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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.12pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.09pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.15pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
disruption+2
retaliatory+2
failure+1
unable+1
litigation+1
Positive rising
able+2
leadership+2
successfully+1
Risk Factors (Item 1A)
12,708 words
Item 1A.
Risk Factors .
You should carefully review the risks described below as they identify important factors that could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. Any of the following risk factors, either by itself or together with other risk factors, could materially adversely affect our business, growth prospects, results of operations, cash flows and/or financial condition.
Risks Related to Food Safety and Catastrophic Events
Food safety and food- or beverage-borne illness concerns may have an adverse effect on our business and/or our growth prospects.
Food or beverage-borne illnesses (that can be caused by food-borne pathogens such as E. coli, Listeria, Salmonella, Cyclospora and Trichinosis) and food safety issues (such as food tampering and contamination including with respect to allergens or adulteration) have occurred and may occur within our system from time to time. In addition, the health and environmental risks of certain ubiquitous substances (including per-and polyfluoroalkyl substances (PFAS)) commonly found in packaging have been the subject of increased regulatory scrutiny and lawsuits us and other restaurant companies. Any report linking our or our Concepts’ franchisees’ restaurants, our suppliers or distributors or otherwise involving the types of products used at our restaurants, or linking our competitors, suppliers, distributors or the retail food industry generally, to instances of food- or beverage-borne illness or food safety issues or substances having perceived health or environmental risks could result in publicity and otherwise affect us and lead to consumer , and/or governmental . There is also a risk that we or our Concepts’ franchisees’ restaurants, suppliers or distributors underreport food safety or system , which could response and tracking of such risks. Moreover, our Concepts’ restaurants' reliance on third-party food suppliers and distributors and increasing reliance on food delivery aggregators may increase the risk that food- or beverage-borne illness and food safety issues could be caused by factors outside of our control. If a customer is believed to have become from food or beverage-borne illnesses or as a result of food safety issues, remediation efforts could include temporary of restaurants, which could our operations and affect our reputation, business and/or our growth prospects. The occurrence of food-borne pathogens in restaurant products or food safety issues could also affect the price and availability of affected ingredients, which could result in in our supply chain and/or lower margins for us and our Concepts’ franchisees.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
closed+2
litigation+2
losses+1
critical+1
impaired+1
Positive rising
effective+3
favorably+2
beautiful+2
gain+1
gains+1
MD&A (Item 7)
12,732 words
Item 7.
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 Consolidated Financial Statements (“Financial Statements”) in Item 8 and the Forward-Looking Statements and the Risk Factors set forth in Item 1A. 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.
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.
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 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. 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.
Our business may be adversely affected by adverse public health conditions or the occurrence of other catastrophic or unforeseen events.
Our business and/or growth prospects could be adversely impacted by various catastrophic or other unforeseen events (which may be beyond our control), including health epidemics or pandemics, natural disasters, geopolitical events, military conflict, terrorism, political, financial or social instability, boycotts, social or civil unrest, workplace violence, or other events that lead to avoidance of public places or restrictions on public gatherings, particularly if located in regions where we have significant operations. We could also be adversely affected if government authorities impose mandatory or voluntary closures, impose restrictions on operations of restaurants, or restrict the import or export of products, or if suppliers issue mass recalls of products, in connection with any such events.
In addition, our operations could be disrupted if any employees at our or our Concepts’ franchisees’ restaurants had or were suspected of having avian flu or swine flu, or other highly communicable illnesses, since this may require us, or our Concepts’ franchisees, to quarantine employees and close facilities, including restaurants. Prior outbreaks of avian flu have resulted in confirmed human cases and it is possible that outbreaks could reach pandemic levels. Public concern over avian flu may cause fear about the consumption of chicken, eggs and other poultry products derived from poultry, which could adversely affect us given that poultry is widely offered at our Concepts’ restaurants. Avian flu outbreaks could also adversely affect the price and availability of poultry, which could negatively impact our business.
Risks Related to our Business Strategy and Reliance upon Franchisees
Our operating results and growth strategies are closely tied to the success of our Concepts ’ franchisees.
The vast majority (97%) of our restaurants are operated by our Concepts’ franchisees. Our long-term growth depends on maintaining the pace of our new unit growth rate largely through our Concepts’ franchisees. We also rely on master franchisees, who have rights to license to sub-franchisees the right to develop and operate restaurants, to achieve our expectations for new unit development. If our Concepts’ franchisees and master franchisees do not meet our expectations for new unit development, we may not achieve our desired growth.
We have limited control over how our Concepts’ franchisees’ businesses are run, and their inability to operate successfully could adversely affect our operating results through decreased royalties, advertising funds contributions, and fees paid to us for other discrete services we may provide to our Concepts’ franchisees Our control is further limited where we utilize master franchise arrangements, which require us to rely on our master franchisees to enforce sub-franchisee compliance with our operating standards.
If our Concepts’ franchisees fail to adequately capitalize their businesses or incur too much debt, if their operating expenses or commodity prices increase or if economic or sales trends deteriorate such that franchisees are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy, or the inability to meet development targets or obligations. If any significant franchisee of our Concepts individually or in the aggregate becomes financially distressed, as has occurred from time to time, our operating results could be adversely impacted, and we could experience reduced new unit development.
In addition, we are secondarily liable on certain Concepts’ franchisees’ restaurant lease agreements, including lease agreements that we have guaranteed or assigned to franchisees, and our operating results and/or growth prospects could be impacted by any rent obligations to the extent such franchisees default on these lease agreements.
Our results may also be impacted by whether our Concepts’ franchisees implement marketing programs or other major initiatives, such as restaurant remodels or equipment or technology upgrades, which may require financial investment by such franchisees. Our Concepts may be unable to successfully implement strategies that we believe are necessary for growth if our Concepts’ franchisees do not participate, which may harm our growth prospects and financial results. Additionally, the failure of our Concepts’ franchisees to focus on key elements of restaurant operations, such as compliance with our operating standards addressing quality, service and cleanliness (even if such failures do not breach the franchise documents), may be attributed by guests to our Concepts’ brand and could negatively impact our reputation, business and/or our growth prospects.
Franchisee noncompliance with our franchise agreements and/or or brand standards including by failing to meet health and safety standards, to engage in quality control or maintain product consistency or to comply with cybersecurity requirements, as well as through participation in improper business practices. Moreover, franchisee noncompliance with our franchise agreements and/or brand standards may lead to us to terminate franchise agreements and close related stores, which may have an impact on our results. For example, on January 8, 2025, we terminated franchise agreements with the owner and operator of KFC and Pizza Hut restaurants in Turkey after failure to meet our brand standards.
We have franchise relationships that are particularly important to our business due to their scale and/or growth prospects such as our relationship with Yum China, our largest franchisee. We are a party to a Master License Agreements (“MLA”) with Yum China, pursuant to which Yum China is the exclusive licensee of the KFC, Taco Bell and Pizza Hut Concepts and their related marks and other intellectual property rights for restaurant services in mainland China. Any failure to realize the expected benefits of key franchise relationships, including with Yum China, may adversely impact our business and growth prospects.
Our growth strategy depends upon our and our Concepts’ franchisees ’ ability to successfully open new restaurants and to operate these restaurants profitably.
Our growth strategy depends on our and our Concepts’ franchisees’ ability to increase the number of restaurants around the world. The successful development of new units depends in large part on the ability of our Concepts’ franchisees to open new restaurants and to operate these restaurants profitably. Effectively managing growth can be challenging, particularly as we expand into new markets, and we cannot guarantee that we, or our Concepts’ franchisees, including Yum China, will be able to achieve our expansion goals or that new restaurants will be operated profitably, consistent with results of existing restaurants or with our or our Concepts’ franchisees’ expectations. Other risks that could impact our ability to open new restaurants include: (i) economic conditions and trade policy or economic policies or sanctions, (ii) our ability to attract new franchisees, (iii) new restaurant construction and development costs, (iv) our Concepts’ franchisees’ ability to meet new restaurant permitting,
construction, development and team member training timelines, and (v) consumer sentiment related to our Concepts, and (vi) supply chain challenges, including our ability to secure sufficient supply to support new restaurants.
Expansion could also be affected by our Concepts’ franchisees’ willingness to invest capital or ability to obtain financing to construct and open new restaurants. If it becomes more difficult or more expensive for our Concepts’ franchisees to obtain financing to develop new restaurants, or if the perceived return on invested capital is not sufficiently attractive, our expected growth and future financial results could be adversely impacted. In addition, new restaurants could impact the sales of our Concepts’ existing restaurants nearby, and the risks of such sales cannibalization may become more significant in the future as we increase our presence in existing markets.
We may not realize the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions, or our portfolio business model.
From time to time we have completed, and we may evaluate and continue to complete, mergers, acquisitions, divestitures, joint ventures, strategic partnerships, minority investments and other strategic transactions.
Past and potential future strategic transactions may involve various inherent risks, including, without limitation:
(i) expenses, delays or difficulties in integrating acquired companies, joint ventures, strategic partnerships or investments into our organization, including the failure to realize strategic alignment or expected synergies and/or the inability to retain key personnel;
(ii) diversion of management’s attention from other initiatives and/or day-to-day operations to effectively execute our growth strategy;
(iii) inability to generate sufficient revenue, profit, and cash flow from acquired companies, joint ventures, strategic partnerships or investments; and
(iv) the possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions or other strategic transactions.
Past and potential future strategic transactions may not ultimately create value for us and may harm our reputation and adversely affect our business, growth prospects and financial results. In addition, our investments, including minority investments in certain franchisees, are potentially subject to changes in value, including through impairment, which have caused and could continue to cause, fluctuations in our results of operations.
We have initiated a process to explore strategic options for the Pizza Hut brand, and there can be no assurance that this process will result in any transaction or outcome, that we will be able to realize the anticipated benefits of any transaction, if completed, or other outcome, or that this process will not adversely impact our business.
We have initiated a process to explore strategic options for our Pizza Hut brand to maximize long-term value creation. Our ability to successfully engage in any transactions with regard to our Pizza Hut brand is subject to prevailing general, market and industry-specific economic conditions and certain regulatory, financial, business and other factors beyond our control. There is no assurance that this process will result in any transaction or outcome, or if any transaction is completed, the timing or terms of any such transaction.
