2796_ KFC 1023C Yum P27 P32

User Manual: KFC-1023C

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LONG JOHN SILVER’S Since 1969,
Long John Silver’s has been bringing
families together with our delicious,
signature battered ﬁsh and shrimp.
As the leader of the Quick Service
Restaurant Seafood category, we
continue to satisfy customers with
great, new quality products like our
delicious Buttered Lobster Bites,
reinventing seafood for the way
people eat today.

A&W ALL AMERICAN FOOD has
been serving “hometown” favorites
for over 88 years. With real jukebox
music and a frosty mug of our
signature A&W Root Beer Floats,
our customers love the nostalgia as
much as our delicious 100% U.S.
beef burgers, Coney dogs, french
fries and Sweets & Treats menu.
C’mon in and have some fun!

great culture
starts with

great

people!

As we approach our 10th anniversary as a company, we want our shareholders
to know that over 1,000,000 Customer Maniacs around the globe have made
a commitment — together as one system, company and franchise alike — to
building an operating culture that revolves solely around our passion for serving customers. We have a vision for greatness that is founded on our belief in
building the capability of our people ﬁrst and driven by our desire to achieve
dynasty-like performance. We’re proud of the fact that our Customer Mania mindset and behavior is coming to life in every aspect of our business, from recruiting
and training to our operations. Our goal is to make sure that every customer
experiences the type of branded service for which our brands want to be famous.
As Customer Maniacs we are committed to executing the basics — CHAMPS —
our core program for training, measuring and rewarding employee performance against key customer metrics. We know that when we’re running great
restaurants and are 100% focused on satisfying our customers, we’re driving
consistent performance year after year. And we won’t be satisﬁed until we have
100% CHAMPS execution and Same Store Sales Growth in every restaurant!
Turn the page to meet some of the best Customer Maniacs from around the
world who are putting smiles on customers’ faces and are consistently executing
the basics with a daily intensity that is driving the business.

Peter Hearl
Chief Operating and Development
Ofﬁcer, Yum! Brands

c h amp s
Cleanliness
Make it shine! That’s what KFC
RGM Manish Patel tells his team.
“I take personal accountability
for keeping the restaurant clean
and bright for my customers,”
he says. He uses the company’s
“Cleaning Captain” program
and that person spends the ﬁrst
two hours of each day keeping
his restaurant sparkling. That
dedication is paying off too! In
2006, Manish was named KFC’s
RGM of the Year for his strong
CHAMPS scores and his solid
sales growth!
Manish Patel, KFC
Aurora, Illinois

Hospitality
Letting the customer know that they
come ﬁrst. That’s how LJS/A&W RGM
Kris Jaccard deﬁnes hospitality. And
that’s how she and her team practice
it, too. It pays off. Her CHAMPS
scores averaged around 90% in 2006.
“We have fun,” Kris says, “and I think
when the team is happy, the customers
are happy. It shows.” Kris has been
keeping the customer top of mind for
15 years with franchisee BNC Food
Group. Hers is designated a “training restaurant,” and she is also a
Training Coach.
Kris Jaccard, LJS/A&W
Austin, Texas

Accuracy
Accuracy for this outstanding
RGM means serving delicious
food the right way every
time, and that’s just what the
team at KFC RGM Liu Bing
Zhi’s restaurant does regularly.
“The key focus is putting a
smile on our customers’ faces
and making sure their orders
are correct,” he says. “We
treat our customers like old
friends because they are most
important to us.” In-store
surveys help the team stay
focused on their customers’
needs and keep their CHAMPS
scores in the 90% plus
range — while growing sales!
Liu Bing Zhi, KFC
Beijing, China

Maintenance

Product Quality

Speed with Service

Displaying a high-energy attitude, Pizza Hut RGM Don Bryant
keeps his eye on all parts of the
business — and making sure
customers don’t have a bad
experience because something
isn’t working right is very important. This 20-year veteran and
his team drove sales up 25%
last year, making his restaurant
number one in sales and proﬁts
for all of franchisee RAGE’s
restaurants. Add to that an overall CHAMPS score of 95% and
a CHAMPS Excellence Review
of 99.5% and you can see that
Don is a true Customer Maniac.

