Dear Partners,

I'm especially pleased to report 2010 was another year of significant progress toward achieving our future back vision to be THE DEFINING GLOBAL COMPANY THAT FEEDS THE WORLD. This is a goal that reflects our intentionality to lead the way in defining how to truly build a superlative global company, a company that sets the example others want to emulate. Of course, a bold and admittedly audacious goal like this has to be backed up by a track record of impressive performance. And, perhaps even more importantly, it has to be supported by an increasing capability and the potential to keep it going.

To this end, we have clearly established an ability to deliver consistently strong results, even in the extremely challenging economic and macro environment we continue to face. As a matter of fact, in 2010 we achieved 17% Earnings Per Share (EPS) growth, excluding special items, representing the ninth straight year that we exceeded our annual target of at least 10%. In fact, 17% EPS growth is our best in the last decade and what makes this even more impressive is that it was driven by a 15% increase in operating profit prior to foreign currency translation, including gains across all three of our business divisions.

As I look back on the past year, I'm really proud of what we accomplished. We grew worldwide system sales by 4%, prior to foreign currency translation, and once again proved to be one of the leading retail developers of units outside the United States as we opened nearly 1,400 new units, the tenth straight year we've opened more than 1,000 new units. At the same time, we are making major progress building incremental dayparts and sales layers in each of our businesses. We also improved worldwide restaurant margins by 1.3 percentage points, and operating profits grew 15%, prior to foreign currency translation and special items, generating $1.16 billion in net income and nearly $2 billion in cash from operations. Importantly, we continued to be an industry leader with Return on Invested Capital (ROIC) of 20%+. As a result, our share price jumped 40% for the full year. Over the longer term, we take special pride that our five year average total return, including stock appreciation and dividend reinvestment, is 18% versus the S&P average of 2%. Our strong cash flow generation, combined with our disciplined approach with deploying capital, allowed us to increase our dividend 19%, to an annual rate of $1.00 per share.

But the most important point I want you to take away from this letter is that all our Company's leaders
and teams know what we accomplished in the past is just that - yesterday's newspaper. We clearly realize it's up to us to write new headlines of winning performance. And as you read this report, I think you will have reason to share our belief that even though we've made a lot of headway, we have barely scratched the potential of our opportunity and are on the ground floor of global growth. And we are going all out to attack it.

First let me share with you how we intend to become the Defining Global Company That Feeds The World.

It starts with the fact we are already a truly global growth company, with approximately 65% of our profits coming from outside the United States, including commanding positions in China and the emerging markets. With our leading global brands, 1.4 million systemwide team members around the world already operating in over 110 countries and territories, powered by a powerful financial capability, we have everything it takes to make it happen. Our intent is to continue to drive shareholder value and as we do, make the world a better place by building our company around three principles:

Creating a famous recognition culture where everyone counts.

We founded this company on the belief that the best way to get results is by having fun recognizing others and operating with a deep-seated conviction that everyone at every level can truly make a difference. Other companies are already best practicing Yum! for our culture, and the experiences we share are enriching lives. To keep building on this fundamental strength, we continue to drive what we call our How We Win Together principles featured on page 13. For example, our Presidents and General Managers have spent this past year personally teaching all our Restaurant Support Center teams our "Achieving Breakthrough Results" tool kit and we are now in the process of rolling out the training to all our Restaurant General Managers and franchise partners. I believe this may be the single largest cultural cascade in business and I'm certain it will drive our future success. Additionally, we have created an online network coined "iCHING" to leverage our scale and share best practices, creating explicit know how so we can get things done right the first time and accelerate speed to market. These initiatives are providing a work environment that is proving to be a magnet to retain and attract the best talent, which we all know, is the name of the game.

Building dynamic, vibrant brands everywhere with one system operational excellence as our foundation.

