Dear Partners,

I am pleased to report we delivered 14% EPS growth in 2011, excluding special items, marking the 10th consecutive year we achieved at least 13% and exceeded our annual target of at least 10%.

We once again demonstrated an ability to deliver strong results even in the face of a challenging economic and macroeconomic environment.

David C. Novak

Chairman & Chief Executive Officer,
Yum! Brands, Inc.

This is backed up by the fact we grew system sales 7%, prior to foreign currency translation and proved to be one of the leading retail developers of units outside the U.S., as we opened 1,561 new units, the eleventh straight year we've opened more than 1,000 new units.

We generated $1.3 billion of net income and over $2 billion in cash from operations. Our share price jumped 20% for the full year, on top of 40% in 2010. We take special pride that over the long term our five year average annual return, including stock appreciation and dividend reinvestment, is 17% versus a flat S&P average.

Our strong cash flow generation, combined with our disciplined approach to deploying capital, allowed us to increase our dividend 14%, to an annual rate of $1.14 per share.

Every year in December we host our Investor and Analyst Day in New York. This meeting gives us the opportunity to "go public" with our goals and commitments as well as showcase our management talent from around the world. The theme of our 2011 meeting was "On the Ground Floor of Global Growth: China and a Whole Lot More." No statement could better describe Yum! Brands.

We, of course, highlighted our 10-year track record, but even more importantly, the future growth prospects of our company. The facts are we have a portfolio of brands with leadership positions in China and other emerging markets, with a long runway for growth. We have an asset base of over 37,000 restaurants and we continue to make progress leveraging these assets further by building sales layers and expanding dayparts. Additionally, we invested over $900 million in 2011 in the future growth of our business and returned cash to shareholders through share buy backs and a meaningful and growing dividend.

All of this adds up to a growing confidence in our business model. As a matter of fact, we're confident the best is yet to come as we pursue our objective to be the defining global company that feeds the world.

Let me highlight how some of Yum!'s unique strengths position our company for future growth.

First, our leadership position in China and other emerging Markets: Over half our operating profit is now generated in China and the 72 other emerging countries in which we operate throughout the world. Yum!'s strongest businesses are located where the highest growth is expected to occur in the years ahead. This is a very powerful combination.

We view China as the best restaurant growth opportunity of the 21st century. Our brands further strengthened their category-leading positions with a record 656 new restaurants and extraordinary same store sales growth of 19% this past year. KFC now has 3,701 restaurants in over 700 cities throughout the country, and continues to expand into new cities as well as increase its penetration levels in existing markets. Pizza Hut Casual Dining now has 626 units and is successfully expanding in lower-tier cities. Its strategy to offer tremendous variety, every-day value and refresh 25% of its menu twice per year has consistently driven sales and profit growth. It's important to note that China new unit returns are the best in our business, with cash paybacks within 3 years.

The macroeconomic environment continues to work in our favor in China. Rising incomes are making our brands even more affordable for an increasing number of people. In fact, the consuming class is expected to double over the next 10 years, going from 300 million to at least 600 million people, as significant urbanization continues. With this tailwind, our new-unit development pace should continue at a high rate, and same store sales should continue to grow.

Our strategy in China is to have leading brands in every significant category. KFC is the clear leader in western quick service restaurants. Pizza Hut is far-and-away the western casual dining leader. We're developing Pizza Hut Home Service to capture the growing off-premises market and now have 135 units. We're also building East Dawning to be the premier mainstream Chinese food quick service restaurant concept.

And I'm pleased to say on February 1, 2012, we acquired Little Sheep, a leading casual-dining concept in China, with approximately 450 system restaurants. This acquisition advances our strategy to have leading brands in every significant category in China. We are looking forward to strengthening Little Sheep's operational model and increasing its market leadership position. We're very excited about the long-term potential of this brand and will make the necessary investments required to ensure its success.

Given our past strategic investments, as I mentioned earlier, we not only have the China opportunity, we have a whole lot more. A case in point is we have made incredible progress in India, opening 101 new restaurants in 2011. Ten years ago, we were essentially just beginning with KFC in India, and now it's our second leading country for new unit development. In fact, we're so excited about our prospects in India, and its impact on the future growth of Yum!, that we're going to break it out as a separate division for 2012 reporting directly to me. It's encouraging to see that our new unit progress with KFC in India is very similar to what we saw in China during its first 10 years. Our India team has identified the key elements driving success in China and are adapting these strategies in India to leverage our iconic brands and build concepts with broad appeal. While we don't expect meaningful profit contributions from India in 2012, we are laying the foundation for this business to have a significant impact on Yum!'s profit growth in the future.

