YUM BRANDS INC

Previous wording

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 60,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger & Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-inspired and pizza categories, respectively. The Habit Burger & Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 60,000 restaurants, 98% are operated by franchisees.

Current wording

Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 61,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger & Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-inspired and pizza categories, respectively. The Habit Burger & Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 61,000 restaurants, 98% are operated by franchisees.

Previous wording

Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and Unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants within Divisional results. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

Current wording

Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Further, while we generally include depreciation and amortization of restaurant-level assets within Divisional Company restaurant expenses used to derive Divisional Company restaurant profit, we record amortization of reacquired franchise rights arising from acquisition accounting within Corporate and unallocated Company restaurant expenses as such amortization is not believed to be indicative of ongoing Divisional results as well as to enhance comparability of acquired stores' margins with those of existing restaurants for which reacquired franchise rights are not applicable. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.

Previous wording

•Foreign currency translation unfavorably impacted Divisional Operating Profit by $11 million for the quarter ended March 31, 2025.

Current wording

•Foreign currency translation favorably impacted Divisional Operating Profit by $4 million for the quarter ended June 30, 2025 and unfavorably impacted Divisional Operating Profit by $7 million for the year to date ended June 30, 2025.

Previous wording

•Foreign currency translation negatively impacted our diluted EPS, excluding Special Items, by approximately $0.03 for the quarter ended March 31, 2025. Our diluted EPS, excluding Special Items, was unfavorably impacted by $0.08 for the quarter ended March 31, 2024 from after-tax investment losses.

Current wording

•Foreign currency translation favorably impacted our diluted EPS, excluding Special Items, by approximately $0.01 and unfavorably impacted our diluted EPS, excluding Special Items, by approximately $0.02 for the quarter and year to date ended June 30, 2025, respectively. Our diluted EPS, excluding Special Items, for the year to date ended June 30, 2024 was unfavorably impacted by $0.08 from after-tax investment losses.

Previous wording

•Gross unit openings for the quarter were 751 units.

Current wording

•Gross unit openings for the quarter were 871 units. Gross unit openings for the year to date were 1,622 units.

Previous wording

◦Net units declined by 460 for the quarter, primarily driven by unit closures in Turkey. On January 8, 2025, we terminated our franchise agreements with franchisee IS Gida A.S. (IS Gida), the owner and operator of KFC and Pizza Hut restaurants in Turkey and a subsidiary of IS Holding A.S., after failure by IS Gida to meet our standards. As a result, 283 KFC restaurants and 254 Pizza Hut restaurants in Turkey were closed during the quarter.

Current wording

◦Total units decreased by 74 for the year to date, primarily driven by unit closures in Turkey. On January 8, 2025, we terminated our franchise agreements with franchisee IS Gida A.S. (IS Gida), the owner and operator of KFC and Pizza Hut restaurants in Turkey and a subsidiary of IS Holding A.S., after failure by IS Gida to meet our standards. As a result, 283 KFC restaurants and 254 Pizza Hut restaurants in Turkey were closed in January.

Previous wording

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the quarter ended March 31, 2024, we recorded net refranchising losses of $3 million that have been reflected as Special Items.

Current wording

(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the quarter and year to date ended June 30, 2024, we recorded net refranchising losses of $1 million and $4 million, respectively, that have been reflected as Special Items.

Previous wording

Additionally, we recorded net refranchising gains of $5 million and $8 million during quarters ended March 31, 2025 and 2024, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.

Current wording

Additionally, we recorded net refranchising gains of $11 million and $15 million during quarters ended June 30, 2025 and 2024, respectively, that have not been reflected as Special Items. During the years to date ended June 30, 2025 and 2024, we recorded net refranchising gains of $16 million and $23 million, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.

Previous wording

(b)We recorded charges of $17 million and $21 million during the quarters ended March 31, 2025 and 2024, respectively, to General and administrative expenses related to a resource optimization program. Over the past several years, this program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. We expanded the program in 2024 to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate. Costs incurred to date related to the program primarily include severance associated with positions that have been eliminated or relocated and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Current wording

(b)We recorded charges of $14 million and $32 million during the quarter and year to date ended June 30, 2025, respectively, and $25 million and $46 million during the quarter and year to date ended June 30, 2024, respectively, to Corporate and unallocated General and administrative expenses related to a resource optimization program. Over the past several years, this program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. We expanded the program in 2024 to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate. Costs incurred to date related to the program primarily include severance associated with positions that have been eliminated or relocated and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Previous wording

(c)During the quarter ended March 31, 2025, we recorded charges of approximately $7 million to General and administrative expenses associated with our decision to designate two brand headquarters in the U.S., located in Plano, Texas and Irvine, California, to foster greater collaboration among brands and employees. This involved relocating the KFC U.S. corporate office to a KFC Global headquarters and requiring the majority of our U.S.-based remote employees to relocate to an appropriate headquarter office. Costs incurred to date primarily include severance for the employees who have chosen not to relocate and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Current wording

(c)During the quarter and year to date ended June 30, 2025, we recorded charges of approximately $10 million and $17 million, respectively, to Corporate and unallocated General and administrative expenses associated with our decision to designate two brand headquarters in the U.S., located in Plano, Texas and Irvine, California, to foster greater collaboration among brands and employees. This involved relocating the KFC U.S. corporate office to a KFC Global headquarters and requiring the majority of our U.S.-based remote employees to relocate to an appropriate headquarter office. Costs incurred to date primarily include severance for the employees who have chosen not to relocate and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.

