside there into next year because we aren't going to have that kind of discounting.

On to international, almost all the markets from a margin standpoint are performing quite well.

We have Mexico, as I mentioned earlier in my remarks, is a market that's a little soft right now, so we've got some margin issues there on the sales side.

And then we've got some relatively small underscale markets like Pizza Hut in France and our Thailand business that are not doing particularly well right now, and those markets are costing us some on the margin points.

We continue to address those businesses.

Some of those businesses we will lighten up on our equity ownership there as we are in France right now.

And we expect, given the solid performance that we're seeing out of our (technical difficulty) internationally for Q4 margins to hopefully beat a conservative forecast, we'll see, and then give us strength into next year.

So, for the international margin outlook, Mitch, we expect to be up 20 to 30 basis points, we expect to (technical difficulty) and our core markets are doing exceptionally well.

Janice Meyer with Credit Suisse First Boston.

Given that unit growth is so important to your future, what do you think you can do to make sure you don't over expand in some of your bigger markets as McDonald's seems to have done?

Janice, we have a -- I don't know McDonald's own internal processes and I'll leave that to them.

We have an exceptionally disciplined capital allocation process.

Every quarter we go through our figures in great detail and then allocate our capital accordingly.

For example, at one point in time we thought Thailand had a little more robust growth to it than we think today, in that marketplace the capital invested behind that market is much lower than it was in the past.

On the other hand, if markets are doing exceptionally well we tend to up our capital spending a bit, and a few years ago we decided to up our investments in China.

So this is something that we track extremely carefully, and David in his remarks highlighted profitable restaurant growth, and that's really what we're all about is profitable restaurant growth internationally.

How many -- as an example, there are some markets that go through it blip for a year or two.

How long have you maybe in the past invested in a market that wasn't currently profitable thinking that it might turn profitable?

(technical difficulty) Janice was the (indiscernible) CFO of international at the time was working with Pete Bassey (ph), and remember the Asian currency crisis in 1998.

We decided to keep investing behind that business even though those businesses -- even though things looked a little soft at the time because we knew we had great businesses, we had great leadership, and we felt that the market could come back.

So we kept investing and we are now reaping the rewards today.

That was about an 18 month time frame there where we had to kind of think through that.

We slowed down in Korea, Janice, and we also are slowing down in Mexico right now.

In Mexico we've slowed down significantly for next year.

I think that profitable international growth is our mantra.

We're not on a march to match any of our competitors' great years.

We're on the match to really keep driving shareholder value with great returns.

China -- we get well over 20 percent returns.

And the other thing I think really helps us with our international businesses is the franchise infrastructure that I talked about. 500 franchisees growing anywhere from 55 to 70 percent of our new unit development gives us high return, and that's an obvious focus.

And what we're really trying to do now is where we really have scale in our franchise markets, Malaysia would be a great one where we have dominance.

We want to give that franchisee another brand, weather it's an A&W/Long John Silver's combination or a Pasta Bravo, we want to provide another brand for our franchisees to leverage.

The Middle East is another great example where we have Americana, great franchisee, great infrastructure.

They have 500 restaurants basically.

Why not give them another brand? (technical difficulty) and the returns associated with it.

Thanks so much.

John Ivankoe with J.P. Morgan.

A question KFC.

David, I'm going to ask if you could provide more color, maybe really in terms of where KFC can go from here?

You're making illusions to a lack of relevance, but if we think about what's been done over the last 10 years, for example, with the tender roast, with the cold twister, hot twister, strips, wings, sandwiches -- different offerings have been tried and have been moderately successful at different points in time.

But how do we bring it all together, to take a brand which arguably has significantly less relevance today than previous years and actually drive it with consistent growth going forward from a product perspective?

Thanks.

I think, John, that's a great question and I will try to do my best to give you a perspective on it.

First of all just stepping back looking at the category (technical difficulty) category, and we're primarily fried chicken which is down right now.

Our business challenge is that we've got to reinvigorated our core, we've got to reinvigorate fried chicken.

We also have to meet the consumer trends for better-for-you products, nonfried, and they also -- the portable products also have a very strong appeal.

The other issue that we are facing is that we need to provide affordable and predictable everyday value.

