Dear Partners, I’m pleased to report 2003 was a year wherewe showed the underlying power of our global portfolio ofleading restaurant brands. With continued profitable international expansion led by dynamic growth in China, combinedwith strong momentum at Taco Bell in the United States, weachieved 13% earnings per share growth prior to special items.This growth was achieved in spite of a challenging worldwide environment which included warin Iraq, SARS in Asia, and a generally soft economy the first half of the year. Highlights includeover 1 billion in operating profit, over 1 billion in cash from operating activities, and nearly 1 billion in franchise fees. In so doing, we once again achieved one of the industry’s leadingreturns on invested capital at 18%. After paying off 2.6 billion in debt the past six years, wenow have the power of an investment-grade quality balance sheet. Given this strong performanceand increasing financial strength, our share price climbed 42% in 2003, and our annual returnto shareholders is 14% since becoming a public company in 1997.Going forward, we are quite confident we can continue to achieve our goals of growing ourearnings per share at least 10% each year. We have three powerfully unique growth opportunities that differentiate us from our competition. After reading this report, I hope you’ll agreethat we are NOT YOUR ORDINARY RESTAURANT COMPANY.Let me explain why we think so.#1. Driving Profitable GLOBAL GrowthOn the international front we have an undeniable competitive advantage andundeniable growth opportunity with two global brands, KFC and Pizza Hut.This year we set another record as we opened 1,108 new restaurants outsidethe United States. That’s the third year in a row we’ve opened 1,000 or more.Yum! Restaurants International is now our largest and fastest growing division, generating 441 million in operating profit and 22% growth in 2003. To put this in perspective, the international team contributed 172 million in 1997, excluding charges for facility actions.The root of this exciting growth stems from the competitive advantage of the tremendousinfrastructure we already have in place. Today, we have strong local teams around the world,operate in over 100 countries with established supply chains, and have nearly 600 international franchisees.Table of ContentsInfc78101214Dear PartnersYum! Dynasty ModelGlobal PowerhouseYum! Restaurants Internationalcontinues to be our Growth Engine!Brand Power x5Taco BellThink Outside the Bun16182022242628Pizza HutGather ’Round the Good StuffKFKFCC What’s Cookin’Long John Silver’s/A&WPower of ChoiceCustomer Mania Power100% CHAMPS with a Yes!Running Great Restaurants29303132Yum! At-a-glanceGlobal FactsUnit InformationPower of Results:Yum! Financial Highlights33 FinancialsInbc Power of Giving Back

1.We’re continuing tofocus our internationalcompany operationssevencountries.investment inWe thank our friends from PepsiCo who invested billions of dollars to establish the global networkwe inherited for both KFC and Pizza Hut. The happy reality is that it would take years of investmentfor any of our competitors to reach our size and scale (with the obvious exception of McDonald’s,which already makes 1.6 billion outside the U.S., demonstrating the size of the prize).Our plan is to leverage our big scale markets. We have 11 countries and franchise business unitsthat have almost 500 restaurants or more. We’re continuing to focus our international companyoperations investment in seven of these countries that account for over 70% of our internationaloperating profit. Our franchise and joint venture partners are driving system growth by opening morethan 70% of our new international restaurants. Importantly, our franchisees are using their capital,not ours, to grow their business since we strategically elected not to invest in our franchisees’ realestate, like some other franchisors do. We love the high return franchise business!Above: The United Kingdom, one of ourkey high-growth markets, accountedfor 97 million in operating profit in2003.The silver bullet in our portfolio has to be China. What a business and what an incredibleopportunity! KFC and Pizza Hut already have 1,000 and 120 restaurants in China, respectively. We have a senior tenured team that has worked together for over ten years, buildingthe business from scratch to where we now make 157 million in operating profit, up 42%versus a year ago.In addition, we have the unique advantage of owning our own food distribution system thatgives us coverage in every major Chinese province and access to almost the entire 1.3 billionpopulation. We also have one of the largest real estate teams of any retailer in the world thatopened up 270 new restaurants in 2003. Our China operations are also best in class, with ahighly educated workforce (64% of the restaurant general managers have at least a collegeeducation, the rest are plain smart!). We estimate there are 450 million urban customers whocan afford our food in the fastest growing economy in the world. KFC is already the Chinesecustomers’ favorite brand and Pizza Hut is the number one casual dining chain. We just openeda Taco Bell Grande dine-in format that is off to a great start. The Chinese love our food andwe love China. I’ve said it before and I’ll say it again, there is no doubt in my mind that oneday we will have more restaurants in China than we do in the U.S.Left: Seventeen years after openingthe first KFC in China, Yum! Brandscelebrated the opening of its 1,000threstaurant, located in Beijing.Right: KFC in China gathered allof its 1,000 Restaurant GeneralManagers together as part of itsAnnual Convention to mark the1,000th restaurant milestone.

