Yum! Brands (YUM) 10-K risk factor changes: FY2019 vs FY2018

Any report or publicity linking us or one of our Concepts’ restaurants, including restaurants operated by us or our Concepts’ franchisees, or linking our competitors or the retail food industry generally, to instances of food-borne illness or food safety issues could adversely affect our Concepts’ brands and reputations as well as our revenues and profits, and possibly lead to product liability claims, [removed: litigation] [added: litigation, governmental investigations or actions,] and damages.

If a customer of one of our [removed: Concepts] [added: Concepts’ restaurants] becomes ill from food borne illnesses or as a result of food safety issues, restaurants in our system may be temporarily closed, which could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

In addition, instances or allegations of food-borne illness or food safety issues, real or perceived, involving our restaurants, restaurants of competitors, or [added: our] suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), or otherwise involving the types of food served at our restaurants, could result in negative publicity that could adversely affect [added: either] our [removed: sales] or [removed: the sales of] our Concepts’ [removed: franchisees.][added: franchisees’ revenues and profits.]

*Health concerns arising from [removed: outbreaks] [added: the outbreak] of [removed: viruses] [added: a health epidemic] or [removed: other diseases] [added: pandemic, including the coronavirus,] may have an adverse effect on our business.*

Our business could be materially and adversely affected by the outbreak of a widespread health [removed: epidemic,] [added: epidemic or pandemic,] including [added: arising from] various strains of avian flu or swine flu, such as [removed: H1N1.][added: H1N1, or the coronavirus, particularly if located in regions from which we derive a significant amount of revenue or profit.]

The occurrence of such an outbreak [removed: of an epidemic, illness] or other adverse public health developments could materially disrupt our business and operations.

Such events could also significantly impact our industry and cause a temporary closure of restaurants, which could severely disrupt our [added: or our franchisees'] operations and have a material adverse effect on our business, financial condition and results of operations.

[removed: Our] [added: In addition, our] operations could be disrupted if any of our employees or employees of our business partners were suspected of having the avian flu or swine flu, or other illnesses such as hepatitis [removed: A] [added: A, norovirus] or [removed: norovirus,] [added: coronavirus,] since this could require us or our business partners to quarantine some or all of such employees or disinfect our restaurant facilities.

Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may [added: adversely] affect our [removed: business.][added: business and operating results.]

In addition, our long-term system sales growth targets depend on [removed: an acceleration] [added: maintaining the pace] of our [removed: historical] net system unit growth rate.

If our Concepts’ franchisees [added: and master franchisees] do not meet our expectations for new unit development, we may fall short of our system sales targets.

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 [removed: royalty payments.][added: fees paid to us for royalties, advertising funds contributions, and other discrete services we may provide to our Concept’s franchisees (e.g. management of e-commerce platform).]

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 they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or [removed: bankruptcy.][added: bankruptcy, or the inability to meet development targets or obligations.]

If a significant franchisee of one of our Concepts becomes, or a significant number of our Concepts’ franchisees in the aggregate become, financially distressed, our operating results could be impacted through reduced or delayed [removed: royalty] [added: fee] payments [added: that cause us to record bad debt expense, reduced advertising fund contributions,] and reduced new unit development.

In addition, we are secondarily liable on certain of our Concepts’ franchisees’ [added: restaurant] lease agreements, including lease agreements that we have guaranteed or assigned to franchisees in connection with the refranchising of certain Company-owned restaurants.

Our success also depends on the willingness and ability of our Concepts’ franchisees to implement [added: marketing programs and] major initiatives such as restaurant remodels or equipment or technology upgrades, which may require financial investment.

[removed: Additionally, the failure of our] Concepts’ franchisees to focus on [removed: the fundamentals] [added: key elements] of restaurant operations, such as quality, service and cleanliness (even if such failures do not rise to the level of breaching the related franchise [removed: documents),] [added: documents) may be attributed by guests to our Concepts’ entire brand and] could have a negative impact on our business.

Our growth strategy depends on our and our Concepts’ franchisees’ ability to increase [removed: net restaurant count in markets] [added: the number of restaurants] around the world.

[removed: We] [added: Effectively managing growth can be challenging, particularly as we expand into new markets internationally, 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.

Other risks that could impact our ability to increase the number of our restaurants include prevailing economic conditions and trade or economic [removed: sanctions] [added: policies or sanctions, our ability to attract new franchisees, construction] and [added: development costs of new restaurants, and] our, or our Concepts’ franchisees’, ability to obtain suitable restaurant locations, negotiate acceptable lease or purchase terms for the locations, obtain required permits and approvals in a timely manner, hire and train qualified management teams and restaurant crews, and meet construction schedules.

Expansion into [removed: target] markets could also be affected by our Concepts’ franchisees’ willingness to invest capital or ability to obtain financing to construct and open new restaurants.

In connection with the spin-off of our China business in [removed: 2016,] [added: 2016 into an independent publicly-traded company (the "Separation" or “Yum China spin-off”),] we entered into a Master License Agreement with Yum China pursuant to which Yum China is the exclusive licensee of the KFC, Pizza Hut and Taco Bell Concepts and their related marks and other intellectual property rights for restaurant services in [added: mainland] China.

[removed: As a result, our overall] [added: Our] financial results are significantly affected by Yum China’s [removed: results.][added: results as we are entitled to receive a 3% sales-based royalty on all Yum China system sales related to our Concepts.]

Yum China's business is exposed to risks in [added: mainland] China, which include, among others, [added: potential political, financial or social instability,] changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), consumer preferences, the regulatory [removed: environment,] [added: environment (including uncertainties with respect to the interpretation] and [added: enforcement of Chinese laws, rules and regulations), and] tax laws and regulations including the tax treatment of the royalty paid to YUM, as well as increased media scrutiny of our Concepts and industry, fluctuations in foreign exchange rates, increased restrictions or tariffs on imported supplies as a result of trade [removed: disputes] [added: disputes, any epidemics or pandemics arising out of mainland China,] and increased competition.

Further, any significant or prolonged deterioration in U.S.-China relations could adversely affect our Concepts in [added: mainland] China if Chinese consumers reduce the frequency of their visits to Yum China’s restaurants.

Chinese law regulates Yum China's business conducted within [added: mainland] China.

If Yum China’s business is harmed or development of our Concepts’ restaurants is slowed in [added: mainland] China due to any of these factors, it could negatively impact the royalty paid by Yum China to us, which would negatively impact our financial results or our growth prospects.

In addition, if we are unable to enforce our intellectual property or contract rights in [added: mainland] China, if Yum China is unable or unwilling to satisfy its obligations under the Master License Agreement, or if the Master License Agreement is otherwise terminated, it could result in an interruption in the [removed: operation of our brands that have been exclusively licensed to Yum China for use in China.]

These risks, which can vary substantially by country, include [removed: political instability,] [added: political, financial or social instability or conditions,] corruption, anti-American sentiment and social and ethnic unrest, as well as changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), the regulatory [removed: environment,] [added: environment (including the risks of operating in developing or emerging markets in which there are significant uncertainties regarding the interpretation and enforceability of legal requirements and the enforceability of contract rights and intellectual property rights),] income and non-income based tax rates and laws, [added: the impact of import restrictions or controls,] sanctions, foreign exchange control regimes including restrictions on currency conversion, [added: natural disasters, the impact of labor costs and conditions,] consumer preferences and the laws and policies that govern foreign investment in countries where our Concepts' restaurants are operated.

[added: There can be no assurance] as to the future effect of any such changes on our results of operations, financial condition or cash flows.

In addition, restrictions on the conversion of RMB to U.S. dollars or further restrictions on the remittance of currency out of China could result in delays in the remittance of Yum China’s [removed: license fee,] [added: royalty,] which could impact our liquidity.

We receive and maintain certain personal, financial and other information about our customers, [removed: employees] [added: employees, vendors] and franchisees.

For example, the [removed: European Union adopted a new regulation that became effective in May 2018, The] General Data Protection Regulation ("GDPR"), which [added: was adopted by the European Union effective May 2018,] requires companies to meet new requirements regarding the handling of personal data.

In addition, [removed: in June 2018] the State of California enacted the California Consumer Privacy Act (the “CCPA”), which [removed: will become] [added: became] effective [removed: in 2020, requiring] [added: January 2020 and requires] companies that process information on California residents to, among other things, [removed: make] [added: provide] new disclosures [added: and options] to consumers about data collection, use and sharing practices.

*Unreliable or inefficient restaurant or [removed: consumer interfacing] [added: consumer-facing] technology or the failure to successfully implement technology initiatives in the future could adversely impact operating results.*

We and our Concepts’ [removed: franchisees'] [added: franchisees] rely heavily on information technology systems in the conduct of our business, some of which are managed, hosted, provided and/or used by third parties, including, for example, point-of-sale processing in our restaurants, management of our supply [removed: chain] [added: chain,] and various other processes and procedures.

Execution of our growth strategy will be dependent on our initiatives to implement [added: proprietary and third-party] technology solutions and gather and leverage data to enhance restaurant operations and improve the customer experience.

Our strategic technology initiatives may not be [removed: timely] implemented [added: in a timely manner] or may not achieve the desired results.

In particular, Pizza Hut relies on digital orders for a significant portion of its sales and could experience [added: and has experienced] interruptions of its digital ordering platforms, which [removed: could limit] [added: limited] or [removed: delay] [added: delayed] customers’ ability to order through such [added: platforms or made customers less inclined to return to such] platforms.

[removed: In addition, if Pizza Hut’s] [added: If our Concepts’] digital [removed: ordering] [added: commerce] platforms do not meet customers’ expectations in terms of security, speed, [removed: attractiveness,] [added: attractiveness] or ease of use, customers may be less inclined to return to such digital [removed: ordering] [added: commerce] platforms, which could negatively impact our [removed: sales, results of operations and financial condition.][added: business.]

Any of the following risk factors, either by itself or together with other risk factors, could materially adversely affect our business, results of operations, cash flows and/or financial condition.

In late 2019, a novel strain of coronavirus was first detected in Wuhan, China.

Following the outbreak of this virus, the Chinese government has quarantined certain affected regions and certain travel restrictions have been imposed.

We have a significant number of KFC and Pizza Hut Concept restaurants located in mainland China, operated by our master franchisee, Yum China.

Many of our restaurants located within mainland China have been temporarily closed, have shortened operating hours and/or have otherwise been adversely affected by the impact of the coronavirus, and these developments have also impacted the ability of Yum

China's suppliers to provide food and other needed supplies at our Concepts’ restaurants in mainland China.