Perfect tacos every time. That’s what
Taco Bell company RGM of the Year
Ramona Urena delivers in her restaurant. “We weigh every item and follow
all of Taco Bell’s procedures,” she says.
Ramona has been with Taco Bell for
14 years and she knows that customers expect their orders to be perfect
and the quality of the product to be as
high as possible. She and her team
deliver both. “They’re not coming in
just because the value is right,” she
says. “That may be a consideration,
but they’re coming in because they
know they’ll get great food.” Customers
must be well satisﬁed at Ramona’s
restaurant because she and her team
drove her overall CHAMPS scores to
97% in 2006.

Things move fast in the ﬁve
restaurants that Mejid Mamdouh
oversees in Paris — so much so
that one of them is the highest
grossing KFC restaurant in the
world! But Mejid always stays calm
in the storm of activity. This veteran started as a crew member in
1993 and his outstanding coaching
skills and CHAMPS performance
over the years demonstrate that he
is a unique leader. Big businesses
are built on people like Mejid. And
this Customer Maniac has one
simple credo: put people capability
ﬁrst, then satisﬁed customers and
proﬁtability will follow!

Don Bryant, Pizza Hut
Middlesboro, Kentucky

Mejid Mamdouh, KFC
Paris, France

Ramona Urena, Taco Bell
Oceanside, New York

great
results!

Global Facts

WORLDWIDE SYSTEM UNITS
Year-end

Consistency of Performance, Global Growth, and Cash Generation. In 2006, Yum! further built
upon its track record in these three important areas. In 2006, EPS grew 14%, the ﬁfth straight year
we exceeded our target of double-digit growth. Our track record for global growth continued as we
opened nearly 1,200 new international restaurants, exceeding the 1,000 milestone for the sixth
consecutive year. Over the past three years, Yum! has added more restaurants outside the U.S. than
any other company — more than McDonald’s and more than Starbucks. In 2006, we also generated
a lot of cash. In fact, Yum! again generated over $1 billion that we returned to shareholders through
share buybacks and dividends. We will strive to make consistent ﬁnancial performance, strong
global growth, and impressive cash generation key trademarks for Yum! while we “Go for Greatness
Around the Globe.” Rick Carucci, Chief Financial Ofﬁcer, Yum! Brands, Inc.

(in billions)
UNITED STATES
KFC
Company sales
Franchisee sales (b)
PH
Company sales
Franchisee sales (b)
TACO BELL
Company sales
Franchisee sales (b)
LONG JOHN SILVER’S (c)
Company sales
Franchisee sales (b)
A&W (c)
Company sales
Franchisee sales (b)
TOTAL U.S.
Company sales
Franchisee sales (b)
INTERNATIONAL
KFC
Company sales
Franchisee sales (b)
PIZZA HUT
Company sales
Franchisee sales (b)
TACO BELL
Company sales
Franchisee sales (b)
LONG JOHN SILVER’S (c)
Company sales
Franchisee sales (b)
A&W (c)
Company sales
Franchisee sales (b)
TOTAL INTERNATIONAL
Company sales
Franchisee sales (b)
CHINA
KFC
Company sales
Franchisee sales (b)
PIZZA HUT
Company sales
Franchisee sales (b)
TOTAL CHINA
Company sales
Franchisee sales (b)
TOTAL WORLDWIDE
Company sales
Franchisee sales (b)

2006

2005

2004

2003

2002

5-Year
Growth(a)

1.4
3.9

1.4
3.8

1.4
3.6

1.4
3.5

1.4
3.4

–
4%

1.4
3.8

1.6
3.7

1.6
3.6

1.6
3.5

1.5
3.6

(1%)
1%

1.8
4.5

1.8
4.4

1.7
4.0

1.6
3.8

1.6
3.6

5%
5%

0.4
0.4

0.5
0.3

0.3
0.2

NM
NM

–
0.2

NM
NM

5.0
12.8

5.3
12.4

5.2
11.7

5.1
11.3

4.8
11.0

1%
3%

1.1
5.7

1.1
5.2

1.0
4.7

0.9
4.1

0.9
3.6

8%
10%

0.7
3.1

0.6
3.0

0.7
2.6

0.5
2.4

0.5
2.2

7%
9%

–
0.2

–
0.1

2005

Company
Unconsolidated affiliates
Franchisees
Licensees

7,736
1,206
23,516
2,137

7,587
1,648
22,666
2,376

2%
(27%)
4%
(10%)

