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 64,000 restaurants in 157 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 64,000 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 In 2025, we began a review of strategic options for the Pizza Hut brand. The objective of the review was 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. In June 2026, we entered into two definitive agreements to sell the Pizza Hut brand thereby completing this review (see Note 3 for discussion regarding the agreements). 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: 27 • 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 • 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). 28 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. 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. Certain General and administrative expenses allocations between KFC Division and Corporate and Unallocated for the prior periods have been restated to be comparable with the allocations for the quarter and year to date ended June 30, 2026. 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 +13 +9 Taco Bell Division +9 +7 +3 +19 +19 Pizza Hut Division (2) (1) +1 (12) (14) Worldwide +5 +3 +5 +5 +5 Year to date Financial Highlights: 29 % Change System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit KFC Division +6 +2 +7 +14 +9 Taco Bell Division +10 +8 +3 +18 +18 Pizza Hut Division (1) (1) +1 (13) (15) Worldwide +6 +3 +5 +11 +6 Additionally: • Foreign currency translation favorably impacted Divisional Operating Profit by $16 million and $41 million for the quarter and year to date ended June 30, 2026, respectively. • Gross unit openings for the quarter were 1,053 units resulting in 481 net new units. ◦ Gross unit openings for the year to date were 2,083 units resulting in 881 net new units. Second Quarter Year to date 2026 2025 % Change 2026 2025 % Change GAAP EPS $3.08 $1.33 +131 $4.62 $2.23 +107 Less Special Items EPS $1.46 $(0.11) NM $1.50 $(0.51) NM EPS Excluding Special Items $1.62 $1.44 +12 $3.12 $2.74 +14 Worldwide GAAP Results Quarter ended Year to date 2026 2025 % B/(W) 2026 2025 % B/(W) Company sales $ 837 $ 669 25 $ 1,622 $ 1,277 27 Franchise and property revenues 895 835 7 1,751 1,620 8 Franchise contributions for advertising and other services 438 428 2 856 823 4 Total revenues 2,169 1,933 12 4,228 3,720 14 Company restaurant expenses 700 560 (25) 1,378 1,081 (27) G&A expenses 324 302 (7) 646 604 (7) Franchise and property expenses 41 39 (6) 85 73 (16) Franchise advertising and other services expense 444 428 (4) 863 824 (5) Refranchising (gain) loss (1) (11) (88) (2) (16) (85) Other (income) expense 6 (7) NM (39) (15) NM Total costs and expenses, net 1,514 1,311 (16) 2,930 2,550 (15) Operating Profit 655 622 5 1,299 1,170 11 Investment (income) expense, net (6) — NM (6) (1) NM Other pension (income) expense — (1) (93) — (1) (74) Interest expense, net 128 123 (4) 257 243 (6) Income before income taxes 533 499 7 1,049 929 13 Income tax (benefit) provision (320) 125 356 (236) 301 178 Net Income $ 853 $ 374 128 $ 1,285 $ 628 105 Diluted EPS (a) $ 3.08 $ 1.33 131 $ 4.62 $ 2.23 107 Effective tax rate (60.1) % 25.1 % 85.1 ppts. (22.5) % 32.4 % 55.0 ppts. (a) See Note 4 for the number of shares used in this calculation. 30 Performance Metrics Unit Count 6/30/2026 6/30/2025 % Increase (Decrease) Franchise 62,536 59,907 4 Company-owned 1,630 1,365 19 Total 64,166 61,272 5 Quarter ended Year to date 2026 2025 2026 2025 Same-store Sales Growth % 3 2 3 2 System Sales Growth %, reported 8 5 9 4 System Sales Growth %, excluding FX 5 4 6 4 31 Our system sales breakdown by Company and franchise sales was as follows: Quarter ended Year to date 2026 2025 2026 2025 Consolidated Company sales (a) $ 837 $ 669 $ 1,622 $ 1,277 Franchise sales 16,691 15,608 32,910 30,504 System sales 17,529 16,277 34,531 31,781 Negative (Positive) Foreign Currency Impact (b) (375) N/A (960) N/A System sales, excluding FX $ 17,154 $ 16,277 $ 33,571 $ 31,781 KFC Division Company sales (a) $ 275 $ 245 $ 530 $ 461 Franchise sales 9,291 8,476 18,364 16,600 System sales 9,566 8,721 18,894 17,061 Negative (Positive) Foreign Currency Impact (b) (313) N/A (788) N/A System sales, excluding FX $ 9,254 $ 8,721 $ 18,106 $ 17,061 Taco Bell Division Company sales (a) $ 396 $ 287 $ 768 $ 550 Franchise sales 4,281 3,988 8,303 7,705 System sales 4,677 4,275 9,071 8,255 Negative (Positive) Foreign Currency Impact (b) (5) N/A (21) N/A System sales, excluding FX $ 4,672 $ 4,275 $ 9,050 $ 8,255 Pizza Hut Division Company sales (a) $ 31 $ 7 $ 63 $ 10 Franchise sales 3,077 3,109 6,160 6,134 System sales 3,108 3,116 6,223 6,144 Negative (Positive) Foreign Currency Impact (b) (57) N/A (151) N/A System sales, excluding FX $ 3,052 $ 3,116 $ 6,072 $ 6,144 Habit Burger & Grill Division Company sales (a) $ 135 $ 130 $ 260 $ 255 Franchise sales 42 36 83 66 System sales 177 166 343 321 Negative (Positive) Foreign Currency Impact (b) — N/A — N/A System sales, excluding FX $ 177 $ 166 $ 343 $ 321 (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 Year to date 2026 2025 2026 2025 Core Operating Profit Growth % 5 2 6 5 Diluted EPS Growth %, excluding Special Items 12 7 14 10 Effective Tax Rate excluding Special Items 22.3 % 23.2 % 20.3 % 21.6 % Company restaurant profit $ 137 $ 109 $ 244 $ 196 Company restaurant margin % 16.3 % 16.3 % 15.0 % 15.3 % 32 Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended Year to date 2026 2025 2026 2025 Consolidated GAAP Operating Profit $ 655 $ 622 $ 1,299 $ 1,170 Detail of Special Items: Charges associated with Pizza Hut Strategic Options Review (a) 44 — 81 — Charges associated with Brand HQ Consolidation (b) — 10 1 17 Charges associated with Resource Optimization — 14 — 32 Income from Litigation Settlement (c) — — (44) — German acquisition and Turkey termination-related costs (d) — 5 — 7 Special Items Expense - Operating Profit 44 28 38 55 Positive Foreign Currency Impact on Division Operating Profit (16) N/A (41) N/A Core Operating Profit $ 683 $ 650 $ 1,296 $ 1,225 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 44 28 82 56 Increase in Other (income) expense — — (44) (2) Special Items Expense - Operating Profit $ 44 $ 28 $ 38 $ 55 KFC Division GAAP Operating Profit $ 410 $ 363 $ 793 $ 694 Negative (Positive) Foreign Currency Impact (14) N/A (37) N/A Core Operating Profit $ 395 $ 363 $ 756 $ 694 Taco Bell Division GAAP Operating Profit $ 311 $ 262 $ 591 $ 502 Negative (Positive) Foreign Currency Impact — N/A (1) N/A Core Operating Profit $ 310 $ 262 $ 590 $ 502 Pizza Hut Division GAAP Operating Profit $ 70 $ 80 $ 135 $ 155 Negative (Positive) Foreign Currency Impact (2) N/A (4) N/A Core Operating Profit $ 69 $ 80 $ 131 $ 155 Habit Burger & Grill Division GAAP Operating Profit (Loss) $ (4) $ 3 $ (11) $ 2 Negative (Positive) Foreign Currency Impact — N/A — N/A Core Operating Profit (Loss) $ (4) $ 3 $ (11) $ 2 Reconciliation of GAAP Net Income to Net Income excluding Special Items GAAP Net Income $ 853 $ 374 $ 1,285 $ 628 Special Items Expense - Operating Profit 44 28 38 55 Special Items Tax (Benefit) Expense (e) (449) 3 (456) 88 Net Income excluding Special Items $ 449 $ 405 $ 867 $ 771 33 Quarter ended Year to date 2026 2025 2026 2025 Reconciliation of Diluted EPS to Diluted EPS excluding Special Items Diluted EPS $ 3.08 $ 1.33 $ 4.62 $ 2.23 Less Special Items Diluted EPS 1.46 (0.11) 1.50 (0.51) Diluted EPS excluding Special Items $ 1.62 $ 1.44 $ 3.12 $ 2.74 Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items GAAP Effective Tax Rate (60.1) % 25.1 % (22.5) % 32.4 % Impact on Tax Rate as a result of Special Items (82.4) % 1.9 % (42.8) % 10.8 % Effective Tax Rate excluding Special Items 22.3 % 23.2 % 20.3 % 21.6 % (a) In 2025, we began a review of strategic options for the Pizza Hut brand. During the quarter and year to date ended June 30, 2026, we recorded charges of $44 million and $81 million, respectively, 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 $10 million during the quarter ended June 30, 2025, and approximately $1 million and $17 million