Yum! Brands (YUM) 10-K risk factor changes: FY2020 vs FY2019

You should carefully review the risks described below as they identify important factors that could cause our actual results to differ materially from our forward-looking [removed: statements] [added: statements, expectations] and historical trends.

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

Our business could be materially and adversely affected by the outbreak of a widespread health epidemic or [added: pandemic (in addition to the current COVID-19] pandemic, [added: as discussed above),] including arising from various strains of avian flu or swine flu, such as H1N1, [removed: or the coronavirus,] particularly if located in regions from which we derive a significant amount of revenue or profit.

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, norovirus] [added: A] or [removed: coronavirus,] [added: norovirus,] since this could require us or our business partners to quarantine some or all of such employees or disinfect our restaurant facilities.

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

We [removed: 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.

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

In [removed: addition,] [added: addition to Yum China,] we have [removed: franchise] [added: other significant] relationships [removed: that are particularly important to our business, such as] [added: on which] our [removed: relationship with Yum China as described in a subsequent risk factor below,] [added: success is dependent, including] our strategic alliance with Telepizza Group S.A., [removed: who] [added: which] 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 [removed: NPC International, Inc.] [added: Flynn Restaurant Group, an existing YUM franchisee which recently announced its intention to acquire approximately 950 Pizza Hut U.S. restaurants which would make it] the largest operator of Pizza Hut restaurants in the [removed: United States.][added: U.S. Any failure to realize the expected benefits of such franchise relationships may adversely impact our business and operating results.]

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 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 [removed: platform).][added: platforms).]

In addition, the failure of our Concepts’ franchisees to [added: attract and retain quality personnel or] adequately engage in succession planning may adversely affect their restaurant operations and the development of new restaurants, which in turn could hurt our business.

[added: Additionally, the failure of our] Concepts’ franchisees to focus on 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 documents) may be attributed by guests to our Concepts’ entire brand and could have a negative impact on our business.

*We may not achieve our target development goals, [removed: aggressive development could cannibalize existing sales] [added: including as the result of the COVID-19 pandemic,] and new restaurants may not be profitable.*

In connection with the spin-off of our China business in 2016 into an independent publicly-traded company (the [removed: "Separation"] [added: “Separation”] or “Yum China spin-off”), we entered into a Master License Agreement [removed: 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 mainland China.

Yum [removed: China's] [added: China’s] business is exposed to risks in mainland China, which include, among others, potential political, financial or social instability, changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), consumer preferences, the regulatory environment (including uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations), [removed: and tax laws and regulations including] the [removed: tax treatment] [added: effect] of the [removed: 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 disputes, any epidemics or pandemics arising out of mainland China,] [added: COVID-19 pandemic] and [removed: increased competition.][added: related Chinese governmental restrictions.]

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

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

These risks, which can vary substantially by country, include political, financial or social instability or conditions, [added: geopolitical events,] corruption, anti-American [removed: sentiment and] [added: sentiment,] social and ethnic unrest, [added: and terrorism,] as well as changes in economic conditions (including consumer spending, unemployment levels and wage and commodity inflation), the regulatory 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, the impact of import restrictions or controls, sanctions, foreign exchange control regimes [removed: including] [added: (including] restrictions on currency [removed: conversion,] [added: conversion),] natural disasters, the impact of labor costs and conditions, consumer preferences and the laws and policies that govern foreign investment in countries where our [removed: Concepts'] [added: Concepts’] restaurants are operated.

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 [removed: as well as limitations on the remittance of fees outside of the country (See Note 19).]

Any failure to comply with such sanction regimes or other similar laws or regulations could result in the assessment of damages, the imposition of penalties, suspension of business licenses, or a cessation of operations at our or our franchisees’ businesses, as well as damage to our and our Concepts’ brands’ images and reputations, all of which could harm our [removed: profitability.][added: profitability and growth prospects.]