Total

34,595

34,277

Year-end

WORLDWIDE SALES

–
0.2

NM
16%

–
–

NM
NM

–
0.1

–
–

NM
NM

1.8
9.1

1.7
8.5

1.7
7.6

1.4
6.7

1.4
6.0

7%
10%

1.3
0.8

1.0
0.7

0.9
0.6

0.8
0.5

0.6
0.3

20%
22%

0.3
–

0.2
–

0.1
–

NM
NM

1.6
0.8

1.2
0.7

1.1
0.6

0.9
0.5

0.7
0.3

23%
21%

8.4
22.7

8.2
21.6

8.0
19.9

7.4
18.5

6.9
17.3

5%
6%

(a) Compounded annual growth rate; totals for U.S., International and Worldwide exclude the impact of Long John Silver’s and A&W.
(b) Franchisee sales represents the combined estimated sales of unconsolidated affiliate and franchise and license restaurants. Franchisee sales, which are not included in our Company
sales, generate franchise and license fees (typically at rates between 4% and 6%) that are included in our revenues.
(c) Beginning May 7, 2002, includes Long John Silver’s and A&W, which were added when we acquired Yorkshire Global Restaurants, Inc.

% B/(W)
Change

2006

5-Year
Growth(a) (b)

2006

2005

2004

2003

2002

UNITED STATES
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total U.S. (c)

5,394
7,532
5,608
1,121
406
20,061

5,443
7,566
5,845
1,169
449
20,472

5,525
7,500
5,900
1,200
485
20,610

5,524
7,523
5,989
1,204
576
20,822

5,472
7,599
6,165
1,221
665
21,126

–
–
(3%)
NM
NM
(1%)

INTERNATIONAL
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total International

6,606
4,788
236
35
238
11,903

6,307
4,701
243
34
229
11,514

6,084
4,528
237
34
210
11,093

5,944
4,357
247
31
183
10,762

5,698
4,249
261
28
182
10,418

4%
3%
–
NM
NM
3%

CHINA
KFC
Pizza Hut
Taco Bell
A&W
Total China (d)
Total (c)(d)

2,258
365
2
–
2,631
34,595

1,981
305
2
–
2,291
34,277

1,657
246
1
–
1,905
33,608

1,410
204
1
–
1,615
33,199

1,192
182
–
6
1,380
32,924

19%
20%
NM
NM
19%
1%

(a) Compounded annual growth rate; total U.S., International and Worldwide excludes the impact of Long John Silver’s and A&W.
(b) Compounded annual growth rate excludes the impact of transferring 30 units from Taco Bell U.S. to Taco Bell International in 2002.
(c) Includes 6 and 4 Yan Can units in 2003 and 2002, respectively.
(d) Includes 6 units, 3 units and 1 unit in 2006, 2005 and 2004, respectively, for an Asian food concept in China.

BREAKDOWN OF WORLDWIDE SYSTEM UNITS
Company

Unconsolidated
Affiliate

Franchised

Licensed

Total

UNITED STATES
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total U.S.

1,023
1,453
1,267
460
9
4,212

–
–
–
–
–
–

4,287
4,757
3,803
661
397
13,905

84
1,322
538
–
–
1,944

5,394
7,532
5,608
1,121
406
20,061

INTERNATIONAL
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total International

750
1,011
–
1
–
1,762

354
207
–
–
–
561

5,446
3,476
194
33
238
9,387

56
94
42
1
–
193

6,606
4,788
236
35
238
11,903

CHINA
KFC
Pizza Hut
Taco Bell
Total China (a)
Total (a)

1,414
340
2
1,762
7,736

645
–
–
645
1,206

199
25
–
224
23,516

–
–
–
–
2,137

2,258
365
2
2,631
34,595

Year-end 2006

(a) Includes 6 units in 2006 for an Asian food concept in China.

great
results!

Global Facts

WORLDWIDE SYSTEM UNITS
Year-end

2006

2005

2004

2003

2002

5-Year
Growth(a)

1.4
3.9

1.4
3.8

1.4
3.6

1.4
3.5

1.4
3.4

–
4%

1.4
3.8

1.6
3.7

1.6
3.6

1.6
3.5

1.5
3.6

(1%)
1%

1.8
4.5

1.8
4.4

1.7
4.0

1.6
3.8

1.6
3.6

5%
5%

0.4
0.4

0.5
0.3

0.3
0.2

NM
NM

–
0.2

NM
NM

5.0
12.8

5.3
12.4

5.2
11.7

5.1
11.3

4.8
11.0

1%
3%

1.1
5.7

1.1
5.2

1.0
4.7

0.9
4.1

0.9
3.6

8%
10%

0.7
3.1

0.6
3.0

0.7
2.6

0.5
2.4

0.5
2.2

7%
9%

–
0.2

–
0.1

2005

Company
Unconsolidated affiliates
Franchisees
Licensees

7,736
1,206
23,516
2,137

7,587
1,648
22,666
2,376

2%
(27%)
4%
(10%)