We expect to incur significant expenses in connection with this process, and there are risks inherent with this process, including the potential diversion of management’s attention, interference with our ability to retain or attract key personnel and business partners, disruption of Pizza Hut or other businesses and exposure to litigation. It may also be disruptive to our business operations and long-term planning, which may cause concern to our current or potential investors, employees, strategic partners, vendors and other stakeholders and may have a material impact on our operating results or result in increased volatility in our stock price. Further, there can be no assurance that we will be able to realize the anticipated benefits of any transaction, if completed, or other outcome. We are taking steps to mitigate any impact to Pizza Hut's near-term results as a result of this review. In addition, we have aligned with stakeholders in the U.S. on a marketing program, modernization of certain technology and franchise agreements and a YUM contribution to marketing support. However, if we are unable to mitigate these and other risks related to this process, our business may be adversely affected.
Risks Related to Operating a Global Business
We have significant exposure to the Chinese market through our largest franchisee, Yum China, which subjects us to risks that could negatively affect our business and/or our growth prospects.
A meaningful portion of our total business, particularly with respect to our KFC Concept, is conducted in mainland China through our largest franchisee, Yum China. We are contractually entitled to receive a 3% sales-based license fee on all Yum China system sales related to our KFC, Taco Bell and Pizza Hut Concepts. Yum China’s business is exposed to risks in mainland China, which include, among others, potential political, trade, financial and social instability, changes in economic conditions (including consumer spending, unemployment levels and ongoing wage and commodity inflation), consumer preferences, the regulatory environment (including uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations), heightened data and cybersecurity risks associated with the conduct of business in China, and food safety related matters (including compliance with food safety regulations and our ability to ensure product quality and safety). Any significant or prolongeddeterioration in U.S.–China relations, including as a result of changes in U.S.–China foreign policy, trade regimes or trade disputes, or geopolitical developments, could adversely affect our Concepts in mainland China. Additionally, Chinese law regulates Yum China’s business conducted in mainland China, and as such our license fee from the Yum China business is subject to numerous uncertainties based on Chinese laws, regulations and policies, which may change from time to time. If Yum China’s business is harmed or development of our Concepts’ restaurants is slowed in mainland China due to any of these factors, it could negatively impact the license fee paid by Yum China to us, which would negatively impact our financial results.
Our relationship with Yum China is governed primarily by the MLA, as amended from time to time, which may be terminated upon the occurrence of certain events, such as the insolvency or bankruptcy of Yum China. In addition, if we are unable to enforce our intellectual property or contract rights in mainland China, if Yum China is unable or unwilling to satisfy its obligations under the MLA, or if the MLA is otherwise terminated, it could result in an interruption in the operation of our brands that have been exclusively licensed to Yum China for use in mainland China. Disputes over the proper interpretation of the MLA have arisen in the past and may arise from time to time in the future. Such interruption or disputes could cause a delay in, or loss of, the license fee paid to us, which would negatively impact our financial results.
Our global operations subject us to risks that could negatively affect our business.
A significant portion of our Concepts’ restaurants are operated outside of the U.S., and we intend to continue expansion of our global operations. As a result, our and our Concepts’ franchisees’ business and/or growth prospects are increasingly exposed to risks inherent in global operations. These risks, which can vary substantially by country, include political, financial or social instability or conditions, corruption, anti-American sentiment and perception of our Concepts as American brands, social and ethnic unrest, natural disasters, military conflicts and terrorism, as well as exposure to the macroeconomic environment in such markets, the regulatory environment (including related to the enforceability of legal requirements and contract and intellectual property rights), and income and non-income based tax rates and laws. Additional risks include the impact of trade disputes and tariffs, restrictive actions of foreign or U.S. governmental authorities affecting trade or foreign investment, import restrictions and controls, sanctions, foreign exchange control regimes (including restrictions on currency conversion), health guidelines and safety protocols, labor costs and conditions, compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar laws prohibiting bribery of government officials and other corrupt practices, and the laws and policies that govern foreign investment in countries where our Concepts’ restaurants are operated. For example, we have been subject to a regulatory enforcement action in India allegingviolation of foreign exchange laws for failure to satisfy conditions of certain operating approvals, such as minimum investment and store build requirements as well as limitations on the remittance of fees outside of the country (see Note 20).
As a result of our global operations, we have significant exposure to geopolitical events and instability. We have been adversely affected in the past, and may in the future be adversely affected, by events such as increasing anti-American sentiment and instability and conflicts in the Middle East. Such conflicts have adversely affected, and may continue to adversely affect our business and operations as result of, among other things, the economic consequences and disruptions from such conflicts, increased energy and supply prices, weaker consumer sentiment for Western brands, consumer reaction to perceived acts or failures to act by us or our Concepts including maintaining operations in countries or regions that are linked to such conflicts, and economic sanctions restricting cross-border commerce.
In addition, we and our Concepts’ franchisees do business in jurisdictions that may be subject to trade or economic sanction regimes, which sanctions could be expanded. Any failure to comply with such sanctions or other similar legal requirements could result in the imposition of damages or penalties, the suspension of business licenses, or a cessation of operations at our Concepts’ restaurants, as well as damage to our and our Concepts’ brand images and reputations.
Foreign currency risks and foreign exchange controls could adversely affect our financial results.
Our results of operations, growth prospects and the value of our assets are affected by fluctuations in currency exchange rates, which have had, and may continue to have adverse effects on our reported earnings. More specifically, an increase in the value of the U.S. dollar, relative to other currencies, such as the Chinese Renminbi (“RMB”), Australian Dollar, the British Pound and the Euro, as well as currencies in certain other markets have historically affected and may continue to affect our reported earnings. Any significant fluctuation in the value of currencies of countries in which we or our Concepts’ franchisees operate, particularly the RMB in China, could materially impact the U.S. dollar value of royalty payments made to us, which could result in lower revenues, could lead to increased costs and lower profitability to us or our Concepts’ franchisees and/or could cause us or our Concepts’ franchisees to increase prices to customers, which could negatively impact sales in these markets and harm our financial results. In addition, the governments in certain countries where our Concepts operate, including China, restrict the conversion of local currency into foreign currencies and, in certain cases, the remittance of currency out of the country. Currency control restrictions on the conversion of other currencies to U.S. dollars or restrictions imposed by countries on cash remittances could cause royalty payments to us to be delayed, remitted only partially or not at all, which could cause us to incur bad debt expense and impact our liquidity.
Risks Related to Technology, Data Privacy and Intellectual Property
Any cybersecurity incident, including the failure to protect the integrity or availability of IT systems or the security of Confidential Information, or the introduction of malware or ransomware, could materially affect our business, financial results and/or our growth prospects and result in substantial costs, litigation, reputational harm and a loss of consumer confidence.
Our business relies heavily on computer systems, hardware, software, technology infrastructure and online websites, platforms and networks (collectively, “IT Systems”) to support both internal and external, including franchisee-related, operations. We own and manage some of these IT Systems but also rely on third parties for a range of IT Systems and related products and services. In addition, we and other parties (such as vendors, food delivery aggregators and franchisees), collect, transmit and/or maintain certain personal, financial and other information about our customers, employees, vendors and franchisees, as well as proprietary information pertaining to our business (collectively, “Confidential Information”). The security and availability of our IT Systems and Confidential Information is critical to our business and is regulated by evolving and increasingly demanding laws and regulations in various jurisdictions, certain third-party contracts and industry standards.
The current cyber threat environment presents increased risk for all companies, including companies in our industry. The cybersecurity risks we face include cyber-attacks involving ransomware and malicious software, advanced persistentthreats, social engineering, credential stuffing or distributed denial-of-service attacks and other attempts by maliciousthreat actors, including nation-state actors, ransomware groups, and others to access, acquire, use, disclose, misappropriate, shut down or manipulate our information, systems, databases, processes and people. In addition, the rapid evolution and increased adoption of artificial intelligence (“AI”) and other emerging technologies may heighten our cybersecurity risks by making cyber-attacks and social engineering more difficult to detect, contain and mitigate. Further, the cybersecurity risks we face have increased in recent years due to an increase in the use of and reliance on our digital commerce platforms and products. Moreover, remote working and personal device use further increases the risk of cyber incidents and the improper dissemination of personal or Confidential Information.
We are regularly the target of cyber-attacks and other attempts to breach, or gainunauthorized access to, our systems and data. Moreover, given the current cyber threat environment, we expect the volume and intensity of cyber-attacks and attempted intrusions to continue to increase. There is no assurance that our security measures, cybersecurity risk management programs and processes will be fully implemented, complied with, sufficient or effective in protecting our systems and information. Despite such security measures and processes, we, and the third parties upon which we rely, have experienced security incidents from time to time and we and such third parties will continue to experience such incidents in the future. In particular, on January 18, 2023, we announced a ransomware attack that impacted certain IT Systems which resulted in the closure of fewer than 300 restaurants in one market for one day, temporarily disrupted certain of our affected systems and resulted in data being taken from our network. As disclosed under Part I, Item 1C of this Form 10-K, we remain subject to risks and uncertainties as a result of the incident, including as a result of the data that was taken from our network and putative class actions filed against us in connection with this incident.
If our IT Systems or the information systems of any of our Concepts’ franchisees, or other third parties which we interact, such as suppliers, distributors or third-party delivery providers, are disrupted or compromised, in a manner which impacts us or our IT Systems, as a result of a cyber-attack, data or security breach, or other security incident or fraud, or if our employees, franchisees, suppliers or vendors fail to comply with applicable laws and regulations or fail to meet contractual and industry standards in connection therewith, any such developments could result in liabilities and penalties, have an adverse impact on
our financial results and growth prospects, damage our brands and reputation, cause interruption of normal business operations, cause us to incur substantial costs, result in a loss of consumer confidence and sales, disrupt our supply chain, business and plans, result in the loss, misappropriation, corruption or unauthorized access, acquisition, use or disclosure of data or inability to access data, including the release of Confidential Information, and subject us to litigation and government enforcement actions. Moreover, any significant cybersecurity event which impacts us or our IT Systems could require us to devote significant management time and resources to address such events, interfere with our pursuit of other important business strategies and initiatives, and cause us to incur additional expenditures, which could be material, including to investigate such events, remedy cybersecurity problems, respond to an extortion demand, recover lost data, prevent future compromises and adapt systems and practices in response to such events. There is no assurance that any remedial actions will meaningfully limit the success of future attempts to breach our IT Systems, particularly because malicious actors are increasingly sophisticated and utilize tools and techniques specifically designed to circumvent security measures, avoid detection and obfuscate forensic evidence, which means we may be unable to identify, investigate or remediate effectively or in a timely manner. Further, we are subject to an increasing number of cybersecurity reporting obligations in different jurisdictions that vary in their scope and application, which may create conflicting reporting obligations and inhibit our ability to quickly provide complete and reliable information about cybersecurity incidents to customers, counterparties, and regulators, as well as the public. Additionally, insurance coverage maintained by us and our Concepts’ franchisees designed to address certain aspects of cybersecurity risks may exclude certain types of claims or otherwise be insufficient to cover all losses or all types of claims that may arise.