In addition, the governments in certain countries where [removed: we] [added: our Concepts] operate, including China, restrict the conversion of local currency into foreign currencies and, in certain cases, the remittance of currency out of the country.

Any significant fluctuation in the value of [removed: the] [added: currencies of countries in which we or our franchisees operate, and in particular] RMB [added: in China,] could materially impact the U.S. dollar value of royalty payments made to [removed: us by Yum China,] [added: us,] which could result in lower revenues.

[removed: In addition, restrictions] [added: 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 royalty, which could impact our liquidity.

The use and [removed: handling] [added: handling, including security,] of this information is regulated by evolving and increasingly demanding laws and regulations in various jurisdictions, as well as by certain third-party [removed: contracts.][added: contracts and industry standards.]

If our security and information systems are compromised as a result of data corruption or loss, cyber-attack or a network security [removed: incident] [added: incident,] or if our employees, franchisees or vendors fail to comply with these laws and regulations [added: or fail to meet industry standards] and this information is obtained by unauthorized persons or used inappropriately, it could result in liabilities and penalties and could damage our reputation, cause [added: interruption of normal business performance, cause] us to incur substantial costs and result in a loss of customer confidence, which could adversely affect our results of operations and financial condition.

For example, the General Data Protection Regulation [removed: ("GDPR"),] [added: (“GDPR”),] which was adopted by the European Union effective May 2018, requires companies to meet new requirements regarding the handling of personal [removed: data.][added: data and is subject to changing requirements, which could increase Company and franchisee resources necessary to comply.]

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

Our failure [added: or the failure of our franchisees] to adhere to or successfully implement appropriate processes to adhere to the requirements of GDPR, CCPA and other evolving laws and regulations in this area could result in financial penalties, legal liability and could damage our and our Concepts’ brands’ reputations.

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

Certain technology systems may also be unreliable or inefficient, and technology vendors may limit or terminate product support and maintenance, which could impact the reliability of critical [removed: systems] [added: systems’] operations.

If our or our [removed: Concepts' franchisees'] [added: Concepts’ franchisees’] information technology systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could result in lost sales, customer or employee dissatisfaction, or negative publicity that could [removed: negatively] [added: adversely] impact our reputation, results of operations and financial condition.

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

[removed: We] [added: It] may [removed: not] be [removed: able] [added: difficult to] recruit and retain qualified individuals for these [removed: efforts, and there is] [added: efforts due to] intense competition for qualified technology [removed: systems] [added: systems’] developers necessary to [added: innovate,] develop and implement new technologies for our growth initiatives, including increasing our digital [removed: relationships] [added: relationship] with customers.

Even if we effectively implement and manage our technology initiatives, [removed: they may not] [added: there is no guarantee that this will] result in sales growth or margin improvement.

Additionally, [added: developing and] implementing the evolving technology demands of the consumer may place a significant financial burden on us and our Concepts’ [removed: franchisees.][added: franchisees, and our Concepts' franchisees may have differing views on investment priorities.]

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

Customers are increasingly using e-commerce websites and apps, both domestically and internationally, [removed: like] [added: such as] pizzahut.com, Pizza Hut, [removed: KFC and] [added: KFC,] Taco Bell [added: and The Habit Burger Grill] apps, as well as apps owned by third-party delivery aggregators [removed: such as Grubhub] and third-party mobile payment processors, to order and pay for our Concepts’ products.

These digital ordering and payment platforms could be damaged or interrupted by power loss, technological failures, user errors, cyber-attacks, other forms of [removed: sabotage] [added: sabotage, inclement weather] or [removed: acts of God.][added: natural disasters.]

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

Should customers become unable to access mobile payment apps in [removed: China,] [added: China] or should the relationship between Yum China and one or more third-party mobile payment processors become interrupted, our results of operations could be negatively impacted.

The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information [removed: dissemination.][added: dissemination and given users the ability to more effectively organize collective actions such as boycotts and other brand-damaging behaviors.]

