Yum! Going for greatness around the globe! Yum! Brands 2006 Annual Customer Mania Report With 14% Earnings Per Share (EPS) growth in 2006, we’ve exceeded our +10% annual target for the fifth straight year, proving the underlying power of our global portfolio of leading brands delivers consistent growth! FINANCIAL HIGHLIGHTS Dear Partners, (In millions, except for per share amounts) % B/(W) Year-end 2006 2005 change Our internal rallying cry is to go Company sales $ 8,365 $ 8,225 2 Franchise and license fees 1,196 1,124 7 for greatness around the globe, Total revenues $ 9,561 $ 9,349 2 and while we have our challenges, Operating profit $ 1,262 $ 1,153 9 Net income $ 824 $ 762 8 I think you’ll see from this report Diluted earnings per common share $ 2.92 $ 2.55 14 that we are well on our way with Cash flows provided by operating activities $ 1,302 $ 1,238 5 a long runway ahead of us. Fueled by continued profitable international expansion, dynamic growth AVERAGE U.S. SALES PER SYSTEM UNIT(a) in China, and our strong and stable U.S. cash generation, I’m pleased to report we achieved 14% Earnings Per Share (EPS) growth in 2006. (In thousands) Year-end 2006 2005 2004 2003 2002 5-year growth(b) That’s the fifth straight year we’ve exceeded our +10% annual target, KFC $ 977 $ 954 $ 896 $ 898 $ 898 2% proving the underlying power of our global portfolio of leading brands Pizza Hut 794 810 794 748 748 2% enables us to deliver consistent double-digit EPS growth. We also dem- Taco Bell 1,176 1,168 1,069 1,005 964 6% onstrated our global growth by opening over 1,000 new restaurants outside of the U.S. for the sixth straight year in a row—1,181 to be (a) Excludes license units. (b)Compoundedannualgrowthrate. precise. What’s more, we are a proven global cash flow generator, provid- ing major shareholder payouts. Specifically, after investing $614 million in capital expenditures to grow our core business, we returned our free cash flow to shareholders with $1 billion in share repurchases— reducing our shares outstanding by 6%—and a 1% dividend yield (a total shareholder payout of 7% when considering dividends and reduc- tion in outstanding shares). Given this overall strong performance, our share price climbed 25% for the full year, and we’re especially gratified that our average annual return to shareholders is 15% for this decade. More importantly, we remain bullish about the future and are confident that we will continue to grow our EPS at least 10% each year. We have four powerfully unique strategies that bolster the sentiment that we are Not Your Ordinary Restaurant Company. Here’s how we’re going for greatness around the globe: David C. Novak Chairman and Chief Executive Officer, Not Your Ordinary TABLE OF CONTENTS Yum! Brands, Inc. Restaurant Company! 1–6 Dear Partners 26 Long John Silver’s and A&W All American Food 8 GoingforGreatnessinChina! 27–29 A Great Culture Starts with Great People!: CHAMPS 12 Going for Greatness Around the World! 30–32 Great Results!: Financial Review 16 GreatRestaurantsStartwithGreatBrands! 33–84 Financials 20 KFC: Chicken Capital U.S.A. INBC Doing Great Things for Our Community! 22 TacoBell:ThinkOutsidetheBun 24 Pizza Hut: America’s Favorite Pizza 1 With 14% Earnings Per Share (EPS) growth in 2006, we’ve exceeded our +10% annual target for the fifth straight year, proving the underlying power of our global portfolio of leading brands delivers consistent growth! FINANCIAL HIGHLIGHTS Dear Partners, (In millions, except for per share amounts) % B/(W) Year-end 2006 2005 change Our internal rallying cry is to go Company sales $ 8,365 $ 8,225 2 Franchise and license fees 1,196 1,124 7 for greatness around the globe, Total revenues $ 9,561 $ 9,349 2 and while we have our challenges, Operating profit $ 1,262 $ 1,153 9 Net income $ 824 $ 762 8 I think you’ll see from this report Diluted earnings per common share $ 2.92 $ 2.55 14 that we are well on our way with Cash flows provided by operating activities $ 1,302 $ 1,238 5 a long runway ahead of us. Fueled by continued profitable international expansion, dynamic growth AVERAGE U.S. SALES PER SYSTEM UNIT(a) in China, and our strong and stable U.S. cash generation, I’m pleased to report we achieved 14% Earnings Per Share (EPS) growth in 2006. (In thousands) Year-end 2006 2005 2004 2003 2002 5-year growth(b) That’s the fifth straight year we’ve exceeded our +10% annual target, KFC $ 977 $ 954 $ 896 $ 898 $ 898 2% proving the underlying power of our global portfolio of leading brands Pizza Hut 794 810 