What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-19 · 204 added, 181 removed, 556 unchanged (41% of the section changed)

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dollars except per share and unit count amounts, or as otherwise specifically identified.

Percentages may not recompute due to rounding.

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 Habit Burger & Grill (collectively, the “Concepts”).

In the first quarter of 2025, the Company prospectively changed its basis of presentation to round financial figures in the Financial Statements and as presented in the tabular presentations in this MD&A to the nearest whole number in millions in all instances.

As a result, some totals and percentages may not recompute based on rounded figures as presented within this MD&A.

Previously, amounts were presented to ensure that all numbers herein recomputed, resulting in the presentation of certain figures inconsistent with their underlying rounding.

and its subsidiaries (collectively referred to herein as the “Company”, “YUM”, “we”, “us” or “our”) franchise or operate a system of over 63,000 restaurants in 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and Habit Burger & Grill (collectively, the “Concepts”).

The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style food and pizza categories, respectively.

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• The Habit Burger & Grill Division which includes our worldwide operations of the Habit Burger & Grill concept

Through our Recipe for Good Growth we intend to deliver iconic restaurant brands and consistently drive better customer experiences, improved unit economics and higher rates of growth.

Key enablers include accelerated use of digital and technology, increased collaboration and better leverage of our systemwide scale.

This is done through a framework of three pillars:

being Loved, Trusted and Connected.

We grow by delighting customers with craveable food and a distinctive experience.

We innovate and elevate our iconic restaurant brands that people trust and champion, resulting in relevant, easy and distinctive brands.

Through our Recipe for Good Growth we strive to grow iconic restaurant brands around the world that are loved by our customers, trusted everywhere we operate and connected through teamwork, technology and our global scale.

These three ideas - being loved, trusted and connected - guide how we operate across our global system and engage with our customers, teams and communities:

We grow by delighting customers with craveable food and distinctive experiences.

We operate responsibly with consistency and efficiency in our restaurants, across our system and in our communities.

This includes a commitment to our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.

This includes a commitment to our priorities for social responsibility, risk management and sustainable stewardship of resources.

We use our teamwork, technology and global scale to serve every customer, everywhere, anytime.

Our unmatched operating capability allows us to recruit and equip the best restaurant operators in the world to deliver great customer experiences.

And our commitment to bold restaurant development drives market and franchise unit expansion with strong economics.

Our unrivaled culture and talent and leading with smart, heart and courage are key to our success, fueling brand performance and franchise success.

As we enter into 2026, we intend to drive the next chapter of growth for YUM by Raising the B.A.R.

through three clear priorities that reflect bold aspirations and a commitment to industry-leading performance:

• B attle for the future consumer by staying relentlessly focused on their needs and wants.

• A ccelerate restaurant unit economics for our franchisees and maximize performance of every restaurant, serving as a catalyst for new unit development and keeping our franchise system healthy.

• R each the full potential of Byte by Yum!

by effectively operating, innovating and expanding our connected platform built by restaurant operators for restaurant operators to unlock its full potential for our franchise partners and our business.

Key to our success fueling brand performance and franchise success is our unrivaled culture and talent and leading with smart, heart and courage.

We intend to drive long-term growth and shareholder returns primarily through consistent same-store sales growth and new unit development across all of our Concepts.

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• Targets a consolidated net leverage ratio that balances shareholder returns, cost of capital and flexibility against various risk factors;

• Maximizes shareholder return through a combination of paying a competitive dividend and returning excess free cash flow through share repurchases.

• Maximizes shareholder return through a combination of paying a competitive dividend and returning excess cash flow through share repurchases.

We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company’s performance.

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We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net new unit growth.

As of the beginning of the second quarter of 2022, as a result of our progress towards exiting Russia and our decision to reclass future net profits attributable to Russia subsequent to the date of invasion of Ukraine from the Division segments in which those profits were earned to Unallocated Other income (see Notes 3 and 19), we elected to remove all Russia units from our unit count as well as to begin excluding those units’ associated sales from our system sales totals.

We removed 1,112 units and 53 units in Russia from our global KFC and Pizza Hut unit counts, respectively.

These units were treated similar to permanent store closures for purposes of our same-store sales calculations and thus they were removed from our same-store sales calculations beginning April 1, 2022.

In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”), the Company provides the following non-GAAP measurements.

• Diluted Earnings Per Share ("EPS") excluding Special Items (as defined below) and, in 2024, Diluted EPS excluding Special Items and the 53rd week;

• Diluted Earnings Per Share ( “ EP ” ) excluding Special Items (as defined below) and, in 2024, Diluted EPS excluding Special Items and the 53rd week;

• Effective Tax Rate excluding Special Items and, in 2024, Effective Tax Rate excluding Special Items and the 53rd week;

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The 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.

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Worldwide +4 +3 +3 +7 +5

Results Excluding 53rd Week in 2024

Results Excluding 53rd Week

System Sales, ex FX Core Operating Profit

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Additionally:

• Foreign currency translation negatively impacted Divisional Operating Profit by $28 million for the year ended December 31, 2024.

This included a negative impact to our KFC Division Operating Profit of $22 million for the year ended December 31, 2024.

• Gross unit openings for the year were 4,567 units resulting in 1,939 net new units.

• Foreign currency translation favorably impacted Divisional Operating Profit in our KFC Division by $12 million for the year ended December 31, 2025.

2025 2024 % Change

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EPS Excluding Special Items $6.05 $5.48 +10

• Gross unit openings for the year were 4,535 units resulting in 2,757 net new units.

• Full-year EPS excluding Special Items and 53rd Week was $5.39.

• In 2024, the 53rd week favorably impacted EPS by approximately $0.09 per share.