Risks Related to COVID-19, Health Epidemics and Food Safety

*The novel coronavirus (COVID-19) global pandemic has had, and is expected to continue to have, an adverse effect on our business and results of operations.*

In late 2019, COVID-19 was first detected and in March 2020, the World Health Organization declared COVID-19 a global pandemic.

During 2020, COVID-19 spread throughout the U.S. and the rest of the world, and governmental authorities implemented measures to reduce the spread of COVID-19.

These measures include restrictions on travel outside the home or other limitations on business and other activities, as well as encouraging social distancing.

Moreover, COVID-19 cases increased in late 2020 and early 2021 in the U.S. and various other regions of the world in which we have operations, which resulted in some governmental authorities re-imposing restrictions on business and other activities that were previously lifted or reduced.

Developments related to COVID-19 have had and are expected to continue to have an adverse effect on our business and results of operations.

The impacts of COVID-19 have included the ongoing loss of revenues due to reduced and limited store-level operations, continued or increased full or partial dining room closures, other restrictions on our business and operations, continued delays in reopening, and an increase in the number of permanent restaurant closures during the year ended December 31, 2020.

The impact on our sales in each of our markets has been dependent on, among other factors, the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, and our reliance on dine-in sales in the market.

Additionally, we and our franchisees have made operational changes intended to safeguard employees and customers in response to COVID-19, including increased cleaning and sanitization, installation of counter

screens and purchasing personal protective equipment, which have increased and may continue to increase restaurant operating costs and impact restaurant-level margins and return on invested capital.

Our and our franchisees restaurants may experience interruptions of food and other supplies as well as labor shortages as a result of COVID-19, thereby disrupting our and our franchisees operations and impacting same-store sales negatively.

Our success is heavily reliant on our Concepts’ franchisees, and the COVID-19 pandemic has caused and may continue to cause financial distress for certain franchisees, particularly those located in areas most significantly impacted by the COVID-19 pandemic.

As a result of this distress, our franchisees may not be able to meet their financial obligations to us as they come due, including the payment of royalties, rent, or other amounts due to the Company.

This has led to, and may continue to lead to, write-offs of amounts we have currently due from our franchisees beyond amounts we have reserved, as well as decreased future collections from franchisees.

In certain instances we offered grace periods to our franchisees, who were in good standing with the Company and needed greater access to capital, for certain near-term payments due to us.

Offering grace periods negatively impacts the Company’s cash flows in the short-term, and if grace periods are necessitated in the future there is no guarantee that our franchisees will ultimately pay amounts due.

Additionally, our franchisees may not be able to make payments to landlords, distributors and key suppliers, as well as payments to service any debt they may have outstanding.

Franchisee financial distress has also led to, and may continue to lead to, permanent store closures and delayed or reduced new franchisee development, which may further harm our results and liquidity.

Further, in some cases, we are contingently liable for franchisee lease obligations, and a failure by a franchisee to perform its obligations under such lease could result in direct payment obligations for YUM.

We are unable to fully predict the impact that COVID-19 will have on our and our franchisees’ operations going forward due to various uncertainties, including the severity and duration of the outbreak, the timing and availability of effective medical treatments and vaccines, the timing and effectiveness of the ongoing rollout of vaccines, the extent to which COVID-19 may cause customers to continue to be reluctant to return to in-restaurant dining or otherwise change their consumption patterns (including after the COVID-19 pandemic has ended), additional actions that may be taken by governmental authorities, and the length and severity of ongoing negative economic conditions in the U.S. and globally arising from the COVID-19 pandemic.

Moreover, if conditions related to the COVID-19 pandemic result in significant disruptions to capital and financial markets, or negatively impact our credit ratings, our cost of borrowing, our ability to access capital on favorable terms and our overall liquidity and capital structure could be adversely impacted.

