YUM BRANDS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction and Overview The following Management's Discussion and Analysis (“MD&A”), should be read in conjunction with the unaudited Condensed Consolidated Financial Statements (“Financial Statements”), the Forward-Looking Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, (“2025 Form 10-K”). All Note references herein refer to the Notes to the Financial Statements. Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. 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 63,000 restaurants in 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 63,000 restaurants, 97% are operated by franchisees. YUM currently consists of four operating segments: • The KFC Division which includes our worldwide operations of the KFC concept • The Taco Bell Division which includes our worldwide operations of the Taco Bell concept • The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept • The Habit Burger & Grill Division which includes our worldwide operations of the Habit Burger & Grill concept Through our Recipe for Good Growth, our mission is to grow iconic restaurant brands globally that are loved, trusted and connected: Loved: We grow by delighting customers with craveable food and a distinctive experience. Trusted: 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 resources. Connected: We use our teamwork, technology and global scale to serve every customer, everywhere, anytime. In 2026 and beyond, 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. We intend to support this growth and development through a capital and operating structure that: • Invests capital in a manner consistent with an asset light, franchisor model; • Allocates G&A in an efficient manner that provides leverage to operating profit growth while at the same time opportunistically investing in strategic growth initiatives; • Targets a consolidated net leverage ratio that balances shareholder returns, cost of capital and flexibility against various risk factors; and 22 • 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. Throughout this MD&A, we commonly discuss the following performance metrics: • Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes, boycotts, social or civil unrest or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends. • Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants. • System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Condensed Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues. 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. 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 excluding Special Items (as defined below); • Effective Tax Rate excluding Special Items; • Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally; • Net Income excluding Special Items; • Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below). These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations. Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. 23 Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our Condensed Consolidated Statements of Income. Company restaurant expenses include those expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales (“Company restaurant margin %”) is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. 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. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry. Certain performance metrics and non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. Results of Operations Summary All comparisons within this summary are versus the same period a year ago. Quarterly Financial Highlights: % Change System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit KFC Division +6 +2 +7 +16 +9 Taco Bell Division +10 +8 +3 +16 +16 Pizza Hut Division Even Even +1 (14) (16) Worldwide +6 +3 +5 +17 +6 Additionally: • Foreign currency translation positively impacted Divisional Operating Profit by $25 million for the quarter ended March 31, 2026. • Gross unit openings for the quarter were 1,030 units resulting in 400 net new units. First Quarter 2026 2025 % Change GAAP EPS $1.55 $0.90 +72 Less Special Items EPS $0.05 $(0.40) NM EPS Excluding Special Items $1.50 $1.30 +15 24 Worldwide GAAP Results Quarter ended 2026 2025 % B/(W) Company sales $ 785 $ 607 29 Franchise