Amount % B/(W)

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Franchise advertising and other services expense 1,799 1,711 1,683 (5) (2)

Refranchising (gain) loss (34) (29) (27) NM NM

Refranchising (gain) loss (48) (34) (29) 42 16

Other (income) expense 2 34 14 NM NM

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Investment (income) expense, net (1) 21 (7) NM NM

Other pension (income) expense (7) (6) 9 NM NM

Other pension (income) expense (2) (7) (6) (71) 17

Interest expense, net 501 489 513 (2) 5

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Negative (Positive) Foreign Currency Impact (b)

(249) 515 N/A

System sales, excluding FX 36,185 34,967 33,863

Impact of 53rd week (171) N/A N/A

Impact of 53rd week N/A

System sales, excluding FX and the 53rd Week

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System sales, excluding FX 18,348 17,192 15,915

Impact of 53rd week (279) N/A N/A

Impact of 53rd week N/A

System sales, excluding FX and the 53rd Week

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System sales, excluding FX 12,765 13,232 13,315

Impact of 53rd week (107) N/A N/A

Impact of 53rd week N/A

System sales, excluding FX and the 53rd Week

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Core Operating Profit Growth % 5 9 12

Core Operating Profit Growth %, excluding the 53rd week 8 N/A N/A

Core Operating Profit Growth %, excluding the 53rd week 7 8 N/A

Diluted EPS Growth %, excluding Special Items 10 6 14

Diluted EPS Growth %, excluding Special Items and the 53rd week 4 N/A N/A

Diluted EPS Growth %, excluding Special Items and the 53rd week 12 4 N/A

Effective Tax Rate excluding Special Items 22.7 % 23.6 % 20.6 %

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(Gain) loss associated with market-wide refranchisings (a)

Operating (profit) loss impact from decision to exit Russia (b)

Charges associated with resource optimization (c)

Charges associated with Pizza Hut Strategic Options Review (b)

Charges associated with Brand HQ Consolidation (c)

German acquisition and Turkey termination-related costs (d)

Charges associated with Resource Optimization (e)

Operating (profit) loss impact from decision to exit Russia (f)

Charges associated with TB U.S.

restaurant acquisition (g)

Other Special Items (Income) Expense

Special Items (Income) Expense - Operating Profit

Special Items Expense - Operating Profit

Negative (Positive) Foreign Currency Impact on Operating Profit

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Other (income) expense

Special Items (Income) Expense - Operating Profit

Special Items Expense - Operating Profit

$ 122 $ 141 $ 39

2025 2024 2023

GAAP Operating Profit $ 1,503 $ 1,363 $ 1,304

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Special Items (Income) Expense - Operating Profit 122 141 39

Special Items (Income) Expense - Interest Expense, net (e)

Special Items Tax (Benefit) Expense (f)

Special Items Tax (Benefit) Expense (h)

18 (66) (161)

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Diluted EPS excluding Special Items 6.05 5.48 5.17

Less Impact of 53rd Week 0.09 — —

Less Impact of 53rd Week N/A 0.09 N/A

Diluted EPS excluding Special Items and the 53rd Week $ 6.05 $ 5.39 $ 5.17

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(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 years ended December 31, 2024 and 2023, we recorded net refranchising losses of $1 million and $5 million, respectively, that have been reflected as Special Items.

During the years ended December 31, 2025, 2024 and 2023, we recorded net a refranchising gain of $1 million and net refranchising losses of $1 million and $5 million, respectively, that have been reflected as Special Items.

Additionally, during the years ended December 31, 2025, 2024 and 2023, we recorded net refranchising gains of $47 million, $35 million and $34 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.

(b) In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia.

(b) In 2025, we began a review of strategic options for the Pizza Hut brand.

During the year ended December 31, 2025, we incurred charges of approximately $36 million primarily in third-party advising costs associated with this strategic options review and wrote-off approximately $5 million of franchise incentive assets associated with rationalizing the Pizza Hut estate in preparation for a potential transaction.

These charges were recorded to Corporate and unallocated General and administrative expenses and Unallocated franchise and property revenues, respectively.

Given the significance of the costs expected to be incurred through the course of this strategic options review, we have reflected such amounts as Special Items.

(c) During the year ended December 31, 2025, we recorded charges of approximately $27 million 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 the KFC Global headquarters and requiring the majority of our U.S.-based remote employees to relocate to an appropriate headquarter office.

These charges included $21 million, primarily for severance for employees who chose not to relocate and consultant fees, recorded to Corporate and unallocated General and administrative expenses.

Additionally, we donated our YUM corporate headquarters in Louisville, Kentucky subsequent to the relocation of the KFC U.S.

corporate office resulting in a charge of $6 million to Unallocated Other (income) expense representing the net book value of that headquarters.

Due to their scope and size, these charges have been reflected as Special Items.

(d) 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.

(IS Holding), 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 first quarter of 2025.

We also re-acquired the master franchise rights in Germany for KFC and Pizza Hut from the owner of IS Holding in December 2024.

As a result, we recorded charges of $37 million to Unallocated Other (income) expense, $18 million to Unallocated Franchise and property revenues and $6 million to Corporate and unallocated General and administrative expenses consisting primarily of transaction costs associated with the German acquisition and termination-related costs associated with the Turkey business in year ended December 31, 2024.

We recorded a credit of $1 million to Unallocated Other (income) expense and charges of $1 million to Unallocated Franchise and property revenues and $9 million to Corporate and unallocated General and administrative expenses during the year ended December 31, 2025, consisting primarily of transaction costs associated with re-acquiring the master franchise rights in Germany including severance.

Due to their scope and size, these charges have been reflected as Special Items.

(e) We recorded charges of $38 million, $79 million and $21 million during the years ended December 31, 2025, 2024 and 2023, respectively, primarily to Corporate and unallocated General and administrative expenses related to a resource optimization program initiated in the third quarter of 2020.

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 allocate 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.

(f) In the first quarter of 2022, as a result of the Russian invasion of Ukraine, we suspended all investment and restaurant development in Russia.

We also suspended all operations of our 70 company-owned KFC restaurants in Russia and began finalizing an agreement to suspend all Pizza Hut operations in Russia, in partnership with our master franchisee.

Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts.

Further, we pledged to redirect any future net profits attributable to Russia subsequent to the date of invasion to

humanitarian efforts.

During the second quarter of 2022, we completed the transfer of ownership of the Pizza Hut Russia business to a local operator.

In April 2023, we completed our exit from the Russia market by selling the KFC business in Russia to Smart Service Ltd.