Finally, I think the thing that has hurt our consistency the last couple of years is our operations have not been as reliable as we want.

So those are sort of the challenges that we face.

What we need to do is reposition the big brand to make it more relevant.

We want to really drive a more contemporary image for KFC.

We have to celebrate more of what we are, and that is world-famous chicken.

We think we have been a little bit -- we haven't really leveraged the fact that we have a multicultural target that is where all of the demographic segments are grown, that group happens to like.

Hispanics and African-Americans love our products.

We haven't really exploited that like we really should have.

So, basically, we brought in Greg and Scott.

Their first task is to really position the brand on the basis of what we are and what we think we can become.

Now, what do we think we can do realistically with our brand?

Next year, we're going to be launching a new menu board that reflects where we think we should be taking the brand.

It is to really leverage our everyday value, it is to leverage fried, and also offer up a green section, for lack of a better phrase, the better-for-you products.

What we hope to drive through this menu board is everyday affordable value and more options, fried and nonfried, as we go forward.

Now, one of our problems that we have had is if you go back in the last ten years, we haven't made this work through our operational platform.

Some of the new products that we have brought forward have not really been able to stick because it hasn't really -- we haven't made it work with our current operating platform.

So what we are doing I think that is different than in the past is the products that we are developing, the core products that we offer, we want them to have our operating platform be geared so that we can keep them on the menu, so that we can be more reliable in the fried and the nonfried segment.

Now, what does that mean?

For example, one of the things that we're looking at is that we have a great Crisp Strip product line.

Crispy Strips are fantastic.

Rather than bringing in a new meat block to get after nonfried, nonfried strips, and use nonfried strips in your plated meals, use nonfried strips on salads, use nonfried strips on twister, so that we really are leveraging a meat block that we already have in there so that you can keep the products that we put it on the menu.

All of the products that we have introduced in the past, whenever we introduced Tender Roast, we have had significant growth.

Our biggest challenge has been is we haven't been able to sustain the volume growth so that we can keep it on the menu.

So what we're really doing now is attacking the long-term with an operating platform that is geared toward sustainability.

While we get pumps out of Popcorn Chicken, we think that having it on as a limited time only product is not (technical difficulty) an unreliability for our customers.

And what we want to have is a sustainable operating platform so that the products that we introduce stay on.

You can't underestimate; it is just this focus to move, get more aggressive at speed.

This year we have basically applied the Taco Bell operating process at KFC, and last year we were ranked 19th on this independent QSR survey.

We are down to 9.

So we think we can make a lot of progress on that front.

And the way we're going to do it is to get a core group of products that allow us to compete in the fried and nonfried category, become more relevant, recognize though that we are fried chicken.

We love fried chicken and want to sell a ton of it, and then make sure that our operating format works so that we can continue to make progress on the speed.

So that is what we are doing.

We've got a lot of work to do.

I think the team is galvanized around working with our franchisees to get it done, and we believe that we will turn the business around.

But to your point, we don't want to have the hits and then the booms and the splats.

We're really trying to build this in a more enduring way.

So I understand you correctly that the operating platform actually needs to be changed to fit in some of these products.

Are we talking about major kitchen remodels or are we just talking about a piece of equipment here and there that allows --?

No, we're not talking about major equipment remodels.

But it's -- like it's, for example, making our sandwich station have more flexibility to really offer up the nonfried products.

It's using our oven platform that we already have, using that for Crispy Strips, so that we can bake that product.

It's adding an extension to our existing sandwich platform so that we can do salads.

We think that we do need to offer more choices to be more relevant, but at the same time (technical difficulty) sell a lot of fried chicken and, if we look back, we don't think we've been that innovative in how we've really positioned our fried chicken and talked about it.

So you'll see in the next few months some different ways that we'll be talking about fried chicken and trying to make it more relevant for the way people are thinking today.

There's not a big capital (technical difficulty) to that.

It's just a matter of redeploying our equipment more effectively.

Thanks so much.

Coralie Witter with Goldman Sachs.

Two questions.

The first one is just a quick follow-up.

When you talked about the restaurant margin expansion for next year, the 20 to 30 basis points, does that assume comps in the U.S. in the 2 to 3 percent range, so getting that rate of acceleration at KFC?

And then the second question is on G&A.