We also made stellar progress in Russia, where we're in the process of re-branding Rostiks-KFC restaurants to stand-alone KFCs…and same store sales growth in Russia is the best in our business. We know our primary competitor makes over $300 million in Russia. We're just getting started and we have put in place a strong Russian leadership team that is beginning to execute a series of initiatives that will build a powerful business for the long term.

We are driving major growth in the continent of Africa, building off our base of 656 stores in South Africa. We entered Zambia, Ghana and Kenya in 2011 and plan to enter 7 new countries in 2012, in addition to expanding our equity presence and adding new units in South Africa. In all, we plan to have restaurants in about 20 African countries by the end of this year. With over a billion people throughout the continent, we know we're just getting started.

Just to illustrate the fact we are on the ground floor in emerging markets, consider my favorite Yum! factoid: We have about 58 Yum! restaurants per million people in the U.S. and only have fewer than 2 restaurants per million people in the top 10 emerging markets. While many companies have to scratch and claw for growth opportunities, we already have in our grasp a long runway for growth.

Further proof is one not-so-well-known aspect about Yum!, it's the solid progress we're making in France and Germany. Believe it or not, our restaurants in France have the highest average unit volumes in our system. As a result, we continue to build our scale and increase television advertising. France is also the first market where we experimented with a franchise business rental program to drive new unit development and returns. And we've taken this approach to Germany, where we're expecting to have the necessary scale to utilize television advertising in 2013. We had 133 KFCs in France and 76 in Germany at the end of 2011. Our challenge going forward is to secure great sites as fast as our people capability allows. So while France and Germany are certainly developed countries, they are clearly emerging businesses for Yum! Brands. To put the opportunity in perspective, we make less than $30 million with only 209 restaurants in these two countries while our primary competitors make well over one billion dollars with over 2,000 restaurants, so the best is yet to come for us in Western Continental Europe.

In addition to our vast new unit development opportunities in emerging markets, we have tremendous potential with 37,000+ restaurants we already have in our portfolio. We've been very successful in China leveraging our assets throughout the day with breakfast, 24-hour service, delivery and innovative beverages. We're making progress in several other countries as well. In Yum! Restaurants International, we have over 4,000 KFC restaurants with ovens, which enable innovative non-fried products, and 3,900 KFC restaurants serving our Krushers line of frozen beverages. Our KFC a.m. breakfast is now in over 600 stores.

I want to emphasize it takes time and more patience than we'd like to have to build these incremental sales layers and day-parts. Nevertheless, we are absolutely committed to their success and have a firm conviction that it will be done.

We're making progress reinvigorating our U.S. business which clearly under-performed in 2011, with same store sales down 1% and profit down 12%. The good news is we are poised to achieve significantly better results. In fact, we had positive net unit growth at Taco Bell and Pizza Hut in 2011, and we expect this trend to continue.

On the new initiative front, Taco Bell, just launched breakfast in 800 restaurants on the West Coast with its "First Meal" strategy. Taco Bell built an incredible late night business by gradually staying open longer and longer. We're taking that same strategy and applying it to breakfast. We'll be opening for breakfast about 9:00 a.m., and gradually moving that earlier as we gain traction. We also reinvented the taco when we launched the Doritos® Locos Taco in March 2012, which is a taco made from Frito-Lay's enormously popular Nacho Cheese Doritos®.

Pizza Hut was our best U.S. performer delivering a solid year in 2011 on the heels of a great year in 2010. The combination of everyday value, innovative new products and unique bundles has performed well and we'll continue to leverage these strategies going forward.

In the U.S., I'm pleased KFC has formed a united front with its franchisees, investing in operations and galvanized around improving its operating consistency and becoming more contemporary and relevant. With all this in place, we expect profit growth from our U.S. business this year, and more consistent performance going forward.

Across the globe, we have and will continue to execute against the following strategies:

Our success in executing these strategies has driven our return on invested capital over 22%, at the top with industry leaders. We generated over $2 billion cash from operations in 2011. We're fortunate to have many high-return, global opportunities to invest in for future growth. We will also continue to return cash to shareholders. 2011 marked the 7th consecutive year we raised our dividend at a double-digit percentage rate. We also repurchased $733 million of our stock in 2011.