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC and Pizza Hut prior to the dates of sale or transfer, within their historical financial statement line items and operating segments.

However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such net operating profits or losses from the Division segment results in which they were earned to Unallocated Other income (expense).

Our GAAP operating results presented herein reflect revenues from and expenses to support the Russian operations for KFC prior to the date of sale, within their historical financial statement line items and operating segments.

However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion to humanitarian efforts, we reclassed such net operating profits or losses from the KFC segment results in which they were earned to Unallocated Other income (expense).

Additionally, we incurred certain expenses related to the dispositions of the businesses and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses.

Also recorded in Unallocated Other income (expense) were foreign exchange impacts attributable to fluctuations in the value of the Russian ruble and a charge of $3 million recorded during the year ended December 31, 2023, as a result of the completion of the sale of the KFC Russia business.

The resulting net Operating Loss of $11 million for the year ended December 31, 2023, and net Operating Profit of $44 million for the year ended December 31, 2022, have been reflected as Special Items.

Due to their scope and size, the charges over the life of the program, which have primarily resulted from severance associated with positions that have been eliminated or relocated and consultant fees, are being recorded within Corporate and unallocated G&A and have been reflected as Special Items.

(d) 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.

(IS Holding), after failure by IS Gida to meet our standards.

The termination affects 284 KFC restaurants and 254 Pizza Hut restaurants in Turkey.

We also re-acquired the master franchise rights in Germany for KFC and Pizza Hut from the owner of IS Holding in December 2024.

There is no impact in Germany from the termination in Turkey.

(e) Amounts recorded in connection with redemptions of long-term debt.

Due to their size and the fact that they are not indicative of our ongoing interest expense, these amounts have been reflected as Special Items.

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

The resulting net Operating Loss of $11 million for the year ended December 31, 2023 has been reflected as a Special Item.

(g) During the year ended December 31, 2025, we recorded charges of approximately $7 million to Corporate and unallocated General and administrative expenses related to an acquisition of 128 Taco Bell Southeast U.S.

restaurants from a franchisee for approximately $670 million.

Due to the significant amount of legal and professional fees necessary to complete this large acquisition, these fees have been reflected as Special Items.

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

2025 2024 2023

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense

Tax (Benefit) on Special Items Expense - Operating Profit

$ (29) $ (28) $ (8)

Tax (Benefit) Expense - Other Income tax impacts from decision to exit Russia

Tax Expense - Foreign tax reserve

Tax Expense - U.S.

Tax (Benefit) - Tax audit

Tax (Benefit) - Intra-entity transfers and valuations of intellectual property (89) (32) (183)

(32) (183) (82)

Tax (Benefit) Expense - Other Income tax impacts recorded as Special

Tax (Benefit) - Other Income tax impacts from decision to exit Russia

Tax (Benefit) - Other Income tax impacts recorded as Special

Special Items Tax (Benefit) Expense $ 18 $ (66) $ (161)

Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

In addition to the corresponding Tax (Benefit) Expense on the Operating (Profit) Loss impact from our decision to exit Russia as included above, Special Items Tax (Benefit) Expense also includes $72 million of incremental net tax expense recorded in the year ended December 31, 2022 from the remeasurement and reassessment of the need for a valuation allowance on deferred tax assets in Switzerland due to the expected reduction in the tax basis of intellectual property rights ("IP") associated with the loss of the Russian royalty income.

In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference would reverse by way of sale.

Special Items Tax (Benefit) Expense includes $32 million, $183 million and $82 million of tax benefit recorded in the years ended December 31, 2024, 2023 and 2022 respectively, associated with intra-entity transfers and valuations of certain IP rights.

• The benefit recorded in the year ended December 31, 2024, resulted primarily from the tax liquidation of certain subsidiaries in Israel and Australia as well as the intra-entity transfer of software from those subsidiaries to subsidiaries in the U.S.

• The benefit recorded in the year ended December 31, 2023, resulted primarily from $99 million of deferred tax benefit arising from the remeasurement of deferred tax assets associated with previously transferred IP rights in Switzerland as a result of an increase in our jurisdictional tax rate, as well as a $29 million deferred tax benefit associated with credits granted by local Swiss tax authorities.

Tax (Benefit) on Special Items Expense - Operating Profit was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.

Tax Expense - Foreign tax reserve in the year ended December 31, 2025, is associated with a reserve, and the ongoing foreign exchange and inflationary adjustments, associated with a change in management's judgment around a Mexican subsidiary's ability to utilize losses to offset recapture gains triggered by a historical tax deconsolidation.

This tax expense was reflected as a Special Item due to its size and the time elapsed since the years to which the reserve relates.

Tax Expense - U.S.

OBBBA in the year ended December 31, 2025, reflects the tax expense recorded upon the July 4, 2025 enactment of H.R.1, commonly known as the One Big Beautiful Bill Act (“OBBBA”) in the United States.

The tax expense was primarily associated with a change in management's judgment regarding our ability to utilize U.S.

foreign tax credit related deferred tax assets that existed at the date of enactment and has been reflected as a Special Item due to the size of the non-recurring adjustment necessary upon enactment of the legislation.

Tax (Benefit) - Tax audit in the year ended December 31, 2025, reflects the benefit associated with the reversal of a reserve due to a favorable audit resolution.

Such reserve was established in prior years and was originally recorded as a Special Item.

Tax (Benefit) - Intra-entity transfers and valuations of intellectual property includes:

• The tax benefit recorded in the year ended December 31, 2025, resulting from an internal reorganization to consolidate the Pizza Hut entities and assets into two isolated ownership structures by aligning the legal ownership, simplifying the organizational footprint and consolidating the Pizza Hut domestic and

international business in connection with our strategic options review.

As part of this reorganization, certain Pizza Hut intellectual property (“IP”) rights from subsidiaries in the U.S.

were transferred to international subsidiaries resulting in a step-up in amortizable tax basis of those IP rights.

• The tax benefit recorded in the year ended December 31, 2024, resulting primarily from the tax liquidation of certain subsidiaries in Israel and Australia as well as the intra-entity transfer of software from those subsidiaries to subsidiaries in the U.S.