Additionally, other nearby franchisees, such as those in Hong Kong and Taiwan, have experienced significant sales declines as well.

We are unable to accurately predict the impact that the coronavirus will have on our results of operations, due to uncertainties including the ultimate geographic spread of the virus within and outside of China, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities to contain the coronavirus or to treat its impact.

However, while it is premature to accurately predict the ultimate impact of these developments, we expect our results for the quarter ending March 31, 2020 to be significantly impacted with potential continuing, adverse impacts beyond March 31, 2020.

The vast majority (98%) of our restaurants are operated by our Concepts’ franchisees, and our percentage of franchise-owned restaurants has increased in recent years.

We increasingly 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.

In addition, we have franchise relationships that are particularly important to our business, such as our relationship with Yum China as described in a subsequent risk factor below, our strategic alliance with Telepizza Group S.A., who is the master franchisee of Pizza Hut in Latin America (excluding Brazil) and portions of Europe, and our relationship with certain large franchisees, such as NPC International, Inc. the largest operator of Pizza Hut restaurants in the United States.

Any failure to realize the expected benefits of such franchise relationships may adversely impact our business and operating results.

In addition, the failure of our Concepts’ franchisees to adequately engage in succession planning may adversely affect their restaurant operations and the development of new restaurants, which in turn could hurt our business.

Additionally, the failure of our

Our reliance on master franchise arrangements can decrease our level of control over our Concepts' restaurants and increase certain risks arising from franchise operations.

For example, we rely on our master franchisees to monitor and enforce sub-franchisee compliance with our operating standards, and a failure to comply with such standards could adversely affect our business.

A significant portion of our total business is conducted in mainland China, particularly with respect to our KFC Concept.

operation of our brands that have been exclusively licensed to Yum China for use in mainland China.

For example, we have been subject to a regulatory enforcement action in India alleging violation 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 19).

We have experienced cyber- attacks and security breaches from time to time.

Moreover, each of the GDPR and the CCPA confer a private right-of-action on certain individuals and associations.

We may not be able recruit and retain qualified individuals for these efforts, and there is intense competition for qualified technology systems developers necessary to develop and implement new technologies for our growth initiatives, including increasing our digital relationships with customers.

Moreover, our failure to adequately invest in new technology or adapt to technological developments and industry trends, particularly with respect to digital commerce capabilities, could result in a loss of customers and related market share.

Information posted on such

Moreover, the withdrawal of the United Kingdom from the European Union which occurred effective as of January 31, 2020, to be followed by a transition period which is scheduled to expire on December 31, 2020 (unless otherwise extended) in which the United Kingdom and the European Union will negotiate the terms of this withdrawal, may give to rise to economic, financial, legal, tax and trade uncertainties that may adversely impact us and could, depending on the terms negotiated during the transition period, result in the reimposition of customs and border controls, which in turn may result in shortages or interruptions in supply to our Concepts in the United Kingdom with consequences similar to those described above.

Much of our future success depends on the continued availability and service of senior management personnel.

The loss of any of our executive officers or other key senior management personnel could harm our business.

Those perceptions are affected by a variety of factors, including the nutritional content and preparation of our food, the ingredients we use, and the manner in which we source the commodities we use.

Consumer acceptance of our offerings is subject to change for a variety of reasons, 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 available alternatives.

and consumer trust, particularly if the incidents receive considerable publicity or result in litigation or investigations.

Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, lawsuits are subject to inherent uncertainties (some of which are beyond the Company’s control), and unfavorable rulings or developments could occur.

Moreover, these could lead to an increase in the regulation of the content or marketing of our products, including legislation or regulation seeking to tax and/or regulate high-fat foods, foods with high sugar and salt content, or foods otherwise deemed to be “unhealthy,” which could increase costs of compliance and remediation to us and our franchisees.

Further, a recently-enacted law in California sets out an employment classification test that established a new standard for determining employee or independent contractor status.

This law and any similar laws enacted at the federal, state or local level, could increase our and our franchisees’ labor costs and decrease profitability or could cause our franchisees to be deemed employees of our Concepts.

Additionally, we are working to manage the risks and costs to us, our franchisees and our supply chain of the effects of climate change, greenhouse gases, and diminishing energy and water resources.

These risks include the increased public focus, including by governmental and nongovernmental organizations, on these and other environmental sustainability matters, such as packaging and waste, animal health and welfare, deforestation and land use.

These risks also include the increased pressure to make commitments, set targets, or establish additional goals and take actions to meet them.

These risks could expose us to market, operational, reputational and execution costs or risks.

A significant and growing portion of our restaurants are operated by our Concepts’ franchisees.

At the end of 2018, over 98% of our stores are operated by franchisees.

*We may not successfully implement our transformation initiatives or fully realize the anticipated benefits from the transformation.*

We are in the process of implementing our previously announced strategic transformation plans to drive global expansion of our KFC, Pizza Hut and Taco Bell brands.

Following our becoming 98% franchised as of the end of 2018, the remaining components of this transformation include, among other things, a plan to significantly reduce annual capital expenditures and our general and administrative costs by the end of 2019.

We cannot assure you that we will be able to successfully implement our transformation initiatives.

Further, our ability to achieve the anticipated benefits of this transformation, including the anticipated levels of cost savings and efficiency, within expected timeframes is subject to many estimates and assumptions, which are, in turn, subject to significant economic, competitive and other uncertainties, some of which are beyond our control.

There is no assurance that we will successfully implement, or fully realize the anticipated positive impact of, our transformation initiatives, or execute successfully on our transformation strategy, in the expected timeframes or at all.

In addition, there can be no assurance that our efforts, if properly executed, will result in our desired outcome of improved financial performance.

There can be no assurance

In February 2018, we and our franchisees transitioned to a new distributor for the products supplied to our approximately 900 KFCs in the United Kingdom and Ireland.

In connection with this transition, certain of the restaurants experienced supply availability issues which resulted in store closures or stores operating under a limited menu for a period of time.

The pending withdrawal of the United Kingdom from the European Union, particularly if such withdrawal occurs without a transition agreement in effect, may result in the reimposition of customs and border controls, which in turn may result in shortages or interruptions in supply to our Concepts in the United Kingdom with

consequences similar to those described above.

Any failure or inability of RSCS to perform its purchasing obligations could result in shortages or interruptions in the availability of food and other supplies.

Any such delays, material increases in employee turnover rate in franchisee management or existing restaurants or widespread employee dissatisfaction could have a material adverse effect on our and our Concepts’ franchisees’ business and results of operations.

*A broader standard for determining joint employer status may adversely affect our business operations and increase our liabilities.*

The National Labor Relations Board (the “NLRB”) in 2014 adopted a new and broader standard for determining when two or more otherwise unrelated employers may be found to be a joint employer of the same employees under the National Labor Relations Act.

In such event, our operating expenses may increase as a result of required modifications to our business practices, increased litigation, governmental investigations or proceedings, administrative enforcement actions, fines and civil liability.

of raw materials or to increase the prices of products proportionately, our and our franchisees’ profit margins may be adversely impacted.

Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may not be accurately estimated.

These concerns could lead to an increase in the regulation of the content or marketing of our products.

We rely on a combination of

Purchases at our Concepts’ restaurants are discretionary for consumers and, therefore, our results of operations are susceptible to economic slowdowns and recessions.

Brands, Inc. [removed: (“YUM”] [added: ("Company", “YUM”, "we", "us"] or [removed: the “Company”)] [added: "our")] franchises or operates a worldwide system of over [removed: 48,000] [added: 50,000] restaurants in more than [removed: 140] [added: 150] countries and territories, primarily under the concepts of KFC, Pizza Hut and Taco Bell (collectively, the "Concepts").

Of the over [removed: 48,000] [added: 50,000] restaurants, 98% are operated by franchisees.

As of December 31, [removed: 2018,] [added: 2019,] YUM consists of three operating segments:

On October [removed: 31, 2016, (the “Distribution Date”), we completed] [added: 11, 2016 YUM announced our transformation plans to drive global expansion of our KFC, Pizza Hut and Taco Bell brands (“YUM's Strategic Transformation Initiatives”) following] the spin-off of our China business [removed: (the "Separation")] into an [removed: independent,] [added: independent] publicly-traded company under the name of Yum China Holdings, Inc. (“Yum China”).

| • | More Franchised. [removed: YUM] [added: The Company] successfully increased franchise restaurant ownership to 98% as of [removed: December 31,] [added: the end of] 2018. |

| • | More Efficient. The Company [removed: is revamping] [added: revamped] its financial profile, improving the efficiency of its organization and cost structure globally, by: |

From 2017 through 2019, we [removed: intend to return an additional] [added: returned] $6.5 [removed: - $7.0] billion to shareholders through share repurchases and cash dividends.

We [removed: intend to fund] [added: funded] these shareholder returns through a combination of refranchising proceeds, free cash flow generation [added: and maintenance of our ~5.0x EBITDA leverage.]

We generated pre-tax proceeds of $2.8 billion through our refranchising initiatives to achieve targeted franchise ownership of [removed: 98%, which were completed in December 2018.][added: 98%.]

See [removed: Notes] [added: Note] 2 [removed: and 5] for additional details related to our fiscal calendar.

| • | System sales, System sales excluding the impacts of foreign currency translation ("FX"), [removed: and] [added: and, in 2019,] System sales excluding FX and the impact of the 53rd week [removed: in 2016.] [added: for our U.S. subsidiaries and certain international subsidiaries that operate on a weekly periodic calendar.] System sales include the results of all restaurants regardless of ownership, including Company-owned and franchise [removed: restaurants that operate our Concepts.] [added: restaurants.] Sales [removed: of] [added: at] franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Consolidated Statements of Income; however, the franchise and license fees [added: derived from franchise restaurants] 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 all of our [added: significant] revenue drivers, Company and franchise same-store sales as well as net unit growth. |

| • | Diluted Earnings Per Share [removed: from Continuing Operations] excluding Special Items (as defined below); |

| • | Core Operating Profit [removed: and] [added: and, in 2019,] Core Operating Profit excluding the impact of the 53rd [removed: week in 2016.] [added: week.] Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally. |

For [removed: 2016] [added: 2019] we provided Core Operating Profit excluding [added: the impact of the] 53rd week and System sales excluding [added: the impact of the] 53rd week to further enhance the comparability [removed: with the lapping of] [added: given] the 53rd week that was part of our fiscal calendar in [removed: 2016.][added: 2019.]

All comparisons within this summary are versus the same period a year [removed: ago.][added: ago and unless otherwise stated include the impact of a 53rd week in 2019.]