for the years to date ended June 30, 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) 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. We recorded charges of $5 million and $7 million during the quarter and year to date ended June 30, 2025, respectively, to Corporate and unallocated General and administrative expenses consisting primarily of severance costs associated with re-acquiring the master franchise rights in Germany. Consistent with prior charges related to the matter, these charges have been reflected as Special Items. (e) The below table includes the detail of Special Items Tax (Benefit) Expense: Quarter ended Year to date 6/30/2026 6/30/2025 6/30/2026 6/30/2025 Tax (Benefit) on Special Items Expense - Operating Profit $ (11) $ (7) $ (9) $ (14) Tax (Benefit) - Income tax impacts from planned sale of Pizza Hut (359) — (359) — Tax (Benefit) - Intra-entity transfers and valuations of intellectual property (79) — (101) — Tax Expense - Other Income tax impacts recorded as Special — — 13 — Tax Expense - Foreign tax reserve — 10 — 102 Special Items Tax (Benefit) Expense $ (449) $ 3 $ (456) $ 88 34 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 (Benefit) - Income tax impacts from the planned sale of Pizza Hut in the quarter and year to date ended June 30, 2026, reflects a $359 million net deferred tax benefit recorded upon the recognition of certain tax basis in entities expected to be sold. Such recognition was triggered upon entering into definitive agreements during the quarter ended June 30, 2026 to sell Pizza Hut. The Pizza Hut sales are expected to close at significant book gains in the quarter ended September 30, 2026 resulting in the utilization of these deferred tax benefits. Tax (Benefit) - Intra-entity transfers and valuations of intellectual property in the quarter and year to date ended June 30, 2026, reflects tax benefits of $91 million and $113 million, respectively, 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 businesses. 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. Additionally, Tax (Benefit) - Intra-entity transfers and valuations of intellectual property in the quarter and year to date ended June 30, 2026, includes $12 million of tax expense representing an adjustment to the valuation allowance on tax credits previously granted by local Swiss tax authorities in connection with transferred IP rights in Switzerland. Previously recorded impacts associated with this IP transfer were recorded as Special Items. Tax Expense - Other Income tax impacts recorded as Special in the year to date ended June 30, 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. Tax Expense - Foreign tax reserve in the quarter and year to date ended June 30, 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 6/30/2026 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 410 $ 311 $ 70 $ (4) $ (132) $ 655 Less: Franchise and property revenues 477 271 143 3 — 895 Franchise contributions for advertising and other services 172 185 80 1 — 438 Add: General and administrative expenses 88 53 56 12 114 324 Franchise and property expenses 18 9 13 1 — 41 Franchise advertising and other services expense 169 187 87 1 — 444 Refranchising (gain) loss — — — — (1) (1) Other (income) expense (2) (1) (3) 6 6 6 Company restaurant profit (loss) $ 33 $ 103 $ 1 $ 13 $ (13) $ 137 Company sales $ 275 $ 396 $ 31 $ 135 $ — $ 837 Company restaurant margin % 12.0 % 25.9 % 2.2 % 9.8 % N/A 16.3 % 35 Quarter ended 6/30/2025 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 363 $ 262 $ 80 $ 3 $ (85) $ 622 Less: Franchise and property revenues 437 248 147 3 — 835 Franchise contributions for advertising and other services 167 176 85 1 — 428 Add: General and administrative expenses 89 49 54 13 97 302 Franchise and property expenses 20 7 10 1 — 39 Franchise advertising and other services expense 162 176 90 1 — 428 Refranchising (gain) loss — — — — (11) (11) Other (income) expense — — (3) — (4) (7) Company restaurant profit (loss) $ 30 $ 70 $ — $ 14 $ (4) $ 109 Company sales $ 245 $ 287 $ 7 $ 130 $ — $ 669 Company restaurant margin % 12.1 % 24.3 % (6.6) % 10.7 % N/A 16.3 % Year to date 6/30/2026 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 793 $ 591 $ 135 $ (11) $ (209) $ 1,299 Less: Franchise and property revenues 938 522 285 6 — 1,751 Franchise contributions for advertising and other services 334 360 159 2 — 856 Add: General and administrative expenses 174 106 116 25 225 646 Franchise and property expenses 37 15 31 2 — 85 Franchise advertising and other services expense 329 361 171 2 — 863 Refranchising (gain) loss — — — — (2) (2) Other (income) expense (2) — (6) 8 (39) (39) Company restaurant profit (loss) $ 59 $ 191 $ 1 $ 18 $ (25) $ 244 Company sales $ 530 $ 768 $ 63 $ 260 $ — $ 1,622 Company restaurant margin % 11.2 % 24.8 % 2.0 % 6.9 % N/A 15.0 % 36 Year to date 6/30/2025 KFC Division Taco Bell Division Pizza Hut Division Habit Burger & Grill Division Corporate and Unallocated Consolidated GAAP Operating Profit (Loss) $ 694 $ 502 $ 155 $ 2 $ (183) $ 1,170 Less: Franchise and property revenues 844 482 290 5 (1) 1,620 Franchise contributions for advertising and other services 316 336 169 1 — 823 Add: General and administrative expenses 169 98 109 26 202 604 Franchise and property expenses 36 13 21 2 — 73 Franchise advertising and other services expense 311 333 179 1 — 824 Refranchising (gain) loss — — — — (16) (16) Other (income) expense — — (5) — (10) (15) Company restaurant profit (loss) $ 50 $ 129 $ (1) $ 25 $ (7) $ 196 Company sales $ 461 $ 550 $ 10 $ 255 $ — $ 1,277 Company restaurant margin % 10.8 % 23.4 % (6.4) % 9.6 % N/A 15.3 % 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. Public Health Issue On July 17, 2026, after communication with state and federal health officials, Taco Bell U.S. announced that it had preemptively and voluntarily removed certain lettuce provided by its vendor, Taylor Farms, which Taylor Farms subsequently recalled. We removed the lettuce from our nationwide supply chain quickly and transparently, and before the recall, because the safety and well-being of our consumers is always our top priority. Taco Bell U.S. saw a meaningful near-term impact on sales as a result of the issue. Sales are improving from their low-point and we believe that they will continue to improve through the quarter ended September 30, 2026, due to the underlying strength of the brand and recovery plan being implemented by the Taco Bell team. While it is difficult to forecast with certainty the impacts of this issue, we believe Taco Bell Company restaurant margin percentage in the U.S. will range between 19% to 21% in the quarter ended September 30, 2026. Pizza Hut Strategic Options Review In 2025, we began a review of strategic options for the Pizza Hut brand. The objective of the review was 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. 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. On June 16, 2026, we entered into definitive agreements to sell Pizza Hut in two separate transactions completing our strategic options review. Pizza Hut excluding Mainland China (“Pizza Hut Ex-China”) will be acquired by LongRange Capital, a private equity firm, and Pizza Hut in Mainland China will be acquired by Yum China Holdings, Inc., which will remain YUM’s master franchisee for KFC and Taco Bell in Mainland China. 37 We anticipate both transactions will close in August 2026, subject to customary closing conditions, including receipt of required regulatory approvals. Across the two transactions, we expect to receive approximately $2.3 billion of net proceeds after taxes, closing adjustments and transaction-contingent fees. Additionally, YUM has the opportunity to receive an earn-out from LongRange Capital of $75 million by 2030. We will continue to provide Byte by Yum!, our proprietary technology, to Pizza Hut Ex-China subsequent to the sale. Additionally, following the closing of the transaction, we will provide certain enterprise technology and finance services to Pizza Hut Ex-China under a transition services