2.We are now the leading global developer of newrestaurants. We’ve created the equivalent of a newdivision in China, which recently opened its 1,000thKFC and made 157MM in 2003.We want tocontinue to addat least 1,000new unitsoutside the U.S.,each year, and do it profitably.The biggest short-term international challenge we face is turning around our Mexico business.We have nearly 500 restaurants in Mexico that only made in total about 10 million in 2003,which is well below expectations. The good news is we have a talented team working hard to turnaround same-store sales in this tough macro environment. In the meantime, we have temporarilypulled back on new Mexico development while we rebuild our existing business. We have somany profitable growth opportunities in other countries that we can turn off the capital faucet ina country, like Mexico, when we have a significant downturn and readily redeploy that capital inother markets. We want to continue to add at least 1,000 international new units each year ANDwe want to do it profitably. Consider this: excluding China, we only have 6,000 KFCs and 4,000Pizza Huts compared to the 16,000 units McDonald’s has in international markets outside ofChina. With this kind of opportunity, we believe that we can continue to profitably grow at our1,000 new unit pace for many years without being heroic or foolishly chasing numbers.Our most significant longer term challenge is developing new markets getting to scale inContinental Europe, Brazil and India. This is tough sledding because building consumer awareness and acceptance takes time. It also takes time to build local operating capability. Ourapproach is to be patient and ever mindful of our overall profitability and returns. The promiseis obvious.Here are key measures for international: 15% operating profit growth per year, at least 7% systemsales growth before foreign currency conversion, 1,000 new units outside the U.S. and 20%return on invested capital.In the U.S., Taco Bell is now the second most profitable QSR brand and just celebrated hittingthe 1 million mark for average unit volumes. In 2003, company same-store sales were up 2%on top of 7% growth the previous year.Top: Pizza Hut Korea PresidentIn-soo Cho serves up some of thenew menu items in the world’sfirst Pizza Hut Plus, which openedin Seoul during 2003.Bottom: A new, 70-item menu highlights the world’s first Pizza HutPlus restaurant in Korea. In addition to the usual array of pizzas, therestaurant features a wide varietyof appetizers, salads, pasta andbeverages.This result is coming from steadily improving operations and exceptional marketing. Taco Bellis now ranked #2 in QSR Magazine’s Annual Study for overall drive-thru service. And Taco Bell’s“Think Outside the Bun” advertising campaign and strong new product pipeline is among thebest in the industry.Our biggest disappointment in the U.S. this year was negative 1% and negative 2% companysame-store sales growth at Pizza Hut and KFC, respectively. However, 2003 was a year of steadyprogress at Pizza Hut as the brand showed positive same-store sales growth seven of the lasteight periods in 2003. Most importantly, the Pizza Hut team laid a strong growth foundationfor this year and beyond. The brand was repositioned to target the heart of the pizza categoryfocusing on the family and the primary decision maker, Mom.