Finally, the negative economic conditions arising from the COVID-19 pandemic have resulted in the impairment of the value of certain of our restaurant assets as well as the goodwill impairment charge we incurred with respect to our Habit Burger Grill reporting unit in the first quarter of 2020.

If such conditions persist and continue to adversely affect our business, this could give rise to impairment in the value of other tangible or intangible assets.

Conversely, for our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2020.

If the impact of COVID-19 recedes, in-person dining restrictions are lifted or lessened and the restaurant industry in general returns to more normal operations, the benefits to sales experienced by certain of our restaurants, including our Pizza Hut delivery restaurants, could wane and our results could be negatively impacted.

Furthermore, due to the COVID-19 pandemic, there are now stricter health regulations and guidelines and increased public concern over food safety standards and controls.

Risks Related to our Business Strategy and reliance upon Franchisees

For example, NPC International, Inc. (“NPC”), which had been our largest Pizza Hut U.S. franchisee, filed voluntary petitions in July 2020 to restructure under Chapter 11 of the U.S. Bankruptcy Code.

In connection with this bankruptcy filing, we consented to the closure of up to 300 mutually selected underperforming units, primarily dine-in locations.

Furthermore, the COVID-19 pandemic has caused and may continue to cause financial distress for some portion of our Concepts’ franchisees.

*The financial performance of certain of our Concepts’ franchisees has an outsized impact on our operating results.*

We have franchise relationships that are particularly important to our business, such as our relationship with Yum China.

However, we had fewer net restaurant openings and greater permanent restaurant closures during 2020 compared to our recent history and expectations as the result of the COVID-19 pandemic.

Additionally, we experienced higher closures in the Pizza Hut system during 2020 as a result of our previously announced efforts to accelerate the transformation of the Pizza Hut restaurant estate to a more modern and delivery-based business and other business model pressures impacting certain Pizza Hut restaurants.

alliance with Telepizza Group S.A. effectuated in December 2018, and our acquisition of QuikOrder, LLC completed in December 2018.

Risks Related to Operating a Global Business

as well as limitations on the remittance of fees outside of the country (See Note 20).

Risks Related to Technology, Data Privacy and Intellectual Property

The number and frequency of these cyber-attacks and/or security breaches varies between periods but could be exacerbated by an increase in the use of our digital commerce platforms.

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.

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

Additionally, the failure of our

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

Yum China’s income is almost exclusively derived from the earnings of its Chinese subsidiaries, with substantially all revenues of its Chinese subsidiaries denominated in RMB.

Any such limitation or delay would negatively impact Pizza Hut’s sales and customer experience and perception.

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.

A shortage or interruption in the availability of certain food products or supplies could increase costs and limit the availability of products critical to restaurant operations, which in turn could lead to restaurant closures and/or a decrease in sales.

In addition, failure by a key supplier or distributor for our Concepts and/or our Concepts’ franchisees to meet its service requirements could lead to a disruption of service or supply until a new supplier or distributor is engaged, and any disruption could have an adverse effect on our business.

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

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Brands, Inc. [removed: ("Company",] [added: and its subsidiaries (collectively referred to herein as the "Company",] “YUM”, "we", "us" or "our") [removed: franchises] [added: franchise] or [removed: operates] [added: operate] a [removed: worldwide] system of over 50,000 restaurants in more than 150 countries and territories, primarily under the concepts of KFC, Pizza [removed: Hut and] [added: Hut,] Taco Bell [added: and The Habit Burger Grill] (collectively, the "Concepts").

[removed: These three Concepts] [added: The Company's KFC, Pizza Hut and Taco Bell brands] are global leaders of the chicken, pizza and Mexican-style food categories, respectively.

As of December 31, [removed: 2019,] [added: 2020,] YUM consists of [removed: three] [added: four] operating segments:

[removed: | • |] [added: -] The KFC Division which includes our worldwide operations of the KFC concept [removed: |]

[removed: | • |] [added: -] The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept [removed: |]

[removed: | • |] [added: -] The Taco Bell Division which includes our worldwide operations of the Taco Bell concept [removed: |]

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 [added: unit] economics and higher rates of growth.