agreement. We incurred certain other costs during the quarter and year to date ended June 30, 2026 associated with this strategic review (see Detail of Special Items section of this MD&A) and we expect to incur further expenses of approximately $40 million during the remainder of 2026. KFC Division The KFC Division has 34,747 units, 90% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of June 30, 2026. Quarter ended Year to date % B/(W) % B/(W) 2026 2025 Reported Ex FX 2026 2025 Reported Ex FX System Sales $ 9,566 $ 8,721 10 6 $ 18,894 $ 17,061 11 6 Same-Store Sales Growth (Decline) % 2 2 N/A N/A 2 2 N/A N/A Company sales $ 275 $ 245 12 8 $ 530 $ 461 15 9 Franchise and property revenues 477 437 9 6 938 844 11 7 Franchise contributions for advertising and other services 172 167 3 (1) 334 316 6 — Total revenues $ 924 $ 849 9 5 $ 1,802 $ 1,622 11 6 Company restaurant profit $ 33 $ 30 11 5 $ 59 $ 50 19 10 Company restaurant margin % 12.0 % 12.1 % (0.1) ppts. (0.3) ppts. 11.2 % 10.8 % 0.4 ppts. 0.2 ppts. G&A expenses $ 88 $ 89 1 3 $ 174 $ 169 (3) — Franchise and property expenses 18 20 12 14 37 36 (1) 2 Franchise advertising and other services expense 169 162 (4) — 329 311 (6) — Operating Profit $ 410 $ 363 13 9 $ 793 $ 694 14 9 % Increase (Decrease) Unit Count 6/30/2026 6/30/2025 Franchise 34,227 31,887 7 Company-owned 520 482 8 Total 34,747 32,369 7 Company sales and Company restaurant margin % The quarterly increase in Company sales, excluding the impacts of foreign currency translation, was driven by Company same-store sales growth of 5%, unit growth and acquisitions of restaurants from franchisees. 38 The year to date 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 decrease in Company restaurant margin percentage was driven by lower margins associated with new builds inside the U.S., partially offset by Company same-store sales growth. The year to date increase in Company restaurant margin percentage was driven by Company same-store sales growth, partially offset by higher restaurant operating costs and lower margins associated with new builds inside the U.S. Franchise and property revenues The quarterly and year to date increases in Franchise and property revenues, excluding the impacts of foreign currency translation, were driven by unit growth and franchise same-store sales growth of 2%. G&A The quarterly decrease in G&A, excluding the impacts of foreign currency translation, was driven by lower professional fees. G&A, excluding the impacts of foreign currency translation, was flat year to date. Operating Profit The quarterly and year to date increases in Operating Profit, excluding the impacts of foreign currency translation, were driven by same-store sales growth and unit growth. Taco Bell Division The Taco Bell Division has 9,046 units, 86% of which are in the U.S. The Company owned 8% of the Taco Bell Division units in the U.S. as of June 30, 2026. 39 Quarter ended Year to date % B/(W) % B/(W) 2026 2025 Reported Ex FX 2026 2025 Reported Ex FX System Sales $ 4,677 $ 4,275 9 9 $ 9,071 $ 8,255 10 10 Same-Store Sales Growth % 7 4 N/A N/A 8 6 N/A N/A Company sales $ 396 $ 287 38 38 $ 768 $ 550 40 40 Franchise and property revenues 271 248 9 9 522 482 8 8 Franchise contributions for advertising and other services 185 176 5 5 360 336 7 7 Total revenues $ 853 $ 711 20 20 $ 1,650 $ 1,368 21 21 Company restaurant profit $ 103 $ 70 47 47 $ 191 $ 129 48 48 Company restaurant margin % 25.9 % 24.3 % 1.6 ppts. 1.6 ppts. 24.8 % 23.4 % 1.4 ppts. 1.4 ppts. G&A expenses $ 53 $ 49 (8) (8) $ 106 $ 98 (8) (8) Franchise and property expenses 9 7 (24) (23) 15 13 (13) (12) Franchise advertising and other services expense 187 176 (7) (7) 361 333 (8) (8) Operating Profit $ 311 $ 262 19 19 $ 591 $ 502 18 18 % Increase (Decrease) Unit Count 6/30/2026 6/30/2025 Franchise 8,370 8,235 2 Company-owned 676 521 30 Total 9,046 8,756 3 Company sales and Company restaurant margin % The quarterly and year to date increases in Company sales were driven by acquisitions of restaurants from franchisees and