Further, the payment card industry sets controls standards used in the transmission and approval of electronic payment transactions. If we or our Concepts’ franchisees fail to comply with the global Payment Card Industry Data Security Standards or fail to adequately control fraudulent credit card and debit card transactions, we or our Concepts’ franchisees may face civil liability, reputational damage, fines and assessments from the card brands, and significantly higher credit card and debit card related costs, any of which could adversely affect us.
The failure to maintain satisfactory compliance with l egal requirements regarding data privacy, data protection and emerging technologies may adversely affect our business and/or growth prospects and subject us to penalties.
Data privacy is subject to frequently changing legal requirements, which sometimes conflict among the various jurisdictions where we and our Concepts’ franchisees do business. We are subject to numerous global laws, including but not limited to, the European Union’s (“E.U.”) General Data Protection Regulation (“GDPR”) and the U.K. General Data Protection Regulations, which impose strict data protection requirements and provide for significant penalties for noncompliance. Further, we engage in marketing and customer engagement activities that are subject to communications and consumer privacy laws, such as the Telephone Consumer Protect Act and similar state laws. There is a rapid increase in private claims of allegedbreach of communications and privacy laws in the U.S. and abroad, under a diverse range of theories relying on wiretapping, pen registry, and communication consent statutes. In addition, an increasing number of jurisdictions where we and our Concepts’ franchisees operate have enacted privacy and data protection laws, or are considering enacting or expanding such laws. These and other newly enacted and evolving legal requirements, have required, and may continue to require, us and our Concepts’ franchisees to modify our data processing practices and policies and to incur substantial costs and expenses to comply. Additionally, state regulatory bodies and other governmental authorities tasked with enforcing new privacy laws are engaging in enforcement investigations and actions. In particular, state attorneys general and regulatory bodies are increasingly focused on businesses’ practices for collecting and sharing consumer information digitally, including how businesses allow consumers to opt-out of certain uses and disclosures and exercise other rights granted by privacy laws. Additionally, future enforcement priorities from these bodies may be unclear or changing. While we have established procedures to manage individual privacy requests from consumers and employees intended to ensure compliance with privacy laws, there remains potential residual risk of failure to comply with comprehensive privacy laws passed at the international, federal or state level and this may result in regulatory enforcement action, lawsuits, the imposition of monetary penalties, and damage to our reputation, or require us to modify our operations. The increasingly complex, restrictive and evolving regulatory environment at the international, federal and state level related to data privacy and data protection may require significant continued effort and cost, changes to our business practices and impact our ability to obtain and use data to provide personalized experiences for our customers. In addition, failure to comply with applicable requirements may subject us and our Concepts’ franchisees to fines, sanctions, governmental investigation, lawsuits and other potential liability, as well as reputational harm.
The Federal Trade Commission (“FTC”) and many state attorneys general are also interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination and security of personal data. The FTC may seek enforcement action for violation of consumer protection laws including unfair or deceptive practices relating to privacy policies, consumer data collection and processing consent, and digital advertising practices. Moreover, new and changing cross-border data transfer requirements, have required and may continue to require us to incur costs to comply and have impacted the transfer of personal data throughout our organization and to third parties. Additionally, we are subject to increasing legal requirements with respect to the use of AI and machine learning applications and tools (including in relation to hiring and
employment practices and in digitally marketing our Concepts), data collected from minors, and biometric information. These legal requirements are rapidly changing and are not consistent across jurisdictions, and our inability to adapt to or comply with such legal requirements may adversely impact us, including as the result of liabilities or penalties as the result of any such non-compliance.
Unreliable or inefficient restaurant technology or the failure to successfully implement technology initiatives could adversely impact our business and the overall consumer experience.
We and our Concepts’ franchisees rely heavily on IT Systems to efficiently operate our restaurants and drive the customer experience, sales growth and margin improvement, as well as to gather and leverage data to enhance restaurant operations and improve the customer experience. These IT Systems, including our proprietary Byte By Yum! platform and third-party technology systems, are subject to damage, interruption or failure due to theft, fire, power outages, telecommunications failure, computer viruses, employee misuse, security breaches, malicious cyber-attacks including the introduction of malware or ransomware or other disruptive behavior by hackers, or other catastrophic events. If our or our Concepts’ franchisees’ IT Systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could adversely impact our reputation, growth prospects, and financial results.
Moreover, technology and consumer offerings continue to develop, and our failure to adequately invest in or implement new technology (e.g., automation, AI, new delivery channels) or adapt to technological advancements and industry trends, particularly with respect to digital commerce capabilities, could result in dissatisfaction from our customers or our employees (or the employees of our Concepts’ franchisees), negative publicity, or adversely impact our financial results.. If our Concepts’ digital commerce platforms do not meet customers’ expectations in terms of security, speed, privacy, attractiveness or ease of use, customers may be less inclined to return to such digital commerce platforms, which could negatively impact us and our Concepts’ franchisees. Developing and implementing consumers’ evolving technology demands may place a significant financial burden on us and our Concepts’ franchisees, and our Concepts’ franchisees may have differing views on investment priorities. Our strategic digital and technology initiatives may not be implemented timely or may not achieve the desired results. Failure to adequately manage implementations, updates or enhancements of new technology or interfaces between platforms could place us at a competitive disadvantage, and disrupt and otherwise adversely impact our operations and/or growth prospects. It may be difficult to recruit and retain qualified individuals for these efforts due to intense competition for developers necessary to innovate, develop and implement new technologies for us. Even if we effectively implement and manage these technology initiatives, there is no guarantee that this will result in sales growth or margin improvement. In addition, certain IT Systems that are managed, hosted, provided and/or used by third parties may also be unreliable or inefficient, and technology vendors may limit or terminate product support and maintenance, which could impact the reliability of critical systems’ operations. Further, if there are issues with proprietary technology, we may be subject to liability or financial penalties to our Concepts’ franchisees.
We continue to allocate significant resources to develop, accelerate and implement our digital, technology, and innovation capabilities, including various AI capabilities. The development of such AI initiatives is complex and uncertain, and presents various risks and uncertainties, including as the result of the rapidly evolving legal, regulatory and ethical landscape associated with the use of AI. Our efforts to integrate AI capabilities into our business may result in unanticipated consequences and complications, and if we do not successfully implement our AI initiatives, or if we encounter other failures in our AI systems or initiatives, this could result in legal and regulatory risk, brand or reputational harm, and other adverse impacts. Further, if we fail to leverage AI technologies as effectively or rapidly as our peers, our competitiveness and financial results could be adversely impacted.
There are risks associated with our increasing dependence on digital commerce and delivery platforms to maintain and grow sales.
Customers are increasingly using our internally-owned e-commerce websites and apps, such as kfc.com, tacobell.com, pizzahut.com, habitburger.com, and the KFC, Taco Bell, Pizza Hut and the Habit Burger & Grill apps in the U.S. and other regions. Our customers also increasingly utilize alternative methods of digital ordering and delivery technology, including apps owned by third-party delivery aggregators and third-party developers and payment processors, to order, pay for and have delivered our Concepts’ products. As a result, our Concepts and our Concepts’ franchisees are increasingly reliant on digital ordering and payment as a sales channel and our business and/or growth prospects could be negatively impacted if we are unable to successfully implement, execute or maintain our consumer-facing digital initiatives, such as kiosks, delivery, curbside pick-up and mobile carryout, or are otherwise unable to effectively adapt to developments associated with alternative methods of delivery, including advances in digital ordering and delivery technology, autonomous vehicle delivery, and changes in consumer behavior resulting from these developments.
If the third-party aggregators that we utilize for delivery, cease or curtail their operations, fail to maintain sufficient labor force to satisfy demand, provide poor customer service, materially change fees, access or visibility to our products, or give greater priority or promotions to our competitors, our business may be negatively impacted. In addition, third-party delivery aggregators typically charge restaurants a per order fee, and as such utilizing third-party delivery may not be as profitable as sales directly to our customers, and may also introduce food quality and customer satisfaction risks outside of our control. The third-party delivery business is also the subject of increased scrutiny from regulators, which may result in additional expenses that the third-party delivery businesses and aggregators may seek to pass through to participating restaurants. These digital ordering and payment platforms used in connection with our restaurants also could be damaged or interrupted by power loss, technological failures, user errors, cyber-attacks, other forms of sabotage, inclement weather or natural disasters and have experienced, and may continue to experience, interruptions limiting or delaying customers’ ability to order through such platforms and potentially making customers less inclined to return to such platforms. The rapid acceleration in growth of digital sales has placed additional stress on those platforms that are more reliant upon legacy technology, which may result in more frequent and potentially more severeinterruptions. Moreover, our reliance on multiple digital commerce platforms to support our global footprint, multiple Concepts and highly franchised business model could increase our vulnerability to cyber-attacks and/or security breaches and could necessitate additional expenditures as we endeavor to consolidate and standardize such platforms.
Yum China, our largest franchisee, utilizes third-party mobile payment apps such as Alipay, WeChat Pay and Union Pay as a means through which to generate sales and process payments. Should customers become unable to access mobile payment apps in China, should the relationship between Yum China and one or more third-party mobile payment processors become interrupted, or should Yum China’s ability to use such third-party mobile payment apps in its operations be restricted, its business could be adversely affected, which could have a negative impact on the license fee paid to us.
Our inability or failure to recognize, respond to and effectively manage the increased impact of social media could adversely impact our business and/or growth prospects.
There has been a marked increase in the use of social media platforms and websites, including blogs, chat and messaging platforms, video-sharing platforms, and other forms of Internet-based communications which allow individuals access to a broad audience. The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors. Many social media platforms immediately publish content, often without context, or filters or checks on accuracy. As such companies may be unable to investigate or effectively respond to negative information or content disseminated in this manner, including fictitious media content (such as content produced by generative AI or bad actors). As such the dissemination of negative, inaccurate or malicious information about us through such channels has in the past and could in the future harm our reputation, business and/or growth prospects, regardless of the information’s accuracy.