For [removed: 2018,] [added: 2019,] GAAP diluted EPS [removed: from continuing operations increased 24%] [added: decreased 12%] to [removed: $4.69] [added: $4.14] per share, and diluted [removed: EPS from continuing operations] [added: EPS,] excluding Special Items, increased [removed: 7%] [added: 12%] to [removed: $3.17] [added: $3.55] per share.

[removed: 2018] [added: 2019] financial highlights:

| KFC Division | [removed: +6] [added: +10] | | [removed: +2] [added: +4] | | [removed: +5] [added: +7] | | [removed: (2)] [added: +10] | | [removed: (2)] [added: +14] |

| Pizza Hut Division | [removed: +1] [added: +8] | | Even | | [removed: +10] [added: +1] | | [removed: +2] [added: +6] | | [removed: +2] [added: +8] |

| Taco Bell Division | [removed: +6] [added: +9] | | [removed: +4] [added: +5] | | [removed: +3] [added: +4] | | [removed: +2] [added: +8] | | [removed: +2] [added: +8] |

| Worldwide | [removed: +5] [added: +9] | | [removed: +2] [added: +3] | | [removed: +7] [added: +4] | | [removed: (17)] [added: (16)] | | [removed: Even] [added: +12] |

| • | During the year, we opened [removed: 1,757] [added: 2,040] net new units [removed: and added 1,282 Telepizza units] for [removed: 7%] [added: 4%] net new unit growth. |

| • | During the year, we repurchased [removed: 28.2] [added: 7.8] million shares totaling [removed: $2.4 billion] [added: $810 million] at an average [removed: share] price of [removed: $85.] [added: $104.] |

| KFC Division | [removed: +6 | | +3 | | +4] [added: +9] | | +13 | [removed: | +12 |]

| Pizza Hut Division | [removed: +1 | | Even | | +2 | | (7)] [added: +7] | | [removed: (6)] [added: +7] |

| Taco Bell Division | [removed: +5 | | +4 | | +4 | | +4] [added: +8] | | [removed: +4] [added: +6] |

| Worldwide | [removed: +4 | | +2 | | +3 | | +64] [added: +8] | | [removed: +7] [added: +11] |

| | Results Excluding 53rd Week in [removed: 2016] [added: 2019] (% Change) | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2018] [added: 2019] | | | | | [removed: 2017] [added: 2018] | | | |

| Company sales | $ | [removed: 2,000] [added: 1,546] | | | $ | [removed: 3,572] [added: 2,000] | | | $ | [removed: 4,189] [added: 3,572] | | | [removed: (44] [added: (23] | ) | | | | [removed: (15] [added: (44] | ) | | |

| Franchise and property revenues | [removed: 2,482] [added: 2,660] | | | | [removed: 2,306] [added: 2,482] | | | | [removed: 2,167] [added: 2,306] | | | | [removed: 8] [added: 7] | | | | | [removed: 6] [added: 8] | | | |

| Franchise contributions for advertising and other services | [removed: 1,206] [added: 1,391] | | | | [removed: —] [added: 1,206] | | | | — | | | | [removed: N/A] [added: 15] | | | | | N/A | | | |

| Total revenues | $ | [removed: 5,688] [added: 5,597] | | | $ | [removed: 5,878] [added: 5,688] | | | $ | [removed: 6,356] [added: 5,878] | | | [removed: (3] [added: (2] | ) | | | | [removed: (8] [added: (3] | ) | | |

| Restaurant profit | $ | [removed: 366] [added: 311] | | | $ | [removed: 618] [added: 366] | | | $ | [removed: 700] [added: 618] | | | [removed: (41] [added: (15] | ) | | | | [removed: (12] [added: (41] | ) | | |

| Restaurant margin % | [removed: 18.3] [added: 20.1] | | % | | [removed: 17.3] [added: 18.3] | | % | | [removed: 16.7] [added: 17.3] | | % | | [removed: 1.0] [added: 1.8] | | | ppts. | | [removed: 0.6] [added: 1.0] | | | ppts. |

| G&A expenses | $ | [removed: 895] [added: 917] | | | $ | [removed: 999] [added: 895] | | | $ | [removed: 1,129] [added: 999] | | | [removed: 10] [added: (2] | [added: )] | | | | [removed: 12] [added: 10] | | | |

| Franchise and property expenses | [removed: 188] [added: 180] | | | | [removed: 237] [added: 188] | | | | [removed: 201] [added: 237] | | | | [removed: 21] [added: 4] | | | | | [removed: (18] [added: 21] | [removed: )] | | |

| Franchise advertising and other services expense | [removed: 1,208] [added: 1,368] | | | | [removed: —] [added: 1,208] | | | | — | | | | [removed: N/A] [added: (13] | [added: )] | | | | N/A | | | |

| Refranchising (gain) loss | [removed: (540] [added: (37] | | ) | | [removed: (1,083] [added: (540] | | ) | | [removed: (163] [added: (1,083] | | ) | | [removed: (50] [added: (93] | ) | | | | [removed: NM] [added: (50] | [added: )] | | |

| Other (income) expense | [removed: 7] [added: 4] | | | | [removed: 10] [added: 7] | | | | [removed: 18] [added: 10] | | | | NM | | | | | NM | | | |

Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved economics and higher rates of growth.

Key enablers include accelerated use of technology and better leverage of our systemwide scale.

Our Recipe for Growth is based on four key drivers:

| • | Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success |

| • | Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences |

| • | Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion |

| • | Bold Restaurant Development: Drive market and franchise expansion with strong economics and value |

Our Recipe for Good reflects our global citizenship and sustainability strategy and practices, while reinforcing our public commitment to drive socially responsible growth, risk management and sustainable stewardship of our food, planet and people.

At this time, we established transformation goals that were met by the end of 2019 including becoming:

| • | More Focused. By focusing on four growth drivers similar to those that make up our Recipe for Growth above we accelerated system sales growth to 8% in 2019 (excluding the impacts of the 53rd week and foreign currency translation). |

| • | Reducing annual capital expenditures associated with Company-operated restaurant maintenance and other projects and funded additional capital for new Company units through the refranchising of existing Company units. Capital spending in 2019 net of refranchising proceeds was $86 million. |

Going forward, we expect to:

| • | Maintain a capital structure of ~5.0x EBITDA leverage; |

| • | Invest capital in a manner consistent with an asset light, franchisor model; and |

| • | Allocate G&A in an efficient manner that provides leverage to operating profit growth while at the same time opportunistically investing in strategic growth initiatives. |

| • | Same-store sales growth is the estimated percentage change in 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 or other issues. 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. In 2019, when calculating same-store sales growth we also included in our prior year base the sales of stores that were added as a result of the Telepizza strategic alliance in December 2018 and that were open for one year or more. See description of the Telepizza strategic alliance within this MD&A. |

| • | Net new unit growth reflects new unit openings offset by store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and has substantial and sustainable sales. We believe net new unit growth is useful to investors because we depend on net new units for a significant portion of our growth. Additionally, net new unit growth is generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants. |

| • | Company restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin as a percentage of sales is defined as Restaurant profit divided by Company sales. Restaurant profit is useful to investors as it provides a measure of profitability for our Company-owned stores. |

For discussion of our results of operations for 2018 compared to 2017, 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, 2018, filed with the SEC on February 21, 2019.

| • | Adjusting the prior year base to include units added as a result of our fourth quarter 2018 strategic alliance with Telepizza, system sales growth, excluding the impacts of foreign currency translation and 53rd week, would have been 7% and 2% for Worldwide and the Pizza Hut Division, respectively. |

| • | During the year, we refranchised 25 restaurants and sold certain restaurant assets associated with existing franchise restaurants to the franchisee for total pre-tax proceeds of $110 million. We recorded net refranchising gains of $37 million related to these transactions. |

| • | During the year, we recognized pre-tax expense of $77 million related to the change in fair value of our investment in Grubhub, which resulted in a negative ($0.19) impact to diluted EPS on the year. |

| • | Foreign currency translation impacted Divisional Operating Profit unfavorably for the year by $46 million. |

| • | Our effective tax rate for the year was 5.7% and our effective tax rate, excluding Special Items, was 19.8%. |

| Effective tax rate | 5.7 | | % | | 16.2 | | % | | 41.1 | | % | | 10.5 | | | ppts. | | 24.9 | | | ppts. |

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | |

| (a) | 2018 unit growth includes units added as a result of our fourth quarter 2018 strategic alliance with Telepizza. |

| Interest expense, net(b) | | (2 | | ) | | — | | | | — | | |

| Tax Benefit - Intercompany transfer of intellectual property(d) | | 226 | | | | — | | | | — | | |

| Special Items Income (Expense) - Operating Profit | | (11 | | ) | | 530 | | | | 1,001 | | |

| | | | | | | | | | | | | |

| | | | | | | | | | | | | |

| (a) | We have reflected as Special Items those refranchising gains and losses that were recorded in connection with or prior to our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018. As such, refranchising gains and losses recorded during 2019 as Special Items primarily include gains or losses associated with sales of underlying real estate associated with stores that were franchised as of December 31, 2018 or true-ups to refranchising gains and losses recorded prior to December 31, 2018. |

During the years ended December 31, 2019, 2018 and 2017, we recorded net refranchising gains of $12 million, $540 million and $1,083 million, respectively, that have been reflected as Special Items.

| (b) | In the second quarter of 2019 we recorded charges of $8 million and $2 million to Other (income) expense and Interest expense, net, respectively, related to cash payments in excess of our recorded liability to settle contingent consideration |

associated with our 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses.

Consistent with prior adjustments to the recorded contingent consideration we have reflected this as a Special Item.

| (d) | During the year ended December 31, 2019 we completed intercompany transfers of certain intellectual property rights. As a result of the transfer of certain of these rights, largely to subsidiaries in the United Kingdom, we received a step-up in tax basis to current fair value under applicable tax law. To the extent this step-up in basis will be amortizable against future taxable income, we recognized a one-time deferred tax benefit of $226 million as a Special Item in the year ended December 31, 2019. See Note 17 for further discussion. |

Unless otherwise stated, financial results herein reflect continuing operations of the Company.

On the Distribution Date, we distributed to each of our shareholders of record as of the close of business on October 19, 2016 (the “Record Date”) one share of Yum China common stock for each share of YUM common stock (“Common Stock”) held as of the Record Date.

The distribution was structured to be a tax free distribution to our U.S. shareholders for federal income tax purposes in the United States.

Concurrent with the Separation, a subsidiary of the Company entered into a Master License Agreement with a subsidiary of Yum China for the exclusive right to use and sublicense the use of intellectual property owned by YUM and its affiliates for the development and operation of KFC, Pizza Hut and Taco Bell restaurants in mainland China.

