<80B$5FRYHUVBBD S 3% Alone We’re Delicious. Together We’re Yum! Yum! Brands 2007 Annual Customer Mania Report Yum! winning big aroundthe globe! Financial Highlights (In millions, except for per share amounts) % B/(W) [bj jX Year-end 2007 2006 change j\a Company sales $ 9,100 $ 8,365 9 Franchise and license fees 1,316 1,196 10 Total revenues $10,416 $ 9,561 9 Operating profit $ 1,357 $ 1,262 8 gbZXg[Xe % Net income $ 909 $ 824 10 [jjg Diluted earnings per common share $ 1.68 $ 1.46 15 UX_\XiX \a T__ cXbc_X Cash flows provided by operating activities $ 1,567 $ 1,299 21 We trust in positive intentions and believe everyone has the potential to make adifference. We actively seek diversity in others to expand our thinking and make the best decision. We coach and support everyindividual to grow to AVERAGE U.S. SALES PER SYSTEM UNIT(a) their full capability. (In thousands) Year-end 2007 2006 2005 2004 2003 5-year growth(b) jXTeXVhfgb`Xe`Ta\TVf KFC $ 994 $ 977 $ 954 $ 896 $ 898 2% Customers rule. Every customer sees it, feels it and knows it in everyrestaurant. Pizza Hut 825 794 810 794 748 2% We make sure we have great RGMs who build great teams. 100% CHAMPS with Taco Bell 1,120 1,176 1,168 1,069 1,005 3% a Yes Attitude is the expectation. (a) Excludes license units. (b) Compounded annual growth rate. ZbYbeUeXT^g[ebhZ[ We begin by asking ourselves, “What can I do NOW to get breakthrough results in my piece of Yum?!” Our intentionality drives step change thinking. We imagine how big something canbeand work future-back, going full out with positive energy and personal accountability to make it happen. Uh\_W^abj [bj We grow by being avid learners, pursuing knowledge and best practices inside and outside our company. We seek truth over harmony everystep of the way. Weconsistently drive outstanding execution by scaling our learnings into process and tools around what mattersmost. Breakthroughs come when weget peoplewith knowledge thinking creatively. gT^Xg[X [\__ gXT`jbe^ Weteam together to drive action versus activity. Wediscuss the undiscussable, always promoting healthy debate and healthydecisions. Our relationships allow us to ask the earth of each other. We makespecific verbal contracts to get big things done with urgency and excellence. Contents eXVbZa\mX eXVbZa\mX eXVbZa\mX Dear Partners ...................................................1–8 Long John Silver’s and We attract and retain the best people and inspire greatness by being world Winning Big in China! .....................................10–13 A&W All American Food ......................................... 28 famous for recognition. We love celebrating the achievement of others and Winning Big Around the Globe! ......................14–17 Winning Big With Customer Maniacs! ................... 29 have lots of fun doing it! Going for Breakthrough in the U.S...................18–21 CHAMPS.................................................... 30–31 Taco Bell ........................................................ 22–23 Biggest Movement to End World Hunger ........ 32–33 KFC ............................................................... 24–25 Winning Big With Great Results! .................... 34–36 Pizza Hut ........................................................ 26–27 Financials ........................................................37–88 Dear Partners, I think you’d agree there’s nothing more satisfying than being on a winning team, and Ithink you’ll seefrom this report that we are absolutely focused on gaining the satisfaction of winning big around the globe. In fact, as we move into our second decade as a public company, we have never been more certain andmore excited about the growth we have within ourgrasp in allcorners of the world. DAVID C. NOVAK CHAIRMAN AND CHIEFEXECUTIVE OFFICER YUM! BRANDS, INC. 1 Iknow you’d also agree there’s nothing like a track record of success to give you the con- fidence you can keep on winning. That’s why I’m especially pleased to report we achieved 15% Earnings Per Share (EPS) growth for 2007, powered by simply sensational growth in China, continued profitable international expansion, and strong, stable U.S. cash genera- tion. That’s the sixth straight year we’ve exceeded our +10% annual EPS target, proving the underlying power of our global portfolio of leading brands enables us to deliver consis- tent double-digit EPS growth. In so doing, we grew worldwide same store sales 3% and strengthened our claim as the number one retail developer of new units outside the United States by opening 1,358 stores, theseventh straight year we’ve opened up more than 1,000 new restaurants. With such powerful results, we generated record cash from operations of over $1.5 billion and returned an all time high of nearly $1.7billion to our shareholders through share repurchases and dividends. Additionally, we announced in October our plan to substantially increase the amount of share buybacks over the next two years, repurchas- ing a total of up to $4 billion of the company’s outstanding common stock. Given this overall performance, our share price climbed over 30% for the full year on top of 25% growth in 2006. We are especially gratified that our average annual total return to shareholders is 18% since our spin-off. But of course, all of this is yesterday’s newspaper. Continuing to win big in this tough,com- petitive environment means we must attack our opportunities with even more purpose and urgency.Let me assure you we are doing just that. We have four powerful growth opportuni- ties that we believe make usnot only “Not Your Ordinary Restaurant Company,” but the most uniquely positioned retailer in the world. Here’s how we’re winning big: Weare clearly making outstanding progress executing our breakthrough strategy of #1. building apowerful portfolio of brands in the world’s fastest growing economy, with Build Leading 1.3 billion people. With KFC and Pizza Hut, we already have established enormously popular brands and undeniable competitive advantage in the fast food and casual dining Brands Across categories. The numbers tell the story: KFC has 2,140 quick-service restaurants in mainland China, more than McDonald’s, our nearest competitor. Pizza Hut has 351 casual dining China in Every restaurants with no other significant Western casual dining chain in mainland China. Significant Like Ireported last year, the keytoour success is that we have an outstandinglocal team Category. that has worked together for over ten years to build these brands the right way from scratch. Our China leaders started with the vision to become not only the best restaurant company in China, but the best restaurant company PU [OL LU[PYL ^VYSK. There’s no doubt in my We already have mind we are doing just that. Just ask any analyst, investor or consumer who has visited our established enormously Chinese restaurants, and I’m betting they will tell you we are building best in class brands popular brands and and operations. What’s more, we are highly profitable, generating $375 million in operating undeniable competitive profit. That’s an amazing 30% growth in 2007 and a five year average annual growth rate of over 25%. China is our highest returning international business with acash payback advantage in the on investments of lessthan two years which is whyweare investing our own capital to be fast food and casual primarily company owned and operated. As we have built the business, we’ve put in place dining categories. a world class infrastructure to give us a long-term competitive advantage. We uniquely own our own food distribution systemthat has allowed us to expand KFC into 406 cities and 2 make Pizza Hut available in 77 cities. We have one of the largest real estate and construc- tion teams of any retailer in the world that opened 471 traditional restaurants in 2007 as we generated 12% samestore sales growth. We have also developed target manufacturing capability for our proprietary dessert line of egg tarts and pizza dough making. And we continue to grow our people capability ahead of the business by recruiting and retaining talent with highly sought after, well-paying jobs. I always liken our China opportunity to the days when Colonel Sanders, Glen Bell, Dan Carneyand RayKroc started KFC, Taco Bell, Pizza Hut and McDonald’s, creating category-leading brands in the U.S. that today regularly serve 300 million consumers at over 30,000 U.S. restaurants. Consider these two factoids: 1) recent government studies suggest that the middle class in mainland China now numbers over 250 million people, the equivalent to the entire U.S. population in 1990, at which time the U.S. QSR industry was already very well established; and 2) there are 547million cell phone subscribers in China, which underscores how rapidly the consumer base is embracing new technology and con- cepts. Clearly,just like the founders of the brands Ijust mentioned, we are the pioneers on the ground floor of a booming category in a growing mega market. We fully expect to win big by capitalizing on the total opportunity. Tous, winning big in China means building leading brands in every significant category. So in addition to KFC and Pizza Hut casual dining, we are now successfully developing Pizza Hut Home Service which already has 23 units in Shanghai and is now beginning national expansion to meet the growing demand for convenient meals at home given the rise of dual income households. We’ve also generated a lot of local consumer excitement by creating our own quick-service restaurant chain, East Dawning, tailored to the local favorites of theChinese customer. Obviously, Chinese people’s favorite food is Chinese cuisine, so we are offering delicious, affordable, convenient Chinese food in appealing facilities that differentiate us from local competition. We continue to enhance the concept and are making dramatic progress improving our unit economics, especially with sales increases from the launch of television advertising.