794 748 748 2% enables us to deliver consistent double-digit EPS growth. We also dem- Taco Bell 1,176 1,168 1,069 1,005 964 6% onstrated our global growth by opening over 1,000 new restaurants outside of the U.S. for the sixth straight year in a row—1,181 to be (a) Excludes license units. (b)Compoundedannualgrowthrate. precise. What’s more, we are a proven global cash flow generator, provid- ing major shareholder payouts. Specifically, after investing $614 million in capital expenditures to grow our core business, we returned our free cash flow to shareholders with $1 billion in share repurchases— reducing our shares outstanding by 6%—and a 1% dividend yield (a total shareholder payout of 7% when considering dividends and reduc- tion in outstanding shares). Given this overall strong performance, our share price climbed 25% for the full year, and we’re especially gratified that our average annual return to shareholders is 15% for this decade. More importantly, we remain bullish about the future and are confident that we will continue to grow our EPS at least 10% each year. We have four powerfully unique strategies that bolster the sentiment that we are Not Your Ordinary Restaurant Company. Here’s how we’re going for greatness around the globe: David C. Novak Chairman and Chief Executive Officer, Not Your Ordinary TABLE OF CONTENTS Yum! Brands, Inc. Restaurant Company! 1–6 Dear Partners 26 Long John Silver’s and A&W All American Food 8 GoingforGreatnessinChina! 27–29 A Great Culture Starts with Great People!: CHAMPS 12 Going for Greatness Around the World! 30–32 Great Results!: Financial Review 16 GreatRestaurantsStartwithGreatBrands! 33–84 Financials 20 KFC: Chicken Capital U.S.A. INBC Doing Great Things for Our Community! 22 TacoBell:ThinkOutsidetheBun 24 Pizza Hut: America’s Favorite Pizza 1 Some day, we believe we’ll 1,822 have more restaurants and profits in China than in the U.S. business, with +20% store level margins and a cash pay- for growth in mainland China. We believe KFC can be every and excluding last year’s extra 53rd week. This resulted 784 back on investments of less than two years. We uniquely bit as big in China as McDonald’s is in the U.S., achieving in YRI achieving record operating profit of $407 million. own our food distribution system that gives us coverage 15,000+ units; Pizza Hut Casual dining can equal the casual YRI operates in over 100 countries and territories outside in every major Chinese province. This has allowed us to dining leader in the U.S., Applebee’s, achieving 2,000+ units; of China and the U.S., and we have averaged about 4% KFC McDonald’s expand KFC across 402 cities, and bring Pizza Hut to 62 Pizza Hut Home Service can equal category-leader Domino’s net new unit development annually. The great thing about cities. We also have one of the largest real estate teams of in the U.S., achieving 5,000+ units; and East Dawning is tap- YRI is that 85% of the business is owned and operated Units in Mainland China any retailer in the world that opened 364 new restaurants in ping into the Chinese equivalent of the hamburger category. by franchisees who are generating almost $500 million in 2006. And we continue to grow our people capability ahead So who knows how high is up? In total, we believe we have franchise fees, requiring very little capital on our part, and #1 of the business by recruiting and retaining talent with highly the potential for over 20,000 units down the road. Of course, opening up 90% of the new restaurants. sought, well-paying jobs. as my father has pointed out to me many times, potential As with China, YRI has a huge upside in terms of inter- Build Dominant China Brands The investment in infrastructure has given us an incredible means you haven’t done it yet, but that’s what has us so national expansion. KFC and Pizza Hut already are global in Every Major Category! head start to tap an unprecedented opportunity. I liken it to excited. It’s out there for us to go do! brands. Yet we only have 6,600 KFC and 4,700 Pizza Hut the days when Colonel Sanders, Glen Bell, Dan Carney and With all the optimism in China, the other question I get restaurants in countries that have a combined population With KFC and Pizza Hut, we already have the dominant Ray Kroc started KFC, Taco Bell, Pizza Hut and McDonald’s, is “What can go wrong?” Well, in the past three years, of four billion people—so obviously that’s got long-term brands in their respective categories in the fastest creating category leading brands in the U.S.