You've had some very large G&A savings this year, and you've mentioned the goal is to have that be sustainable, can you just detail that a little bit more and help us understand perhaps how low G&A can go as a percentage of sales and where the items are that you are cutting back on?

Sure.

First of all, our comp sales target is always 2 percent.

So as we build our plans and everything else we'll lay that out.

So we -- as you know, we've done better than that at Taco Bell recently, better than that at Pizza Hut.

So that's kind of how we're looking at the margin piece.

In addition, our portfolio is a plus as we continue to make -- build new restaurants and reinvigorate our assets.

So we'll be telling more of that, Coralie, in our December meeting, but top line, that's kind of what we shoot for in the U.S.

On G&A, two very specific examples.

When we did the Long John Silver/A&W acquisition we talked about overhead synergies.

We got then, and they're with us forever.

So that's number one.

Number two, I run a very large finance function that was exceptionally decentralized, we talked about this on prior calls.

We now have a global tax organization, we now have a global treasury organization, we now have a global accounting organization.

We got the synergies from that, and we're going to continue to look at our organization going forward for other synergies, and then invest -- importantly, invest behind our key growth strategies that we've outlined in the past, operating capability, multibranding and international.

It sounds like you've gotten a lot of the savings already in (indiscernible), what else is left to get and whether the current G&A as a percent of sales we're seeing today is what we should assume over the next three to five years?

More of the same, Coralie, we'll always continue to look in our organization for opportunities just like we talked about.

There could be more synergies in Long John Silver/A&W, there could be more overhead synergies in systems, etc.

And what we try and do is we really don't look at overhead as a present of revenue, we try to keep it flat in areas that are not shall we say strategic and then invest behind certain areas from time to time.

We will always have unfinished business in G&A.

Okay, thank you.

Joe Buckley with Bear Stearns.

David, you referred to the chicken category as a growth category, and it seems that as the QSR sales have picked up in recent months the chicken category seems to be left behind.

And it's my understanding is in the pizza category your numbers are up, but in total hard to tell if the pizza category is up.

Would you talk about just your perception of probably what's going on in QSR and your reasons why the chicken or pizza categories seem to be relatively soft?

The Pizza Hut category is basically flat to down a couple percent.

You're right, it's soft in that arena right now.

Why is that?

We think it's -- all the work that we've done, it stems from consumer confidence being lag.

Now that's picking up, okay?

That's been the biggest leading indicator on pizza sales that we've been able to really diagnose.

The second thing is we lead the category.

I think frankly there's been a lack of innovation in the pizza category.

I don't think that -- we haven't had a lot this year.

Domino's and Papa John's have not had a lot of innovation, and so I think a lot of it has to do with the excitement that we bring to the marketplace.

I think that's why we happen to be excited about next year because we've got more product news coming that we feel is going to bring excitement to the category.

An external factor is that the frozen category is nipping at us.

It's not huge enough to be that you could give it a lot of blame, but it's taken a little bit of the fun out of the category is the way I would like to describe it.

So that I think at Pizza Hut we really, as the leader, we want to lead the category.

We're set up with a marketing and product pipeline that we're very confident of, and we expect to grow our sales next year at Pizza Hut and have a much better year at Pizza Hut than we had this year.

If you look at the chicken category, the overall category, as I understand it, is up about 2 percent.

Can I just add something there, Joe?

You also have to look at -- with that is the chicken being sold by nonchicken people in that analysis.

But anyway, sorry.

So the overall category of fried is down a little bit.

I think that the real challenge there is that we have a big challenge of making fried chicken and the fried products more relevant today -- through the way that we talk about our fried chicken, how we make it relevant for usage occasions, and that's a big challenge.

The other challenge that I think is more brand related for us is that people do -- people do like nonfried options.

And we think for us the nonfried may end up being more of a defensive play than an offensive play, but it may be the thing that we need to do to help us sell more fried chicken.

In other words, there's a veto vote sometimes at KFC because there isn't something for somebody who wants to eat a nonfried approach.

But when we look at fried chicken we (indiscernible) not only in chicken on the bone, that's our core, but also the portable type arena, wings -- the portable type products we see as something that can stimulate the category down the road.

I think McDonald's, if you see what's going on with McDonald's, the way they've grown their sales, I give them a lot of credit, you see who they're really hurting -- they're hurting their direct competition.