and property revenues 856 785 9 Franchise contributions for advertising and other services 418 395 6 Total revenues 2,059 1,787 15 Company restaurant expenses 677 520 (30) G&A expenses 322 302 (7) Franchise and property expenses 43 34 (28) Franchise advertising and other services expense 419 396 (6) Refranchising (gain) loss (1) (5) (79) Other (income) expense (45) (8) NM Total costs and expenses, net 1,415 1,239 (14) Operating Profit 644 548 17 Investment (income) expense, net — (1) (94) Other pension (income) expense — — (7) Interest expense, net 128 120 (7) Income before income taxes 516 429 20 Income tax provision 84 176 52 Net Income $ 432 $ 253 71 Diluted EPS (a) $ 1.55 $ 0.90 72 Effective tax rate 16.2 % 41.0 % 24.8 ppts. (a) See Note 3 for the number of shares used in this calculation. Performance Metrics Unit Count 3/31/2026 3/31/2025 % Increase (Decrease) Franchise 62,053 59,581 4 Company-owned 1,632 1,305 25 Total 63,685 60,886 5 Quarter ended 2026 2025 Same-store Sales Growth (Decline) % 3 3 System Sales Growth %, reported 10 3 System Sales Growth %, excluding FX 6 5 25 Our system sales breakdown by Company and franchise sales was as follows: Quarter ended 2026 2025 Consolidated Company sales (a) $ 785 $ 607 Franchise sales 16,218 14,896 System sales 17,003 15,503 Negative (Positive) Foreign Currency Impact (b) (586) N/A System sales, excluding FX $ 16,417 $ 15,503 KFC Division Company sales (a) $ 255 $ 216 Franchise sales 9,073 8,124 System sales 9,328 8,340 Negative (Positive) Foreign Currency Impact (b) (476) N/A System sales, excluding FX $ 8,852 $ 8,340 Taco Bell Division Company sales (a) $ 372 $ 263 Franchise sales 4,022 3,717 System sales 4,394 3,980 Negative (Positive) Foreign Currency Impact (b) (16) N/A System sales, excluding FX $ 4,378 $ 3,980 Pizza Hut Division Company sales (a) $ 32 $ 3 Franchise sales 3,083 3,025 System sales 3,114 3,028 Negative (Positive) Foreign Currency Impact (b) (94) N/A System sales, excluding FX $ 3,020 $ 3,028 Habit Burger & Grill Division Company sales (a) $ 126 $ 125 Franchise sales 40 30 System sales 166 155 Negative (Positive) Foreign Currency Impact (b) — N/A System sales, excluding FX $ 166 $ 155 (a) Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income. (b) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales. Non-GAAP Items Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below. Quarter ended 2026 2025 Core Operating Profit Growth % 6 8 Diluted EPS Growth %, excluding Special Items 15 13 Effective Tax Rate excluding Special Items 18.0 % 19.8 % Company restaurant profit $ 107 $ 87 Company restaurant margin % 13.7 % 14.3 % 26 Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended 2026 2025 Consolidated GAAP Operating Profit $ 644 $ 548 Detail of Special Items: Charges associated with Pizza Hut Strategic Options Review (a) 37 — Charges associated with Brand HQ Consolidation (b) 1 7 Charges associated with Resource Optimization — 17 Income from Litigation Settlement (c) (44) — Other Special Items (Income) Expense — 2 Special Items (Benefit) Expense - Operating Profit (6) 27 Positive Foreign Currency Impact on Division Operating Profit (25) N/A Core Operating Profit $ 612 $ 575 Special Items as shown above were recorded to the financial statement line items identified below. Condensed Consolidated Statements of Income Line Item Decrease in Franchise and property revenues $ — $ 1 Increase in General and administrative expenses 38 28 Increase in Other (income) expense (44) (2) Special Items (Benefit) Expense - Operating Profit $ (6) $ 27 KFC Division GAAP Operating Profit $ 383 $ 331 Negative (Positive) Foreign Currency Impact (23) N/A Core Operating Profit $ 361 $ 331 Taco Bell Division GAAP Operating Profit $ 281 $ 241 Negative (Positive) Foreign Currency Impact (1) N/A Core Operating Profit $ 280 $ 241 Pizza Hut Division GAAP Operating Profit $ 64 $ 74 Negative (Positive) Foreign Currency Impact (2) N/A Core Operating Profit $ 62 $ 74 Habit Burger & Grill Division GAAP Operating Profit (Loss) $ (7) $ (1) Negative (Positive) Foreign Currency Impact — N/A Core Operating Profit (Loss) $ (7) $ (1) Reconciliation of GAAP Net Income to Net Income excluding Special Items GAAP Net Income $ 432 $ 253 Special Items (Benefit) Expense - Operating Profit (6) 