Prior to the Separation, our operations in mainland China were reported in our former China Division segment results.

As a result of the Separation, the results of operations and cash flows of the separated business are presented as discontinued operations in our Consolidated Statements of Income and Consolidated Statements of Cash Flows for periods prior to the Separation.

See additional information related to the impact of the Separation in Note 4.

On October 11, 2016, we announced our strategic transformation plans to drive global expansion of our KFC, Pizza Hut and Taco Bell brands (“YUM’s Strategic Transformation Initiatives”) following the Separation.

Major features of the Company’s transformation and growth strategy involve being more focused, franchised and efficient.

YUM’s Strategic Transformation Initiatives below represent the continuation of YUM’s transformation of its operating model and capital structure.

| • | More Focused. Four growth drivers form the basis of YUM’s strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at KFC, Pizza Hut and Taco Bell around the world over the long term. The Company is focused on becoming best-in-class in: |

| • | Building Relevant, Easy and Distinctive Brands |

| • | Developing Unmatched Franchise Operating Capability |

| • | Driving Bold Restaurant Development |

| • | Growing Unrivaled Culture and Talent |

| • | Reducing annual capital expenditures to approximately $100 million in 2019; |

and maintenance of our five times EBITDA leverage.

Beginning in 2017, we changed our fiscal year from a year ending on the last Saturday of December to a year beginning on January 1 and ending on December 31 of each year.

Concurrently, we removed the reporting lags from the fiscal calendars of our international subsidiaries.

Our MD&A has been recast to reflect the change in our reporting calendar.

| • | Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the YUM system for one year or more. |

| • | Net new units represents new unit openings, offset by store closures. |

| • | Company restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin as a percentage of sales is defined as Restaurant profit divided by Company sales. Within the Company sales and Restaurant profit sections of this MD&A, Store Portfolio Actions represent the net impact of new unit openings, acquisitions, refranchising and store closures, and Other primarily represents the impact of same-store sales as well as the impact of changes in costs such as inflation/deflation. |

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | % Change | | | | | | | | |

| | System Sales, Ex FX | | Same-Store Sales | | Net New Units | | GAAP Operating Profit | | Core Operating Profit |

Additionally:

| • | During the year, we refranchised 660 restaurants, including 364 KFC, 97 Pizza Hut and 199 Taco Bell units, for pre-tax proceeds of $825 million. We recorded net refranchising gains of $540 million in Special Items. |

For 2017, GAAP diluted EPS from continuing operations increased 48% to $3.77 per share, and diluted EPS from continuing operations excluding Special Items, increased 20% to $2.96 per share.

2017 financial highlights:

| KFC Division | +6 | | +14 |

| Pizza Hut Division | +2 | | (5) |

| Taco Bell Division | +7 | | +6 |

| Worldwide | +5 | | +9 |

| • | During the year, we opened 1,407 net new units for 3% net new unit growth. |

| • | During the year, we refranchised 1,470 restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell units, for pre-tax proceeds of $1.8 billion. We recorded net refranchising gains of $1.1 billion in Special Items. |

| • | During the year, we repurchased 26.6 million shares totaling $1.9 billion at an average share price of $72. |

| Income from continuing operations | 1,542 | | | | 1,340 | | | | 1,018 | | | | 15 | | | | | 32 | | | |

| Income from discontinued operations, net of tax | N/A | | | | N/A | | | | 625 | | | | NM | | | | | NM | | | |

We have a market risk exposure to changes in interest rates, principally in the U.S. Our outstanding total [removed: debt] [added: debt, excluding finance leases,] of [removed: $10.1] [added: $10.6] billion includes [removed: 76%] [added: 77%] fixed-rate debt and [removed: 24%] [added: 23%] variable-rate debt.

We have attempted to minimize the interest rate risk from variable-rate debt through the use of interest rate swaps that, as of December 31, [removed: 2018,] [added: 2019,] result in a fixed interest rate on $1.55 billion of our variable rate debt.

As a result, approximately [removed: 91%] [added: 92%] of our [removed: $10.1] [added: $10.6] billion of outstanding debt at December 31, [removed: 2018] [added: 2019] is effectively fixed-rate debt.

As of both December 31, [removed: 2018] [added: 2019] and December 31, [removed: 2017] [added: 2018] a hypothetical 100 basis-point increase in short-term interest rates would result, over the following twelve-month period after consideration of the aforementioned interest rate swaps, in an increase of approximately $9 million in Interest expense, net within our Consolidated [removed: Statements] [added: Statement] of Income.

The fair value of our cumulative fixed-rate debt of [removed: $7.7] [added: $8.2] billion as of December 31, [removed: 2018,] [added: 2019,] would decrease approximately [removed: $400] [added: $450] million as a result of the same hypothetical 100 basis-point increase.

At December 31, [removed: 2018,] [added: 2019,] a hypothetical 100 basis-point decrease in short-term interest rates would decrease the fair value of our interest rate swaps approximately [removed: $100] [added: $66] million.

The Company’s foreign currency net asset exposure (defined as foreign currency assets less foreign currency liabilities) totaled approximately [removed: $1.6] [added: $1.2] billion as of December 31, [removed: 2018.][added: 2019.]

For the fiscal year ended December 31, [removed: 2018] [added: 2019] Operating Profit would have decreased approximately [removed: $135] [added: $130] million if all foreign currencies had uniformly weakened 10% relative to the U.S. dollar.

YUM holds 2,820,464 shares of Grubhub common stock (See Note [removed: 5).][added: 4).]

As of December 31, [removed: 2018,] [added: 2019,] the NYSE composite closing sales price of Grubhub was [removed: $76.81.][added: $48.64.]

A hypothetical 10% decline in the price of these shares would result in a [removed: $21] [added: $14] million decrease in the fair value of these investments, which would be reflected as a charge in Investment (income) expense, net within our Consolidated Statements of Income.

Our website address is [removed: http://www.yum.com.][added: https://www.yum.com.]

YUM has over [removed: 48,000] [added: 50,000] restaurants in more than [removed: 140] [added: 150] countries and territories primarily operating under the three concepts of KFC, Pizza Hut and Taco Bell (the “Concepts”).

At December 31, [removed: 2018,] [added: 2019,] 98% of our units are operated by independent franchisees or licensees under the terms of franchise or license agreements.

Following is a summary of our Concepts' operations and a brief description of each Concept as of and for the year ended December 31, [removed: 2018:][added: 2019:]

| | | Number of Units | | | % of Units International | | | Number of Countries and Territories | | | % Franchised | | [added: |] System [removed: Sales] [added: Sales(a)] (in Millions) | | | |

As of December 31, [removed: 2018,] [added: 2019,] YUM consists of three operating segments:

The Company [removed: believes that it is important] [added: seeks] to maintain strong and open relationships with its franchisees and their representatives.

[added: Non-traditional] units include express units and kiosks that have a more limited menu, usually generate lower sales volumes and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.

We [added: have the right to] control the advertising activities of certain advertising [removed: cooperatives] [added: cooperatives, typically in markets where we have Company-owned stores,] through our majority voting rights.

The Company also has certain patents on restaurant equipment which, while valuable, are not [added: currently considered] material to its business.

Competition [added: has also increased] from [added: and been enabled by] delivery aggregators and other food delivery services [removed: has also increased] in recent years, particularly in urbanized areas.

[removed: Each] [added: Within the retail food industry, each] of our Concepts competes with international, national and regional [removed: restaurant] chains as well as locally-owned [removed: restaurants,] [added: establishments,] not only for customers, but also for management and hourly personnel, suitable real estate sites and qualified franchisees.

During [removed: 2018,] [added: 2019,] there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated.

*U.S. Operations.* The Company and its U.S. operations, as well as our franchisees, are subject to various federal, state and local laws affecting its business, including laws and regulations concerning information security, labor and employment, health, marketing, food labeling, [added: competition, public accommodation,] sanitation and safety.

As of year end [removed: 2018,] [added: 2019,] the Company and its subsidiaries employed approximately 34,000 persons.

The Company makes available, through the Investor Relations section of its internet website at [removed: http://www.yum.com,] [added: https://www.yum.com,] its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission ("SEC") at [removed: http://www.sec.gov.][added: https://www.sec.gov.]

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | |

| KFC Division | | 24,104 | | | 83 | % | | 144 | | | 99 | % | | $ | 27,900 | | |

| Pizza Hut Division | | 18,703 | | | 61 | % | | 113 | | | 99 | % | | 12,900 | | | |

| Taco Bell Division | | 7,363 | | | 8 | % | | 30 | | | 94 | % | | 11,784 | | | |

| YUM | | 50,170 | | | 64 | % | | 152 | | | 98 | % | | $ | 52,584 | | |

| | | | | | | | | | | | | | | | | | |

| (a) | Constitutes sales of all restaurants, both Company-owned and franchised. See further discussion of this non-GAAP measure within Part II, Item 7 of this Form 10-K. |

Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved economics and higher rates of growth.

Key enablers include accelerated use of technology and better leverage of our systemwide scale.

Our Recipe for Growth is based on four key drivers:

| • | Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success |

| • | Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences |

| • | Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion |

| • | Bold Restaurant Development: Drive market and franchise expansion with strong economics and value |

Our Recipe for Good reflects our global citizenship and sustainability strategy and practices, while reinforcing our public commitment to drive socially responsible growth, risk management and sustainable stewardship of our food, planet and people.

Of our over 49,000 franchised units at December 31, 2019, approximately 30% operate under our master franchise programs, including over 8,800 units in mainland China.

Our international franchisees generally select and manage their own third-party suppliers, subject to our internal standards.

All suppliers and distributors are expected to provide products/services that comply with all applicable laws, rules and regulations in the state and/or country in which they operate as well as comply with our internal standards.

| --- | --- |

| | |

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| KFC Division | | 22,621 | | | 82 | % | | 136 | | | 99% | | $ | 26,239 | | |

| Pizza Hut Division* | | 18,431 | | | 59 | % | | 111 | | | 99% | | 12,212 | | | |

| Taco Bell Division | | 7,072 | | | 7 | % | | 27 | | | 93% | | 10,786 | | | |

| YUM* | | 48,124 | | | 62 | % | | 145 | | | 98% | | $ | 49,237 | | |

*Unit information includes 1,282 units operating under the Telepizza brand as of December 31, 2018.

See Part II, Item 7 for a description of the Telepizza strategic alliance.