In addition, social media is frequently used by our Concepts or Concepts’ franchisees to communicate with customers and the public. Failure by our Concepts or Concepts’ franchisees to use social media effectively or appropriately, particularly considering the global environment we operate in or as compared to our Concepts’ competitors, could lead to a decline in brand reputation, customer visits and revenue. Social media is also increasingly used to compel companies to express public positions on issues and topics not directly related to their core business, which could prove controversial or divisive to consumers and result in lost sales or a misallocation of resources. In addition, laws and regulations, including FTC enforcement, are rapidly evolving to govern social media platforms and communications. A failure of us, our employees, our Concepts’ franchisees or third parties acting at our direction or on our behalf, or others perceived to be associated with us or our Concepts’ franchisees, to abide by applicable laws and regulations regarding the use of social media, or to appropriately use social media, could adversely impact our Concepts’ brands, our reputation and our business, or subject us or our Concepts’ franchisees to penalties or litigation. Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our Concepts’ brands, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information.
Failure to protect our trademarks or other intellectual property could harm our Concepts’ brands and overall business and/or growth prospects.
We regard our registered trademarks (e.g., Yum! Brands®, KFC®, Taco Bell®, Pizza Hut® and Habit®), unregistered trademarks, copyrightable works, inventions, software, domain names, proprietary technologies (such as Byte by Yum!) and trade secrets related to our restaurant businesses as having significant value and being important to our marketing efforts. Our
trademarks, many of which are registered in various jurisdictions, create brand awareness and help build goodwill among our customers.
We rely on a combination of legal protections, including trademark registrations, contractual terms, copyrights, patents and common law rights, such as unfair competition, passing off and trade secret laws to protect our intellectual property from potential infringement. However, from time to time, we become aware of other persons or companies using names and marks that are identical or confusingly similar to our brands’ names and marks, or using other proprietary intellectual property we own. Although our policy is to assess and, where appropriate, challengeinfringements and other unauthorized uses of our intellectual property, certain known or unknown unauthorized uses or other misappropriation of our trademarks and other intellectual property may exist that could diminish the value of our Concepts’ brands and adversely affect our business and goodwill.
In addition, effective intellectual property protection may not be available in every country in which our Concepts have, or may in the future open or franchise, a restaurant and the laws of some countries do not protect intellectual property rights to the same extent as the laws of the U.S. There can be no assurance that the steps we have taken to protect our intellectual property or the legal protections that may be available will be adequate or that our Concepts’ franchisees will maintain the quality of the goods and services offered under our brands’ trademarks or always act in accordance with guidelines we set for maintaining our brands’ intellectual property rights, including proprietary technology. Further, defending or enforcing our trademarks and other intellectual property, including proprietary technologies and digital platforms, could result in significant expenditures.
We may also be targets of infringementclaims that could interfere with the use of certain names, trademarks, works of authorship, and/or the proprietary technologies, inventions, recipes, or trade secrets used in our business. The technology landscape in which we operate is highly competitive, increasing risk of inadvertentinfringement and costlydispute. Failure to adequately protect our intellectual property or defendagainst such claims could result in significant expenses or operational disruption, and as a result of such claims, we may be prohibited from using such intellectual property or proprietary information in the future or forced to pay damages, royalties, or other fees for using such proprietary information, any of which could negatively affect our business, growth prospects, reputation and financial results.
Risks Related to Our Supply Chain and Employment
Shortages or interruptions in the availability and delivery of food, equipment and other supplies may increase costs or reduce revenues.
The products sold or used by our Concepts and their franchisees are sourced from a wide variety of suppliers although certain products and equipment have limited suppliers, which increases our reliance on those suppliers. We, along with our Concepts’ franchisees, are also dependent upon third parties to make frequent deliveries of food products, equipment and supplies that meet our specifications at competitive prices. We have experienced from time to time, and may continue to experience, supply chain disruptions and shortages or interruptions in the supply or distribution of food items, equipment and other supplies to our Concepts’ restaurants, which have adversely affected and may continue to adversely affect our business. Future shortages or disruptions could also be caused by factors such as natural disasters, health epidemics and pandemics, social unrest, the impacts of climate change, inaccurate forecasting of customer demand, problems in production or distribution, restrictions on imports or exports including due to trade policy, the inability of suppliers to obtain credit, political instability in the countries in which the suppliers and distributors are located, the financial instability of suppliers and distributors, suppliers’ or distributors’ failure to meet our standards or requirements, transitioning to new suppliers or distributors, product quality issues or recalls, inflation, labor unrest or work stoppages, food safety warnings or advisories, the cancellation of supply or distribution agreements or an inability to renew such arrangements or to find replacements on commercially reasonable terms.
In addition, in the U.S., the Company and the Company’s KFC, Taco Bell and Pizza Hut franchisee groups are members of Restaurant Supply Chain Solutions, LLC (“RSCS”), which is a third party responsible for purchasing certain restaurant products and equipment. Habit Burger & Grill entered into a purchasing agreement with RSCS in 2020. RSCS manages our relationship with McLane Foodservice, Inc. (“McLane”) which serves as the largest distributor for the Company’s KFC, Taco Bell and Pizza Hut Concepts in the U.S. RSCS and McLane both have certain contractual rights to terminate the relevant distribution contract upon a specified notice period. Any failure or inability of our significant suppliers or distributors to meet their respective service requirements or any termination of relevant agreements without a notice period sufficient to enable an appropriate transition, could result in shortages or interruptions in the availability of food and other supplies.
The loss of key personnel, labor shortages and increased labor costs could adversely affect our business.
Much of our future success depends on the continued availability and service of senior management personnel. The loss or failure to engage in adequate succession planning of any of our executive officers or other key senior management personnel could harm our business and/or our growth prospects. In addition, changes in our leadership, including changes to the Company’s senior leadership team may present management transition challenges, and the effectiveness with which these changes are implemented could influence our financial results. Our restaurant operations are highly service-oriented, and our success depends in part on our and our Concepts’ franchisees’ ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members. Our Concepts and their franchisees have experienced and may continue to experience labor shortages and employee turnover at many restaurants and increased competition for qualified employees. These labor market conditions and the ongoing inflationary environment in markets where we operate have increased, and may continue to increase, the labor costs for our Concepts and their franchisees, including due to the payment of higher wages to attract or retain qualified employees and due to increased overtime costs to meet demand. Additionally, recent changes in immigration regulation and enforcement in the U.S. could decrease the pool of candidates with legal work authorizations, cause disruptions in the workforce for companies (such as restaurant companies) and increase the cost, time and requirements to hire new employees. Moreover, there may be a long-term trend toward higher wages in emerging markets as well as various other markets. In addition, increases in labor costs have been driven by, and may continue to be driven by regulatory requirements to raise minimum wages, including in connection with the increases in minimum wages that have recently been enacted in various jurisdictions. For example, California's Assembly Bill No. 1228 (“AB 1228”), which became effective during 2024, has various provisions impacting our Concepts, including an increase in the minimum wage to for workers at quick service restaurants in the state that are part of a national chain. AB 1228 has increased, and is expected to continue to increase the operating costs for our Concepts’ restaurants in California, and may otherwise adversely impact and disrupt our operations in California.
The inability to recruit and retain a sufficient number of qualified individuals at the store level, coupled with increased labor costs, may result in reduced operating hours, have a negative impact on service or customer experience, delay our planned use, development or deployment of technology, impact planned openings of new restaurants, or result in closures of existing restaurants by us and our Concepts’ franchisees, any of which could adversely affect our business. In addition, our Concepts and their franchisees have been, and will continue to be, subject to the risk of increasing union activity in the restaurant space. In the event of a strike, work slowdown or other labor unrest, the ability to adequately staff at the store level could be impaired, which could adversely impact our operations.
An increase in food prices and other operating costs may adversely impact our business and/or our growth prospects.
Our and our Concepts’ franchisees’ businesses depend on reliable sources of large quantities of raw materials such as proteins (including poultry, pork, beef and seafood), cheese, oil, flour and vegetables (including potatoes and lettuce). Raw materials purchased for use in our Concepts’ restaurants are subject to price volatility caused by fluctuations in aggregate supply and demand, or other external conditions, such as weather and climate conditions, energy costs or natural events or disasters that affect expected harvests of such raw materials, taxes and tariffs, industry demand, inflationary conditions, labor shortages, transportation issues, fuel costs, food safety concerns, product recalls, governmental regulation and other factors. We have recently experienced an increase in the price of various raw materials (including beef) and other operating costs and expect to continue to experience an increase in the price of certain raw materials and operating costs, which has adversely affected, and may continue to adversely affect our results of operations. Moreover, while recent increases in tariffs by the U.S. and retaliatory measures by global trading partners have not had a significant impact on our aggregate supply costs, such trade developments have increased, and may continue to increase, the cost of certain products that we and our franchisors source, and may otherwise disrupt our supply chain.
We and/or our Concepts’ franchisees have taken, and may continue to take, certain actions as a result of inflationary increases in food and other operating costs noted above, including by increasing food prices beyond typical pricing patterns at certain of our Concepts’ restaurants, attempting to negotiate favorable pricing terms with our suppliers and/or shifting to suppliers with more favorable pricing where feasible, and utilizing forward contracts and commodity futures and options contracts where possible to hedge commodity prices. However, because we and our Concepts’ franchisees provide competitively priced food, we have not always been able to pass through to our customers the full amount of cost increases experienced by us and our Concepts’ franchisees. If we and our Concepts’ franchisees are unable to manage the cost of raw materials or to increase the prices of products proportionately, our and our Concepts’ franchisees’ profit margins and return on invested capital may be adversely impacted. Moreover, many customers at our Concepts’ restaurants are sensitive to price increases, and to the extent that we raise menu prices to offset these costs, this could result in decreased consumer demand and adversely affect our business.
Risks Related to our Concepts’ Brands and Reputation
Our success depends substantially on our corporate reputation and on the value and perception of our brands.
Our success and growth strategy depends in large part upon our ability and our Concepts’ franchisees’ ability to maintain and enhance our corporate reputation and the value and perception of our brands. Brand value is based in part on consumer perceptions regarding a variety of subjective factors, including the nutritional content and preparation of our food, our ingredients, food safety, our business practices, how we source commodities, and our pricing. Consumer acceptance of our offerings is subject to change and some changes can occur rapidly. For example, nutritional, health and other scientific studies and conclusions, which constantly evolve and may have contradictory implications, drive popular opinion, litigation and regulation (including initiatives intended to drive consumer behavior) in ways that may affect perceptions of our Concepts’ brands generally or relative to alternatives. The retail food industry has also been subject to scrutiny and claims that the menus and practices of restaurant chains have led to customer health issues, such as weight gain and other adverse effects. Publicity about these matters may harm our Concepts’ reputations and adversely affect our business. Moreover, this scrutiny could lead to increased regulation of the content or marketing of our products, including legislation or regulation taxing and/or regulating food with high-fat, sugar and salt content, or foods otherwise deemed to be “unhealthy”, such as ultra-processed foods, which may increase costs of compliance and remediation to us and our Concepts’ franchisees. Additionally, if the demand for offerings at our Concepts’ restaurants and other fast-casual or quick service segments of the retail food industry decreases or shifts as a result of wellness trends or changing dietary preferences, including as a result of developments in or the increased adoption of weight loss medications, our business and/or financial results may be adversely impacted.