Total

34,595

34,277

Year-end

WORLDWIDE SALES

–
0.2

NM
16%

–
–

NM
NM

–
0.1

–
–

NM
NM

1.8
9.1

1.7
8.5

1.7
7.6

1.4
6.7

1.4
6.0

7%
10%

1.3
0.8

1.0
0.7

0.9
0.6

0.8
0.5

0.6
0.3

20%
22%

0.3
–

0.2
–

0.1
–

NM
NM

1.6
0.8

1.2
0.7

1.1
0.6

0.9
0.5

0.7
0.3

23%
21%

8.4
22.7

8.2
21.6

8.0
19.9

7.4
18.5

6.9
17.3

5%
6%

% B/(W)
Change

2006

5-Year
Growth(a) (b)

2006

2005

2004

2003

2002

UNITED STATES
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total U.S. (c)

5,394
7,532
5,608
1,121
406
20,061

5,443
7,566
5,845
1,169
449
20,472

5,525
7,500
5,900
1,200
485
20,610

5,524
7,523
5,989
1,204
576
20,822

5,472
7,599
6,165
1,221
665
21,126

–
–
(3%)
NM
NM
(1%)

INTERNATIONAL
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total International

6,606
4,788
236
35
238
11,903

6,307
4,701
243
34
229
11,514

6,084
4,528
237
34
210
11,093

5,944
4,357
247
31
183
10,762

5,698
4,249
261
28
182
10,418

4%
3%
–
NM
NM
3%

CHINA
KFC
Pizza Hut
Taco Bell
A&W
Total China (d)
Total (c)(d)

2,258
365
2
–
2,631
34,595

1,981
305
2
–
2,291
34,277

1,657
246
1
–
1,905
33,608

1,410
204
1
–
1,615
33,199

1,192
182
–
6
1,380
32,924

19%
20%
NM
NM
19%
1%

BREAKDOWN OF WORLDWIDE SYSTEM UNITS
Company

Unconsolidated
Affiliate

Franchised

Licensed

Total

UNITED STATES
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total U.S.

1,023
1,453
1,267
460
9
4,212

–
–
–
–
–
–

4,287
4,757
3,803
661
397
13,905

84
1,322
538
–
–
1,944

5,394
7,532
5,608
1,121
406
20,061

INTERNATIONAL
KFC
Pizza Hut
Taco Bell
Long John Silver’s
A&W
Total International

750
1,011
–
1
–
1,762

354
207
–
–
–
561

5,446
3,476
194
33
238
9,387

56
94
42
1
–
193

6,606
4,788
236
35
238
11,903

CHINA
KFC
Pizza Hut
Taco Bell
Total China (a)
Total (a)

1,414
340
2
1,762
7,736

645
–
–
645
1,206

199
25
–
224
23,516

–
–
–
–
2,137

2,258
365
2
2,631
34,595

Year-end 2006

(a) Includes 6 units in 2006 for an Asian food concept in China.

Yum! Brands at-a-glance
U.S. SALES BY BRAND

BY DAYPART

Management’s Discussion and Analysis of Financial Condition and
Results of Operations.

BY DISTRIBUTION CHANNEL

Introduction and Overview
YUM! Brands, Inc. (“YUM” or
the “Company”) is the world’s largest restaurant company in
terms of system restaurants with over 34,000 restaurants
in more than 100 countries and territories operating under
the KFC, Pizza Hut, Taco Bell, Long John Silver’s or A&W AllAmerican Food Restaurants brands. Four of the Company’s
restaurant brands — KFC, Pizza Hut, Taco Bell and Long John
Silver’s — are the global leaders in the chicken, pizza, Mexicanstyle food and quick-service seafood categories, respectively.
Of the over 34,000 restaurants, 22% are operated by the Company, 72% are operated by franchisees and unconsolidated
affiliates and 6% are operated by licensees.
YUM’s business consists of three reporting segments:
United States, the International Division and the China Division. The China Division includes mainland China, Thailand
and KFC Taiwan and the International Division includes the
remainder of our international operations. The China and International Divisions have been experiencing dramatic growth and
now represent approximately half of the Company’s operating
profits. The U.S. business operates in a highly competitive
marketplace resulting in slower profit growth, but continues
to produce strong cash flows.
DESCRIPTION OF BUSINESS