Four growth drivers form the basis of YUM’s strategic plans and repeatable business model to accelerate same-store sales growth and net new restaurant development at KFC, Pizza Hut and Taco Bell around the world over the long term.

The Company is focused on becoming best-in-class in:

| • | Building Relevant, Easy and Distinctive Brands |

| • | Developing Unmatched Franchise Operating Capability |

| • | Driving Bold Restaurant Development |

| • | Growing Unrivaled Culture and Talent |

Of our over 47,000 franchised units at December 31, 2018, approximately 30% operate under our master franchise programs, primarily units in China and those operating under the Telepizza strategic alliance (see Part II, Item 7 for a description of the Telepizza strategic alliance).

Non-traditional

On February 7, 2018, certain of our subsidiaries entered into a master services agreement with an affiliate of Grubhub, Inc. ("Grubhub"), an online and mobile takeout food-ordering company in the U.S., which is intended to provide dedicated support for the KFC and Taco Bell branded online delivery channels in the U.S. through Grubhub’s online ordering platform, logistics and last-mile support for delivery orders, as well as point-of-sale integration to streamline operations.

We and our franchisees have approximately 6,300 food and paper suppliers, including U.S.-based suppliers that export to many countries.

Matters faced by the Company include, but are not limited to, claims from franchisees, suppliers, employees, [removed: customers] [added: customers, governments] and others related to operational, [added: foreign exchange, tax, franchise,] contractual or employment issues as well as claims that the Company has infringed on third-party intellectual property rights.

Finally, as a publicly-traded company, disputes arise from time-to-time with our shareholders, including [added: allegations that the Company breached federal securities laws or that officers and/or directors breached fiduciary duties.]

Descriptions of significant current specific claims and [removed: contingencies, if any,] [added: contingencies] appear in Note 19, Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, which is incorporated by reference into this item.

allegations that the Company breached federal securities laws or that officers and/or directors breached fiduciary duties.

[removed: FORM 10-K][added: FORM 10-K]

| [removed: \[Ÿ\]] [added: ☒] | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | [added: |]

| | | EXCHANGE ACT OF 1934 for the fiscal year ended [added: |] December 31, [removed: 2018] [added: 2019] |

| [removed: \[ \]] [added: ☐] | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [removed: SECURITIES] [added: SECURITIES EXCHANGE ACT OF 1934] | [added: |]

Commission file [removed: number 1-13163][added: number 1-13163]

| | North Carolina | | [added: | |] 13-3951308 | [added: |]

| | (State or other jurisdiction of | | [added: | |] (I.R.S. Employer | [added: |]

| | incorporation or organization) | | [added: | |] Identification No.) | [added: |]

| | 1441 Gardiner Lane, [added: |] Louisville, [added: |] Kentucky | | 40213 | [added: |]

| | (Address of principal executive offices) | | [added: | |] (Zip Code) | [added: |]

| [added: |] Registrant’s telephone number, including area code: [removed: (502) 874-8300] | | | [added: (502)] | [added: 874-8300 | |]

| Securities registered pursuant to Section 12(b) of the [removed: Act] [added: Act:] | | | |

| | Title of Each Class | [added: Trading Symbol(s)] | Name of Each Exchange on Which Registered |

| | Common Stock, no par value | [added: YUM] | New York Stock Exchange |

Yes [removed: ü] [added: ☒] No [added: ☐]

Yes [added: ☐] No [removed: ü][added: ☒]

See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange [removed: Act (Check one): Large accelerated filer: \[ü\] Accelerated filer: \[ \] Non-accelerated filer: \[ \] Smaller reporting company: \[ \] Emerging growth company: \[ \]][added: Act.]

The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of June 30, [removed: 2018] [added: 2019] computed by reference to the closing price of the registrant’s Common Stock on the New York Stock Exchange Composite Tape on such date was approximately [removed: $24.7] [added: $33.6] billion.

The number of shares outstanding of the registrant’s Common Stock as of February [removed: 13, 2019] [added: 12, 2020] was [removed: 306,414,175] [added: 300,822,322] shares.

Portions of the definitive proxy statement furnished to shareholders of the registrant in connection with the annual meeting of shareholders to be held on May [removed: 16, 2019] [added: 14, 2020] are incorporated by reference into Part III.

| | | OR | |

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | |

| | | | | | | |

Yes ☒ No ☐

Yes ☒ No ☐

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

| Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ |

| | | | | |

| Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |

| | | | | |

| Emerging Growth Company | ☐ | | | |

Yes ☐ No ☒

| | | |

| --- | --- | --- |

| | | OR |

| | | EXCHANGE ACT OF 1934 |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

\[ü\]

\[ \]

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its [removed: 2018] [added: 2019] fiscal year and that remain unresolved.

As of year end [removed: 2018,] [added: 2019,] the Company’s Concepts owned land, building or both for [removed: 339 units] [added: 337 restaurants] worldwide in connection with the operation of our [removed: 856] [added: 913] Company-owned restaurants.

These [removed: units] [added: restaurants] are further detailed as follows:

| • | The KFC Division owned land, building or both for [removed: 72 units.] [added: 73 restaurants.] |

| • | The Pizza Hut Division owned land, building or both for [removed: 4 units.] [added: 5 restaurants.] |

| • | The Taco Bell Division owned land, building or both for [removed: 263 units.] [added: 259 restaurants.] |

The Company currently [added: also] owns [added: land, building] or [added: both related to approximately 500 restaurants and] leases land, building or both related to approximately [removed: 1,000 units,] [added: 400 restaurants,] not included in the property counts above, that it leases or subleases to franchisees, principally in the U.S., United Kingdom, Australia, Germany and France.

The executive officers of the Company as of February [removed: 20, 2019,] [added: 19, 2020,] and their ages and current positions as of that date are as follows:

[removed: He has] [added: Prior to that, he] served as President and Chief [added: Operating Officer from August 2019 to December 2019, as President, Chief] Financial Officer [removed: since May 2016] and [removed: as] Chief Operating Officer [removed: since] [added: from] January [removed: 2019.][added: 2019 to August 2019 and as President and Chief Financial Officer from May 2016 to December 2018.]

Scott Catlett, [removed: 42,] [added: 43,] is General Counsel and Corporate Secretary of YUM.

Tony Lowings, [removed: 60,] [added: 61,] is Chief Executive Officer of KFC Division, a position he has held since January 2019.

David Russell, [removed: 49,] [added: 50,] is Senior Vice President, Finance and Corporate Controller of YUM.

Prior to serving as Corporate Controller, Mr. Russell served in various positions at the Vice [removed: President-level] [added: President level] in the [removed: Yum] [added: YUM] Finance Department, including Controller-Designate from November 2010 to February 2011 and Vice President, Assistant Controller from January 2008 to December 2010.

Tracy Skeans, [removed: 46,] [added: 47,] is Chief Transformation and People Officer of YUM.

David Gibbs, 56, is Chief Executive Officer of YUM a position he has held since January 2020.

Mark King, 60, is Chief Executive Officer of Taco Bell Division, a position he has held since August 2019.

Before joining YUM, Mr. King served as President, adidas Group North America from June 2014 to June 2018 and as Chief Executive Officer of TaylorMade-adidas Golf from 2003 to 2014.

Arthur Starrs, 43, is Chief Executive Officer of Pizza Hut Division, a position he has held since August 2019.

He served as President of Pizza Hut U.S. from May 2016 to July 2019 and he served as General Manager and Chief Financial Officer of Pizza Hut U.S. from November 2013 to April 2016.

Christopher Turner, 45, is Chief Financial Officer of YUM, a position he has held since August 2019.

Before joining YUM, he served as Senior Vice President and General Manager in PepsiCo’s retail and e-commerce businesses with Walmart in the U.S. and more than 25 countries and across PepsiCo’s brands from December 2017 to July 2019.

Prior to leading PepsiCo’s Walmart business, he served in various positions including Senior Vice President of Transformation for PepsiCo’s Frito-Lay North America business from July 2017 to December 2017 and Senior Vice President of Strategy for Frito-Lay from February 2016 to June 2017.

Prior to joining PepsiCo, he was a partner in the Dallas office of McKinsey & Company, a strategic management consulting firm.

Greg Creed, 61, is Chief Executive Officer of YUM.

He has served in this position since January 2015.

He served as Chief Executive Officer of Taco Bell Division from January 2014 to December 2014 and as Chief Executive Officer of Taco Bell U.S. from 2011 to December 2013.

Prior to this position, Mr. Creed served as President and Chief Concept Officer of Taco Bell U.S., a position he held beginning in December 2006.

David Gibbs, 55, is President, Chief Operating Officer and Chief Financial Officer of YUM.

In [removed: 2018,] [added: 2019,] the Company [added: declared and] paid four cash dividends of [removed: $0.36] [added: $0.42] per share.

Over the long term, the Company targets an annual dividend payout ratio of 45% to 50% of Net Income, before Special [removed: Items.][added: Items and excluding mark-to-market adjustments related to our investment in Grubhub common stock.]

As of February [removed: 13, 2019,] [added: 12, 2020,] there were [removed: 43,458] [added: 40,958] registered holders of record of the Company’s Common Stock.

The following table provides information as of December 31, [removed: 2018,] [added: 2019,] with respect to shares of Common Stock repurchased by the Company during the quarter then ended.

On [removed: August 10, 2018,] [added: November 21, 2019,] our Board of Directors authorized share repurchases through [removed: December 2019] [added: June 2021] of up to $2 billion (excluding applicable transaction fees) of our outstanding Common Stock.

As of December 31, [removed: 2018,] [added: 2019,] we have remaining capacity to repurchase up to [removed: $1.1] [added: $2] billion of Common Stock under this authorization.

This graph compares the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Index and the S&P 500 Consumer Discretionary Sector Index, a peer group that includes YUM, for the period from December 31, [removed: 2013] [added: 2014] to December 31, [removed: 2018.][added: 2019.]

The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 31, [removed: 2013] [added: 2014] and that all cash dividends were reinvested.