The burger boys are really getting -- especially the smaller chains are taking it.

We're not seeing any real impact on Taco Bell.

We wouldn't attribute our softness at KFC to what's going on with McDonald's.

So I think that when you've got category leading brands like we do, our job is to lead the category with innovation, and I think we have a lot to do with what's really going on in the category, and at KFC you obviously know we're not happy with our performance and we expect to do a hell of a lot better in that arena.

Pizza Hut, we've been really turning that brand around.

We've had some good success recently.

We're overlapping the dish right now, usually when we overlap a new product we have to -- a little softness, but we expect to bounce back.

And what we want to do is keep peppering the customer with exciting things that are going on with our brands, and when we do that our brands respond.

You can see that with McDonald's.

Last year everybody said McDonald's was dead, and McDonald's is having good growth because they're bringing forth some news that customers are interested in, and that's how you grow a category.

We all have to take accountability for making that happen.

Thank you.

Mark Wiltamuth with Morgan Stanley.

I wanted to follow up a little bit on the comment in the press release that the international same-store sales were down.

Was that just lingering SARS affects?

And then maybe if you could comment on what was driving the improvement in the international sales in period 10?

Lingering SARS affects in Q3, especially in some of our larger markets.

P-10, fantastic -- that was Q3, I'm now moving on to P-10.

What you see is the bounce back in some of our large markets doing exceptionally well, +10 in constant currency and system sales is a terrific result, and we're very happy with what we're seeing out of international right now. (multiple speakers)

That was more comps than store count to drive the periods 10?

It's all same-store sales.

Post SARS we've been making steady, steady improvement.

Yes, no doubt.

Okay, thank you.

John Glass with IBC World Markets.

Not to the belabor the KFC point, but I wonder if you have any thoughts on how the chicken category in KFC perform in times of rising beef costs?

On the one hand it would be a more -- be a better perceived value; on the other hand, I would expect you'd also get more promotions in the chicken segment.

Do you have any thoughts on how you've done in the past when beef costs have gone up?

I really couldn't give you a real great observation on that.

I don't think we have a great analysis of that.

I think, John, what David mentioned earlier about how we market and run our businesses is a much more indicator of what we're doing, and we've laid out the plans at KFC of what we're trying to accomplish.

So we really don't see a lot of switching back and forth, it's more about what we're trying to do in our own brands.

And then, you did cite some issues in Mexico, talk a little bit about what's going on in the Mexican market for you and how you're addressing those?

Sure.

Two things, we have a value issue in our KFC business that we're trying to address first of all, and the team is up against that and working on their plan.

And second of all, it has been a market that has not experienced a terrific macroeconomic environment lately, and if you look at economic trends down there it is a little softer than we would like.

And when you invest in a country like Mexico you have to expect some ups and downs.

But in our own business we've got some value things that we've got to work on.

And you're slowing your growth in that country I took it from your comments, and yet historically you've expanded growth where you felt the long term opportunity was greater.

Do you not see maybe the long-term opportunity there that you thought?

The long-term opportunity is still there and we're still investing, we're just pacing and tweak -- sequencing our investments given what we know about the economic situation.

So we still believe in the country, no doubt.

One of the things that happened in Mexico this year was the value added tax, there was a significant value added tax that we took some pricing on to address that, plus the economy is really bad there and there are a lot of retailers who are struggling at this point in time.

So we're no different than a lot of people and we'll come back.

Thank you.

Jeff Omohundro with Wachovia Securities.

Thanks for all of these details on the KFC strategy, but I wonder if you could give us some details exactly where you might be on the timeline here for repositioning the concept.

And maybe when we can expect to see the new positioning campaign from Foote Cone?

I think you'll start to the some of the new advertising from Foote Cone in November/December.

We're just getting out of the box on this.

We have some very promising ideas.

It'll take time to really develop the approach to its high point.

I think you'll start to see ways how we're advertising fried chicken in much more creative ways than we have in the past, you'll see that in the fourth-quarter.

We really see this as more of a six month kind of turnaround effort where we really feel like we'll have everything in place.

The new menu board that I was talking about, all of that I think will take us about six months to really get into the marketplace.

Okay.