Each of our brands make the world a better place by standing for something unique and purposeful: Taco Bell is fuel for the pioneering spirit by offering unbelievable value; KFC creates joyful eating experiences because it tastes better than good; Pizza Hut promotes social interaction by creating favorite moments for you and the people you love to be around. We have clear roadmaps to develop each of our brands. These "Plans to Breakthrough" call for differentiating our brands in everything we do with our people, service, products, assets and promotions. Going forward, I want you to know we are focused on taking breakthrough action to more consistently give our customers a trusted, reliable experience, like we do in China. Frankly, we have relied too much on marketing to carry the freight in the past and have settled far too long in too many restaurants with marginal operations. This past year I made it my number one objective for us to build know how from our best operators and renowned operating companies inside and outside our industry. As a result of our learnings, we have a new operating framework we will be executing around the world. We have declared that rigorous execution of our core processes to deliver brand standards is our number one brand building initiative. We realize we need to become a better operating Company and we will only achieve true greatness when our customers recognize the power of our culture through a positive Customer Mania restaurant experience. I promise you I will hold myself and our leaders accountable for doing so and reward the doers.

Being a company with a huge heart.

This begins with the commitment and care we have for each other. Our careers open doors for thousands of people around the globe. We ensure everyone has individual development plans that help each person maximize their potential and achieve their goals. What's more we truly care about the world. That means not only feeding the world our great food, but also using our talent, time and imaginations to save the lives of people who are at risk of starvation in remote corners of the world as we continue to build on our partnership with the United Nations World Food Programme. Our annual hunger relief campaigns have raised nearly $78 million in cash and donated food, and our people volunteered more than 6 million hours to hunger relief efforts last year alone. Check out our Corporate Social Responsibility Report published online at Yum.com and you will see our brands and franchise partners do a lot of other good things in the communities we serve. A Defining Global Company will always focus on more than making money, and we are doing just that.

Hopefully, that gives you a sense for how we intend to become The Defining Global Company That Feeds The World. Now I want to segue to our four major growth strategies and give you an idea of why we are so confident that we are on the ground floor of global growth and the best is yet to come.

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.

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.

Yum! Restaurants International, which operates in over 110 countries and territories outside the US and China, continues to deliver on this strategy as it delivered 11% full year operating profit growth prior to foreign currency translation. We treasure YRI's high-return franchising model with over 90% of our new restaurants built by franchisees who generate over $740 million in franchise fees, requiring little capital on our part. Driven by this franchisee development machine, we opened nearly 900 new restaurants in over 75 countries. That's the eleventh straight year we have opened more than 700 new units, including 548 in emerging markets, and our pipeline remains strong as we go into 2011. YRI now has 6,350 restaurants in emerging markets across 67 countries, a level that is unmatched by competitors. This impressive unit growth is the most obvious sign of the health of our brands internationally.

Just like in China, our infrastructure represents a stand-out competitive advantage. Here I always tip my hat to the foresight of PepsiCo, which prior to our spin-off, invested nearly 40 years and billions of dollars to establish the global network we've turned into a 14,000+ unit powerhouse. The reality is it would take the same time and commitment for others to reach our size and scale, and frankly, we don't expect most US competitors to have significant international businesses for a long time. As it stands, unlike the US where streets are lined with competition, we only face McDonald's and Domino's as major global competitors.

Meanwhile, we are off and running, widening our competitive advantage and getting stronger and more diversified every year. What excites me most is that there's no doubt our calculated investments in high potential markets is paying off. We made major progress creating new growth vehicles by investing in emerging markets like India, Russia and Africa, as well as beginning to develop Taco Bell into a truly global brand. 2010 was a milestone year for our business in India, particularly with the KFC brand. KFC in India surpassed 100 units, had terrific sales growth and now has very good unit economics. This gives us the infrastructure and scale to fuel aggressive growth going forward. Pizza Hut in India is already in 34 cities with 171 restaurants and has been voted the "Most trusted food service brand" for the past six years. What really gets me excited when I visit our restaurants in India is the clear evidence that our operations capability there is just like China. In Russia, we made an acquisition that gave us full management control of the Rostiks-KFC brand, giving us 150 restaurants in total. I have to tell you we're very excited to have over 100 KFCs in both Russia and India. It took us ten years to get to 100 units in China, so we're definitely on the ground floor of growth in these two important markets. In Africa, we already have a dominant market position in South Africa with over 600 KFCs. We're now leveraging that powerhouse infrastructure to build new restaurants in Nigeria, Ghana and East Africa. We're extremely happy with how well consumers have taken to the KFC brand and how enthused our franchisees are about the opportunity ahead. In all, we can see adding 3,000 new KFCs by 2020 in the emerging markets of India, Vietnam, Russia, Pakistan and the African continent. At the same time, we're also making progress developing Taco Bell internationally. We entered 10 new countries in the past two years, and we're building more and more confidence Taco Bell will become a truly global brand. We expect to build an additional 100+ restaurants by 2015, with tremendous growth potential over time. In Continental Europe, YRI also made progress getting to scale in France, where we have over 200 units and the highest average unit volumes in the world, and in Germany, where strong sales growth is outpacing the industry. Additionally, we see a huge opportunity to leverage our existing assets by expanding KFC's Krusher frozen beverage line, expanding non-fried products, and testing breakfast. We're also focused on improving our operating model at Pizza Hut to better separate casual dining from our carryout and delivery business in order to drive stronger returns. Finally, as we shift our resources to support high-growth, high-return businesses, we elected to refranchise our Taiwan and Mexico restaurants. These transactions, as well as other significant improvements in our company-owned restaurants, improved our restaurant margins 80 basis points. Outside of China and the US, we expect the consuming class population to grow to 2 billion people by 2020 from 1.1 billion today. That creates a huge opportunity for us – with just over 14,000 restaurants compared to 17,500 in the US alone, YRI has barely scratched the surface and is just on the ground floor of global growth.