[removed: ][added: ]

| | | [removed: 12/31/2013 | | | |] 12/31/2014 | | | | 12/31/2015 | | | | 12/30/2016 | | | | 12/29/2017 | | | | 12/31/2018 | | | [added: | 12/31/2019 | | |]

Market Information and Dividend Policy

| 10/1/19 - 10/31/19 | | 1,108 | | $ | 110.34 | | | 1,108 | | $ | 507 | |

| 11/1/19- 11/30/19 | | 2,140 | | $ | 98.63 | | | 2,140 | | $ | 2,296 | |

| 12/1/19 - 12/31/19 | | — | | $ | — | | | — | | $ | 2,000 | |

| Total | | 3,248 | | | | | | 3,248 | | | | |

An August 2018 share repurchase authorization, with unutilized share repurchase capacity of $296 million, expired on December 31, 2019.

| YUM | | $ | 100 | | | $ | 103 | | | $ | 127 | | | $ | 166 | | | $ | 190 | | | $ | 212 | |

| S&P 500 | | $ | 100 | | | $ | 101 | | | $ | 113 | | | $ | 138 | | | $ | 132 | | | $ | 174 | |

| S&P Consumer Discretionary | | $ | 100 | | | $ | 110 | | | $ | 117 | | | $ | 144 | | | $ | 145 | | | $ | 185 | |

The following sets forth the dividends per common share declared by quarter for the Company’s Common Stock.

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Quarter | | 2018 | | | | 2017 | | |

| First | | $ | 0.36 | | | $ | 0.30 | |

| Second | | 0.36 | | | | 0.30 | | |

| Third | | 0.36 | | | | — | | |

| Fourth | | 0.36 | | | | 0.30 | | |

In 2017, the Company paid four cash dividends of $0.30 per share.

This included a dividend distributed February 3, 2017, that had been declared on December 21, 2016.

| 10/1/18 - 10/31/18 | | 1,249 | | $ | 89.12 | | | 1,249 | | $ | 1,691 | |

| 11/1/18- 11/30/18 | | 1,478 | | $ | 89.44 | | | 1,478 | | $ | 1,559 | |

| 12/1/18 - 12/31/18 | | 5,032 | | $ | 90.01 | | | 5,032 | | $ | 1,106 | |

| Total | | 7,759 | | | | | | 7,759 | | $ | 1,106 | |

| YUM | | $ | 100 | | | $ | 98 | | | $ | 101 | | | $ | 124 | | | $ | 163 | | | $ | 187 | |

| S&P 500 | | $ | 100 | | | $ | 114 | | | $ | 115 | | | $ | 129 | | | $ | 157 | | | $ | 150 | |

| S&P Consumer Discretionary | | $ | 100 | | | $ | 110 | | | $ | 121 | | | $ | 128 | | | $ | 157 | | | $ | 159 | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Company sales | $ | [removed: 2,000] [added: 1,546] | | | $ | [removed: 3,572] [added: 2,000] | | | $ | [removed: 4,189] [added: 3,572] | | | $ | [removed: 4,336] [added: 4,189] | | | $ | [removed: 4,503] [added: 4,336] | |

| Franchise and property revenues | [removed: 2,482] [added: 2,660] | | | | [removed: 2,306] [added: 2,482] | | | | [removed: 2,167] [added: 2,306] | | | | [removed: 2,082] [added: 2,167] | | | | [removed: 2,084] [added: 2,082] | | |

| Franchise contributions for advertising and other services | [removed: 1,206] [added: 1,391] | | | | [removed: —] [added: 1,206] | | | | — | | | | — | | | | — | | |

| Total | [removed: 5,688] [added: 5,597] | | | | [removed: 5,878] [added: 5,688] | | | | [removed: 6,356] [added: 5,878] | | | | [removed: 6,418] [added: 6,356] | | | | [removed: 6,587] [added: 6,418] | | |

| Refranchising (gain) loss | [removed: (540] [added: (37] | | ) | | [removed: (1,083] [added: (540] | | ) | | [removed: (163] [added: (1,083] | | ) | | [removed: 23] [added: (163] | | [added: )] | | [removed: (16] [added: 23] | | [removed: )] |

| Operating Profit | [removed: 2,296] [added: 1,930] | | | | [removed: 2,761] [added: 2,296] | | | | [removed: 1,682] [added: 2,761] | | | | [removed: 1,434] [added: 1,682] | | | | [removed: 1,517] [added: 1,434] | | |

| Other pension (income) expense | [removed: 14] [added: 4] | | | | [removed: 47] [added: 14] | | | | [removed: 32] [added: 47] | | | | [removed: 40] [added: 32] | | | | [removed: N/A] [added: 40] | | |

| Interest expense, net | [removed: 452] [added: 486] | | | | [removed: 445] [added: 452] | | | | [removed: 307] [added: 445] | | | | [removed: 141] [added: 307] | | | | [removed: 146] [added: 141] | | |

| Income from continuing operations before income taxes | [removed: 1,839] [added: 1,373] | | | | [removed: 2,274] [added: 1,839] | | | | [removed: 1,345] [added: 2,274] | | | | [removed: 1,253] [added: 1,345] | | | | [removed: 1,374] [added: 1,253] | | |

| Income from continuing operations | [removed: 1,542] [added: 1,294] | | | | [removed: 1,340] [added: 1,542] | | | | [removed: 1,018] [added: 1,340] | | | | [removed: 926] [added: 1,018] | | | | [removed: 1,006] [added: 926] | | |

| Income from discontinued operations, net of tax | N/A | | | | N/A | | | | [removed: 625] [added: N/A] | | | | [removed: 357] [added: 625] | | | | [removed: 45] [added: 357] | | |

| Net Income | [removed: 1,542] [added: 1,294] | | | | [removed: 1,340] [added: 1,542] | | | | [removed: 1,643] [added: 1,340] | | | | [removed: 1,283] [added: 1,643] | | | | [removed: 1,051] [added: 1,283] | | |

| Basic earnings per share from continuing operations | [removed: 4.80] [added: 4.23] | | | | [removed: 3.86] [added: 4.80] | | | | [removed: 2.58] [added: 3.86] | | | | [removed: 2.13] [added: 2.58] | | | | [removed: 2.27] [added: 2.13] | | |

| Basic earnings per share from discontinued operations | N/A | | | | N/A | | | | [removed: 1.59] [added: N/A] | | | | [removed: 0.82] [added: 1.59] | | | | [removed: 0.10] [added: 0.82] | | |

| Basic earnings per share | [removed: 4.80] [added: 4.23] | | | | [removed: 3.86] [added: 4.80] | | | | [removed: 4.17] [added: 3.86] | | | | [removed: 2.95] [added: 4.17] | | | | [removed: 2.37] [added: 2.95] | | |

| Diluted earnings per share from continuing operations | [removed: 4.69] [added: 4.14] | | | | [removed: 3.77] [added: 4.69] | | | | [removed: 2.54] [added: 3.77] | | | | [removed: 2.09] [added: 2.54] | | | | [removed: 2.22] [added: 2.09] | | |

| Diluted earnings per share from discontinued operations | N/A | | | | N/A | | | | [removed: 1.56] [added: N/A] | | | | [removed: 0.81] [added: 1.56] | | | | [removed: 0.10] [added: 0.81] | | |

| Diluted earnings per share | [removed: 4.69] [added: 4.14] | | | | [removed: 3.77] [added: 4.69] | | | | [removed: 4.10] [added: 3.77] | | | | [removed: 2.90] [added: 4.10] | | | | [removed: 2.32] [added: 2.90] | | |

| Diluted earnings per share from continuing operations excluding Special Items | [removed: 3.17] [added: 3.55] | | | | [removed: 2.96] [added: 3.17] | | | | [removed: 2.46] [added: 2.96] | | | | [removed: 2.31] [added: 2.46] | | | | [removed: 2.20] [added: 2.31] | | |

| Provided by operating activities | $ | [removed: 1,176] [added: 1,315] | | | $ | [removed: 1,030] [added: 1,176] | | | $ | [removed: 1,248] [added: 1,030] | | | $ | [removed: 1,260] [added: 1,248] | | | $ | [removed: 1,217] [added: 1,260] | |

| Capital spending | [removed: 234] [added: 196] | | | | [removed: 318] [added: 234] | | | | [removed: 427] [added: 318] | | | | [removed: 442] [added: 427] | | | | [removed: 508] [added: 442] | | |

| Proceeds from refranchising of restaurants | [removed: 825] [added: 110] | | | | [removed: 1,773] [added: 825] | | | | [removed: 370] [added: 1,773] | | | | [removed: 213] [added: 370] | | | | [removed: 83] [added: 213] | | |

| Repurchase shares of Common Stock | [removed: 2,390] [added: 815] | | | | [removed: 1,960] [added: 2,390] | | | | [removed: 5,403] [added: 1,960] | | | | [removed: 1,200] [added: 5,403] | | | | [removed: 820] [added: 1,200] | | |

| Dividends paid on Common Stock | [removed: 462] [added: 511] | | | | [removed: 416] [added: 462] | | | | [removed: 744] [added: 416] | | | | [removed: 730] [added: 744] | | | | [removed: 669] [added: 730] | | |

| Total assets | $ | [removed: 4,130] [added: 5,231] | | | $ | [removed: 5,311] [added: 4,130] | | | $ | [removed: 5,453] [added: 5,311] | | | $ | [removed: 4,939] [added: 5,453] | | | $ | [removed: 5,073] [added: 4,939] | |

| Long-term debt | [removed: 9,751] [added: 10,131] | | | | [removed: 9,429] [added: 9,751] | | | | [removed: 9,059] [added: 9,429] | | | | [removed: 2,988] [added: 9,059] | | | | [removed: 3,003] [added: 2,988] | | |

| Total debt | [removed: 10,072] [added: 10,562] | | | | [removed: 9,804] [added: 10,072] | | | | [removed: 9,125] [added: 9,804] | | | | [removed: 3,908] [added: 9,125] | | | | [removed: 3,268] [added: 3,908] | | |

| Franchise | [removed: 47,268] [added: 49,257] | | | | [removed: 43,603] [added: 47,268] | | | | [removed: 40,834] [added: 43,603] | | | | [removed: 39,320] [added: 40,834] | | | | [removed: 37,959] [added: 39,320] | | |

| Company | [removed: 856] [added: 913] | | | | [removed: 1,481] [added: 856] | | | | [removed: 2,841] [added: 1,481] | | | | [removed: 3,163] [added: 2,841] | | | | [removed: 3,279] [added: 3,163] | | |

| System | [removed: 48,124] [added: 50,170] | | | | [removed: 45,084] [added: 48,124] | | | | [removed: 43,675] [added: 45,084] | | | | [removed: 42,483] [added: 43,675] | | | | [removed: 41,238] [added: 42,483] | | |

| System net new unit growth | [removed: 7] [added: 4] | | % | | [removed: 3] [added: 7] | | % | | 3 | | % | | 3 | | % | | 3 | | % |

| KFC Division System sales | $ | [removed: 26,239] [added: 27,900] | | | $ | [removed: 24,515] [added: 26,239] | | | $ | [removed: 23,242] [added: 24,515] | | | $ | [removed: 22,628] [added: 23,242] | | | $ | [removed: 23,458] [added: 22,628] | |