Previous wording

(d)The below table includes the detail of Special Items Tax Benefit:

Current wording

(e)The below table includes the detail of Special Items Tax Benefit:

Previous wording

Tax Expense - Foreign tax audit in the quarter ended March 31, 2025 reflects a reserve associated with a change in management's judgement around a Mexican subsidiary's ability to utilize losses to offset recapture gains triggered by a historical tax deconsolidation in Mexico (see Note 7). This tax expense was reflected as a Special Item due to its size and the years to which the reserve relates.

Current wording

Tax Expense - Foreign tax audit in the quarter and year to date ended June 30, 2025 reflects a reserve associated with a change in management's judgement around a Mexican subsidiary's ability to utilize losses to offset recapture gains triggered by a historical tax deconsolidation in Mexico (see Note 7). This tax expense was reflected as a Special Item due to its size and the years to which the reserve relates.

Previous wording

Other Income tax impacts recorded as Special in the quarter ended March 31, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction. Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

Current wording

Other Income tax impacts recorded as Special in the year to date ended June 30, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction. Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.

Previous wording

The following item impacted reported results in 2024. See also the Detail of Special Items in this MD&A for other items impacting results in 2025 or 2024.

Current wording

The following item impacted reported results in 2024 and/or are reasonably likely to impact future results. See also the Detail of Special Items in this MD&A for other items impacting results in 2025 or 2024.

Previous wording

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million. Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million in the quarter ended March 31, 2024.

Current wording

During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million. Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million in the year to date ended June 30, 2024.

Previous wording

The KFC Division has 31,998 units, 89% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2025.

Current wording

The KFC Division has 32,369 units, 89% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2025.

Previous wording

The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by the KFC U.K. and Ireland restaurant acquisition (see Note 2) in the second quarter of 2024 and Company same-store sales growth of 2%.

Current wording

The quarterly and year to date increases in Company sales, excluding the impacts of foreign currency translation, were driven by the KFC U.K. and Ireland restaurant acquisition (see Note 2) in the second quarter of 2024 and Company same-store sales growth of 2%.

Previous wording

The quarterly decrease in Company restaurant margin percentage was driven by the margin percentages of the units included in the KFC U.K. and Ireland restaurant acquisition, partially offset by Company same-store sales growth.

Current wording

The year to date decrease in Company restaurant margin percentage was driven by the margin percentages of the units included in the KFC U.K. and Ireland restaurant acquisition, partially offset by Company same-store sales growth.

Previous wording

The quarterly increase in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by unit growth and franchise same-store sales growth of 2%, partially offset by a 1% negative impact from the KFC U.K. and Ireland restaurant acquisition.

Current wording

The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by unit growth and franchise same-store sales growth of 2%, partially offset by a 1% negative impact from the KFC U.K. and Ireland restaurant acquisition.

Previous wording

The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower headcount, partially offset by expenses related to the operation of acquired KFC U.K. and Ireland restaurants.

Current wording

G&A, excluding the impacts of foreign currency translation, was flat year to date as higher expenses related to our annual incentive compensation programs and the operation of acquired KFC U.K. and Ireland restaurants was offset by lapping higher prior year professional fees.

Previous wording

The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by unit growth and same-store sales growth.

Current wording

The quarterly and year to date increases in Operating Profit, excluding the impacts of foreign currency translation, were driven by unit growth and same-store sales growth, partially offset by lapping prior year net bad debt recoveries.

Previous wording

The Taco Bell Division has 8,723 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2025.

Current wording

The Taco Bell Division has 8,756 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell Division units in the U.S. as of June 30, 2025.

Previous wording

The quarterly increase in Company sales was driven by Company same-store sales growth of 7% and unit growth.

Current wording

The quarterly and year to date increases in Company sales were driven by company same-store sales growth of 2% and 4% for the quarter and year to date, respectively, and unit growth.

Previous wording

The quarterly restaurant margin percentage decrease was driven by lower margins associated with new builds outside the U.S., commodity inflation and higher labor and other restaurant operating costs partially offset by same-store sales growth.

Current wording

The quarterly and year to date restaurant margin percentage decreases were driven by commodity inflation, higher labor and other restaurant operating costs partially offset by same-store sales growth.

Previous wording

The quarterly increase in Franchise and property revenues was driven by franchise same-store sales growth of 9% and unit growth.

Current wording

The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 4% and 7% for the quarter and year to date, respectively, and unit growth.

Previous wording

The quarterly decrease in G&A was driven by decreased legal costs and lower headcount and salaries partially offset by higher digital and technology expenses.