company same-store sales growth of 6%. The quarterly and year to date restaurant margin percentage increase was driven by same store sales growth and the margin percentages of restaurants acquired from franchisees, partially offset by other restaurant operating costs, higher labor costs, and commodity inflation (primarily beef). Franchise and property revenues The quarterly and year to date increases in Franchise and property revenues were driven by franchise same-store sales growth of 7% and 8% for the quarter and year to date, respectively, and unit growth partially offset by the impact of our acquisition of restaurants from franchisees. G&A The quarterly and year to date increases in G&A were driven by higher headcounts including headcount associated with operating restaurants acquired from franchisees, higher digital and technology expenses, and higher legal and professional fees. 40 Operating Profit The quarterly and year to date increases in Operating Profit were 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 19,985 units, 70% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of June 30, 2026. Quarter ended Year to date % B/(W) % B/(W) 2026 2025 Reported Ex FX 2026 2025 Reported Ex FX System Sales $ 3,108 $ 3,116 Even (2) $ 6,223 $ 6,144 1 (1) Same-Store Sales Growth (Decline) % (1) (1) N/A N/A (1) (1) N/A N/A Company sales $ 31 $ 7 348 346 $ 63 $ 10 505 492 Franchise and property revenues 143 147 (3) (4) 285 290 (2) (3) Franchise contributions for advertising and other services 80 85 (6) (6) 159 169 (6) (6) Total revenues $ 254 $ 239 6 6 $ 507 $ 470 8 7 Company restaurant profit (loss) $ 1 $ — 252 250 $ 1 $ (1) 289 281 Company restaurant margin % 2.2 % (6.6) % 8.8 ppts. 8.8 ppts. 2.0 % (6.4) % 8.4 ppts. 8.4 ppts. G&A expenses $ 56 $ 54 (5) (5) $ 116 $ 109 (6) (5) Franchise and property expenses 13 10 (29) (28) 31 21 (44) (42) Franchise advertising and other services expense 87 90 3 3 171 179 5 5 Operating Profit $ 70 $ 80 (12) (14) $ 135 $ 155 (13) (15) % Increase (Decrease) Unit Count 6/30/2026 6/30/2025 Franchise 19,855 19,709 1 Company-owned 130 59 120 Total 19,985 19,768 1 Franchise and property revenues The quarterly and year to date decreases in Franchise and property revenues, excluding the impact of foreign currency translation, were primarily driven by franchise same-store sales declines of 1% and the impact of our acquisition of restaurants from franchisees. G&A The quarterly and year to date increases in G&A, excluding the impact of foreign currency translation, were driven by the impact of G&A associated with operating restaurants acquired from franchisees and higher expense associated with annual 41 incentive compensation plans, partially offset by lower professional and legal expenses and lapping expenses associated with the bi-annual Global Franchise Convention held in the prior year. Operating Profit The quarterly and year to date decreases in Operating Profit, excluding the impact of foreign currency translation, were driven by higher advertising costs associated with the Pizza Hut U.S. Hut Forward program, the impact of operating restaurants acquired from franchisees and same-store sales declines. Habit Burger & Grill Division The Habit Burger & Grill Division has 388 units, all of which are in the U.S. The Company owned 78% of the Habit Burger & Grill Division units as of June 30, 2026. Quarter ended Year to date % B/(W) % B/(W) 2026 2025 Reported 2026 2025 Reported System Sales $ 177 $ 166 7 $ 343 $ 321 7 Same-Store Sales Growth (Decline) % 3 (4) N/A 4 (3) N/A Total revenues $ 139 $ 134 4 $ 269 $ 262 3 Operating Profit (Loss) $ (4) $ 3 NM $ (11) $ 2 NM Unit Count 6/30/2026 6/30/2025 % Increase (Decrease) Franchise 84 76 11 Company-owned 304 303 — Total 388 379 2 Corporate & Unallocated Quarter ended Year to date (Expense) / Income 2026 2025 % B/(W) 2026 2025 % B/(W) Corporate and unallocated G&A $ ( 114 ) $ ( 97 ) (18) $ ( 225 ) $ ( 202 ) (11) Unallocated Company restaurant expenses ( 13 ) ( 4 ) (241) ( 25 ) ( 7 ) (279) Unallocated Franchise