• The tax benefit recorded in the year ended December 31, 2023, resulting primarily from $99 million of deferred tax benefit arising from the remeasurement of deferred tax assets associated with previously transferred IP rights in Switzerland as a result of an increase in our jurisdictional tax rate, as well as a $29 million deferred tax benefit associated with credits granted by local Swiss tax authorities.

The benefit recorded in the year ended December 31, 2023, also includes $30 million of deferred tax benefit associated with the intra-entity transfer of certain Asia region IP rights to Singapore or the U.S.

• The benefit recorded in the year ended December 31, 2022, resulted from the remeasurement of deferred tax assets associated with IP rights held in Switzerland in connection with an annual valuation under Swiss law, as well as the reassessment of the need for a valuation allowance on those deferred tax assets based on forecasted future taxable income.

The annual valuation supported an increase to tax basis of Swiss IP rights associated with parts of our business that continue to use these IP rights due to expected royalty growth assumptions in those parts of the business that largely offset the loss of Russia royalty income associated with such IP rights as a result of our decision to exit the Russia market.

Other Income Tax impacts recorded as Special in the year ended December 31, 2023 included $41 million of expense associated with a correction in the timing of capital loss utilization related to refranchising gains previously recorded as Special Items to tax years with a lower statutory tax rate.

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Company restaurant margin % 12.1 % 24.2 % (1.4) % 8.3 % N/A 15.7 %

KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated

KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division

Corporate and Unallocated Consolidated

GAAP Operating Profit (Loss) $ 1,363 $ 1,049 $ 373 $ — $ (382) $ 2,403

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Other (income) expense (3) (1) (16) 10 44 34

Company restaurant profit $ 67 $ 252 $ — $ 49 $ — $ 368

Company restaurant profit (loss)

$ 98 $ 283 $ — $ 59 $ (8) $ 432

Company sales $ 801 $ 1,155 $ 8 $ 588 $ — $ 2,552

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See also the Detail of Special Items section of this MD&A for other items similarly impacting results.

Pizza Hut Strategic Options Review

In 2025, we began a review of strategic options for the Pizza Hut brand.

The objective of the review is to create value for YUM, Pizza Hut and its franchise partners by determining the optimal approach to best capitalize on Pizza Hut's structural advantages — strong brand equity, experienced franchise partners and meaningful scale — in the highly fragmented pizza market.

currently intend to complete this strategic options review in 2026, and there can be no assurance this review will result in any specific outcome or transaction.

We incurred certain costs during the year ended December 31, 2025 associated with this strategic review (see Detail of Special Items section of this MD&A) and expect to incur further costs of a currently indeterminate amount as this strategic options review progresses.

Impact of Tax Law Changes

On July 4, 2025, H.R.1, commonly known as the One Big Beautiful Bill Act (“OBBBA”) was enacted into law in the U.S.

The OBBBA includes a broad range of domestic and international tax reform provisions, including extending and modifying certain key provisions from the Tax Cuts and Jobs Act, as well as provisions allowing accelerated tax deductions for qualified depreciable property and research expenditures.

The OBBBA has multiple effective dates, with certain provisions becoming effective in 2025 and others effective through 2027.

We do not currently expect our ongoing effective tax rate to be significantly impacted by the legislation.

Extra Week in 2024

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Additionally, we believe we experienced conflict-related impacts in a broader set of markets and trade areas, though such amounts are difficult to precisely quantify.

In a few isolated cases, the scale and duration of these sales impacts have affected the financial health of our less scaled or less well-capitalized franchisees, particularly those whose restaurants have been most heavily impacted.

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.

(IS Holding), after failure by IS Gida to meet our standards.

The termination affects 284 KFC restaurants and 254 Pizza Hut restaurants in Turkey, which will be reflected as a reduction in the Company’s reported unit counts at the end of the first quarter of 2025.

We also re-acquired the master franchise rights in Germany for KFC and Pizza Hut from the owner of IS Holding in December 2024.

There is no impact in Germany from the termination in Turkey.

We recorded a charge of approximately $61 million in the year ended December 31, 2024, consisting primarily of transaction costs associated with the German acquisition and termination-related costs associated with the Turkey business.

Due to issues specific to this franchisee and market, the recent sales in the Turkey restaurants were significantly below the global average sales per restaurant for each brand.

As a result, the loss of royalties from the store closures will have no material impact to the Company’s Core Operating Profit in 2025 and beyond.

We are actively searching for the right franchise partner to reopen the Turkey market and drive future success.

While we began to see some recovery in the markets most impacted by the Middle East conflict in the fourth quarter of 2024, the conflict is ongoing, and its dynamic nature makes it difficult to forecast any impacts on the Company’s 2025 revenues, operating profit, including the impacts of any bad debt expense, and unit count with any certainty.

Investment in Devyani

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 ended December 31, 2024 and pre-tax investment income of $ 8 million and $ 11 million in the years ended December 31, 2023 and 2022, respectively.

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 ended December 31, 2024 and pre-tax investment income of $ 8 million in the year ended December 31, 2023.

The KFC Division has 33,897 units, 90% of which are located outside the U.S.

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% B/(W) % B/(W)

2024 2023 2022 Reported Ex FX Ex FX and 53rd Week in 2024

Reported Ex FX

2025 2024 2023 Reported Ex FX Ex FX and 53rd Week in 2024 Reported Ex FX Ex FX and 53 rd Week in 2024

System Sales $ 36,434 $ 34,452 $ 33,863 6 5 6 2 3 3

Same-Store Sales Growth (Decline) % (2) % 7 % 4 % N/A N/A N/A N/A N/A

Same-Store Sales Growth (Decline) % 3 % (2) % 7 % N/A N/A N/A N/A N/A N/A

Company sales $ 1,057 $ 801 $ 484 32 30 32 66 64 60

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Franchise contributions for advertising and other services 679 613 648 11 9 10 (5) (6) (6)

Total revenues $ 3,099 $ 2,830 $ 2,834 10 10 9 Even 2

Total revenues $ 3,542 $ 3,099 $ 2,830 14 13 14 10 10 9

Company restaurant profit $ 128 $ 98 $ 67 31 28 32 48 47 43

Company restaurant margin % 12.1 % 12.2 % 13.7 % (0.1) ppts.