In the US, we grew same store sales 1% for the year, but we recognize that's not something to write home about. Nevertheless, we remain confident we're taking the right steps to tap the inherent sales opportunity and ultimate value in our 17,500 restaurants. Our system generates a steady earnings stream of $700 million in franchise and licensing fees, and our strategy is to better leverage our large US restaurant asset base with incremental sales layers, which we're making progress doing.

At Taco Bell, which represents over 60% of our operating profit in the US, sales grew by 2%, which was slightly better than the industry but not as high as we would have liked. The good news is they are the second most profitable brand in the US behind McDonald's, with strong company margins of 18% on system average unit volumes of $1.3 million. As the undisputed leader in value, Taco Bell offers our customers everyday low prices and an amazing amount of quality food for the money with our "Why Pay More!" menu. This year we successfully introduced $5 boxes and a home-meal replacement option of 12 tacos for just $10. We've also been hard at work to leverage our assets with new dayparts by testing breakfast and expanding our Frutista line of beverages and desserts, while also promoting our Drive-Thru Diet, featuring 9 items under 9 grams of fat. Taco Bell is unquestionably a powerhouse brand. Right now, we have nearly 5,200 Taco Bells in the US. We now plan to accelerate our development pace and expect to one day have 8,000 Taco Bells in the US, compared to the 7,300 Burger Kings today. With our immense popularity, strong volumes, margins and category dominance, we are making meaningful progress toward our goal.

Turning to Pizza Hut, which represents about 30% of our US operating profits, I am extremely proud of the team for completely repositioning and restructuring the business. Pizza Hut went from worst to first in its value ratings in the category. This was done by launching the "$10 any pizza" promotion and following that up with a systemwide initiative to provide everyday affordable value menu prices with $8 medium pizzas, $10 large pizzas and $12 specialty pizzas. We've also made an investment in pasta and wings. With Tuscani Pasta Tuesday and Wing Wednesday we've had outstanding results driving volume during those days and better leveraging our assets. We also continue to innovate with new products like the new Big Italy Pizza. As a result, we've gained share, dramatically turned around our sales (up 8% for the year) and our restructuring is virtually complete - over 90% of system restaurants are owned by franchisees. This has been a tremendous turnaround year for Pizza Hut in the US, and the good news is we've got the foundation of everyday value going into 2011, which was something that we never had before.

The biggest challenge we have in the US is KFC, which given our explosive international growth, represents just 3 percent of our company's overall profits. We have very high intentionality to turn the US business around just as we have in other parts of the world, so we are confident this is possible. In the UK, for example, we transformed KFC over the last decade with product innovation, insight-driven marketing and improved operations. As a result, we raised average unit volumes from about $1 million (where we are in the US today), to $1.5 million. We have a big job ahead of us in the US, and it's going to take time to execute our plans. We are determined to fix our operations, and leverage our core business, chicken on the bone, by offering both fried and non-fried options. Equally important, we will dramatically improve our value proposition, become more portable, and upgrade our assets. There is no quick fix, but we do know the game plan and I assure you, we are absolutely committed to succeed.

I clearly believe we are on our way to growing each of our US brands. We continue to see our US business as an outstanding "value investment" and believe we are only on the ground floor of leveraging our tremendous asset opportunity in the coming years.