[removed: | • |] [added: -] Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success [removed: |]

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

[removed: | • |] [added: -] Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion [removed: |]

[removed: | • |] [added: -] Bold Restaurant Development: Drive market and franchise expansion with strong economics and value [removed: |]

Our [removed: Recipe for Good reflects our] global citizenship and sustainability [removed: strategy and practices, while reinforcing] [added: strategy, called the Recipe for Good, reflects] our [removed: public commitment to drive] [added: priorities for] socially responsible growth, risk management and sustainable stewardship of our [removed: food, planet] [added: people, food] and [removed: people.][added: planet.]

On October 11, [removed: 2016] [added: 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 into an independent publicly-traded company under the name of Yum China Holdings, Inc. (“Yum China”).

At this time, we established transformation goals [removed: that were] [added: to be] met by the end of 2019 including becoming:

[removed: | • | 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). [removed: |]

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

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

[removed: | • |] [added: -] 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. [removed: Capital spending in 2019 net of refranchising proceeds was $86 million. |]

[removed: | • |] [added: -] Lowering General and administrative expenses ("G&A") to 1.7% of system sales in 2019; and [removed: |]

[removed: | • |] [added: -] Maintaining an optimized capital structure of ~5.0x Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) [added: net] leverage. [removed: |]

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

[removed: | • |] [added: -] Maintain a capital structure of ~5.0x EBITDA [added: consolidated net] leverage; [removed: |]

[removed: | • |] [added: -] Invest capital in a manner consistent with an asset light, franchisor model; and [removed: |]

[removed: | • |] [added: -] 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. [removed: |]

[removed: | • | 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. [removed: 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. |]

[removed: | • |] [added: -] Company restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. [removed: 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. |]

[removed: | • |] [added: -] Diluted Earnings Per Share excluding Special Items (as defined below); [removed: |]

[removed: | • |] [added: -] Effective Tax Rate excluding Special Items; [removed: |]

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

Certain [added: performance metrics and] non-GAAP measurements are presented excluding the impact of FX.

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

For discussion of our results of operations for [removed: 2018] [added: 2019] compared to [removed: 2017,] [added: 2018,] 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, [removed: 2018,] [added: 2019,] filed with the SEC on February [removed: 21, 2019.][added: 19, 2020.]

For [removed: 2019,] [added: 2020,] GAAP diluted EPS decreased [removed: 12%] [added: 29%] to [removed: $4.14] [added: $2.94] per share, and diluted EPS, excluding Special Items, increased [removed: 12%] [added: 2%] to [removed: $3.55] [added: $3.62] per share.

[removed: 2019] [added: 2020] financial highlights:

| | [added: | |] % Change | | | | | | | | | [added: | | | | | | | | | | | | | | | | | |]

| | [added: | |] System Sales, ex FX | | [added: | | | |] Same-Store Sales | | [added: | | | |] Net New Units | | [added: | | | |] GAAP Operating Profit | | [added: | | | |] Core Operating Profit | [added: | |]

| KFC Division | [removed: +10] | | [added: (5) | | | | | | (9) | | | | | |] +4 | | [removed: +7] | | [removed: +10] | | [removed: +14] [added: (12)] | [added: | | | | | (12) | | |]

| Pizza Hut Division | [removed: +8] | | [removed: Even] [added: (7)] | | [removed: +1] | | [removed: +6] | | [removed: +8] [added: (6)] | [added: | | | | | (6) | | | | | | (9) | | | | | | (9) | | |]

| Taco Bell Division | [removed: +9] | | [removed: +5] [added: +1] | | [removed: +4] | | [removed: +8] | | [removed: +8] [added: +4] | [added: | |]

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

The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

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

- More Focused.