3.We are the leader in the chicken, pizza, seafood &Mexican quick service categories.A new advertising campaign, “Gather ’Round the Good Stuff ,” was launched and is gainingtraction with customers. The new product pipeline has been rebuilt with a record number ofproduct and concept tests.Pizza Hut is also steadily improving its operations and is the first one of our brands to achieveteam member turnover of less than 100% for the full year 99.6% to be exact (the industryaverage is nearly 200%).While KFC is incredibly strong internationally, it is clearly our biggest challenge in the U.S. Weare, however, confident the new management team we put in place is taking the right actionsto turn the brand around.We plan a major relaunch of KFC in the second half of 2004, featuring a new menu board thatfeatures a roasted line of new products and everyday value meals. We are also emphasizingthe fact that our chicken is brought to our restaurants fresh, not frozen, every day.Just as importantly for KFC, we are making steady progress in speed of service as we roll outthe same drive-thru program that worked so effectively for Taco Bell. One big advantage wehave is the ability to spread our best us the competitiveKey measures in the U.S.: At least 7% operating profit growth per year and at least 1–2%same-store sales growth.branded variety.#2. Multibranding Great BrandsOur goal is to be the best in the world at providing branded restaurant choice.We have category-leading brands that are highly successful on a stand-alonebasis. As a result, we are structured with fully staffed marketing and operatingteams who wake up every single day focused on driving each brand’s differentiation, relevance and energy. Given the power of these individual brands, wehave the opportunity to literally change the quick service restaurant industryas you know it today by offering two of our great brands in the same restaurant we call this strategy multibranding.Multibranding gives us the competitive advantage of branded variety. It is already a big businessfor Yum!, accounting for 12% of our U.S. traditional restaurant base and generating almost 185 million in U.S. company store profits and franchise fees. Our learnings this year makeWith the acquisition of A&W andLong John Silver’s in 2002, we tripledour multibrand potential in the U.S.No one else has our brand portfoliopower.Multibrandingadvantage of

4.We are more confident than ever that multibrandingis potentially the biggest sales and profit driver in therestaurant industry since the drive-thru more confident than ever that multibranding is potentially the biggest sales and profit driverin the restaurant industry since the introduction of the drive-thru window.We started with combinations of KFC/Taco Bell and Taco Bell/Pizza Hut Express. We learned thatwe were able to add significant incremental average sales per unit, dramatically improving ourunit cash flows. Our franchisees then pioneered multibrand combinations of KFC and Taco Bellwith Long John Silver’s, the country’s leading seafood restaurant, and A&W All American Food,which offers pure-beef hamburgers and hot dogs along with its signature Root Beer Float. Basedon outstanding customer feedback and results, we acquired Long John Silver’s and A&W in2002. With this acquisition we tripled our multibranding potential in the U.S.We can now open high return new restaurants in trade areas that used to be too expensive ordid not have enough population density to allow us to go to market with one brand. With multibranding, we believe we can take both KFC and Taco Bell to 8,000 units in the U.S. comparedto the over 5,000 each we have today. As we expand, we expect to take volumes to an averageof at least 1.1 million per restaurant.One of the most exciting learnings we had in 2003, is that Long John Silver’s is performingeven better than expected we call it our hidden jewel. That’s because there is no nationalfish competitor in the QSR industry and consequently there is pent-up consumer demand forseafood. In addition to outstanding sales results with KFC and Taco Bell, we have created aLong John Silver’s/A&W combination that allows us to expand into “home-run” trade areaswhere we know demand is high and KFC and Taco Bell are already there. The results have ledus to a “fish first” strategy with the goal of making Long John Silver’s a national brand.I’m also pleased to report that we have created on our own a new multibrand concept calledWingStreet, which is a tasty line of flavored bone-in and bone-out chicken wings. We believe thatWingStreet can be an ideal multibrand partner for Pizza Hut’s delivery service. Initial customerresponse is promising. We also acquired Pasta Bravo, a California fast casual chain with anoutstanding line of pastas at great value, to be a partner brand with Pizza Hut’s traditionaldine-in restaurants. Franchise testing is underway. We are confident multibranding will be everybit as successful at Pizza Hut as it has been for our other brands.In last year’s report, I stated that the biggest multibranding challenge is building the operatingcapability to successfully run these restaurants. That’s still a fact. With branded variety comescomplexity. However, we have structured and invested to drive execution and it’s paying off.We now have a fully dedicated team of operating experts who have improved back of houseTop: The popularity of the LongJohn Silver’s brand grew in 2003as it became the partner-of-choicein Yum!’s new Multibrand restaurants. This year, Yum! has adopteda “fish first” strategy of using theMultibrand development concept toget Long John Silver’s distribution upto at least 3,000 units and make it anational brand.Bottom: Multibranding offers ourcustomers more choice and convenience by bringing together two ofour great brands under one roof.