— (1.5) ppts.

G&A expenses $ 372 $ 363 $ 383 (3) (2) (2) 5 5 6

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Company sales and Company restaurant margin %

In 2024, the increase in Company sales, excluding the impacts of foreign currency translation and the 53rd week, was driven by the KFC U.K.

and Ireland restaurant acquisition (see Note 3) in the second quarter of 2024, partially offset by a Company same-store sales decline of 3%.

In 2024, the decrease in Company restaurant margin percentage was driven by higher labor and restaurant operating costs, partially offset by commodity deflation.

In 2025, the increase in Company sales, excluding the impacts of foreign currency translation and lapping the 53rd week in 2024, was driven by the KFC U.K.

and Ireland restaurant acquisition (see Note 3) in the second quarter of 2024 and Company same-store sales growth of 5%.

In 2025, Company restaurant margin percentage, excluding the impacts of foreign currency translation and lapping the 53rd week in 2024, was flat as lower margin percentages of the units included in the KFC U.K.

and Ireland restaurant acquisition were offset by Company same-store sales growth.

Franchise and property revenues

In 2024, Franchise and property revenues, excluding the impacts of foreign currency translation and the 53rd week, were flat as unit growth was offset by a franchise same-store sales decline of 2% and a 1% negative impact from the KFC U.K.

In 2025, the increase in Franchise and property revenues, excluding the impacts of foreign currency translation and lapping the 53rd week in 2024, 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.

In 2024, the decrease in G&A, excluding the impacts of foreign currency translation and the 53rd week, was driven by lower expenses related to our annual incentive compensation programs, lower travel related costs, refranchising and the impact of the sale of our KFC Russia business in 2023, partially offset by higher expenses related to the operation of acquired KFC U.K.

and Ireland restaurants.

In 2025, the increase in G&A, excluding the impacts of foreign currency translation and lapping the 53rd week in 2024, was driven by higher expenses related to our annual incentive compensation programs, partially offset by lower headcount and salaries.

Operating Profit

In 2024, the increase in Operating Profit, excluding the impacts of foreign currency translation and the 53rd week, was driven by unit growth and lower G&A, partially offset by a same-store sales decline.

In 2025, the increase in Operating Profit, excluding the impacts of foreign currency translation and lapping the 53rd week in 2024, was driven by same-store sales growth and unit growth.

Taco Bell Division

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% B/(W) % B/(W)

2024 2023 2022 Reported Ex FX Ex FX and 53rd Week in 2024

Reported Ex FX

2025 2024 2023 Reported Ex FX Ex FX and 53rd Week in 2024 Reported Ex FX Ex FX and 53rd Week in 2024

System Sales $ 18,361 $ 17,193 $ 15,915 7 7 8 8 8 6

Same-Store Sales Growth %

4 % 5 % 8 % N/A N/A N/A N/A N/A

Same-Store Sales Growth % 7 % 4 % 5 % N/A N/A N/A N/A N/A N/A

Company sales $ 1,281 $ 1,155 $ 1,069 11 11 13 8 8 6

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Company sales and Company restaurant margin %

In 2024, the increase in Company sales, excluding the impacts of the 53rd week, was driven by company same-store sales growth of 3% and unit growth.

In 2024, the increase in Company restaurant margin percentage, excluding the impacts of the 53rd week, was driven by same-store sales growth partially offset by higher labor costs, commodity inflation and an increase in other restaurant operating costs.

In 2025, the increase in Company sales, excluding the impacts of lapping the 53 rd week, was driven by acquisitions, company same-store sales growth of 5%, and unit growth.

In 2025, the decrease in Company restaurant margin percentage, excluding the impacts of lapping the 53 rd week, was driven by commodity inflation (primarily beef), higher labor and other restaurant operating costs, partially offset by higher margin percentages of the units included in the Southeast U.S.

restaurant acquisition and same store sales growth.

Franchise and property revenues

In 2024, the increase in Franchise and property revenues, excluding the impacts of the 53rd week, was driven by franchise same-store sales growth of 4% and unit growth.

In 2024, the decrease in G&A, excluding the impacts of the 53rd week, was driven by lower share-based compensation and lower expenses related to our annual incentive compensation programs partially offset by higher digital and technology expenses.

In 2025, the increase in Franchise and property revenues, excluding the impacts of lapping the 53 rd week, was driven by franchise same-store sales growth of 7% and unit growth.

In 2025, the increase in G&A, excluding the impacts of lapping the 53 rd week, was driven by higher digital and technology expenses, higher expenses related to our annual incentive compensation programs and increased share-based compensation, partially offset by lower professional and legal fees.

Operating Profit

In 2024, the increase in Operating Profit, excluding the impacts of the 53rd week, was driven by same-store sales growth, unit growth and lower G&A partially offset by higher restaurant operating costs.

In 2025, the increase in Operating Profit, excluding the impacts of lapping the 53 rd week, was driven by same-store sales growth, unit growth and acquisitions, partially offset by higher restaurant operating costs and higher G&A.

Pizza Hut Division

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% B/(W) % B/(W)

2024 2023 2022 Reported Ex FX Ex FX and 53rd Week in 2024

Reported Ex FX

2025 2024 2023 Reported Ex FX Ex FX and 53rd Week in 2024 Reported Ex FX Ex FX and 53rd Week in 2024

System Sales $ 12,794 $ 13,108 $ 13,315 (2) (3) (2) (2) (1) (1)

Same-Store Sales Growth (Decline) % (4) % 2 % Even N/A N/A N/A N/A N/A

Same-Store Sales Growth (Decline) % (1) % (4) % 2 % N/A N/A N/A N/A N/A N/A

Company sales $ 51 $ 8 $ 14 584 573 599 (45) (45) (47)

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Franchise contributions for advertising and other services 360 378 383 (5) (5) (4) (1) (1) (3)

Total revenues $ 1,008 $ 1,019 $ 1,004 (1) (1) (2) 1 2

Company restaurant profit $ — $ — $ — NM NM NM NM NM

Company restaurant margin %

(0.6) % 0.1 % (2.2) % (0.7) ppts.