In addition, business or other incidents, whether isolated or recurring, and whether originating from us, our Concepts’ restaurants, franchisees, competitors, governments, third-party delivery providers, suppliers or distributors, can significantly reduce brand value and consumer perception, particularly if the incidents receive considerable publicity or result in litigation or investigations. For example, the reputation of our Concepts’ brands could be damaged by negative publicity, or claims or perceptions (whether real or perceived) regarding the quality, safety or reputation of our products, suppliers, distributors or franchisees; that we, founders of our Concepts, our Concepts’ franchisees or other business partners have acted or are acting in an unethical, illegal, racially-biased or socially irresponsible manner, are not fostering environment of opportunity and belonging or have an actual or perceived allegiance towards one community over another, including with respect to the service and treatment of customers at our Concepts’ restaurants, and our or our Concepts’ franchisees’ treatment of employees; Company action or brand imagery; misconduct by any of our or our Concepts’ franchisees’ employees; utilization of emerging technologies such as AI; or a real or perceived failure of corporate governance. Any such developments could adversely impact the perception of our Concepts’ brands or our products, reduce consumer demand for our products or otherwise adversely impact us.
We cannot guarantee that franchisees or other third parties with licenses to use our intellectual property will not take actions that may harm the value of our intellectual property. While franchisee use of our Concepts’ trademarks are governed through franchise agreements and we monitor use of our trademarks by both franchisees and third parties, franchisees or other third parties may use our trademarks in ways, or may refer to or make statements about our Concepts’ brands that do not make proper use of our trademarks or required designations, that improperly alter trademarks or branding, or that are critical of our Concepts’ brands or place our Concepts’ brands in a context that may tarnish their reputation. Moreover, unauthorized third parties, including our Concepts’ current and former franchisees, may use our intellectual property to trade on the goodwill of our Concepts’ brands, resulting in consumer confusion or brand dilution.
Our ability to reach consumers and drive results is heavily influenced by brand marketing and advertising and our ability to adapt to evolving consumer preferences, including developing and launching new and innovative products and offerings. Our marketing and advertising programs may not be as successful, or may not be successful as our competitors, which may adversely affect our reputation and business. In addition, any decisions we may make to collaborate or cease to collaborate with certain endorsers or marketing partners in light of actions taken or statements made by them could seriouslyharm our brand image with consumers, and, as a result, could have an adverse effect on our reputation and financial results.
We and our Concepts’ franchisees are subject to heightened and evolving expectations and requirements with respect to social and environmental sustainability matters, which expose us and our Concepts’ franchisees to numerous risks.
Many investors, members of the public, governmental authorities, and other organizations are focused on environmental, social and governance (“ESG”) matters, such as climate change, greenhouse gases, packaging and waste, human rights, diversity, sustainable supply chain practices, animal health and welfare, deforestation, land, energy and water use and other corporate responsibility matters. At the same time, other stakeholders and governmental authorities have increasingly expressed opposing views, legislation and investment expectations with respect to sustainability initiatives, including so-called anti-ESG legislation
or policies. Further, we and our Concepts’ franchisees are and may become subject to new or changing rules and regulations promulgated by governmental and self-regulatory organizations with respect to ESG matters, including reporting requirements under the EU’s Corporate Sustainability Reporting Directive which will be applicable to us. These rules, regulations and stakeholder expectations which may be conflicting, have resulted in, and are likely to continue to result in, an increase in expenses and management focus associated with satisfying such regulations and expectations. Further, as a result of these expectations and requirements, as well as our commitment to ESG matters, we may continue to establish. expand or modify goals, commitments or targets, and take actions to meet such goals, commitments and targets. Further, these goals, commitments and targets reflect our current plans and aspirations, are challenging and subject to change at our discretion and may be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we or our Concepts’ franchisees may be criticized for the accuracy, adequacy or completeness of disclosures. Further, these goals may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and other risks and uncertainties, many of which are outside of our control. If our or our Concepts’ franchisees’ data, processes and reporting with respect to ESG matters are incomplete or inaccurate, or if we or our Concepts’ franchisees fail to achieveprogress with respect to these goals on a timely basis, consumer and investor trust in our brands may suffer. In addition, some stakeholders and governmental authorities may object to the scope or nature of our ESG initiatives or goals, or any revisions to these initiatives or goals (or those of our Concepts’ franchisees), which could give rise to negative responses by governmental authorities (such as retaliatory legislative actions or regulatory investigations or proceedings) or consumers (such as boycotts, lawsuits or negative publicity campaigns) that could adversely affect us or our brand value.
We may be adversely affected by climate change.
We, and our Concepts’ franchisees’ properties and operations, could be adversely affected by the physical and/or transitional effects of climate change, which is predicted to result in ongoing changes in global weather patterns and more frequent and severe weather-related events such as droughts, wildfires, hurricanes and other natural disasters. Such adverse weather-related impacts may also adversely affect the general economy in countries where we operate, disrupt our operations, cause restaurant closures or delay the opening of new restaurants, adversely impact our supply chain and increase the costs of (and decrease the availability of) food and other supplies needed for our operations. In addition, various legislative and regulatory efforts to combat climate change may increase in the future, which could result in additional taxes, increased compliance costs, and otherwise disrupt and adversely impact us and our Concepts’ franchisees.
Risks Related to Government Regulation and Litigation
We may be subject to litigation that could adversely affect us by increasing our expenses, diverting management attention or subjecting us to significant monetary damages and other remedies.
We are regularly involved in legal proceedings, which include regulatory claims or disputes by claimants such as franchisees, suppliers, employees, customers, governments and others related to operational, commercial, foreign exchange, tax, franchise, contractual or employment issues. These claims or disputes may relate to personal injury, employment, antitrust, real estate, environmental, tort, intellectual property, false advertising, breach of contract, technology services, data privacy, securities, consumer protection, derivative and other litigation matters. Plaintiffs often seek recovery of large or indeterminate amounts, and lawsuits are subject to inherent uncertainties (some of which are beyond the Company’s control). We may also be adversely affected by unfavorable rulings or developments in cases we are not involved in. Moreover, regardless of whether any such lawsuits have merit, or whether we are ultimately held liable or settle, such litigation may be expensive to defend, may divert resources and management attention, and may negatively impact our financial results. With respect to insured claims, a judgment for damages in excess of any insurance coverage could adversely affect our financial condition and/or results of operations. Any adverse publicity resulting from these allegations may also adversely affect our Concepts’ reputations, which could adversely affect our financial results.
Changes in, or non-compliance with, legal requirements may adversely affect our business operations, growth prospects or financial condition.
The Company, and our Concepts and their franchisees, are subject to numerous laws and regulations around the world which change regularly and are increasingly complex, including: the Americans with Disabilities Act in the U.S. and similar laws; laws related to employment, including the U.S. Fair Labor Standards Act, the U.S. Family and Medical Leave Act, laws related to workplace health and safety, meal and rest breaks, exempt classification, non-discrimination, non-harassment, and whistleblower protections, and laws related to union organizing rights and activities; laws and regulations in government-mandated health care benefits such as the Patient Protection and Affordable Care Act in the U.S.; laws and regulations relating to nutritional content, nutritional labeling, product safety, product marketing and menu labeling; laws relating to state and local licensing; laws relating to the relationship between franchisors and franchisees; laws and regulations relating to health, sanitation, food, workplace safety, child labor, including laws regulating the use of certain “hazardous equipment”, building and zoning, and fire safety and prevention; laws relating to information and data security, privacy, cashless payments, consumer protection, and the use of AI and other emerging technologies; laws relating to our use of third party aggregators; laws relating to international trade and sanctions, tariffs, and currency conversion or exchange; anti-bribery and anti-corruption laws, including the U.S. Foreign Corrupt Practices Act; environmental laws and regulations, including with respect to climate change and greenhouse gas emissions; federal and state immigration laws and regulations; and laws related to public company compliance, disclosure and governance matters.
We may also be adversely impacted by legal developments resulting in broader standards for determining when two or more entities may be found to be joint employers of the same employees under laws such as the National Labor Relations Act (the “NLRA”). In this regard, while the joint employer rule issued by the National Labor Relations Board (“NLRB”) under the prior administration, which would have provided for more expansive joint employer standards, is no longer in effect after having been vacated in federal court in 2024, in the event that the NLRB or other governmental authority were to implement a similar joint employer standard in the future that was determined to be applicable to franchise relationships, this could cause us or our Concepts to be held responsible for unfair labor practices and other violations and could require us to engage in collective bargaining with representatives of the employees of our Concepts’ franchisees. In addition to the foregoing, many jurisdictions (including California) have enacted or have considered legislation regarding, or otherwise increased their focus on, the misclassification of independent contractors, which could have an adverse impact on and disrupt the operations of our Concepts' restaurants in other ways, such as costs relating to delivery aggregators or certain staff augmentation models.
Any failure or allegedfailure to comply with applicable legal requirements or related standards or guidelines, could adversely affect our reputation, global expansion efforts, growth prospects and financial results or result in, among other things, litigation, revocation of required licenses, internal investigations, governmental investigations or proceedings, administrative enforcement actions, fines and civil and criminal liability. In addition, the compliance costs associated with complying with new or existing legal requirements could be substantial.
Tax matters, including changes in tax rates or laws, disagreements with taxing authorities, imposition of new taxes and our restructurings could impact our financial results and growth prospects.
We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property, withholding and franchise taxes in various jurisdictions. Our accruals for tax liabilities are based on past experience, interpretations of applicable law, and judgments about potential actions by tax authorities. Such tax positions require significant judgment which may be incorrect or challenged by tax authorities and may result in payments greater than the amounts accrued. If the Internal Revenue Service (“IRS”) or another taxing authority disagrees with our tax positions, we could face additional tax liabilities, including interest and penalties, which could be material. For example, as disclosed in Note 20, as a result of an audit by the IRS for fiscal years 2013 through 2015, the IRS has proposed an adjustment for the 2014 fiscal year relating 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. While we disagree with the position of the IRS and are contesting it vigorously, an unfavorable resolution of this matter could have a material, adverse impact on our Consolidated Financial Statements in future periods.
