First Quarter – 2007 Earnings Information (05.01.07) – Updates on Incidents Affecting U.S. Business

May 01, 2007 –

Produce-Supply Incident at Taco Bell:
In early December 2006, Taco Bell was linked to an E. coli issue associated with lettuce supplied to our restaurants in four Northeastern states. We immediately addressed the situation, and the outbreak was declared over by health authorities by mid-December. The company took swift action to remove and replace all produce from the affected restaurants with new ingredients from a new supplier. We provided regular updates to the public as and when new information became available and worked closely with all local, state, and federal health authorities to ensure the safety of our food and assist those who became ill. We have taken a number of added precautions since that time. In addition to the strict testing already conducted by our produce suppliers, we have since begun requiring that lettuce be tested at the farm before it even enters our supply chain. This new industry testing should benefit all purchasers of lettuce, not just our company, and our goal is to expand this to other produce as well. We also sponsored an industry symposium with the National Restaurant Association to discuss ways to strengthen the produce supply chain, and have proactively met with Congressional leaders to improve federal food safety standards.

Infestation Incident at a KFC-Taco Bell Restaurant in New York City:
In February of 2007, a KFC-Taco Bell restaurant in New York City became the subject of much adverse publicity as our franchisee attempted to resolve a rodent infestation issue at this Greenwich Village area restaurant. After the restaurant had been closed at the end of the day, a construction crew attempted to eliminate the problem, but unfortunately this only made the matter worse as the job was left unfinished for completion the next day. While the restaurant was closed, a video of the infestation was made and subsequently circulated on the Internet and throughout the news media. This had a negative impact on each brand, particularly on Taco Bell since it had just begun to recover from the previously discussed produce-supply issue in the region. Since the incident, this KFC-Taco Bell restaurant has been closed for business, and it will not reopen. Our Food Safety Council is using this incident to review and further strengthen our strict pest control standards in challenging urban environments such as New York City. To assist us, we hired Dr. Bobby Corrigan, a noted expert in pest control, to conduct an exhaustive and objective review of our process and to make further recommendations for improvements. We expect to review those recommendations by mid-May. We are determined to prevent this incident from happening again.

Comment from Peter Hearl, Chief Operating Officer, Yum! Brands, Inc.
“Food safety is our top priority and nothing is more important to us. We obviously regard these two incidents very seriously and we have taken swift action to be sure they don’t happen again.

For example, Taco Bell has begun to require lettuce farms to test raw product for E.Coli (0157:H7) at the farm, in addition to the other testing already conducted by suppliers that process lettuce for us. This new level of testing is an added safety layer that will benefit the entire restaurant and supermarket industries, not just our company. Our goal is to expand this farm-level testing to other produce as soon as possible.

The recent rodent infestation at a franchisee’s restaurant in New York City is simply unacceptable and it shouldn’t have happened. We take full accountability. While we recognize that urban environments like this present unique challenges for all food service operators, we have a zero tolerance for anything short of clean and safe restaurants. I have directed our Food Safety Council to explore ways to further enhance the measures we have in place to prevent this incident from happening again. To assist us, we have hired an outside expert to conduct an exhaustive review of our processes, and we look forward to his recommendations. In the meantime, we have closed that restaurant in Greenwich Village and it will not reopen.”


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