- More Franchised.

- More Efficient.

Capital spending in 2019 net of refranchising proceeds was $86 million.

As a result of the impacts on our business due to the COVID-19 pandemic, certain measures we established as part of our transformation goals were negatively impacted in 2020.

For the full year 2020, G&A, excluding the impact of Special Items, represented 1.9% of consolidated system sales, primarily due to sales pressures resulting from the COVID-19 pandemic.

While we took certain austerity measures to reduce G&A spending such as lower travel related costs and a reduction of our Chief Executive Officer's salary, these reductions were offset by accelerated digital and technology spending to enhance our customer experience and off-premise capabilities.

We expect our G&A as a percentage of consolidated system sales to move back toward our historical target of 1.7% as sustained growth resumes.

Additionally, during 2020 our EBITDA was negatively impacted by the impacts of the COVID-19 pandemic, which increased our consolidated leverage, net of available cash.

We currently estimate we will grow back into our ~5.0x EBITDA consolidated net leverage by second quarter 2021.

- Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed.

From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues.

Throughout 2020 we had a significant number of restaurants that were temporarily closed, including restaurants closed due to government and landlord restrictions, as a result of COVID-19.

The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below).

We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base.

Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends.

In 2020, 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 our acquisition of The Habit Restaurants, Inc. on March 18, 2020, and that were open for one year or more.

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 additional discussion of the acquisition of The Habit Restaurants, Inc. and Telepizza strategic alliance within this MD&A.

- Net new unit growth reflects new unit openings offset by permanent store closures, by us and our franchisees.

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.

- System sales, System sales excluding the impacts of foreign currency translation ("FX"), and System sales excluding FX and the impact of the 53rd week in 2019 for our U.S. subsidiaries and certain international subsidiaries that operate on a weekly period calendar.

System sales reflect the results of all restaurants regardless of ownership, including Company-

owned and franchise restaurants.

Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales.

Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products.

We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount.

Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues.

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

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 restaurants.

- Core Operating Profit and Core Operating Profit excluding the impact of the 53rd week in 2019.

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- During the year, net units increased by 183 units (including our acquisition of The Habit Burger Grill in the first quarter of 2020).

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| • | 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. |

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The Company is exposed to financial market risks associated with interest rates, foreign currency exchange [removed: rates, commodity prices] [added: rates] and [removed: the value of our equity investment in Grubhub.][added: commodity prices.]

We have a market risk exposure to changes in interest rates, principally in the U.S. Our outstanding total debt, excluding finance [removed: leases,] [added: leases and debt issuance costs and discounts,] of [removed: $10.6] [added: $10.7] billion includes [removed: 77%] [added: 78%] fixed-rate debt and [removed: 23%] [added: 22%] 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: 2019,] [added: 2020,] result in a fixed interest rate on $1.55 billion of our [removed: variable rate] [added: variable-rate] debt.

As a result, approximately [removed: 92%] [added: 93%] of our [removed: $10.6] [added: $10.7] billion of outstanding debt at December 31, [removed: 2019] [added: 2020,] is effectively fixed-rate debt.

See Note [removed: 10] [added: 11] for details on [removed: these issuances and repayments] [added: our outstanding debt] and Note [removed: 12] [added: 13] for details related to interest rate swaps.

As of both December 31, [removed: 2019] [added: 2020] and December 31, [removed: 2018] [added: 2019,] 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 [removed: $9] [added: $8] million in Interest expense, net within our Consolidated Statement of Income.

The fair value of our cumulative fixed-rate debt of [removed: $8.2] [added: $8.4] billion as of December 31, [removed: 2019,] [added: 2020,] would decrease approximately [removed: $450] [added: $475] million as a result of the same hypothetical 100 basis-point increase.

At December 31, [removed: 2019,] [added: 2020,] a hypothetical 100 basis-point decrease in short-term interest rates would [removed: decrease] [added: increase] the [added: liability associated with the] fair value of our interest rate swaps [added: by] approximately [removed: $66] [added: $24] million.