And then one other question is on this tax rate which did come in a bit below what I've been looking for.

I think you eluded to some international benefits, I wonder if you could expand on that a bit?

Earlier in Q1 we had some foreign tax credit opportunities that we took in Q1 and amortized throughout the year, and then specifically this quarter, Jeff, we had an upside in our foreign tax planning in Australia, and that came through in the quarter and that benefit will also be in Q4, and that's why the tax rate is what it is.

It's not a benefit that you'll see into next year, but we'll continue to pursue tax opportunities as we've got them.

Most of our tax planning initiatives are overseas where we have large and complicated organizations.

Did you say that it would continue into Q4?

What we projected -- if you look at our earnings release you'll see a range of 29 to 31 percent, and then part of that Australia upside will leak -- not leak, but spread into Q4 as we do our accounting, and then the foreign tax credit benefit that we got in Q1 will be spread -- is being spread throughout the year.

Okay, thank you very much.

Andrew Barish with Banc of America Securities.

Just a question on the China comps which I guess were negative.

Is this the first negative quarter and are you seeing any signs of cannibalization in the work you do with the 30 percent plus unit growth?

And then secondly, on the international side you continue to get good improvement in food and paper costs I think down about 50 basis points internationally.

Are you in the midst of some infrastructure leverage (technical difficulty) grow some of these big international markets?

Sure.

Andy, first of all on China, when you are developing 30 percent plus new unit growth each year and your sales grow by 30 percent, you'll, of course, take that to the bank.

And from time to time comps might be slightly negative or they might be slightly positive.

In Q3 it was SARS, and that market has bounced back in a big way.

So yes, certainly the positive. (multiple speakers)

In China with all the restaurants that we're developing there for positive same-store sales growth.

And we have that kind of systems sales growth and all that development and all those wonderful returns, we're getting 30 percent growth in revenue.

The key measure there is systems sales growth, that's what we're driving.

And then on to margins, what we have in our food and paper costs is we enjoy continued -- as we get more and more scale in our businesses we get smarter and smarter and better and better at our purchasing.

And also, with world trade barriers dropping around the world, we get the benefit of that too as competition opens up more.

So we've got more suppliers, more competition and also we're getting better because we're (indiscernible) up against that.

Thank you.

Howard Penney with SunTrust.

I have two questions actually.

On Taco Bell in the best, and I think I even still have the hat on my shelf, where you were targeting the burger boys, as you refer to, in the past as one of your places you wanted to take some market share.

What's changed at Taco Bell to say that the burger (technical difficulty) will take market share from Taco Bell?

And then my second question is, from the fourth quarter your guidance is for 7 cents better than (technical difficulty) between the benefits of the dollar and lower G&A, lower interest expense, lower tax rate, lower share count, incremental gains from the sale of restaurants, that pretty much accounts for that 7 cents, but yet you've got three or four businesses or better are on plan or better, margins down 150 basis points, KFC is the one that's not working, yet that's only 25 percent of your store base.

What is it that's driving the margins down? (technical difficulty) why is it that outside of the operational issues that you're not generating better earnings growth than 7 cents.

What we're seeing is terrific earnings growth out of international.

And we're seeing our KFC issue in the U.S. is pulling us down some.

We've got the commodity costs, which we talked about in our margins, the cheese and the beef and the pork in the U.S.

So that's impacting our U.S.

So the way to think about it, Howard, is our international profits and sales trends are quite strong.

We've got some issues in the fourth-quarter regarding commodity costs which we've outlined, and we have a KFC business that we're expecting to be down a bit in Q4.

We do what we're doing (technical difficulty) exceptionally good job and fees and our interest costs, our G&A costs, etc.

So that's basically how the model comes together.

David, can I ask one -- the KFC is 10 percent of your overall profits?

15 percent.

15 percent?

Yes.

So what's the magnitude of the drop in the KFC business, or is there some --?

No, Howard, there's other things going, specifically around margins which we talked about.

Look at our aggregate U.S. margins in total, that's what's also causing (technical difficulty) lack of growth in the U.S. business is the margin piece, specifically around commodities, that's what's driving it, and then also negative same-store sales growth in KFC is hurting our profitability.