5.Customer Mania is about having a Yes! attitude,culture and mindset 100% of the time.If we’re achieving100% CHAMPS with aYes! attitude, we’re givingour customers the experiencethey deserve and expect.integration and systems, value engineered our facilities, developed WOW building designsand most importantly, improved people capability. While execution still remains our numberone challenge, we are getting better and better. Improved margins and customer measuresare evidence. Further proof in the pudding is that 50% of our multibranding units are beingopened by franchisees who are putting their own hard-earned money into the game becausethey believe that the payout is there.Again, this multibranding opportunity is unique to Yum! We clearly have first mover advantage.No one else has our brand portfolio power, plus our operational learnings put us well aheadof the pack.Multibranding key measures: 500 U.S. multibrand additions per year and at least mid-teeninternal rates of return.#3. Running Great RestaurantsWhile we have pockets of excellence around the globe, our customers aretelling us we could only give ourselves a “C” or mediocre grade in operationsexecution. We’re making progress as we’ve climbed from the bottom to themiddle of the pack versus competition, but mediocrity is miserable from ourpoint of view. The bright side is we now have the key processes in place thatare necessary to be a great restaurant operating company. We have standardized and are now implementing our best operating practices around the world:Customer Mania Training, CHAMPS (which measures operational basics likeCleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed),Balanced Scorecard, CHAMPS Excellence Review and Bench Planning. Thekey now is to execute these tools that we know work with urgency.As we do, we are fixated on two key measures that reflect the kind of consistency we want todrive across Yum! Brands:1) SAME-STORE SALES GROWTH IN EVERY STORE.2) 100% CHAMPS WITH A YES! ATTITUDE IN EVERY STORE.Why are these two measures so important? If we are driving same-store sales growth, weare doing a better job of satisfying more customers. If we are achieving 100% CHAMPS with aYes! attitude, we are giving our customers the basic experience they deserve and expect. Ofcourse, the opposite is true when we don’t.At A&W All American Food, customerskeep coming back for our pure 100%ground beef burgers served hot, freshand sizzling every time. Our delicious Double Bacon Cheeseburger,pictured below, is our number oneselling burger!

6.We are anything but your ordinary restaurant company.Our goal is to be thebest restaurant operatorin our industry.We obviously have a major opportunity to improve. For example, at Taco Bell where we hadour best U.S. company same-store sales growth of 2% in 2003, only 66% of our restaurantshad sales growth and only 42% of the CHAMPS scores reached 100%. We have uneven performance like this at every brand in almost every country in the world. This only shows us howmuch upside we have to grow by Running Great Restaurants.We are striving to train 840,000 team members across our system once a quarter on howto be Customer Maniacs. We began this training this year and turnover is down, complaintsare down, and compliments are up. CHAMPS scores are improving. We’re making progressbut we know we can and must get better. Our goal is to be the best restaurant operator inour industry.David C. NovakChairman and ChiefExecutive OfficerYum! Brands, Inc.As we march ahead, our entire organization is focused on building what we call the Yum!Dynasty, driving consistent results year after year, which is a trademark of truly great companies and rising shareholder value. On the next page you can see the roadmap we’ve laid outfor dynasty-like performance, along with some of my handwritten comments I always includein my New Year’s letter to our restaurant teams.What you can’t see in our numbers, but I hope you can get a sense of in this report, is the powerof the worldwide culture we are building. It’s a high energy, people capability first, customermania culture that is centered on spirited recognition that drives performance. If you talk toour people, you’d hear a universal conviction that the culture we are building is our true secretweapon. I’m confident we will execute our unique strategies because our outstanding peopleand our tremendous franchisees are galvanized around building our business the right way.Exciting products are constantlycoming through the pipeline at Yum!’sindividual brands. One such productis Taco Bell’s Cheesy Gordita Crunch,delivering the dynamic contrast of acrunchy taco shell inside a warm, softGordita flatbread held together with amelted three-cheese blend.In particular, I especially want to thank the Restaurant General Managers who ha