YUM BRANDS INC

Yum! Brands, Inc. operates in the global quick service restaurant (QSR) industry, with over 63,000 restaurants in 155 countries and territories primarily under the KFC, Taco Bell, Pizza Hut and Habit Burger & Grill concepts. The retail food industry is intensely competitive with respect to price, quality, new product development, digital engagement, advertising, and customer service, and competition has increased from delivery aggregators and the grocery industry offering convenient meals. The Company's KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-inspired food and pizza categories, respectively, while Habit Burger & Grill is a fast-casual concept specializing in chargrilled burgers.

The Company competes with international, national and regional chains as well as locally-owned establishments for customers, management and hourly personnel, suitable real estate sites and qualified franchisees. Given the vast number of competitors, the Company's concepts do not constitute a significant portion of the retail food industry in terms of number of system units or system sales. The Company's competitive advantages include its iconic global brands, an asset-light franchisor model with 97% of units operated by franchisees, and its proprietary Byte by Yum! platform, a comprehensive collection of software as a service and AI-driven products designed to enable easy operations and improved customer experiences.

The Company generates revenue through three primary streams: Company sales from Company-owned restaurants, franchise and property revenues from franchisees (including continuing fees typically between 4% to 6% of sales and upfront fees), and franchise contributions for advertising and other services. The business model is predominantly asset-light and franchisor-oriented, with 97% of restaurants operated by independent franchisees or licensees, meaning the Company's revenue is largely recurring and transactional in nature, derived from royalties and fees rather than direct restaurant operations. The Company's platform dynamics include the Byte by Yum! platform, which consolidates essential systems for franchisees and is designed to enable faster adoption of AI.

The KFC Division had 33,897 units at December 31, 2025, with 90% located outside the U.S. and 99% franchised. KFC generated system sales of $36,434 million ¹ in 2025, with same-store sales growth of 3% ². The Taco Bell Division had 9,030 units, with 86% in the U.S. and 93% franchised. Taco Bell generated system sales of $18,361 million ³ in 2025, with same-store sales growth of 7% ⁴. The Pizza Hut Division had 19,974 units, with 68% outside the U.S. and 99% franchised. Pizza Hut generated system sales of $12,794 million ⁵ in 2025, with same-store sales decline of 1% ⁶. The Habit Burger & Grill Division had 384 units, with 79% Company-owned in the U.S. and 22% franchised. Habit Burger & Grill generated system sales of $706 million ⁷ in 2025, with same-store sales decline of 1% ⁸.

In 2025, the Company began a review of strategic options for the Pizza Hut brand, intending to complete the review in 2026. During the year, the Company terminated franchise agreements with the owner and operator of KFC and Pizza Hut restaurants in Turkey on January 8, 2025, resulting in the closure of 283 KFC restaurants and 254 Pizza Hut restaurants ⁹. The Company also completed the acquisition of 128 Taco Bell restaurants across the Southeast U.S. from a franchisee for approximately $670 million ¹⁰, and acquired 153 other restaurants from franchisees for total cash consideration of $116 million ¹¹. The Company recorded charges of $41 million ¹² associated with the Pizza Hut Strategic Options Review, $27 million ¹³ associated with Brand HQ Consolidation, $9 million ¹⁴ associated with German acquisition and Turkey termination-related costs, and $38 million ¹⁵ associated with Resource Optimization. The Company repurchased shares of Common Stock for $552 million ¹⁶ and paid dividends of $789 million ¹⁷ in 2025.

Total revenues for 2025 were $8,214 million ¹⁸, compared to $7,549 million ¹⁹ in 2024 and $7,076 million ²⁰ in 2023. GAAP Operating Profit was $2,574 million ²¹ in 2025, compared to $2,403 million ²² in 2024. Net Income was $1,559 million ²³ in 2025, compared to $1,486 million ²⁴ in 2024. Diluted EPS was $5.55 ²⁵ in 2025, compared to $5.22 ²⁶ in 2024. Core Operating Profit growth was 5% ²⁷ in 2025, and Diluted EPS growth excluding Special Items was 10% ²⁸. Net cash provided by operating activities was $2,010 million ²⁹ in 2025.

The Company intends to drive the next chapter of growth by Raising the B.A.R. through three clear priorities: Battle for the future consumer by staying focused on their needs; Accelerate restaurant unit economics for franchisees and maximize performance of every restaurant, serving as a catalyst for new unit development; and Reach the full potential of Byte by Yum! by effectively operating, innovating and expanding the connected platform. The Company intends to drive long-term growth and shareholder returns primarily through consistent same-store sales growth and new unit development across all Concepts. The Company expects gross capital expenditures of approximately $400 million ³⁰ in 2026 driven by technology initiatives and continued investments in Taco Bell, KFC and Habit Burger & Grill company restaurants.