Current wording

The quarterly increase in G&A was driven by higher digital and technology expenses and professional and legal fees partially offset by lower headcount.

Previous wording

The quarterly increase in Operating Profit was driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs.

Current wording

The quarterly and year to date increases in Operating Profit were driven by same-store sales growth and unit growth partially offset by higher restaurant operating costs.

Previous wording

The Pizza Hut Division has 19,786 units, 67% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2025.

Current wording

The Pizza Hut Division has 19,768 units, 68% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of June 30, 2025.

Previous wording

The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a franchise same-store sales decline of (2%).

Current wording

The quarterly and year to date decreases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by franchise same-store sales declines of (1%).

Previous wording

The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher current year bad debt expense (including bad debt expense associated with four franchise entities that are transitioning to new ownership), timing of digital and technology related spending within Franchise advertising and other services expense, a same-store sales decline and higher G&A.

Current wording

The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by higher current year bad debt expense (including bad debt expense associated with franchise entities that have or are transitioning to new ownership), higher G&A, timing of digital and technology related spending within Franchise advertising and other services expense, expenses associated with our bi-annual Global Franchise Convention and a same store sales decline.

Previous wording

The Habit Burger & Grill Division has 379 units, the vast majority of which are in the U.S. The Company owned 80% of the Habit Burger & Grill units in the U.S. as of March 31, 2025.

Current wording

The Habit Burger & Grill Division has 379 units, the vast majority of which are in the U.S. The Company owned 80% of the Habit Burger & Grill Division units in the U.S. as of June 30, 2025.

Previous wording

The quarterly increase in Corporate and Unallocated G&A expense was driven by higher costs associated with our resource optimization program, costs associated with our brand headquarters consolidation, higher professional fees and higher compensation.

Current wording

The quarterly and year to date increases in Corporate and unallocated G&A expense were driven by costs associated with our brand headquarters consolidation, higher compensation and higher professional fees, partially offset by lower costs associated with our resource optimization program.

Previous wording

Net cash provided by operating activitieswas $404 million in 2025 versus $363 million in 2024. The increase was primarily driven by a decrease in incentive compensation payments, an increase in Operating Profit before Special Items and timing of accounts receivable collections, partially offset by timing of spending on advertising and an increase in payments related to our resource optimization program.

Current wording

Net cash provided by operating activitieswas $850 million in 2025 versus $705 million in 2024. The increase was primarily driven by lower incentive compensation payments, lower income tax payments and an increase in Operating Profit before Special Items.

Previous wording

Net cash provided by investing activitieswas $2 million in 2025 versus $45 million in 2024. The change was primarily driven by higher current year capital spending. The prior year proceeds arising from the sale of our approximate 5% minority investment in Devyani were largely offset by proceeds arising from the current year maturity of short-term investments.

Current wording

Net cash used in investing activitieswas $130 million in 2025 versus $253 million in 2024. The change was primarily driven by maturities of short-term investments in the current year compared to net purchases of short-term investments in the prior year and lower current year spending on acquisitions, partially offset by lapping prior year proceeds arising from the sale of our approximate 5% minority investment in Devyani and higher current year capital spending.

Previous wording

Net cash used in financing activitieswas $443 million in 2025 versus $247 million in 2024. The change was primarily driven by higher current year share repurchases.

Current wording

Net cash used in financing activitieswas $741 million in 2025 versus $547 million in 2024. The change was primarily driven by higher current year share repurchases.

Previous wording

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.5 billion Revolving Facility under our Credit Agreement which had $374 million outstanding as of March 31, 2025. We believe that our ongoing cash from operations, cash on hand, which was approximately $600 million at March 31, 2025, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months. Borrowings under our Revolving Facility had original maturities of three months or less.

Current wording

To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.5 billion Revolving Facility under our Credit Agreement which had $400 million outstanding as of June 30, 2025. Borrowings under our Revolving Facility had original maturities of three months or less. We believe that our ongoing cash from operations, cash on hand, which was approximately $680 million at June 30, 2025, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months. The May 2016 Securitization Notes in the amount of $938 million have an anticipated repayment date of May 2026. While we currently anticipate refinancing those Notes prior to that date, we believe that in the event we either cannot or choose not to do so, cash from the aforementioned sources would be sufficient to fully repay the $938 million in May 2026.

Previous wording

As of March 31, 2025, approximately 82% of our $11.0 billion of total debt outstanding, excluding the Revolving Facility balance, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.7%. Subsequent to the end of the first quarter, we entered into interest rate swaps (see Note 12) to fix the interest rate on $1.5 billion of borrowings, primarily under our Term Loan B Facility, from April 2025 to March 2028 which increased the fixed percentage of this total debt outstanding to 96%.

Current wording

As of June 30, 2025, approximately 96%, including the impact of interest rate swaps, of our $11.0 billion of total debt outstanding, excluding the Revolving Facility balance, finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.5%.

Previous wording

We ended the quarter with a consolidated net leverage ratio of 3.9x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's).

Current wording

We ended the quarter with a consolidated net leverage ratio of 3.8x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's).