and property revenues — — NM — ( 1 ) NM Unallocated Refranchising gain (loss) 1 11 (88) 2 16 (85) Unallocated Other income (expense) (See Note 6) ( 6 ) 4 NM 39 10 NM Investment income (expense), net 6 — NM 6 1 NM Other pension income (expense) — 1 (93) — 1 (74) Interest expense, net ( 128 ) ( 123 ) (4) ( 257 ) ( 243 ) (6) Income tax benefit (provision) (See Note 8) 320 (125) 356 236 (301) 178 Effective tax rate (See Note 8) ( 60.1 ) % 25.1 % 85.1 ppts. ( 22.5 ) % 32.4 % 55.0 ppts. 42 Corporate and unallocated G&A The quarterly and year to date increases in Corporate and Unallocated G&A expense were 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 and year to date increases were driven by the acquisition of restaurants from franchisees in 2025. Interest expense, net The quarterly and year to date increases in Interest expense, net were driven by higher outstanding borrowings. Consolidated Cash Flows Net cash provided by operating activities was $923 million in 2026 versus $850 million in 2025. The increase was primarily driven by an increase in Operating Profit, partially offset by higher incentive compensation payments and higher income tax payments. Net cash used in investing activities was $169 million in 2026 versus $130 million in 2025. The change was primarily driven by lapping maturities of short-term investments in the prior year and higher current year capital spending, partially offset by lower current year spending on restaurant acquisitions. Net cash used in financing activities was $757 million in 2026 versus $741 million in 2025. The change was primarily driven by higher current year share repurchases, partially offset by higher current year net borrowings. Consolidated Financial Condition Our Condensed Consolidated Balance Sheet was impacted by the held for sale classification of assets and liabilities associated with the Pizza Hut divestitures (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 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 $675 million outstanding as of June 30, 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 $674 million at June 30, 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. Pizza Hut Divestitures On June 16, 2026 we entered into definitive agreements to sell Pizza Hut in two separate transactions. We anticipate both transactions will close in August 2026, subject to customary closing conditions, including receipt of required regulatory approvals. Across the two transactions, we expect to receive approximately $2.3 billion of net proceeds after taxes, closing adjustments and transaction-contingent fees. 43 With the anticipated net proceeds from the Pizza Hut transactions, we expect to pay down the current drawings on the Revolving Facility and the majority of the remainder will be set aside for share repurchases with timing subject to market conditions. Accordingly, in June 2026, our Board of Directors authorized incremental share repurchases of up to $4 billion through June 30, 2028 (see Note 5). Debt Obligations and Interest Payments As of June 30, 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 June 30, 2026. 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total Securitization Notes $ 884 $ 595 $ 590 $ 1,000 $ 737 $ 500 $ 4,306 Credit Agreement $ 14 34 1,424 438 1,909 Revolving Facility 675 675 Subsidiary Senior Unsecured Notes 750 750 YUM Senior Unsecured Notes 800 1,050 2,100 $ 325 $ 275 4,550 Total $ 14 $ 1,668 $ 2,019 $ 1,702 $ 1,800 $ 1,787 $ 2,600 $ 325 $ 275 $ 12,190 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 outstanding as of June 30, 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 June 30, 2026 have been classified as Short-term borrowings in the Condensed Consolidated Balance Sheets as of June 30, 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 12 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. 44 Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes during the quarter ended June 30, 2026, to the disclosures made in Item 7A of the Company’s 2025 Form 10-K.