The Company expects approximately $50 million ³¹ of refranchising proceeds in 2026, resulting in net capital expenditures of approximately $350 million ³². The Company targets a consolidated net leverage ratio at approximately 4.0x EBITDA over the medium term by issuing incremental debt as its business grows. The Company expects continued strong operating cash flows in 2026 and intends to use these cash flows to continue to invest in growing the business and pay a competitive dividend, with any remaining excess returned to shareholders through share repurchases.

The Company expects to maintain its asset light, franchisor model. Run-rate capital expenditures will consist of company restaurant repairs, maintenance and remodels, support of digital and technology initiatives and project-specific capital expenditures. The Company also expects targeted new company unit development to spur additional growth that is partially funded through refranchising a comparable number of existing company units, and strategic investments that create incremental value for shareholders and franchisees.

In February 2026, the Company's Board of Directors declared a quarterly dividend of $0.75 per share ³³ of Common Stock, a 6% increase from the quarterly dividend of $0.71 per share ³⁴ paid in 2025. This quarterly dividend will total approximately $210 million ³⁵. As of December 31, 2025, the Company has remaining capacity to repurchase up to $1.1 billion ³⁶ of Common Stock under the May 2024 authorization through December 31, 2026. The Company expects to maintain its consolidated net leverage ratio at approximately 4.0x EBITDA over the medium term.

The Company's sales continued to be impacted during 2024 by the Middle East conflict, most significantly in markets across the Middle East, Malaysia and Indonesia, representing an approximate one-point headwind to YUM's overall same-store sales growth in the year ended December 31, 2024. The Company expects to incur further costs of a currently indeterminate amount as the Pizza Hut strategic options review progresses. The Company is subject to an ongoing IRS dispute asserting an underpayment of tax of approximately $2.1 billion ³⁷ plus $418 million ³⁸ in penalties for fiscal year 2014, with interest of approximately $2.1 billion ³⁹ accruing through December 31, 2025.

The Company faces risks from foreign currency fluctuations, noting that for the fiscal year ended December 31, 2025, Operating Profit would have decreased approximately $150 million ⁴⁰ if all foreign currencies had uniformly weakened 10% relative to the U.S. dollar. The Company also faces risks from commodity price volatility, labor shortages and increased labor costs, including from California's Assembly Bill No. 1228 which increased the minimum wage for workers at quick service restaurants in the state. The Company is subject to an ongoing regulatory enforcement action in India alleging violation of foreign exchange laws with a penalty of approximately Indian Rupee 11 billion, or approximately $125 million ⁴¹.

The Company faces material risks from its significant exposure to the Chinese market through its largest franchisee, Yum China, which is contractually entitled to receive a 3% sales-based license fee on all Yum China system sales. Any significant deterioration in U.S.-China relations or changes in Chinese law could negatively impact the license fee paid to the Company. The Company is also subject to a material IRS dispute asserting an underpayment of tax of approximately $2.1 billion ⁴² plus $418 million ⁴³ in penalties for fiscal year 2014, with interest of approximately $2.1 billion ⁴⁴ accruing through December 31, 2025. Additionally, the Company faces risks from its high level of indebtedness, with total outstanding short-term borrowings and long-term debt of approximately $12.0 billion ⁴⁵ at December 31, 2025, which makes it more sensitive to adverse economic conditions and requires significant cash to service debt payment obligations. The Company also faces risks from food safety and food-borne illness concerns, which have occurred and may occur within its system, and from cybersecurity incidents, including a ransomware attack on January 18, 2023 that impacted certain IT systems and resulted in data being taken from the network.

Management's tone is forward-looking and focused on driving the next chapter of growth through the Raising the B.A.R. strategy, emphasizing three clear priorities: Battle for the future consumer, Accelerate restaurant unit economics for franchisees, and Reach the full potential of Byte by Yum!. Management states that key to success is an unrivaled culture and talent and leading with smart, heart and courage. The Company intends to drive long-term growth and shareholder returns primarily through consistent same-store sales growth and new unit development across all Concepts, supported by a capital and operating structure that invests capital in an asset light, franchisor model, allocates G&A efficiently, targets a consolidated net leverage ratio that balances shareholder returns, cost of capital and flexibility, and maximizes shareholder return through a combination of paying a competitive dividend and returning excess cash flow through share repurchases.