G&A expenses $ 219 $ 221 $ 211 1 1 2 (5) (5)

Total revenues $ 1,013 $ 1,008 $ 1,019 Even Even 1 (1) (1) (2)

Company restaurant profit (loss) $ (1) $ — $ — NM NM NM NM NM NM

Company restaurant margin % (1.4) % (0.6) % 0.1 % (0.8) ppts.

G&A expenses $ 219 $ 219 $ 221 Even 1 Even 1 1 2

Franchise and property expenses 41 34 15 (18) (19) (21) (122) (121) (118)

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Franchise and property revenues

In 2024, Franchise and property revenues, excluding the impacts of foreign currency translation and the 53rd week, were flat, as a franchise same-store sales decline of 4% was offset by unit growth.

In 2025, the decrease in Franchise and property revenues, excluding the impact of foreign currency translation and lapping the 53 rd week in 2024, was driven by franchise same-store sales declines of (1%) and a unit decline.

In 2025, G&A, excluding the impact of foreign currency translation and lapping the 53 rd week in 2024, was flat, as the impact of restaurant acquisitions and higher expenses related to our annual incentive compensation programs were offset by lower salaries and benefits.

Operating Profit

In 2024, the decrease in Operating Profit, excluding the impacts of foreign currency translation and the 53rd week, was driven by higher bad debt expense and a same-store sales decline, partially offset by unit growth.

In 2025, the decrease in Operating Profit, excluding the impact of foreign currency translation and lapping the 53 rd week in 2024, was driven by a same store sales decline, the impact of restaurant acquisitions, higher current year bad debt expense (including bad debt expense associated with franchise entities that have transitioned to new ownership) and a unit decline.

Habit Burger & Grill Division

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% B/(W) % B/(W)

2022 Reported Ex FX Ex FX and 53rd Week in 2024 Reported Ex FX

2023 Reported Ex FX Ex FX and 53rd Week in 2024 Reported Ex FX Ex FX and 53rd Week in 2024

System Sales $ 706 $ 713 $ 696 (1) (1) 1 2 2 1

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Total revenues $ 570 $ 600 $ 586 (5) (5) (3) 2 2 1

Operating Profit (Loss) $ — $ (14) $ (24) 99 99 90 42 42

Operating Profit (Loss) $ (13) $ — $ (14) NM NM NM 99 99 90

% Increase (Decrease)

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(Expense)/Income 2025 2024 2023 2025 2024

Corporate and unallocated G&A $ (346) $ (326) $ (297) (6) (10)

Unallocated Company restaurant expenses (See Note 19)

(8) — — NM NM

Unallocated Franchise and property revenues (See Note 19)

Corporate and unallocated G&A expense

$ (402) $ (346) $ (326) (16) (6)

Unallocated Company restaurant expenses

(22) (8) — (176) NM

Unallocated Franchise and property revenues

(7) (18) — 63 NM

Unallocated Franchise and property expenses

Unallocated Refranchising gain (loss) (See Note 19)

48 34 29 42 16

Unallocated Other income (expense)

(3) (44) (9) NM NM

Unallocated Other income (expense) (See Note 19)

(44) (9) 52 NM

Investment income (expense), net (See Note 5)

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Other pension income (expense) (See Note 15)

7 6 (9) NM NM

2 7 6 (71) 17

Interest expense, net (501) (489) (513) (2) 5

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24.9 % 21.8 % 12.1 % (3.1) ppts.

Corporate and unallocated G&A

In 2024, the year to date increase in Corporate and unallocated G&A expense was driven by higher costs associated with our resource optimization program (see Note 5), partially offset by lower current year expenses related to our annual incentive

compensation programs, lower share based compensation expense and lapping net costs related to the prior year ransomware attack.

Interest expense, net

The decrease in Interest expense, net for 2024 was primarily driven by lower average outstanding borrowings and higher interest income.

Corporate and unallocated G&A expense

In 2025, the increase in Corporate and Unallocated G&A expense was driven by costs associated with the current year Pizza Hut Strategic Options Review, costs associated with our current year Brand Headquarters Consolidation, higher salaries and benefits, higher professional and legal fees and higher current year expenses related to our annual incentive compensation programs, partially offset by lower costs associated with our Resource Optimization Program.

Unallocated Company restaurant expenses

Unallocated Company restaurant expenses include amortization of reacquired franchise rights.

In 2025, the increase was driven by the 2025 Taco Bell Southeast U.S.

restaurant acquisition and a full year of amortization related to the 2024 KFC U.K.

and Ireland restaurant acquisition.

Unallocated Franchise and property revenues

In 2025, the decrease in Unallocated Franchise and property revenue was driven by lapping charges associated with the termination of our franchise agreements with a franchisee in Turkey, partially offset by the current year write-off of franchise incentive assets associated with the Pizza Hut Strategic Options Review.

Unallocated Other income (expense)

In 2025, the decrease in Unallocated Other income (expense) was driven primarily by lapping charges associated with the German master franchise acquisition and termination-related costs associated with the Turkey business.

Consolidated Cash Flows

Net cash provided by operating activities was $2,010 million in 2025 versus $1,689 million in 2024.

The increase was primarily driven by an increase in Operating Profit before Special Items, partially offset by higher income tax payments and an increase in payments related to our resource optimization program.

The increase was primarily driven by an increase in Operating Profit before Special Items, and lower current year incentive compensation and income tax payments.

Net cash used in investing activities was $1,003 million in 2025 versus $422 million in 2024.

The change was primarily driven by outflows in the current year related to the KFC U.K.

and Ireland restaurant acquisition, lapping proceeds from the prior year sale of KFC Russia and current year purchases of short-term investments, partially offset by current year proceeds arising from the sale of our approximate 5% minority investment in Devyani.

The change was primarily driven by higher current year spending on restaurant acquisitions, higher current year capital spending and lapping prior year proceeds arising from the sale of our approximate 5% minority investment in Devyani, partially offset by maturities of short-term investments in the current year compared to net purchases of short-term investments in the prior year.