27 Special Items Tax (Benefit) Expense (d) (8) 86 Net Income excluding Special Items $ 418 $ 366 27 Quarter ended 2026 2025 Reconciliation of Diluted EPS to Diluted EPS excluding Special Items Diluted EPS $ 1.55 $ 0.90 Less Special Items Diluted EPS 0.05 (0.40) Diluted EPS excluding Special Items $ 1.50 $ 1.30 Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items GAAP Effective Tax Rate 16.2 % 41.0 % Impact on Tax Rate as a result of Special Items (1.8) % 21.2 % Effective Tax Rate excluding Special Items 18.0 % 19.8 % (a) In 2025, we began a review of strategic options for the Pizza Hut brand. During the quarter ended March 31, 2026, we incurred charges of $37 million to Corporate and unallocated General and administrative expenses, which primarily included third-party advising costs associated with this strategic options review. 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. (b) In 2025, we decided 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. We also decided to relocate our YUM Corporate headquarters to a new space in Louisville, Kentucky and accordingly, donated our existing space. Costs incurred to date primarily include severance for the employees who chose not to relocate and consultant fees. As a result of these decisions, we recorded charges of approximately $1 million and $7 million during the quarters ended March 31, 2026 and 2025, respectively, to Corporate and unallocated General and administrative expenses. Due to their scope and size, these charges have been reflected as Special Items. (c) During the quarter ended March 31, 2026, we received approximately $44 million, net of legal expenses, related to a credit card interchange fee litigation settlement in which we were a plaintiff. This settlement was recorded to Unallocated Other (income) expense. Due to the nature and size of the settlement, including the years to which the litigation related, it has been reflected as a Special Item within Other income. (d) The below table includes the detail of Special Items Tax (Benefit) Expense: Quarter ended 3/31/2026 3/31/2025 Tax Expense (Benefit) on Special Items (Benefit) Expense - Operating Profit $ 2 $ (7) Tax Expense - Foreign tax reserve — 92 Tax (Benefit) - Intra-entity transfers and valuations of intellectual property (22) — Tax Expense - Other Income tax impacts recorded as Special 13 — Special Items Tax (Benefit) Expense $ (8) $ 86 Tax Expense (Benefit) on Special Items (Benefit) 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 (Benefit) - Intra-entity transfers and valuations of intellectual property in the quarter ended March 31, 2026, reflects the tax benefit resulting from an internal reorganization to consolidate our Pizza Hut legal 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. 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. This reorganization began in the fourth quarter of 2025 in connection with our Pizza Hut strategic options review. Tax Expense - Other Income tax impacts recorded as Special in the quarter ended March 31, 2026, includes a $13 million adjustment to tax expense associated with our decision to exit Russia. Consistent with previously recorded impacts associated with our decision to exit Russia, this adjustment was recorded as a Special Item. 28 Tax Expense - Foreign tax reserve in the quarter ended March 31, 2025, is associated with a reserve, and the related 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 in Mexico. This expense was reflected as a Special Item due to its size and the time elapsed since the years to which the reserve relates. Reconciliation of GAAP Operating Profit to Company Restaurant Profit Quarter ended 3/31/2026 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 383 $ 281 $ 64 $ (7) $ (77) $ 644 Less: Franchise and property revenues 461 251 142 3 — 856 Franchise contributions for advertising and other services 163 175 80 1 — 418 Add: General and administrative expenses 87 53 59 13 111 322 Franchise and property expenses 19 6 17 1 — 43 Franchise advertising and other services expense 161 173 84 1 — 419 Refranchising (gain) loss — — — — (1) (1) Other (income) expense — 1 (3) 1 (45) (45) Company restaurant profit (loss) $ 26 $ 88 $ 1 $ 5 $ (12) $ 107 Company sales $ 255 $ 372 $ 32 $ 126 $ — $ 785 Company restaurant