| System sales growth | [removed: 7] [added: 9] | | % | | [removed: 5] [added: 6] | | % | | [removed: 3] [added: 5] | | % | | [removed: (3] [added: 6] | | [removed: )%] [added: %] | | [removed: 1] [added: 8] | | % |

| System sales [removed: growth, ex FX] [added: growth (decline)] | 6 | | % | | [removed: 6] [added: 7] | | % | | [removed: 7] [added: 5] | | % | | [removed: 5] [added: 3] | | % | | [removed: 4] [added: (3] | | [removed: %] [added: )%] |

| Same-store sales growth | [removed: 2] [added: 4] | | % | | [removed: 3] [added: 2] | | % | | [removed: 2] [added: 3] | | % | | [removed: 1] [added: 2] | | % | | 1 | | % |

| Pizza Hut Division System sales | $ | [removed: 12,212] [added: 12,900] | | | $ | [removed: 12,034] [added: 12,212] | | | $ | [removed: 12,019] [added: 12,034] | | | $ | [removed: 11,999] [added: 12,019] | | | $ | [removed: 12,106] [added: 11,999] | |

| System sales growth (decline) | [removed: 1] [added: 6] | | % | | [removed: —] [added: 1] | | % | | — | | % | | [removed: (1] [added: —] | | [removed: )%] [added: %] | | [removed: 1] [added: (1] | | [removed: %] [added: )%] |

| System sales growth, ex FX [added: and 53rd week] | [removed: 1] [added: 9] | | % | | [removed: 1] [added: 6] | | % | | [removed: 2] [added: 6] | | % | | [removed: 3] [added: 6] | | % | | [removed: 2] [added: 5] | | % |

| Same-store sales growth (decline) | — | | % | | — | | % | | [removed: (2 | | )% | |] — | | % | | (2 | | )% | [added: | — | | % |]

The table above reflects the impact of the adoption of new lease accounting standards in fiscal year 2019.

System sales growth measures in 2019 and System unit growth in 2018 reflects the addition of approximately 1,300 Telepizza units in December 2018.

In 2019, the 53rd week added $24 million to Operating Profit and $17 million to our Net Income.

In 2016, the 53rd week added $28 million to Operating Profit.

Same-store sales growth and System net new unit growth are performance metrics and discussed in further detail in our MD&A within Part II, Item 7.

Special Items in 2016 positively impacted Operating Profit by $35 million and positively impacted Net Income by $33 million, primarily due to Refranchising gains, partially offset by $67 million in costs associated with YUM's Strategic Transformation Initiatives, $30 million in share-based compensation charges related to the Separation and $26 million due to costs associated with the KFC Acceleration Agreement.

Additionally, in 2016, we incurred $26 million within Other Pension (income) expense primarily due to a settlement charge associated with an option for certain employees to voluntarily elect an early payout of their pension benefits.

System unit growth in 2018 includes addition of 1,282 Telepizza units.

See Note 1 in our Consolidated Financial Statements.

Special Items in 2014 positively impacted Operating Profit by $16 million and positively impacted Net Income by $12 million, primarily due to Refranchising gains.

2014 reflects our Balance Sheet and store count data that were recast for purposes of presenting 2015 Consolidated Statement of Cash Flows and unit growth.

No other data presented in 2014 has been recast.

[removed: | Report] [added: Report] of Independent Registered Public Accounting [removed: Firm | [52](#sBC367AA13BEE53D785B11F29CE4B044A) | |][added: Firm]

| Consolidated Statements of Income | [removed: [54](#s0FD6016A5F4853B7AF30970A9DE8C040)] [added: [52](#sE53599572BFC525185E3A8D438386983)] | |

| Consolidated Statements of Comprehensive Income | [removed: [55](#s83B9288F89855E4AA251FD351E343F76)] [added: [53](#s42BCE8D0D89A5A1B874EB7EBDC688101)] | |

| Consolidated Statements of Cash Flows | [removed: [56](#s7D4E730FD5135FFEAB70B85EF658E449)] [added: [54](#s2C24D9C5AAEC55A494F017735A482711)] | |

| Consolidated Balance Sheets | [removed: [57](#sBA6FF5E8DB2954EABD15795FD176D817)] [added: [55](#s745E362DE6B054DDB2C719B787DA0E75)] | |

| [removed: Consolidated] [added: Consolidated] Statements of Shareholders’ [removed: Equity (Deficit)] [added: Deficit] | [removed: [58](#s80425F4096F95E0AAA2BF2634DBEA65F)] | | [added: | | | | | | | | | | | | | | | | | |]

| Notes to Consolidated Financial Statements | [removed: [59](#s192A3F355E2B5E65A92B8525720BBD2C)] [added: [57](#s6E10505B66855D7AB952611FE4967EDA)] | |

[added: |] Report of Independent Registered Public Accounting Firm [added: | [49](#s2E22A13E9EB65D2886D309EF36874077) | |]

Brands, Inc. and Subsidiaries (the Company) as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of income, comprehensive income, cash flows, and shareholders’ [removed: equity (deficit)] [added: deficit] for each of the fiscal years in the three-year period ended December 31, [removed: 2018,] [added: 2019,] and the related notes (collectively, the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in *Internal Control - Integrated Framework* *(2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, [removed: 2018,] [added: 2019,] in conformity with U.S. generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission.

[removed: *Change] [added: *Changes] in Accounting Principle*

As discussed in [removed: Notes 2 and 5] [added: Note 4] to the consolidated financial statements, the Company [removed: has] changed its method of accounting for [added: leases in fiscal year 2019 due to the adoption of Topic 842, *Leases*, and for] revenue from contracts with customers in fiscal year 2018 due to the adoption of Topic [removed: 606:] [added: 606,] *Revenue from Contracts with [removed: Customers*.][added: Customers.*]

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets [added: of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.]

| Fiscal years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | | | | | | | | | | | | |

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016 (As Restated)] [added: 2017] | | |

| Company sales | | $ | [removed: 2,000] [added: 1,546] | | | $ | [removed: 3,572] [added: 2,000] | | | $ | [removed: 4,189] [added: 3,572] | |

| Franchise and property revenues | | [removed: 2,482] [added: 2,660] | | | | [removed: 2,306] [added: 2,482] | | | | [removed: 2,167] [added: 2,306] | | |

| Franchise contributions for advertising and other services | | [removed: 1,206] [added: 1,391] | | | | [removed: —] [added: 1,206] | | | | — | | |

| Total revenues | | [removed: 5,688] [added: 5,597] | | | | [removed: 5,878] [added: 5,688] | | | | [removed: 6,356] [added: 5,878] | | |

| Company restaurant expenses | | [removed: 1,634] [added: 1,235] | | | | [removed: 2,954] [added: 1,634] | | | | [removed: 3,489] [added: 2,954] | | |

| General and administrative expenses | | [removed: 895] [added: 917] | | | | [removed: 999] [added: 895] | | | | [removed: 1,129] [added: 999] | | |

| Franchise and property expenses | | [removed: 188] [added: 180] | | | | [removed: 237] [added: 188] | | | | [removed: 201] [added: 237] | | |

| Franchise advertising and other services expense | | [removed: 1,208] [added: 1,368] | | | | [removed: —] [added: 1,208] | | | | — | | |

| Refranchising (gain) loss | | [removed: (540] [added: (37] | | ) | | [removed: (1,083] [added: (540] | | ) | | [removed: (163] [added: (1,083] | | ) |

| Other (income) expense | | [removed: 7] [added: 4] | | | | [removed: 10] [added: 7] | | | | [removed: 18] [added: 10] | | |

| Total costs and expenses, net | | [removed: 3,392] [added: 3,667] | | | | [removed: 3,117] [added: 3,392] | | | | [removed: 4,674] [added: 3,117] | | |

| Operating Profit | | [removed: 2,296] [added: 1,930] | | | | [removed: 2,761] [added: 2,296] | | | | [removed: 1,682] [added: 2,761] | | |

| Investment (income) expense, net | | [removed: (9] [added: 67] | | [removed: )] | | [removed: (5] [added: (9] | | ) | | [removed: (2] [added: (5] | | ) |

| Other pension (income) expense | | [removed: 14] [added: 4] | | | | [removed: 47] [added: 14] | | | | [removed: 32] [added: 47] | | |

| Interest expense, net | | [removed: 452] [added: 486] | | | | [removed: 445] [added: 452] | | | | [removed: 307] [added: 445] | | |

| [removed: Income from continuing operations] [added: Income] before income [removed: taxes] [added: taxes] | | [removed: 1,839] [added: 1,373] | | | | [removed: 2,274] [added: 1,839] | | | | [removed: 1,345] [added: 2,274] | | |

| Income tax provision | | [removed: 297] [added: 79] | | | | [removed: 934] [added: 297] | | | | [removed: 327] [added: 934] | | |

| Net Income | | $ | [removed: 1,542] [added: 1,294] | | | $ | [removed: 1,340] [added: 1,542] | | | $ | [removed: 1,643] [added: 1,340] | |

| [removed: Basic] [added: Basic] Earnings [removed: per] [added: Per] Common [removed: Share from continuing operations] [added: Share] | | $ | [removed: 4.80] [added: 4.23] | | | $ | [removed: 3.86] [added: 4.80] | | | $ | [removed: 2.58] [added: 3.86] | |

| [removed: Basic] [added: Basic] Earnings [removed: per] [added: Per] Common [removed: Share from discontinued operations] [added: Share] | [added: $] | [removed: N/A] [added: 4.80] | | | [added: $] | [removed: N/A] [added: 0.03] | | | | $ | [removed: 1.59] [added: 4.83] | |

| [removed: Basic Earnings Per Common Share] [added: Basic earnings per common share] | | [removed: $] [added: 1.30] | [removed: 4.80] | | | [removed: $] [added: 0.99] | [removed: 3.86] | | | [removed: $] [added: 1.43] | [removed: 4.17] | | [added: | 1.07 | | | | 4.80 | | |]

| [removed: Diluted] [added: Diluted] Earnings [removed: per] [added: Per] Common [removed: Share from continuing operations] [added: Share] | | $ | [removed: 4.69] [added: 4.14] | | | $ | [removed: 3.77] [added: 4.69] | | | $ | [removed: 2.54] [added: 3.77] | |

| [removed: Diluted] [added: Diluted] Earnings [removed: per] [added: Per] Common [removed: Share from discontinued operations] [added: Share] | [added: $] | [removed: N/A] [added: 4.69] | | | [added: $] | [removed: N/A] [added: 0.03] | | | | $ | [removed: 1.56] [added: 4.72] | |

*Critical Audit Matters*

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

*Evaluation of unrecognized tax benefits*

As discussed in Note 17 to the consolidated financial statements, the Company has recorded unrecognized tax benefits, excluding associated interest, of $188 million.