So in wrapping up the fourth-quarter, before we turn back over to Taco Bell, wrapping up the fourth-quarter it's (technical difficulty), very good controls in our corporate costs, some softness in the U.S., KFC volume, and also lower margins primarily because of some of the commodity costs that we talked about earlier, that's how the model flows together.

Howard, (indiscernible) did try to answer your question here -- I think the question is why should we be successful against burgers today?

Is that your question?

Yes, I mean, in the past you've looked at them as a source of market share, and you've attacked them directly.

So what's changed?

I don't think anything has changed because what we really see ourselves as is the number one variety choice in the category, and our source of business is sandwiches including burgers.

That is why our positioning and the bold choice positioning is driven home through the theme line and the advertising theme of "Think Outside the Bun".

What we're doing is that advertising campaign is very successful.

We have a real clear target, heavy user mail that we're going after.

The product pipeline -- what we have now is a product pipeline that is leveraging a 70 percent market share basically.

I mean, we've got great product news so we have plenty of news (technical difficulty) that the burger people could be throwing at us.

And the other thing that I think gives us a lot of encouragement is that we have a lot better operations.

We still see ourselves in middle tier in some aspects of Taco Bell, particularly in the area of hospitality and cleanliness where we have some real upside.

But our speed of service, which is a driver of sales, has improved significantly to the point that we're ranked second in this independent survey ahead of Wendy's which we've always put up as the gold standard.

So, I think all of those things make us feel confident that we're competitively positioned and positioned correctly to keep momentum going at Taco Bell.

The other burger, the real burger interaction that we've had primarily with Taco Bell was always with Burger King if you recall.

And they've had a lot of softness lately.

So that's just one other fact to take into consideration.

One other point on operations just to bring up -- is that we recently reorganized KFC to get the operations focus that we've got a Taco Bell from a one system perspective.

We're putting more coverage in our company stores and also up against our franchisees.

We've done this without (technical difficulty) increasing our G&A.

We've just done this by making some choices on what we want to invest in.

But we think that the restructuring of the KFC ops organization, which more closely mirrors Taco Bell, will help us make even more progress as we go forward next year.

To wrap this up, we think we -- we're continuing to deliver (technical difficulty) our strategies we think are very unique in the industry.

As David said, you have to look at us as a global company now.

We have a tremendous global business.

Our multi branding, which we'll talk more about in December, really continues to be a change the game strategy for us, in particular for new unit development in the United States which we'll talk about in more detail in December.

And we're improving our operations.

Slowly but surely, there's always going to be a lot to do there, but we want to be the most trusted operator in the business and we still are in the middle tier, we're making progress in some of that we pointed out, but there's plenty of upside for us to get better at the operating front.

We have what I think right now are great, great leadership teams.

We've got an established team at International that continues to drive excellent results.

Our China team is the best team we have in the world, period.

We have a Taco Bell team that is really flying in tighter circles right now.

Pizza Hut, we made a management change last year.

That team is really beginning to get traction, and I think you'll see the payoff for that in 2004.

And then when you look at KFC, obviously our biggest challenge, we're not sitting around twiddling our thumbs doing nothing about it.

We're getting after this and we're going to position that brand in a more relevant way as we go forward.

And we haven't talked a lot about A&W/Long John Silver, but all of that just -- that acquisition has turned out to be better than what we had anticipated.

So we're very, very excited about what we can do with both those brands.

So all in all, things are good at YUM!

Brands.

We have our challenges.

It's a difficult competitive environment, we're not out of the woods in the economy, there are a lot of jobs that people need to get these days, but we're hanging in there.

And the fact that we have this portfolio of leading brands is a big advantage in any time, and we feel very confident that we can grow at least 10 percent next year and we'll detail that at our December conference.

Thank you very much and appreciate all the good questions and look forward to seeing you.

Let me remind everyone, mark on your calendar Wednesday, December 10th, from about 8:00, we'll have some breakfast ready for you, and until about 12:30 that day, in New York at the St. Regis hotel we'll have our annual investor meeting.

Please register online.

If you have any questions at all, call us at YUM!

Investor Relations for details, (technical difficulty) 898-6986.

Thanks, everyone, for joining our call and we'll see you in December.

This concludes today's YUM!

Brands 2003 third-quarter earnings conference call.

You may now disconnect.