margin % 10.3 % 23.6 % 1.8 % 3.7 % N/A 13.7 % Quarter ended 3/31/2025 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 331 $ 241 $ 74 $ (1) $ (98) $ 548 Less: Franchise and property revenues 407 234 143 2 (1) 785 Franchise contributions for advertising and other services 149 160 85 1 — 395 Add: General and administrative expenses 80 49 55 13 105 302 Franchise and property expenses 16 6 11 1 — 34 Franchise advertising and other services expense 149 157 89 1 — 396 Refranchising (gain) loss — — — — (5) (5) Other (income) expense — — (2) — (6) (8) Company restaurant profit (loss) $ 20 $ 59 $ — $ 11 $ (3) $ 87 Company sales $ 216 $ 263 $ 3 $ 125 $ — $ 607 Company restaurant margin % 9.3 % 22.4 % (6.1) % 8.6 % N/A 14.3 % 29 Items Impacting Reported Results and Reasonably Likely to Impact Future Results The following items impacted reported results in 2026 and/or 2025 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 2026 or 2025. 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. We 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. In January 2026, we launched the Hut Forward program that represents a bridge to a longer-term acceleration of the Pizza Hut brand. This program includes alignment on a vibrant marketing plan, modernization of certain technology and franchise agreements and a YUM contribution to marketing support, along with the approval of some targeted closures of underperforming units. The YUM contribution for incremental marketing in the quarter ended March 31, 2026, is being recognized as advertising expense throughout 2026. Additionally, we incurred certain other costs during the quarter ended March 31, 2026 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. KFC Division The KFC Division has 34,332 units, 90% of which are located outside the U.S. Additionally, 98% of the KFC Division units were operated by franchisees as of March 31, 2026. Quarter ended % B/(W) 2026 2025 Reported Ex FX System Sales $ 9,328 $ 8,340 12 6 Same-Store Sales Growth (Decline) % 2 2 N/A N/A Company sales $ 255 $ 216 18 10 Franchise and property revenues 461 407 13 7 Franchise contributions for advertising and other services 163 149 9 1 Total revenues $ 879 $ 773 14 7 Company restaurant profit $ 26 $ 20 30 18 Company restaurant margin % 10.3 % 9.3 % 1.0 ppts. 0.8 ppts. G&A expenses $ 87 $ 80 (8) (4) Franchise and property expenses 19 16 (19) (12) Franchise advertising and other services expense 161 149 (8) — Operating Profit $ 383 $ 331 16 9 % Increase (Decrease) Unit Count 3/31/2026 3/31/2025 Franchise 33,815 31,524 7 Company-owned 517 474 9 Total 34,332 31,998 7 Company sales and Company restaurant margin % 30 The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by Company same-store sales growth of 5%, acquisitions of restaurants from franchisees and unit growth. The quarterly increase in Company restaurant margin percentage was driven by Company same-store sales growth, partially offset by higher labor and other restaurant operating costs. Franchise and property revenues 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%. G&A The quarterly increase in G&A, excluding the impacts of foreign currency translation, was driven by higher headcount. Operating Profit The quarterly increase in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales growth and unit growth. Taco Bell Division The Taco Bell Division has 9,021 units, 86% of which are in the U.S. The Company owned 9% of the Taco Bell Division units in the U.S. as of March 31, 2026. Quarter ended % B/(W) 2026 2025 Reported Ex FX System Sales $ 4,394 $ 3,980 10 10 Same-Store Sales Growth % 8 9 N/A N/A Company sales $ 372 $ 263 41 41 Franchise and property revenues 251 234 7 7 Franchise contributions for advertising and other services 175 160 9 9 Total revenues $ 797 $ 657 21 21 Company restaurant profit $ 88 $ 59 49 49 Company restaurant margin % 23.6 % 22.4 % 1.2 ppts. 1.3 ppts. G&A expenses $ 53 $ 49 (8) (8) Franchise and property expenses 6 6 Even 1 Franchise advertising and other services expense 173 157 (10) (10) Operating Profit $ 281 $ 241 16 16 % Increase (Decrease) Unit Count 3/31/2026 3/31/2025 Franchise 8,346 8,218 2 Company-owned 675 505 34 Total 9,021 8,723 3 Company sales and Company restaurant margin % The quarterly increase in Company sales was driven by acquisitions of restaurants from franchisees, company same-store sales growth of 6%, and unit growth. 