DOMESTIC  - CORE BUSINESS ONLY

1997 1996

Amount

% B(W)
vs. 1996

Amount

% B(W)
vs. 1995

SYSTEM SALES $13,502 1 $13,388 1
Revenues
Company sales $ 6,728 (7) $ 7,224 (5)
Franchise and license fees 367
_____
20
_____
306
_____
15
  Total Revenues $ 7,095 (6) $ 7,530 (4)
Company Restaurant Margin $    777
_____
3 $   756
_____
(10)
% of sales 11.6% 1.1 points 10.5% (.6 points)
U.S.. Restaurant Unit Activity
Company

Franchised

Licensed Total

Balance at Dec. 30, 1995

10,087 7,484 2,340 19,911

  New Builds & Acquisitions

185 263 966 1,414

  Refranchising and licensing

(609) 598 11 -

  Closures

(267) (108) (414) (789)

Balance at Dec. 28, 1996

9,396 8,237 2,903 20,536

  New Builds & Acquisitions

141 324 731 1,196

  Refranchising and licensing

(1,199) 1,191 8 -

  Closures

(516) (155) (475) (1,146)

Balance at December 27, 1997

7,822(a) 9,597 3,167 20,586

(a) Includes 540 units approved for closure, but not yet closed at December 27, 1997.

System sales increased $114 million or 1% in 1997 primarily reflecting higher volumes from new unit activity, principally by franchisees and licensees at Taco Bell, partially offset by closure of underperforming units.

The 1996 increase of $189 million or 1% in system sales primarily related to new unit growth in franchised and licensed operations. The overall system sales growth was reduced by store closures.

Revenues decreased $435 million or 6% in 1997 primarily due to Company sales decreases of $496 million or 7%. The decrease was driven primarily by fewer Company units, primarily at Pizza Hut and Taco Bell, as a result of our refranchising initiative and store closures. The decline was partially offset by higher overall effective net pricing. This pricing impact occurred primarily at Taco Bell, which exceeded lower prices at Pizza Hut.

Franchise and license fees increased $61 million or 20% in 1997 primarily due to an increase in continuing fees related to our refranchising activities and new unit development at Pizza Hut and Taco Bell and to renewal fees of $24 million under a special KFC franchise contract renewal. Substantially all of KFC's franchisees renewed their franchise agreements, typically for 20 years, during 1997.As part of the special renewal program at KFC, certain participating franchisees also committed to attain over the next several years certain facility standards based on physical assessment of that franchisee's restaurants. We believe such upgrades of the franchised facilities will ultimately result in higher system sales and, therefore, higher franchise fees.

Same store sales are measured for our U.S. Company units. Same store sales at KFC increased 2% in 1997 driven by product promotions, favorable effective net pricing and increased delivery sales, partially offset by lower transaction counts. Same store sales at Pizza Hut decreased 1% for 1997, rebounding from a 7% decline through the second quarter. At Pizza Hut, lower average guest checks in 1997 and decreasing transaction counts in the first half of the year were partially offset in the second half by quality initiatives, increasing transaction counts and the introduction of "The Edge" Pizza. Taco Bell same store sales increased 2% in 1997 reflecting the successful Star Wars and Batman promotions, favorable product mix shifts and pricing, offset by lower transaction counts.

Total 1996 revenues decreased $335 million or 4% primarily due to Company sales decreases of $374 million or 5%. The decrease was driven by volume declines, partially due to lapping the second quarter 1995 introduction of Stuffed Crust Pizza, and the unfavorable impact of fewer Company units due to refranchisings and closures. These declines were partially offset by higher effective net pricing. Same store sales decreased 4% and 2% in 1996 at Pizza Hut and Taco Bell, respectively, reflecting lower transaction counts. KFC's same store sales increased 6% in 1996 due primarily to the impact of new products such as Tender Roast Chicken, Colonel's Crispy Strips and Chunky Chicken Pot Pies.

Franchise and license fees increased $39 million or 15% in 1996 due primarily to an increase in the number of franchised and licensed units from new unit development, primarily at Taco Bell, and our refranchising activities.