Net cash used in financing activities was $924 million in 2025 versus $1,163 million in 2024.

The change was primarily driven by net borrowings in the current year as compared to net debt repayments in the prior year, partially offset by higher current year share repurchases.

The change was primarily driven by higher net borrowings, partially offset by higher current year share repurchases.

Consolidated Financial Condition

Our Consolidated Balance Sheet was impacted by the Taco Bell U.S.

restaurant acquisition (See Note 3).

Liquidity and Capital Resources

We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores.

Our annual operating cash flows have been in excess of $1.4 billion in each of the past four years and we expect that to continue to be the case in 2025.

Our annual operating cash flows were in excess of $2 billion in 2025 and we expect continued strong operating cash flows in 2026.

It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases.

Subject to market conditions, we expect to maintain our consolidated net leverage ratio at its current level of approximately 4.0x Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") over the medium term by issuing incremental debt as our business grows.

As a result, we plan to deliver materially higher capital returns going forward as compared to the past two years when we were using significant amounts of excess cash to reduce our debt outstanding.

Subject to market conditions, we expect to maintain our consolidated net leverage ratio at approximately 4.0x Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) over the medium term by issuing incremental debt as our business grows.

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 (see Note 11) which had $300 million outstanding as of December 31, 2025.

We believe that our ongoing cash from operations, cash on hand, which was approximately $600 million at December 31, 2024, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

Borrowings under our Revolving Facility in 2025 had original maturities of three months or less.

We believe that our ongoing cash from operations, cash on hand, which was approximately $700 million at December 31, 2025, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.

Our material cash requirements include the following contractual and other obligations.

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Operating and Finance Leases

Payments required under our operating and finance leases total $1,355 million, of which $148 million is payable within the next 12 months.

Payments required under our operating and finance leases total $2.0 billion, of which $190 million is payable within the next 12 months.

These amounts are on a nominal basis and include payments related to lease renewal options we are reasonably certain to exercise.

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Investing Activities

We remain committed to maintaining our asset light, franchisor model that includes at least a 98% franchise mix.

We remain committed to maintaining our asset light, franchisor model.

Our allocation strategy for investing activities includes:

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• Strategic investments that create incremental value for shareholders and franchisees.

In 2025, we expect gross capital expenditures of approximately $350 million driven by technology initiatives and continued investments in Taco Bell, Habit Burger & Grill and KFC company restaurants.

In 2026, we expect gross capital expenditures of approximately $400 million driven by technology initiatives and continued investments in Taco Bell, KFC and Habit Burger & Grill company restaurants, including regular maintenance of recently acquired restaurants.

Additionally, we expect approximately $50 million of refranchising proceeds, resulting in net capital expenditures of approximately $350 million.

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Contingencies

As discussed in Note 20, as a result of an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 through 2015, in August 2022, we received a Revenue Agent’s Report (“RAR”) from the IRS asserting an underpayment of tax of $2.1 billion plus $418 million in penalties for the 2014 fiscal year.

Additionally, interest on the underpayment is estimated to be approximately $1.4 billion through December 31, 2024.

The proposed underpayment relates primarily to a series of reorganizations we undertook during that year in connection with the business realignment of our corporate and management reporting structure along brand lines.

As discussed in Note 20, following an Internal Revenue Service (“IRS”) audit for the 2013 to 2015 fiscal years, we were unable to resolve underpayments of tax that the IRS proposed resulting from that audit using the IRS Appeals process, a pre-litigation, alternative dispute resolution tool.

The IRS asserts an underpayment of tax of approximately $2.1 billion plus $418 million in penalties for fiscal year 2014.

Both amounts are subject to interest, with interest of approximately $2.1 billion accruing through December 31, 2025.

Those amounts relate primarily to a series of reorganizations that we undertook in 2014 in connection with the business realignment of our corporate and management reporting structure along brand lines.

The IRS asserts that these transactions resulted in taxable distributions of approximately $6.0 billion.

We disagree with the IRS’s position as asserted in the RAR and intend to contest that position vigorously.

In September 2022, we filed a Protest with the IRS Examination Division disputing on multiple grounds the proposed underpayment of tax and penalties.

We have received the IRS Examination Division’s Rebuttal to our Protest and the matter is proceeding with the IRS Office of Appeals.

We disagree with the IRS’s position and are contesting that position vigorously.

On June 4, 2025, we filed a petition in the United States Tax Court disputing the IRS's position as set forth in a Notice of Deficiency.

The IRS filed its Answer on September 12, 2025.

The litigation is ongoing.

Also, as discussed in Note 20, on January 29, 2020, we received an order from the Special Director of the Directorate of Enforcement (“DOE”) in India imposing a penalty on Yum!

Restaurants India Private Limited (“YRIPL”) of approximately Indian Rupee 11 billion, or approximately $130 million, primarily relating to alleged violations of operating conditions imposed in 1993 and 1994.

Restaurants India Private Limited (“YRIPL”) and certain former

directors of approximately Indian Rupee 11 billion, or approximately $125, primarily relating to alleged violations of operating conditions imposed in 1993 and 1994.

We have been advised by external counsel that the order is flawed and have filed a writ petition with the Delhi High Court, which granted an interim stay of the penalty order on March 5, 2020.

In November 2022, YRIPL was notified that an administrative tribunal bench had been constituted to hear an appeal by DOE of certain findings of the January 2020 order, including claims that certain charges had been wrongly dropped and that an insufficient amount of penalty had been imposed.

A hearing with the administrative tribunal has been rescheduled to March 18, 2025.

The stay order remains in effect, and the next in the Delhi High Court has been rescheduled to April 29, 2025.

A hearing with the administrative tribunal scheduled for February 18, 2026 has been rescheduled to May 21, 2026.

A hearing scheduled for December 10, 2025, before the Delhi High Court has been continued to May 5, 2026, and the stay order remains in effect.

We deny liability and intend to continue vigorously defending this matter.

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New Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which updates income tax disclosure requirements related to the income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025.

The amendments should be applied prospectively;

however, retrospective application is permitted.

We are currently evaluating the impact of the standard on our disclosures.