31 The quarterly increase in Company restaurant margin percentage was driven by same store sales growth and the margin percentages of restaurants acquired from franchisees, partially offset by higher labor and other restaurant operating costs and commodity inflation (primarily beef). Franchise and property revenues The quarterly increase in Franchise and property revenues was driven by franchise same-store sales growth of 8% and unit growth partially offset by acquisitions. G&A The quarterly increase in G&A was driven by higher professional and legal fees and higher headcount. Operating Profit The quarterly increase in Operating Profit was driven by same-store sales growth, the impact of restaurants acquired from franchisees and unit growth, partially offset by higher restaurant operating costs and higher G&A. Pizza Hut Division The Pizza Hut Division has 19,944 units, 69% 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, 2026. Quarter ended % B/(W) 2026 2025 Reported Ex FX System Sales $ 3,114 $ 3,028 3 Even Same-Store Sales Growth (Decline) % Even (2) N/A N/A Company sales $ 32 $ 3 825 789 Franchise and property revenues 142 143 (1) (3) Franchise contributions for advertising and other services 80 85 (6) (6) Total revenues $ 253 $ 231 10 7 Company restaurant profit (loss) $ 1 $ — 370 350 Company restaurant margin % 1.8 % (6.1) % 7.9 ppts. 7.8 ppts. G&A expenses $ 59 $ 55 (8) (6) Franchise and property expenses 17 11 (59) (56) Franchise advertising and other services expense 84 89 6 6 Operating Profit $ 64 $ 74 (14) (16) % Increase (Decrease) Unit Count 3/31/2026 3/31/2025 Franchise 19,809 19,763 — Company-owned 135 23 487 Total 19,944 19,786 1 32 Franchise and property revenues The quarterly decrease in Franchise and property revenues, excluding the impact of foreign currency translation, was primarily driven by the impact of our acquisitions of restaurants from franchisees. Franchise same-store sales were flat in the quarter. G&A The quarterly increase in G&A, excluding the impact of foreign currency translation, was driven by the impact of G&A associated with operating restaurants acquired from franchisees. Operating Profit The quarterly decrease in Operating Profit, excluding the impact of foreign currency translation, was driven by higher advertising costs associated with the Pizza Hut U.S. Hut Forward program and the impact of operating restaurants acquired from franchisees. Habit Burger & Grill Division The Habit Burger & Grill Division has 388 units, all of which are in the U.S. The Company owned 79% of the Habit Burger & Grill Division units as of March 31, 2026. Quarter ended % B/(W) 2026 2025 Reported System Sales $ 166 $ 155 7 Same-Store Sales Growth (Decline) % 5 (3) N/A Total revenues $ 130 $ 128 1 Operating Profit (Loss) $ (7) $ (1) (934) Unit Count 3/31/2026 3/31/2025 % Increase (Decrease) Franchise 83 76 9 Company-owned 305 303 1 Total 388 379 2 Corporate & Unallocated Quarter ended (Expense) / Income 2026 2025 % B/(W) Corporate and unallocated G&A $ ( 111 ) $ ( 105 ) (5) Unallocated Company restaurant expenses ( 12 ) ( 3 ) (330) Unallocated Franchise and property revenues — ( 1 ) NM Unallocated Refranchising gain (loss) 1 5 (79) Unallocated Other income (expense) (See Note 5) 45 6 NM Investment income (expense), net — 1 (94) Other pension income (expense) — — (7) Interest expense, net ( 128 ) ( 120 ) (7) Income tax provision (See Note 7) (84) (176) 52 Effective tax rate (See Note 7) 16.2 % 41.0 % 24.8 ppts. 33 Corporate and unallocated G&A The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with the Pizza Hut Strategic Options Review, partially offset by lapping costs associated with our Resource Optimization Program and Brand Headquarters Consolidation. Unallocated Company restaurant expenses Unallocated Company restaurant expenses include amortization of reacquired franchise rights. The quarterly increase was driven by the acquisitions of restaurants from franchisees in 2025. Interest expense, net The quarterly increase in Interest expense, net was driven by higher outstanding borrowings. Consolidated Cash Flows Net cash provided by operating activities was $416 million