Dinner 56%
Lunch 36%
Snacks/Breakfast 8%

Dine Out 79%
Dine In 21%

Dinner 63%
Lunch 28%
Snacks/Breakfast 9%

Dine Out 75%
Dine In 25%

Dinner 42%
Lunch 47%
Snacks/Breakfast 11%

Dine Out 75%
Dine In 25%

STRATEGIES

The Company continues to focus on four key

strategies:

Dinner 51%
Lunch 46%
Snacks/Breakfast 3%

Dinner 32%
Lunch 44%
Snacks/Breakfast 24%

Build Dominant China Brands The Company has developed
the KFC and Pizza Hut brands into the leading quick service
and casual dining restaurants, respectively, in mainland China.
Additionally, the Company owns and operates the distribution
system for its restaurants in mainland China which we believe
provides a significant competitive advantage. Given this strong
competitive position, a rapidly growing economy and a population of 1.3 billion in mainland China, the Company is rapidly
adding KFC and Pizza Hut Casual Dining restaurants and testing the additional restaurant concepts of Pizza Hut Home
Service (pizza delivery) and East Dawning (Chinese food).

Dine Out 63%
Dine In 37%

Drive Profitable International Division Expansion The Company and its franchisees opened over 700 new restaurants
in 2006 in the Company’s International Division, representing
seven straight years of opening over 700 restaurants. The
International Division generated over $400 million in operating
profit in 2006 up from $186 million in 1998. The Company
expects to continue to experience strong growth by building
out existing markets and growing in new markets including
India, France and Russia.

Dine Out 52%
Dine In 48%

Source: The NPD Group, Inc.; NPD Foodworld; CREST

WORLDWIDE UNITS
2006 (in thousands)

Yum! Brands
McDonald’s
Subway
Burger King
Domino’s Pizza
Wendy’s
Dairy Queen
Popeyes

35
32
27
11
8
7
6
2

Improve U.S. Brands Positions and Returns The Company
continues to focus on improving its U.S. position through
differentiated products and marketing and an improved
customer experience. The Company also strives to provide industry leading new product innovation which

adds sales layers and expands day parts. We are the leader in
multibranding, with over 3,000 restaurants providing customers two or more of our brands at a single location. We continue
to evaluate our returns and ownership positions with an earn
the right to own philosophy on Company owned restaurants.
Drive High Return on Invested Capital & Strong Shareholder
Payout The Company is focused on delivering high returns
and returning substantial cash flows to its shareholders via
share repurchases and dividends. The Company has one of
the highest returns on invested capital in the Quick Service
Restaurants (“QSR”) industry. Additionally, 2006 was the second consecutive year in which the Company returned over
$1.1 billion to its shareholders via share repurchases and
dividends. The Company recently announced that it was doubling its quarterly dividend rate for the second quarter, 2007
dividend payment, and now expects to generate an approximate 2% dividend yield.
2006 HIGHLIGHTS

Worldwide system sales grew by 5% excluding the
benefit of the 53rd week in 2005
Diluted earnings per share increased 14%
Company restaurant margins increased 1.2 percentage
points worldwide and grew in all three reporting
segments
China Division operating profit up a strong 37%
Mainland China restaurant growth of 18%
International Division operating profit up 11% excluding
the benefit of the 53rd week in 2005
International Division opened 785 new restaurants
U.S. Division grew operating profit 3% excluding the
benefit of the 53rd week in 2005
U.S. operating margin increased by 80 basis points
to 13.6%
Throughout the Management’s Discussion and Analysis
(“MD&A”), the Company provides the percentage change
excluding the impact of currency translation. These amounts
are derived by translating current year results at prior year
average exchange rates. We also provide the percentage
change excluding the extra week certain of our businesses
had in fiscal 2005. We believe the elimination of the currency
translation impact and the 53rd week impact provides better
year-to-year comparability without the distortion of foreign currency fluctuations or an extra week in fiscal 2005.
This MD&A should be read in conjunction with our Consolidated Financial Statements on pages 54 through 57 and
the Cautionary Statements on pages 48 and 49. All Note
references herein refer to the Notes to the Consolidated
Financial Statements on pages 58 through 80. Tabular
amounts are displayed in millions except per share
and unit count amounts, or as otherwise specifically identified.

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Modify Date                     : 2007:04:06 09:49:51-04:00
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Creator                         : Adobe Acrobat 7.0

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2796_ KFC 1023C Yum P27 P32

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