Tax laws are complex and often subject to different interpretations by tax payers and the respective taxing authorities.

We identified the evaluation of unrecognized tax benefits as a critical audit matter.

Subjective and complex auditor judgment was required to evaluate tax law and regulations, court rulings and audit settlements in various taxing jurisdictions to assess the population of significant uncertain tax positions identified by the Company arising from tax planning strategies.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s process of identification of uncertain tax positions, including controls to (1) identify tax planning strategies that create significant uncertain tax positions, (2) evaluate interpretations of tax laws and court rulings, and (3) assess which tax positions may not be sustained upon examination by a taxing authority.

We involved tax professionals with specialized skills and knowledge who assisted in:

| • | Obtaining an understanding of the Company’s implementation of tax planning strategies; |

| • | Identifying new tax positions created by tax planning strategies and comparing the results to the Company’s identification of uncertain tax positions; |

| • | Evaluating the Company’s interpretation of tax laws and court rulings by developing an independent assessment; and |

| • | Performing an independent assessment to identify tax positions that may not be sustained upon examination by the respective taxing authority and comparing the results to the Company’s assessment. |

*Evaluation of intercompany transfer of certain intellectual property rights*

As discussed in Note 17 to the consolidated financial statements, the Company completed an intercompany restructuring and transfer of certain intellectual property rights primarily to subsidiaries in the United States and United Kingdom (UK).

The Company recorded a deferred tax asset of $586 million for the step-up in the tax basis to current fair value of the intellectual property rights transferred to the UK and determined the portion that is amortizable under the applicable tax law.

A valuation allowance of $366 million was established for the portion of the deferred tax asset that is not expected to be realized, resulting in a net deferred tax asset of $221 million, which is expected to be amortized and recovered over a 20-year period.

We identified the evaluation of the intercompany transfer of certain intellectual property rights as a critical audit matter.

Specifically, subjective and complex auditor judgment was required to evaluate management’s interpretation of UK tax law and regulations in determining the step-up in tax basis of the intellectual property rights and the portion that is amortizable under UK tax law.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s evaluation of the intercompany transfer, including controls related to evaluating UK tax laws and regulations, measurement of the tax basis resulting from the intercompany transfer and determining the amortizable portion.

We involved tax professionals with specialized skills and knowledge who assisted in:

| • | Evaluating the Company’s interpretation of UK tax laws and regulations applicable to the intercompany transfer; and |

| • | Assessing the Company’s measurement of the tax basis of the intellectual property rights transferred to the UK, including the portion of the tax basis that is amortizable under UK tax law. |

| | | (29 | | ) | | 54 | | | | 35 | | |

| | | (22 | | ) | | 41 | | | | 21 | | |

| | | (76 | | ) | | (20 | | ) | | 6 | | |

| | | (56 | | ) | | (14 | | ) | | 4 | | |

| Fiscal years ended December 31, 2019, 2018 and 2017 | | | | | | | | | | | | |

| Net Income | | $ | 1,294 | | | $ | 1,542 | | | $ | 1,340 | |

| Cash and cash equivalents | | $ | 605 | | | $ | 292 | |

| Goodwill | | 530 | | | | 525 | | |

| Intangible assets, net | | 244 | | | | 242 | | |

| Income taxes payable | | 150 | | | | 69 | | |

| Accumulated other comprehensive loss | | (388 | | ) | | (334 | | ) |

| Fiscal years ended December 31, 2019, 2018 and 2017 | | | | | | | | | | | | | | | | | | | | |

| Adoption of accounting standards | | | | | | | | | (2 | | ) | | | | | | (2 | | ) | |

| Balance at December 31, 2019 | | 300 | | | $ | — | | | $ | (7,628 | ) | | $ | (388 | ) | | $ | (8,016 | ) | |

of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

February 20, 2019

| Income from continuing operations | | 1,542 | | | | 1,340 | | | | 1,018 | | |

| Income from discontinued operations, net of tax | | N/A | | | | N/A | | | | 625 | | |

| | | 54 | | | | 35 | | | | (18 | | ) |

| | | 41 | | | | 21 | | | | (14 | | ) |

| | | (20 | | ) | | 6 | | | | 35 | | |

| | | (14 | | ) | | 4 | | | | 19 | | |

| Income from discontinued operations, net of tax | | — | | | | — | | | | (625 | | ) |

| Net transfers from discontinued operations | | — | | | | — | | | | 289 | | |

| Cash Provided by Operating Activities from Discontinued Operations | | $ | — | | | $ | — | | | $ | 829 | |

| Cash Used in Investing Activities from Discontinued Operations | | — | | | | — | | | | (287 | | ) |

| Cash Used in Financing Activities from Discontinued Operations | | — | | | | — | | | | (292 | | ) |

| Advertising cooperative assets, restricted | | — | | | | 201 | | |

| Advertising cooperative liabilities | | — | | | | 201 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Yum! Brands, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | |

| Balance at December 31, 2015 (As Restated) | | 420 | | | $ | — | | | $ | 1,187 | | | $ | (252 | ) | | $ | 58 | | | $ | 993 | | | $ | 6 | |

| Net Income (loss) | | | | | | | | | 1,643 | | | | | | | | 18 | | | | 1,661 | | | | (7 | | ) |

| Separation of China business | | | | | | | | | (1,927 | | ) | | (47 | | ) | | (67 | | ) | | (2,041 | | ) | | | | |

| Reclassification of translation adjustments into income | | | | | | | | | | | | | (4 | | ) | | | | | | (4 | | ) | | | | |

On the Distribution Date, we distributed to each of our shareholders of record as of the close of business on October 19, 2016 (the “Record Date”) one share of Yum China common stock for each share of our Common Stock held as of the Record Date.

The distribution was structured to be a tax free distribution to our U.S. shareholders for federal income tax purposes in the U.S. Yum China’s common stock trades on the New York Stock Exchange under the symbol “YUMC.” After the distribution, we do not beneficially own any shares of Yum China common stock.

Concurrent with the Separation, a subsidiary of the Company entered into a Master License Agreement with a subsidiary of Yum China for the exclusive right to use and sublicense the use of intellectual property owned by YUM and its affiliates for the development and operation of KFC, Pizza Hut and Taco Bell restaurants in China.

Prior to the Separation, our operations in mainland China were reported in our former China Division segment results.

As a result of the Separation, the results of operations and cash flows of the separated business are presented as discontinued operations in our Consolidated Statements of Income and Consolidated Statements of Cash Flows for all periods presented.

See additional information related to the impact of the Separation in Note 4.

We do not have an equity interest in any of our franchisee businesses.

At the end of 2018, YUM has future lease payments

See Note 19 for additional information on our entity that operates a franchise lending program that is a VIE in which we have a variable interest but for which we are not the primary beneficiary and thus do not consolidate.

Fiscal Year. Our fiscal years have historically ended on the last Saturday in December and, as a result, a 53rd week was added every five or six years.

Our U.S. subsidiaries and certain international subsidiaries operated on similar fiscal calendars.

Our remaining international subsidiaries operated on a monthly calendar, and thus never had a 53rd week, with two months in the first quarter, three months in the second and third quarters and four months in the fourth quarter.

Certain international subsidiaries within our KFC, Pizza Hut and Taco Bell divisions have historically closed approximately one month or one period earlier to facilitate consolidated reporting.

The impact of the change in accounting principle on the current period Consolidated Financial Statements is similar to the impact on the prior period results discussed in Note 5.

respective franchise or sub-franchise agreement.

| | | | | |

| Thereafter | 159 | | | |

| Total | $ | 414 | | |

Based on our evaluation under the framework in *Internal Control – Integrated Framework (2013)*, our management concluded that our internal control over financial reporting was effective as of December 31, [removed: 2018.][added: 2019.]

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended December 31, [removed: 2018.][added: 2019.]

Information regarding Section 16(a) compliance, the Audit Committee and the Audit Committee financial expert, the Company’s code of ethics and background of the directors appearing under the captions “Stock Ownership Information,” “Governance of the Company,” “Executive Compensation” and “Item 1: Election of Directors and Director biographies” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, [removed: 2018.][added: 2019.]

Information regarding executive and director compensation and the [removed: Compensation] [added: Management Planning and Development] Committee appearing under the captions “Governance of the Company” and “Executive Compensation” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, [removed: 2018.][added: 2019.]

Information regarding equity compensation plans and security ownership of certain beneficial owners and management appearing under the captions “Executive Compensation” and “Stock Ownership Information” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, [removed: 2018.][added: 2019.]

Information regarding certain relationships and related transactions and information regarding director independence appearing under the caption “Governance of the Company” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, [removed: 2018.][added: 2019.]

Information regarding principal accountant fees and services and audit committee pre-approval policies and procedures appearing under the caption “Item 2: Ratification of Independent Auditors” is incorporated by reference from the Company’s definitive proxy statement which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, [removed: 2018.][added: 2019.]

| Date: | February [removed: 20, 2019] [added: 19, 2020] |

| [removed: By: | /s/] Greg Creed | [added: | | |]

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed [removed: below] [added: on February 19, 2020] by the following persons on behalf of the registrant and in the capacities [removed: and on the dates] indicated.

| Signature | | Title | | [removed: Date |]

| [removed: Greg Creed] [added: David W. Gibbs] | | (principal executive officer) | | [removed: |]

| [added: /s/] David W. Gibbs | | [removed: (principal financial officer) |] [added: Chief Executive Officer] | |

| /s/ David E. Russell | | Senior Vice President, Finance and Corporate Controller | | [removed: February 20, 2019 |]

| David E. Russell | | (principal accounting officer) | | [removed: |]

| /s/ Paget L. Alves | | Director | | [removed: February 20, 2019 |]

| Paget L. Alves | | | | [removed: |]

| /s/ Michael J. Cavanagh | | Director | | [removed: February 20, 2019 |]

| Michael J. Cavanagh | | | | [removed: |]

| /s/ Christopher M. Connor | | Director | | [removed: February 20, 2019 |]

| Christopher M. Connor | | | | [removed: |]

| /s/ Brian C. Cornell | | Director | | [removed: February 20, 2019 |]

| Brian C. Cornell | | | | [removed: |]

| /s/ Tanya L. Domier | | Director | | [removed: February 20, 2019 |]

| Tanya L. Domier | | | | [removed: |]