in 2026 versus $404 million in 2025. The increase was primarily driven by an increase in Operating Profit, partially offset by higher incentive compensation payments, the timing of spending on advertising and higher income tax payments. Net cash used in investing activities was $80 million in 2026 versus net cash provided by investing activities of $2 million in 2025. The change was primarily driven by lapping maturities of short-term investments in the prior year. Net cash used in financing activities was $375 million in 2026 versus $443 million in 2025. The change was primarily driven by lower current year share repurchases and higher current year net borrowings. 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 were in excess of $2.0 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 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 which had $350 million outstanding as of March 31, 2026. Borrowings under our Revolving Facility in 2026 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 March 31, 2026, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months. There have been no material changes to the disclosures made in Item 7 of the Company's 2025 Form 10-K regarding our material cash requirements. Due to the ongoing significance of our debt obligations, we are providing the update below. Debt Obligations and Interest Payments As of March 31, 2026, approximately 96%, including the impact of interest rate swaps, of our $11.5 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%. 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 and as mentioned above, we expect to maintain our net leverage ratio at approximately 4.0x EBITDA over the medium term by issuing incremental debt as our business grows. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's). The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of March 31, 2026. 34 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total Securitization Notes $ 884 $ 595 $ 590 $ 1,000 $ 737 $ 500 $ 4,306 Credit Agreement $ 21 34 1,424 438 1,916 Revolving Facility 350 350 Subsidiary Senior Unsecured Notes 750 750 YUM Senior Unsecured Notes 800 1,050 2,100 $ 325 $ 275 4,550 Total $ 21 $ 1,668 $ 2,019 $ 1,377 $ 1,800 $ 1,787 $ 2,600 $ 325 $ 275 $ 11,872 A Term Loan A Facility that is part of the Credit Agreement and the Revolving Facility will mature on the earliest of (i) April 26, 2029, (ii) the date that is 91 days prior to the March 15, 2028 maturity of the existing Term Loan B Facility if more than $250 million of such Term Loan B Facility remains outstanding as of such date or (iii) the date that is 91 days prior to the June 1, 2027 maturity of the existing Subsidiary Senior Unsecured Notes if more than $250 million of such Subsidiary Senior Unsecured Notes remain outstanding as of such date. Given the $750 million in Subsidiary Senior Unsecured Notes oustanding as of March 31, 2026, the maturity date of the Term Loan A Facility and the Revolving Facility will occur less than 12 months from the balance sheet date of these Condensed Consolidated Financial Statements if the Company has not paid nor refinanced at least $500 million of the Subsidiary Senior Unsecured Notes 91 days prior to June 1, 2027. As such, the outstanding borrowings of the Term Loan A Facility and the Revolving Facility as of March 31, 2026 have been classified as Short-term borrowings in the Condensed Consolidated Balance Sheets as of March 31, 2026. We expect to refinance the $750 million of the existing Subsidiary Senior Unsecured Notes before 91 days prior to June 1, 2027, and as such, the table above reflects the April 26, 2029 anticipated repayment date for the Term Loan A Facility and the Revolving Facility. See Note 11 for details on the Securitization Notes, the Credit Agreement, Revolving Facility, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes. New Accounting Pronouncements Not Yet Adopted 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. The amendments should be applied prospectively; however, retrospective application is permitted. 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 condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes during the quarter ended March 31, 2026, to the disclosures made in Item 7A of the Company’s 2025 Form 10-K.