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LOUISVILLE, KY-Sales for Yum! Brands Inc.’s Chinadivision showed “slow, steady improvement” during thethird quarter 2005 after overcoming previous problemswith ingredients used at KFC, according to chairmanand CEO David C. Novak.

Additionally, Yum! recouped $14 million from theingredient supplier and expects to recognize anadditional meaningful financial recovery from the samesupplier during the fourth quarter of 2005. Novakdeclined to specify the exact amount during thecompany’s earnings conference call Wednesday.

During September 2005, the company’s China division system salesincreased 16%, while revenues increased 20% during the third quarter to $360 million compared to $301 million for the same period lastyear.

Novak attributed much of the growth to new restaurant expansion. During the third quarter, a total of 84 new restaurants opened including 73 KFCs and 11 Pizza Huts, representing an increase of 23%. The company is on track to exceed its target of 375 new openings this year.

Moreover, for 2005, the China division is expected to produce 15% sales growth, 17% revenue growth and 10% profit growth. Novak says that Yum! will continue to invest in thecompany’s China infrastructure. “You can count on usto continue to aggressively execute our No. 1 strategy-–to build a portfolio of dominant restaurant brands in China,” he promised.

Overall, Yum! reported third quarter earnings pershare of 71 cents, an 18% increase over the sameperiod last year on revenues of $2.2 billion. Based onthe third-quarter results, the company raised its 2005EPS estimate to $2.64 or 12% growth.

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