In addition, if jurisdictions in which we or our Concepts operate enact tax legislation, modify tax treaties and/or increase audit scrutiny, it could increase our taxes and have an adverse impact on our financial results and growth prospects. For example, the Organization for Economic Cooperation and Development (the “OECD”), the E.U. and other countries (including countries in which we operate) have enacted or committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed in an effort to limit perceived base erosion and profit shifting incentives. In particular, the OECD’s Pillar Two initiative provides for a 15% global minimum tax applied on a country-by-
country basis. We anticipate an increase in the burdens related to the tax compliance and reporting costs as a result of these developments.
Risks Related to the Yum China Spin-Off
The Yum China spin-off and certain related transactions could result in substantial U.S. tax liability.
We received opinions of outside counsel substantially to the effect that, for U.S. federal income tax purposes, the Yum China spin-off completed during 2016 and certain related transactions qualified as generally tax-free under Sections 355 and 361 of the U.S. Internal Revenue Code. The opinions relied on various facts and assumptions, as well as certain representations as to factual matters and undertakings (including with respect to future conduct) made by Yum China and us. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, we may not be able to rely on these opinions of outside counsel. Accordingly, notwithstanding receipt of the opinions of outside counsel, the conclusions reached in the tax opinions may be challenged by the IRS. Because the opinions are not binding on the IRS or the courts, there can be no assurance that the IRS or the courts will not prevail in any such challenge.
If, notwithstanding receipt of any opinion, the IRS were to conclude that the Yum China spin-off was taxable, in general, we would recognize taxable gain as if we had sold the Yum China common stock in a taxable sale for its fair market value. In addition, each U.S. holder of our Common Stock who received shares of Yum China common stock in connection with the spin-off transaction would generally be treated as having received a taxable distribution of property in an amount equal to the fair market value of the shares of Yum China common stock received. That distribution would be taxable to each such U.S. stockholder as a dividend to the extent of accumulated earnings and profits as of the date of the spin-off. For each such U.S. stockholder, any amount that exceeded our earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in our shares of Common Stock with any remaining amount being taxed as a capital gain.
The Yum China spin-off may be subject to China ’ s indirect transfer tax.
In February 2015, the Chinese State Tax Administration (“STA”) issued the Bulletin on Several Issues of Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-resident Enterprises (“Bulletin 7”). Pursuant to Bulletin 7, an “indirect transfer” of Chinese taxable assets, including equity interests in a China resident enterprise (“Chinese interests”), by a non-resident enterprise, may be recharacterized and treated as a direct transfer of Chinese taxable assets, if such arrangement does not have reasonable commercial purpose and the transferor has avoided payment of Chinese enterprise income tax. Using general anti-tax avoidance provisions, the STA may treat an indirect transfer as a direct transfer of Chinese interests if the transfer has avoided Chinese tax by way of an arrangement without reasonable commercial purpose. As a result, gains derived from such indirect transfer may be subject to Chinese enterprise income tax, and the transferee or other person who is obligated to pay for the transfer would be obligated to withhold the applicable taxes, currently at a rate of up to 10% of the capital gain in the case of an indirect transfer of equity interests in a China resident enterprise. We evaluated the potential applicability of Bulletin 7 in connection with the Separation in the form of a tax free restructuring and continue to believe it is more likely than not that Bulletin 7 does not apply and that the restructuring had reasonable commercial purpose.
However, there are significant uncertainties on what constitutes a reasonable commercial purpose, how the safe harbor provisions for group restructurings are to be interpreted and how the Chinese tax authorities will ultimately view the spin-off. As a result, our position could be challenged by the Chinese tax authorities resulting in a tax at a rate of 10% assessed on the difference between the fair market value and the tax basis of Yum China at the date of the spin-off. As our tax basis in Yum China was minimal, the amount of such a tax could be significant and have an adverse effect on our results of operations, growth prospects and our financial condition.
Risks Related to Consumer Discretionary Spending and Macroeconomic Conditions
Our business may be adversely impacted by changes in consumer discretionary spending and macroeconomic conditions, including inflationary pressures and interest rate conditions, in markets in which we operate.
As a company dependent upon consumer discretionary spending, we (and our Concepts’ franchisees) are sensitive to macroeconomic conditions and consumer discretionary spending levels in markets where we and our Concepts’ franchisees operate. Some of the factors that may impact discretionary consumer spending and macroeconomic conditions include unemployment and underemployment rates, fluctuations in disposable income, the price of gasoline, other inflationary pressures, higher taxes, the impact of shifts in U.S. trade policy and retaliatory measures by global trading partners reduced access to credit, interest rate conditions, stock market performance and changes in consumer confidence and cost consciousness. In this regard, we and our Concepts’ franchisees have been adversely impacted by, and may continue to be adversely impacted
by, negative macroeconomic conditions in certain markets where we and our Concepts’ franchisees operate, including impacts from increased commodity prices and other inflationary pressures, elevated interest rates, challenging labor market conditions, ongoing geopolitical instability, changes in political conditions, supply chain disruption, and increases in real estate costs in certain domestic and international markets. Any significant deterioration in current macroeconomic conditions in markets where we operate could have an adverse effect on our business, growth prospects, financial conditions, or results of operations and could result in future asset impairment charges. Moreover, if negative macroeconomic conditions result in significant disruptions to capital and financial markets, or negatively impact our credit ratings, our cost of borrowing, our ability to access capital on favorable terms and our overall liquidity and capital structure could be adversely impacted.
Risks Related to Competition
The retail food industry is highly competitive.
Our Concepts’ restaurants compete with international, national and regional restaurant chains as well as locally-owned restaurants, and the industry in which we operate is highly competitive with respect to price and quality of food products, new product development, digital engagement, advertising levels and promotional initiatives, customer service reputation, restaurant location and attractiveness and maintenance of properties, management and hourly personnel and qualified franchisees. Moreover, if we are unable to successfully respond to changing consumer or dietary preferences, if our marketing efforts and/or launch of new products are unsuccessful, or if our Concepts’ restaurants are unable to compete successfully with other retail food outlets, our and our Concepts’ franchisees’ businesses and/or our growth prospects could be adversely affected. We also face ongoing competition due to convergence in grocery, convenience, deli and restaurant services, including the offering by the grocery industry of convenient meals, including pizzas and entrees with side dishes. Competition has also increased from and been enabled by third-party delivery aggregators in recent years, particularly in urbanized areas, and such competition is expected to continue to increase. Finally, not all of our competitors may seek to establish environmental or sustainability goals comparable to ours, which could result in lower supply chain or operating costs for our competitors.
Risks Related to Our Indebtedness
Our level of indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a significant amount of cash to service our debt payment obligations that we may be unable to generate or obtain.
As of December 31, 2025, our total outstanding short-term borrowings and long-term debt was approximately $12.0 billion. Subject to the limits contained in the agreements governing our outstanding indebtedness, we may incur additional debt from time to time, which would increase the risks related to our level of indebtedness. Our level of indebtedness could have important potential consequences, including, but not limited to: increasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment; requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing or eliminating the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes; increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity and access to capital markets; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; placing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates; increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest or we are forced to refinance indebtedness at higher interest rates, which risks are heightened by the current elevated interest rate environment; increasing our exposure to the risk of discontinuance, replacement or modification of certain reference rates; limiting our ability to repay, refinance or satisfy our existing debt obligations, as well as to borrow additional funds in the future and increasing the cost of any such borrowing; imposing restrictive covenants on our operations due to the terms of our indebtedness, which, if not complied with, could result in an event of default, which if not cured or waived, could result in the acceleration of the applicable debt or the acceleration of any other debt to which a cross-acceleration or cross-default provision applies; and increasing our exposure to risks related to fluctuations in foreign currency as we earn profits in a variety of currencies around the world and our debt is primarily denominated in U.S. dollars.
If our business does not generate sufficient cash flow from operations or if future debt or equity financings are not available to us on acceptable terms in amounts sufficient to pay our indebtedness or to fund other liquidity needs, our financial condition may be adversely affected. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have an adverse effect on our business, growth prospects and financial condition.
As of December 31, 2025, YUM 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 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:
Loved: We grow by delighting customers with craveable food and distinctive experiences.
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.
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. 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
• 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). Same-store sales growth excludes, for subsidiaries operating on a monthly calendar, the extra day resulting from a leap year and excludes, for subsidiaries operating on a weekly periodic calendar, the last week of the year in fiscal years with 53 weeks. 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 factors such as 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, System sales excluding the impacts of foreign currency translation (“FX”) and, in 2024, System sales excluding FX and the 53rd week for our U.S. subsidiaries and certain international subsidiaries that operate on a weekly periodic calendar, 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 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 ( “ 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;
• Core Operating Profit and, in 2024, Core Operating Profit excluding the 53rd week. 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 and, in 2024, Net Income excluding Special Items and the 53rd week;
• 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.
Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our 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.
For 2024 we provided System sales excluding FX and the 53rd week, Core Operating Profit excluding the 53rd week, Net Income excluding Special Items and the 53rd week, Diluted EPS excluding Special Items and the 53rd week and Effective Tax Rate excluding Special Items and the 53rd week to further enhance the comparability given the 53rd week that was part of our fiscal calendar in 2024.
Results of Operations
Summary
All comparisons within this summary are versus the same period a year ago. For discussion of our results of operations for 2024 compared to 2023, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 19, 2025.
2025 financial highlights:
% Change
System Sales,
Same-Store Sales
Units
GAAP Operating Profit
Core Operating Profit
KFC Division
Taco Bell Division
Pizza Hut Division
Worldwide
Results Excluding 53rd Week
(% Change)
System Sales, ex FX
Core Operating Profit
KFC Division
Taco Bell Division
Pizza Hut Division
Worldwide
Additionally:
• 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.
% Change
GAAP EPS
Special Items EPS
EPS Excluding Special Items
• In 2024, the 53rd week favorably impacted EPS by approximately $0.09 per share.
Worldwide
GAAP Results
Amount
Company sales
Franchise and property revenues
Franchise contributions for advertising and other services
Total revenues
Company restaurant expenses
G&A expenses
Franchise and property expenses
Franchise advertising and other services expense
Refranchising (gain) loss
Other (income) expense
Total costs and expenses, net
Operating Profit
Investment (income) expense, net
Other pension (income) expense
Interest expense, net
Income before income taxes
Income tax provision
Net Income
Diluted EPS (a)
Effective tax rate
ppts.
ppts.