In March 2024, the SEC issued a final rule under SEC Release Nos.

33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors.

The rule requires disclosure of material climate-related information outside of the audited financial statements and disclosure in the footnotes addressing specified financial statement effects of severe weather events and other natural conditions above certain financial thresholds, certain carbon offsets and renewable energy credits or certificates.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025.

In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule.

We are in the process of analyzing the impact of the rule on our disclosures should the stay be lifted.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires new financial statement disclosures disaggregating prescribed expense categories within relevant income statement expense captions.

In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires new financial statement disclosures disaggregating prescribed expense categories within relevant income statement expense captions.

The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2027, and subsequent interim periods, with early adoption permitted.

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We are currently evaluating the impact of the standard on our disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software, which amends certain aspects of the accounting for software costs, including removing software development project stages and requiring companies to capitalize costs when both 1) management authorizes or commits to funding a software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended.

The standard is effective for the Company in our first quarter of fiscal 2028, with early adoption permitted and can be applied on a prospective, retrospective or modified prospective basis.

We are currently evaluating the impact of the standard on our consolidated financial statements.

Critical Accounting Policies and Estimates

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The fair values of all our reporting units with goodwill balances were in excess of their respective carrying values as of our fourth quarter 2025 goodwill testing date, with all but the Habit Burger & Grill reporting unit having fair values that were substantially in excess of their respective carrying values.

As it relates to our Habit Burger & Grill reporting unit, which includes a goodwill balance of $66 million as of the end of 2024, the assumptions that are most impactful to our fair value estimate include margin improvement, sales growth from net new units and same-store sales growth.

Significant changes in the assumptions used in our analysis could result in a future goodwill impairment charge.

Circumstances that could result in changes to our assumptions and related fair value estimate include, but are not limited to, expectations of lower than originally estimated margin improvement, which can be caused by a variety of factors including changes in expected labor costs and commodity inflation.

As it relates to our Habit Burger & Grill reporting unit, which includes a goodwill balance of $64 million, the assumptions that were most impactful to our reporting unit fair value estimate in the fourth quarter of 2025 were future same-store sales growth and company restaurant margin improvement.

Such assumptions were consistent with our internal plans for the brand and considered reasonable given historical experiences for both the Habit Burger & Grill as well as our other Concepts.

However, should future Habit Burger & Grill actual results continue to underperform relative to expectations as was the case in the year ended December 31, 2025, some or all of this goodwill may be impaired in future years.

When we refranchise restaurants, we include goodwill in the carrying amount of the restaurants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising versus the portion of the reporting unit that will be retained.

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As such, the fair value of the reporting unit retained can include expected future cash flows from royalties from those restaurants currently being refranchised, royalties from existing franchise businesses and retained company restaurant operations.

As a result, the percentage of a reporting unit’s goodwill that will be written off in a refranchising transaction will be less than the percentage of the reporting unit’s Company-owned restaurants that are refranchised in that transaction and goodwill can be allocated to a reporting unit with only franchise restaurants.

goodwill can be allocated to a reporting unit with only franchise restaurants.

When determining whether such franchise agreement is at prevailing market rates our primary consideration is consistency with the terms of our current franchise agreements both within the country that the restaurants are being refranchised in and around the world.

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Others may consider the fair value of these future royalties as fair value disposed of and thus would conclude that a larger percentage of a reporting unit’s fair value is disposed of in a refranchising transaction.

During 2024, refranchising activity completed by the Company was limited and the write-off of goodwill associated with these transactions was less than $1 million.

During 2025, refranchising activity completed by the Company was limited and the write-off of goodwill associated with these transactions was approximately $3 million.

Pension Plans

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plans’ PBOs by approximately $40 million at our measurement date.

The net periodic benefit cost we will record in 2025 is also impacted by the discount rate, as well as the long-term rates of return on plan assets and mortality assumptions we selected at our measurement date.

We expect net periodic benefit income for these U.S.

plans of $2 million in 2025 compared to $3 million of periodic benefit income in 2024, which represents a decrease in benefit of $1 million year-over-year.

A 50 basis-point change in our discount rate assumption at our 2024 measurement date would impact this 2025 U.S.

net periodic benefit income by approximately $1 million.

The impacts of changes in net periodic benefit income are reflected primarily in Other pension (income) expense.

Our estimated long-term rate of return on U.S.

plan assets is based upon the weighted-average of historical and expected future returns for each asset category.

Our expected long-term rate of return on U.S.

plan assets, for purposes of determining 2025 pension expense, at December 31, 2024, was 6.85%, net of administrative and investment fees paid from plan assets.

We believe this rate is appropriate given the composition of our plan assets and historical market returns thereon.

A 100 basis point change in our expected long-term rate of return on plan assets assumption would impact our 2025 U.S.

net periodic benefit cost by approximately $8 million.

Additionally, every 100 basis point variation in actual return on plan assets versus our expected return of 6.85% will impact our unrecognized pre-tax actuarial net loss by approximately $8 million.

The net periodic benefit cost we record is also impacted by the discount rate, as well as the long-term rates of return on plan assets and mortality assumptions we selected at our measurement date.

As our two most significant plans in the U.S.

are currently closed to new participants (see Note 15), the net periodic benefit cost expected in 2026 for those plans is not significant.

We have an unrecognized pre-tax actuarial net loss of $117 million included in Accumulated other comprehensive income for these U.S.

plans at December 31, 2025.

We will recognize approximately $2 million of this loss in 2025 versus $1 million of loss recognized in 2024.

We will recognize approximately $2 million of this loss in 2026 consistent with the $2 million of loss recognized in 2025.

At December 31, 2025, we had valuation allowances of $284 million to reduce our $1,713 million of deferred tax assets to amounts that are more likely than not to be realized.

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At December 31, 2025, we had $115 million of unrecognized tax benefits, $103 million of which would impact the effective income tax rate if recognized.

evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures.

We evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures.

Repatriation of earnings generated after December 31, 2017, will generally be eligible for the 100% dividends received deduction or considered a distribution of previously taxed income and, therefore, exempt from U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis