Yum! 2010 Annual Report

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#1 Build Leading Brands Across CHINA In Every Significant Category.
Our outstanding and experienced local team led by our Vice Chairman of Yum! Brands and Chairman and Chief Executive Officer of Yum! Restaurants China, Sam Su, grew our profits a whopping 26% in 2010, prior to foreign currency translation, on top of 24% growth in 2009 and 17% in 2008. You don’t need to be a math major (and I’m not!) to easily calculate that our China operating profit has more than doubled in the last 3 years to $755 million, making it our Number 1 profit-producing Division in Yum! We expect it to become our first $1 billion profit business in the very near future. Our recipe for success is continued profitable new unit development and leveraging our existing assets with new dayparts and sales layers to grow same store sales. In 2010, we once again opened over 500 new restaurants, while delivering near-record margins of 22%. Our KFC business has been absolutely rock solid. We now have over 3,200 KFCs in over 700 cities, with $1.4 million average unit volumes. KFC added 414 new locations in 2010 and we continue to see cash paybacks in less than 3 years on new restaurants. The good news is that our growth and results were driven by increased traffic as KFC made good progress leveraging its assets with 24-hour operations, delivery service and continuing to build a solid breakfast business. We also have 520 casual dining Pizza Huts in 130 cities that had a breakout year, generating double digit same store sales growth in every quarter in 2010. Additionally, operating profit grew 50% and Pizza Hut Casual Dining now generates well over $100 million in operating profit. With those tremendous results, our strategy is to scale up for significant growth ahead. We also continued to invest behind the development of our emerging brands. Pizza Hut Home Service now has 120 units in eleven cities, making pizza available with very efficient, low-investment pizza carryout units. We are even creating our own Chinese quick service restaurant chain, East Dawning, tailored to the local favorites based on the amazing insight that Chinese people’s favorite cuisine is, believe it or not, Chinese food! Consistent with this belief, we also own 27% of Little Sheep, the leading brand in the hot pot category, which has about 500 units and is the largest casual dining category in China with tons of potential. Our single biggest advantage is we have arguably the finest operating team in the world that knows how to satisfy customers and make money. In fact, over 70% of our Restaurant General Managers have at least a college education, and as I like to say, the rest of them are just plain smart! This tremendous store level operating capability, combined with the fact that we’ve put in place a world class infrastructure, including our own food distribution system and one of the largest real estate and construction teams anywhere in the world, has given us a huge competitive advantage. China operating profit has more than doubled in the last 3 years to $755 million, making it our Number 1 profit-producing Division in Yum! 500 New Restaurants in 2010 Our conclusion is that our foundation has never been stronger, and we’re just on the ground floor of growth in China. China is predicted to be the fastest growing major economy in the world. In fact, it is expected to grow its consuming class from around 450 million today to around 650 million people in 2020. Like I’ve said in the past, we will no doubt have some bumpy years, but 2010 definitely wasn’t one of them and I wouldn’t trade our long-term position in China with any consumer company in the world. The way we look at it, KFC can be every bit as big as McDonald’s is in the US, ultimately reaching 15,000+ units; Pizza Hut Casual Dining can equal the casual dining leader in the US, Applebee’s, achieving 2,000+ units; Pizza Hut Home Service can match delivery category leader Domino’s in the US, achieving 5,000+ units. And East Dawning is attacking the Chinese equivalent to the hamburger category in the US, so who knows how high is up? I always liken our China opportunity to the days when Colonel Sanders, Glen Bell, Dan Carney and Ray Kroc started KFC, Taco Bell, Pizza Hut and McDonald’s, creating dynasty-like category leading brands in the US. Clearly, just like the founders of the brands I just mentioned, we are the pioneers on the ground floor of a booming category in a growing mega market. Having said this, we are constantly monitoring our returns and fully intend to remain true to our commitment to never build ahead of our people capability and unit economics. Our goal is to build a quality long-term business the right way. In spite of our robust profit growth, some investors have asked: “Is Yum! now too China-dependent?” We believe the answer is definitively, NO! We think China is the Number 1 growth opportunity for Yum! in the 21st century and we love our leading position in this huge and dynamic market. Yet, we also have a tremendous emerging market opportunity outside of China, which leads me to our second strategy.
Page 1 and 2: On The Ground Floor of Global Growt
Page 3 and 4: Dear Partners, I’m especially ple
Page 5: Building dynamic, vibrant brands ev
Page 9 and 10: Yum! Restaurants International, whi
Page 11 and 12: In the US, we grew same store sales
Page 13: I’d like to thank our franchise p
Page 18 and 19: Time: 9:00 a.m. on Thursday, May 19
Page 20 and 21: YUM! BRANDS, INC. 1441 Gardiner Lan
Page 22 and 23: prior to the meeting. Directions su
Page 24 and 25: of the outstanding shares of YUM co
Page 26 and 27: For a shareholder to submit a candi
Page 28 and 29: What access do the Board and Board
Page 30 and 31: Governance Committee copies of all
Page 32 and 33: Name of Committee Number of Meeting
Page 34 and 35: Who are this year’s nominees? MAT
Page 36 and 37: Bonnie G. Hill Bonnie G. Hill is Pr
Page 38 and 39: David C. Novak David C. Novak becam
Page 40 and 41: What am I voting on? ITEM 2: RATIFI
Page 42 and 43: What am I voting on? ITEM 3: ADVISO
Page 44 and 45: ITEM 5: PROPOSAL TO APPROVE AN AMEN
Page 46 and 47: Who are our largest shareholders? S
Page 48 and 49: (7) This amount includes 6,000 shar
Page 50 and 51: eward and retain the talented leade
Page 52 and 53: nondurable consumer products compan
Page 54 and 55: Our Named Executive Officers (NEOs)
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Meridian going forward as its indep
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2010 Executive Compensation Decisio
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2010 Annual Incentive Compensation
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Long-term Incentive Compensation Th
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he should receive a long-term incen
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In the case of Mr. Su, he receives
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providing employees with the same o
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MANAGEMENT PLANNING AND DEVELOPMENT
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(3) The amounts shown in this colum
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GRANTS OF PLAN-BASED AWARDS The fol
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OUTSTANDING EQUITY AWARDS AT FISCAL
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OPTION EXERCISES AND STOCK VESTED T
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Early Retirement Eligibility and Re
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NONQUALIFIED DEFERRED COMPENSATION
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(3) All amounts shown were distribu
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actual performance for the performa
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DIRECTOR COMPENSATION As described
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EQUITY COMPENSATION PLAN INFORMATIO
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AUDIT COMMITTEE REPORT Who serves o
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ADDITIONAL INFORMATION Who pays the
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APPENDIX A PROPOSED AMENDMENT TO AR
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UNITED STATES SECURITIES AND EXCHAN
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Item 1. Business. PART I YUM! Brand
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• Traditional KFC restaurants in
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Supply and Distribution The Company
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Research and Development (“R&D”
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Our China operations subject us to
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If our franchisees incur too much d
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We are also subject to increasing e
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Franchising A substantial number of
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Roger Eaton, 50, is Chief Executive
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Issuer Purchases of Equity Securiti
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Item 6. Selected Financial Data. Se
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Item 7. Management’s Discussion a
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Drive Industry-Leading, Long-Term S
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Results of Operations Amount % B/(W
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U.S. Business Transformation Measur
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Under the equity method of accounti
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The following table summarizes the
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Restaurant Unit Activity Unconsolid
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Multibrand restaurants are included
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YRI 2010 vs. 2009 Income / (Expense
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Franchise and license fees and inco
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Worldwide Other (Income) Expense 20
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Unallocated impairment expense in 2
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Other. This item primarily includes
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During the year ended December 25,
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We sponsor noncontributory defined
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Impairment of Goodwill We evaluate
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Self-Insured Property and Casualty
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Income Taxes At December 25, 2010,
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Item 8. Financial Statements and Su
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Consolidated Statements of Income Y
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Consolidated Balance Sheets YUM! Br
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Notes to Consolidated Financial Sta
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We participate in various advertisi
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For purposes of impairment testing
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Fair Value Measurements. Fair value
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If we record goodwill upon acquisit
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Note 4 - Items Affecting Comparabil
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Under the equity method of accounti
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(a) Refranchising (gain) loss is no
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The following table summarizes the
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Note 9 - Goodwill and Intangible As
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Note 10 - Short-term Borrowings and
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The annual maturities of short-term
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Note 12 - Derivative Instruments Th
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The following tables present the fa
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Amounts recognized in the Consolida
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The estimated net loss for the U.S.
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Benefit Payments The benefits expec
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Potential awards to employees and n
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Award Activity Stock Options and SA
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Note 16 - Shareholders’ Equity Un
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In 2008, the benefit was positively
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At December 25, 2010, the Company h
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Note 18 - Reportable Operating Segm
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(e) 2010, 2009 and 2008 include app
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Due to the inherent volatility of a
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On August 4, 2006, a putative class
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On October 14, 2008, a putative cla
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On March 14, 2007, a lawsuit styled
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Note 21 - Subsequent Event Subseque
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Item 9. Changes In and Disagreement
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PART IV Item 15. Exhibits and Finan
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s/ Robert Holland, Jr. Robert Holla
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(viii) 3.875% Senior Notes due Nove
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10.20† Severance Agreement (in th
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Shareholder Information LONG TERM I
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Yum! brands, Inc. 2010 annual custo
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Alone we’re delicious. Together w
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Yum! 2010 Annual Report

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