(a) See Note 4 for the number of shares used in this calculation.
Performance Metrics
% Increase (Decrease)
Unit Count
Franchise
Company-owned
Total
Same-Store Sales Growth (Decline) %
System Sales Growth %, reported
System Sales Growth %, excluding FX
System Sales Growth %, excluding FX and 53rd week
Our system sales breakdown by Company and franchise sales was as follows:
Year
Consolidated
Company sales (a)
Franchise sales
System sales
Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX
Impact of 53rd week
System sales, excluding FX and the 53rd Week
KFC Division
Company sales (a)
Franchise sales
System sales
Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX
Impact of 53rd week
System sales, excluding FX and the 53rd Week
Taco Bell Division
Company sales (a)
Franchise sales
System sales
Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX
Impact of 53rd week
System sales, excluding FX and the 53rd Week
Pizza Hut Division
Company sales (a)
Franchise sales
System sales
Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX
Impact of 53rd week
System sales, excluding FX and the 53rd Week
Habit Burger & Grill Division
Company sales (a)
Franchise sales
System sales
Negative (Positive) Foreign Currency Impact (b)
System sales, excluding FX
Impact of 53rd Week
System sales, excluding FX and the 53rd Week
(a) Company sales represents sales from our Company-operated stores as presented on our 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 prior to adjustment for the prior year FX impact.
Non-GAAP Items
Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, are presented below.
Core Operating Profit Growth %
Core Operating Profit Growth %, excluding the 53rd week
Diluted EPS Growth %, excluding Special Items
Diluted EPS Growth %, excluding Special Items and the 53rd week
Effective Tax Rate excluding Special Items
Effective Tax Rate excluding Special Items and the 53rd week
Company restaurant profit
Company restaurant margin %
Year
Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating Profit, excluding the 53rd Week
Consolidated
GAAP Operating Profit
Detail of Special Items:
(Gain) loss associated with market-wide refranchisings (a)
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 Expense - Operating Profit
Negative (Positive) Foreign Currency Impact on Operating Profit
Core Operating Profit
Impact of 53rd Week Operating Profit
Core Operating Profit, excluding the 53rd Week
Special Items as shown above were recorded to the financial statement line items identified below:
Year
Consolidated Statement of Income Line Item
Franchise and property revenues
General and administrative expenses
Franchise and property expenses
Refranchising (gain) loss
Other (income) expense
Special Items Expense - Operating Profit
Year
KFC Division
GAAP Operating Profit
Negative (Positive) Foreign Currency Impact
Core Operating Profit
Impact of 53rd Week
Core Operating Profit, excluding the 53rd Week
Taco Bell Division
GAAP Operating Profit
Negative (Positive) Foreign Currency Impact
Core Operating Profit
Impact of 53rd Week
Core Operating Profit, excluding the 53rd Week
Pizza Hut Division
GAAP Operating Profit
Negative (Positive) Foreign Currency Impact
Core Operating Profit
Impact of 53rd Week
Core Operating Profit, excluding the 53rd Week
Habit Burger & Grill Division
GAAP Operating Profit (Loss)
Negative (Positive) Foreign Currency Impact
Core Operating Profit (Loss)
Impact of 53rd Week
Core Operating Profit (Loss), excluding the 53rd Week
Reconciliation of GAAP Net Income to Net Income excluding Special Items and Net Income excluding Special Items and the 53rd week
GAAP Net Income
Special Items (Income) Expense - Operating Profit
Special Items Tax (Benefit) Expense (h)
Net Income excluding Special Items
Impact of 53rd Week
Net Income excluding Special Items and the 53rd Week
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items and Diluted EPS excluding Special Items and the 53rd Week
Diluted EPS
Less Special Items Diluted EPS
Diluted EPS excluding Special Items
Less Impact of 53rd Week
Diluted EPS excluding Special Items and the 53rd Week
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items and Effective Tax Rate excluding Special Items and the 53rd Week
GAAP Effective Tax Rate
Impact on Tax Rate as a result of Special Items
Effective Tax Rate excluding Special Items
Impact on Tax Rate as a result of the 53rd Week
Effective Tax Rate excluding Special Items and the 53rd Week
(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, 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 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 greatercollaboration 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. 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 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 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:
Year
Tax (Benefit) on Special Items Expense - Operating Profit
Tax Expense - Foreign tax reserve
Tax Expense - U.S. OBBBA
Tax (Benefit) - Tax audit
Tax (Benefit) - Intra-entity transfers and valuations of intellectual property
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
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.
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.
Reconciliation of GAAP Operating Profit to Company Restaurant Profit
KFC Division
Taco Bell Division
Pizza Hut Division
Habit Burger & Grill Division
Corporate and Unallocated
Consolidated
GAAP Operating Profit (Loss)
Less:
Franchise and property revenues
Franchise contributions for advertising and other services
Add:
General and administrative expenses
Franchise and property expenses
Franchise advertising and other services expense
Refranchising (gain) loss
Other (income) expense
Company restaurant profit (loss)
Company sales
Company restaurant margin %
KFC Division
Taco Bell Division
Pizza Hut Division
Habit Burger & Grill Division
Corporate and Unallocated
Consolidated
GAAP Operating Profit (Loss)
Less:
Franchise and property revenues
Franchise contributions for advertising and other services
Add:
General and administrative expenses
Franchise and property expenses
Franchise advertising and other services expense
Refranchising (gain) loss
Other (income) expense
Company restaurant profit (loss)
Company sales
Company restaurant margin %
KFC Division
Taco Bell Division
Pizza Hut Division
Habit Burger & Grill Division
Corporate and Unallocated
Consolidated
GAAP Operating Profit (Loss)
Less:
Franchise and property revenues
Franchise contributions for advertising and other services
The following items impacted reported results in 2025 and/or 2024 and/or are reasonably likely to impact future results. 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. 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. 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
Fiscal 2024 included a 53rd week for all of our U.S. and certain international subsidiaries that operate on a period calendar. See Note 2 for additional details related to our fiscal calendar. The following table summarizes the estimated impact of the 53rd week on Revenues and Operating Profit for the year ended December 31, 2024. The 53rd week in 2024 favorably impacted Diluted EPS by approximately $0.09 per share.
KFC Division
Taco Bell Division
Pizza Hut Division
Habit Burger & Grill Division
Total
Revenues
Company sales
Franchise and property revenues
Franchise contributions for advertising and other services
Total revenues
Operating Profit
Franchise and property revenues
Franchise contributions for advertising and other services
Restaurant profit
Franchise for advertising and other services expenses
G&A expenses
Operating Profit
Middle East Conflict
During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region. Our sales continued to be impacted during 2024, most significantly in markets across the Middle East, Malaysia and Indonesia. The impact in these markets represented an approximate one-point headwind to YUM's overall same-store sales growth in the year ended December 31, 2024. 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.
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 in the year ended December 31, 2023.
KFC Division
The KFC Division has 33,897 units, 90% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of the end of 2025.
Reported
Ex FX and 53rd Week in 2024
Reported
Ex FX and 53 rd Week in 2024
System Sales
Same-Store Sales Growth (Decline) %
Company sales
Franchise and property revenues
Even
Franchise contributions for advertising and other services
Total revenues
Company restaurant profit
Company restaurant margin %
ppts.
ppts.
ppts.
ppts.
ppts.
G&A expenses
Franchise and property expenses
Franchise advertising and other services expense
Operating Profit
% Increase (Decrease)
Unit Count
Franchise
Company-owned
Total
Company sales and Company restaurant margin %
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 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 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 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
The Taco Bell Division has 9,030 units, 86% of which are in the U.S. The Company owned 8% of the Taco Bell units in the U.S. as of the end of 2025.
Reported
Ex FX and 53rd Week in 2024
Reported
Ex FX and 53rd Week in 2024
System Sales
Same-Store Sales Growth %
Company sales
Franchise and property revenues
Franchise contributions for advertising and other services
Total revenues
Company restaurant profit
Company restaurant margin %
ppts.
ppts.
ppts.
ppts.
ppts.
ppts.
G&A expenses
Franchise and property expenses
Franchise advertising and other services expense
Operating Profit
% Increase (Decrease)
Unit Count
Franchise
Company-owned
Total
Company sales and Company restaurant margin %
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 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 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
The Pizza Hut Division has 19,974 units, 68% of which are located outside the U.S. Over 99% of the Pizza Hut Division units were operated by franchisees as of the end of 2025. 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.
Reported
Ex FX and 53rd Week in 2024
Reported
Ex FX and 53rd Week in 2024
System Sales
Same-Store Sales Growth (Decline) %
Company sales
Franchise and property revenues
Even
Even
Franchise contributions for advertising and other services
Total revenues
Even
Even
Company restaurant profit (loss)
Company restaurant margin %
ppts.
ppts.
ppts.
ppts.
ppts.
ppts.
G&A expenses
Even
Even
Franchise and property expenses
Franchise advertising and other services expense
Even
Even
Operating Profit
% Increase (Decrease)
Unit Count
Franchise
Company-owned
Total
Franchise and property revenues
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 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
The Habit Burger & Grill Division has 384 units, the vast majority of which are in the U.S. The Company owned 79% of the Habit Burger & Grill units in the U.S. as of the end of 2025.
Reported
Ex FX and 53rd Week in 2024
Reported
Ex FX and 53rd Week in 2024
System Sales
Same-Store Sales Growth (Decline) %
Total revenues
Operating Profit (Loss)
% Increase (Decrease)
Unit Count
Franchise
Company-owned
Total
Corporate & Unallocated
(Expense)/Income
Corporate and unallocated G&A expense
Unallocated Company restaurant expenses
Unallocated Franchise and property revenues
Unallocated Franchise and property expenses
Unallocated Refranchising gain (loss) (See Note 19)
Unallocated Other income (expense)
Investment income (expense), net (See Note 5)
Other pension income (expense) (See Note 15)
Interest expense, net
Income tax provision (See Note 18)
Effective tax rate (See Note 18)
ppts.
ppts.
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, 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 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 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 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 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. 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.
Debt Obligations and Interest Payments
As of December 31, 2025, 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 currently 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 December 31, 2025.
Total
Securitization Notes
Credit Agreement
Revolving Facility
Subsidiary Senior Unsecured Notes
YUM Senior Unsecured Notes
Total
Interest payments on the outstanding long-term debt in the table above total approximately $2.5 billion, with approximately $500 million due within the next twelve months on the outstanding amounts on a nominal basis. The estimated interest payments related to the variable rate portion of our debt, net of our interest rate swaps, are based on current Secured Overnight Financing Rate (“SOFR”) interest rates.
See Note 11 for details on the Securitization Notes, the Credit Agreement, Subsidiary Senior Unsecured Notes and YUM Senior Unsecured Notes.
Operating and Finance Leases
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. These leases relate primarily to approximately 1,100 Company-owned restaurants and approximately 225 leased restaurants for which we sublease land, building or both to our franchisees. See Note 12.
Investing Activities
We remain committed to maintaining our asset light, franchisor model. Our allocation strategy for investing activities includes:
• Run-rate capital expenditures consisting of company restaurant repairs, maintenance and remodels, support of our digital and technology initiatives and project-specific capital expenditures,
• Targeted new company unit development to spur additional growth that is partially funded through refranchising a comparable number of existing company units, and
• Strategic investments that create incremental value for shareholders and franchisees.
In 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.
Purchase Obligations
Our purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have excluded agreements that are cancellable without penalty. Our purchase obligations relate primarily to marketing, information technology and supply agreements. We have purchase obligations of approximately $450 million at December 31, 2025, with approximately $300 million due within the next 12 months.
In addition to our contractual and other obligations, we seek to pay a competitive dividend and return excess cash to shareholders through share repurchases. As discussed in Note 20, we are also subject to claims and contingencies related to certain tax and legal matters that may require future cash outlays.
Dividends and Share Repurchases
In February 2026, our Board of Directors declared a quarterly dividend of $0.75 per share of Common Stock, a 6% increase from the quarterly dividend of $0.71 per share of Common Stock paid in 2025. This quarterly dividend will be distributed March 6, 2026, to shareholders of record at the close of business on February 20, 2026, and will total approximately $210 million.
In May 2024, our Board of Directors authorized share repurchases of up to $2.0 billion (excluding applicable transaction fees and excise taxes) of our outstanding Common Stock through December 31, 2026. This authorization took effect on July 1, 2024 upon the exhaustion of a prior authorization approved in September 2022. As of December 31, 2025, we have remaining capacity to repurchase up to $1.1 billion of Common Stock under this authorization. This authorization does not obligate the Company to acquire any specific number of shares.
Contingencies
As discussed in Note 20, following an Internal Revenue Service (“IRS”) audit for the 2013 to 2015 fiscal years, we were unable to resolveunderpayments 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 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”) and certain former
directors of approximately Indian Rupee 11 billion, or approximately $125, primarily relating to allegedviolations 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 wronglydropped and that an insufficient amount of penalty had been imposed. 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.
See the Lease Guarantees section of Note 20 for discussion of our off-balance sheet arrangements.
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 consolidated financial statements.
Critical Accounting Policies and Estimates
Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgments involve estimations of the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations or financial condition. Changes in the estimates and judgments could significantly affect our results of operations and financial condition and cash flows in future years. A description of what we consider to be critical accounting policies follows.
Impairment or Disposal of Long-Lived Assets
We review long-lived assets of restaurants we intend to continue operating as Company restaurants (primarily PP&E, right-of-use operating lease assets and allocated intangible assets subject to amortization) annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We use two consecutive years of operating losses as our primary indicator of potential impairment for our annual impairment testing of these restaurant assets. We evaluate recoverability based on the restaurant’s forecasted undiscounted cash flows, which incorporate our best estimate of sales growth and margin improvement based upon our plans for the unit and actual results at comparable restaurants. For restaurant assets that are deemed to not be recoverable, we write-down the impaired restaurant to its estimated fair value.
Fair value is an estimate of the price a franchisee would pay for the restaurant and its related assets, including any right-of-use assets, and is determined by discounting the estimated future after-tax cash flows of the restaurant, which include a deduction for royalties we would receive under a franchise agreement with terms substantially at market. The after-tax cash flows incorporate reasonable sales growth and margin improvement assumptions as well as expectations as to the useful lives of the restaurant assets that would be used by a franchisee in the determination of a purchase price for the restaurant.
We perform an impairment evaluation at a restaurant group level when it is more likely than not that we will refranchise restaurants as a group. Expected net sales proceeds are generally based on actual bids from the buyer, if available, or anticipated bids given the discounted projected after-tax cash flows for the group of restaurants. Historically, these anticipated bids have been reasonably accurate estimations of the proceeds ultimately received. The after-tax cash flows used in determining the anticipated bids incorporate similar assumptions to those of a restaurant level assessment.
The discount rate used in the fair value calculations is our estimate of the required rate of return that a franchisee would expect to receive when purchasing a similar restaurant or groups of restaurants and the related long-lived assets. The discount rate incorporates rates of returns for historical refranchising market transactions and is commensurate with the risks and uncertainty inherent in the forecasted cash flows.
Estimates of future cash flows are highly subjective judgments and can be significantly impacted by changes in the business or economic conditions. We formulate these estimates in consideration of historical experience, recent economic and industry trends, and competitive conditions. If our estimates or underlying assumptions, including the discount rate, change, we may experience higher impairment charges in the future.
We evaluate indefinite-lived intangible assets for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is generally estimated by discounting the expected future after-tax cash flows associated with the intangible asset. Our most significant indefinite-lived intangible asset is our Habit Burger & Grill brand asset with a book value of $96 million at December 31, 2025. As of our fourth quarter 2025 annual impairment testing date, the fair values of all of our indefinite-lived intangible assets were in excess of their respective carrying values and no impairment was recorded.
Impairment of Goodwill
We evaluate goodwill for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. Goodwill is evaluated for impairment by determining whether the fair value of our reporting units exceed their carrying values. Our reporting units are our business units (which are aligned based on geography) in our KFC, Taco Bell, Pizza Hut and Habit Burger & Grill Divisions. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted expected future after-tax cash flows from franchise royalties and Company-owned restaurant operations, if any. Future cash flow estimates and the discount rate are the key assumptions when estimating the fair value of a reporting unit.
Future cash flows are based on growth expectations relative to recent historical performance and incorporate sales growth (from net new units or same-store sales growth) and margin improvement (for those reporting units which include Company-owned restaurant operations) assumptions that we believe a third-party buyer would assume when determining a purchase price for the reporting unit. Any margin improvement assumptions that factor into the discounted cash flows are highly correlated with sales growth as cash flow growth can be achieved through various interrelated strategies such as product pricing and restaurant productivity initiatives. The discount rate is our estimate of the required rate of return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows.
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 $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. The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which include a deduction for the anticipated, future royalties the franchisee will pay us associated with the franchise agreement entered into simultaneously with the refranchising transaction. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit retained and includes the value of franchise agreements. Appropriate adjustments are made to the fair value determinations if such franchise agreements are determined to not be at prevailing market rates. 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. 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. The Company believes consistency in royalty rates as a percentage of sales is appropriate as the Company and franchisee share in the impact of near-term fluctuations in sales results with the acknowledgment that over the long-term the royalty rate represents an appropriate rate for both parties.
The discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee is reduced by future royalties the franchisee will pay the Company. The Company thus considers the fair value of future royalties to be received under the franchise agreement as fair value retained in its determination of the goodwill to be written off when refranchising. 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 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
Certain of our employees are covered under defined benefit pension plans. Our two most significant plans are in the U.S. and combined had a projected benefit obligation (“PBO”) of $774 million and a fair value of plan assets of $670 million at December 31, 2025.
The PBO reflects the actuarial present value of all benefits earned to date by employees and incorporates assumptions as to future compensation levels. Due to the relatively long time frame over which benefits earned to date are expected to be paid, our PBOs are highly sensitive to changes in discount rates. For these U.S. plans, we measured our PBOs using a discount rate of 5.70% at December 31, 2025. The primary basis for this discount rate determination is a model that consists of a hypothetical portfolio of ten or more corporate debt instruments rated Aa or higher by Moody’s or Standard & Poor’s (“S&P”) with cash flows that mirror our expected benefit payment cash flows under the plans. We exclude from the model those corporate debt instruments flagged by Moody’s or S&P for a potential downgrade (if the potential downgrade would result in a rating below Aa by both Moody’s and S&P) and bonds with yields that were two standard deviations or more above the mean. In considering possible bond portfolios, the model allows the bond cash flows for a particular year to exceed the expected benefit payment cash flows for that year. Such excesses are assumed to be reinvested at appropriate one-year forward rates and used to meet the benefit payment cash flows in a future year. The weighted-average yield of this hypothetical portfolio was used to arrive at an appropriate discount rate. We also ensure that changes in the discount rate as compared to the prior year are consistent with the overall change in prevailing market rates and make adjustments as necessary. A 50 basis-point increase in this discount rate would have decreased these U.S. plans’ PBOs by approximately $40 million at our measurement date. Conversely, a 50 basis-point decrease in this discount rate would have increased these U.S. plans’ PBOs by approximately $40 million at our measurement date.
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 2026 consistent with the $2 million of loss recognized in 2025.
Income Taxes
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. The net deferred tax assets primarily relate to temporary differences and tax credit carryforwards in profitable U.S. federal, state and foreign jurisdictions and net operating loss carryforwards in certain foreign jurisdictions, the majority of which do not expire. In evaluating our ability to recover our deferred tax assets, we consider future taxable income in the various jurisdictions, carryforward periods, restrictions on usage and prudent and feasible tax planning strategies. The estimation of future taxable income in these jurisdictions and our resulting ability to utilize deferred tax assets can significantly change based on future events, including our determinations as to feasibility of certain tax planning strategies and refranchising plans. Thus, recorded valuation allowances may be subject to material future changes.
As a matter of course, we are regularly audited by federal, state and foreign tax authorities. We recognize the benefit of positions taken or expected to be taken in our tax returns in our income tax provision when it is more likely than not that the position would be sustained upon examination by these tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. 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. 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. federal tax. Undistributed foreign earnings may still be subject to certain state and foreign income and withholding taxes upon repatriation. Subject to limited exceptions, we do not intend to indefinitely reinvest our unremitted earnings outside the U.S. Thus, we have provided taxes, including any U.S. federal and state income, foreign income, or foreign withholding taxes on the majority of our unremitted earnings. In jurisdictions where we do intend to indefinitely reinvest our unremitted earnings, we would be required to accrue and pay applicable income taxes (if any) and foreign withholding taxes if the funds were repatriated in taxable transactions. We believe any such taxes would be immaterial.