I want to give you my perspective about our successful evolving and enduring business model. Our philosophy is pretty simple. We reduce company ownership in highly penetrated or under-performing markets, and we increase exposure in emerging and under-penetrated markets.

By following this philosophy and due to strong execution by our Division teams, our business model has evolved. Today over 70% of our operating profit is generated by our international businesses. We ended 2011 with over $1.5 billion in operating profit in China and YRI. Ten years ago, we made about $315 million in these businesses combined, which represented 30% of our profits at that time. The vast majority of this growth was in emerging markets.

We continue to reduce our ownership in highly-penetrated markets. In December, we completed the sale of Long John Silver's and A&W All American Restaurants. The larger of these concepts, Long John Silver's, has about 97% of its restaurants in the U.S.

We are continuing our U.S. refranchising program. Our plan is to retain about 5% ownership in KFC and Pizza Hut and to be at this target ownership for both brands by the end of 2012. We also recently announced our plan to reduce Taco Bell U.S. ownership from 23% to about 16% over the next two years. We are fortunate to have great franchise operators who have the capability to run these restaurants extremely well. In return, we will collect royalties and make our profit return more consistent.

We announced our decision in the third quarter of 2011 to refranchise our Pizza Hut UK business. We have started the sale process and our intention is to sell this business in 2012.

At the same time, we are aggressively growing emerging and under-penetrated markets. While our franchise partners fuel the majority of our new unit growth outside China, we will also build company units in international markets where we can achieve scale, realize high growth, and yield high returns.

We've made three acquisitions in recent times that meet our criteria. First, in 2010 we exercised our option to take full management control of Rostiks-KFC in Russia. During 2011, our first full year of operations, results have been impressive.

Russia had the highest same store sales growth rates in all of Yum! We've made significant progress re-branding this business as a KFC brand. This has increased our confidence that Russia will become a big business for Yum!

Secondly, we bought out our largest KFC franchisee in South Africa in the fourth quarter of 2011. This acquisition provides a 68 store equity base in South Africa to help fuel the high growth potential for the rest of Africa.

And finally, we just completed the acquisition of Little Sheep in China. We're very excited to bring our operating and development expertise to this business.

The Little Sheep business will add about 5% to our revenue base in China for 2012. When you take into account transaction and transition costs, we expect only a modest profit impact in 2012.

Looking back and forward, I am very confident in the sustainable and growing strength of our business model. We believe that the investing decisions we are making will set us up for success now and for the long term. We will continue to invest in under-penetrated markets with a long runway for growth, deploying capital in our existing asset base that generates high returns, and leverages these assets with additional sales layers and dayparts to generate same store sales growth.

There's no question in our minds that our business model is evolving and enduring. In fact, our robust EPS model gives us a clear capability to sustain our at least 10% growth model well beyond 2020.

Let me wrap it up by sharing with you our most exciting opportunity. For the past 15 years, I have been teaching a leadership program called Taking People With You. More than 4,000 people in the Yum! system have participated in this program, and I recently wrote a book based on its success.

Taking People With You includes everything I've learned about how to build and align teams to get results, and gleans the best know how in the world from what I've learned from top change experts, coaches, CEOs and companies.

We have made 2012 "The Year of Taking People With You For Operational Excellence." Training guides have been developed in 11 different languages for our over 37,000 Restaurant General Managers around the globe.

The learnings in Taking People With You provide a roadmap for our leaders to take others with them on the journey to make big things happen in their restaurant. I am convinced that, properly executed, Taking People With You will drive world-class operations, AND at the same time, make Customer Mania a consistent reality for our customers all around the world. It is also the vehicle that will forever institutionalize our powerful, How We Win Together culture, the bedrock of our success.

By the way, all the proceeds from the book, Taking People With You, go to the United Nations World Food Programme to help save the lives of starving children, so tell your friends and neighbors about it. Better yet, buy a book and pass it on.

Our people capability and culture have never been stronger and represent the foundation of our future. I'd like to thank our franchise partners, team members and associates around the globe for their hard work, dedication and commitment to help build Yum! Brands and for Serving the World.

After reading this Annual Report, I hope you will agree we are on the ground floor of global growth... China and a whole
lot more..

Yum! To You!