Restaurant Margin­Domestic

1997 1996 1995
Company sales 100.0% 100.0% 100.0%
Food and paper 31.1 32.1 32.3
Payroll and employee benefits 30.3 30.0 29.5
Occupancy and other operating expenses 27.0 27.4 27.1
Restaurant margin 11.6% 10.5% 11.1%

The increase in margin of 110 basis points in 1997 was driven almost equally by effective net pricing in excess of increased costs,primarily labor,and the positive impact of closing and refranchising lower-margin units at Pizza Hut and Taco Bell. This improvement was partially offset by the effect of reduced transaction counts. The increased labor costs were due to the increased minimum wage in the U.S. and to costs incurred to improve customer satisfaction, partially offset by favorable actuarial adjustments to workers' compensation liabilities. In 1997, we also benefited from lower commodity costs primarily related to favorable cheese and chicken prices.

The margin decrease in 1996 was attributable to increased costs, primarily labor, and lower volumes. These impacts were partially offset by higher effective net pricing, reduced depreciation and amortization relating to the SFAS 121 charges previously taken and the positive impact of refranchising and closing underperforming units.

Operating profits for domestic operations, exclusive of the fourth quarter charge and other facility actions, were $605 million, $516 million and $624 million for 1997, 1996 and 1995, respectively. The increase of $89 million or 17% in 1997 was due primarily to higher franchise fees and improved restaurant margins, partially offset by an increase in general, administrative and other expenses.

The decrease in 1996 of $108 million or 17% was due to a decrease in restaurant margins and an increase in general, administrative and other expenses.

International - Core Business Only

1997 1996
Amount % B(W)
vs. 1996
Amount %B(W)
vs. 1995
System Sales $6,963 1 $6,892 6
Revenues
Company Sales $2,118 * $2,123 11
Franchise and license fees 200 8 185 11
Total Revenues $2,318 * $2,308 11
Company Restaurant Margin $242 2 $237 8
% of sales 11.4% .2 points 11.2% (.3 points)
*Less than 1%
International Restaurant Unit Activity

Company

Joint Venture

Franchised

Licensed

Total

Balance at Dec. 30, 1995 2,453 926 4,417 187 7,983
New Builds & Acquisitions 157 86 516 73 832
Refranchising & Licensing (50) 42 8 -
Closures (80) (5) (146) (24) (255)
Balance at Dec. 29, 1996 2,480 1,007 4,829 244 8,560
New Builds & Acquisitions 139 123 648 910
Refranchising & Licensing (208) (11) 219 -
Closures (116) (29) (196) (3) (344)
Balance at Dec. 27, 1997 2,295(a) 1,090 5,500 241 9,126

(a) Includes 157 units approved for closure, but not yet closed at December 27, 1997.

System sales increased $71 million or 1% in 1997. Exclusive of the negative impact of foreign currency translation, system sales increased $411 million or 6% in 1997. This growth was driven by new unit development, partially offset by store closures. Franchisee activity drove system unit development with approximately 50% of that activity occurring in Asia. The increase of $359 million in 1996 primarily represented new unit growth by franchisees.

Revenues increased $10 million or less than 1% in 1997.Exclusive of the negative impact of foreign currency translation, revenues increased $86 million or 4%. This increase relates primarily to higher effective net pricing, new unit development in Asia and an increase in franchise fees attributable to development offset by store closures. Company sales in 1997 decreased $5 million or less than 1%. Exclusive of the negative impact of foreign currency translation, company sales increased $66 million or 3%. This increase was driven primarily by higher effective net pricing and unit development, partially offset by the effect of refranchising our restaurants in New Zealand through an initial public offering in the second quarter. Franchise and license fees increased $15 million or 8% in 1997 primarily from new unit development and restaurants refranchised in New Zealand and Canada.

Revenues increased $221 million or 11% in 1996. Increases in Company sales of $202 million or 11% were driven by the favorable impact of additional Company units, higher effective net pricing and increased volumes. The increase in franchise and license revenue of $19 million or 11% in 1996 primarily reflected new unit development.

Restaurant Margin­International
1997 1996 1995
Company sales 100.0% 100.0% 100.0%
Food and paper 36.5 36.3 35.7
Payroll and employee benefits 22.7 23.2 23.3
Occupancy and other operating expenses 29.4 29.3 29.5
Restaurant margin 11.4% 11.2% 11.5%

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