The Company’s foreign currency net asset exposure (defined as foreign currency assets less foreign currency liabilities) totaled approximately [removed: $1.2] [added: $1.3] billion as of December 31, [removed: 2019.][added: 2020.]

For the fiscal year ended December 31, [removed: 2019] [added: 2020,] Operating Profit would have decreased approximately [removed: $130] [added: $115] million if all foreign currencies had uniformly weakened 10% relative to the U.S. dollar.

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Equity Investment Risk

YUM holds 2,820,464 shares of Grubhub common stock (See Note 4).

As of December 31, 2019, the NYSE composite closing sales price of Grubhub was $48.64.

A hypothetical 10% decline in the price of these shares would result in a $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.

The effects of changes in market prices for equity securities are unpredictable, which could cause significant fluctuations in our quarterly and annual results.

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

[removed: These three concepts] [added: The Company’s KFC, Pizza Hut and Taco Bell brands] are global leaders of the chicken, pizza and Mexican-style food categories, respectively.

At December 31, [removed: 2019,] [added: 2020,] 98% of our units are operated by independent franchisees or licensees under the terms of franchise or license agreements.

The terms [removed: "franchise"] [added: franchise] or [removed: "franchisee"] [added: franchisee] within this Form 10-K are meant to describe third parties that operate units under either franchise or license agreements.

[removed: Following] [added: The following] is a summary of our [removed: Concepts'] [added: Concepts’] operations and a brief description of each Concept as of and for the year ended December 31, [removed: 2019:][added: 2020:]

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

| Taco Bell Division | | [removed: 7,363] | | | [added: | 7,427 | | | | | |] 8 | [added: |] % | | [removed: 30] | | [added: 31] | [added: | | | | |] 94 | [added: |] % | | [removed: 11,784] | | [added: 11,745] | | [added: | | | |]

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

KFC was founded in Corbin, [removed: Kentucky] [added: Kentucky,] by Colonel Harland D.

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 [added: unit] economics and higher rates of growth.

[removed: | • |] [added: -] Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success [removed: |]

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

[removed: | • |] [added: -] Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion [removed: |]

[removed: | • |] [added: -] Bold Restaurant Development: Drive market and franchise expansion with strong economics and value [removed: |]

Our [removed: Recipe for Good reflects our] global citizenship and sustainability [removed: strategy and practices, while reinforcing] [added: strategy, called the Recipe for Good, reflects] our [removed: public commitment to drive] [added: priorities for] socially responsible growth, risk management and sustainable stewardship of our [removed: food, planet] [added: people, food] and [removed: people.][added: planet.]

As of December 31, [removed: 2019,] [added: 2020,] YUM consists of [removed: three] [added: four] operating segments:

[removed: | • |] [added: -] The KFC Division which includes [removed: the] [added: our] worldwide operations of the KFC concept [removed: |]

[removed: | • |] [added: -] The Pizza Hut Division which includes [removed: the] [added: our] worldwide operations of the Pizza Hut concept [removed: |]

[removed: | • |] [added: -] The Taco Bell Division which includes [removed: the] [added: our] worldwide operations of the Taco Bell concept [removed: |]

The Company [added: has successfully increased franchise restaurant ownership in recent years, and] utilizes both store-level franchise and master franchise programs to grow [removed: its] [added: our] businesses.

Of our over 49,000 franchised units at December 31, [removed: 2019,] [added: 2020,] approximately 30% operate under our master franchise programs, including over [removed: 8,800] [added: 9,500] units in mainland China.

Franchisees also pay monthly continuing fees based on a percentage of their [removed: restaurants'] [added: restaurants’] sales (typically [added: between] 4% [removed: -] [added: to] 6%) and are required to spend a certain amount to advertise and promote the brand.

The Company seeks to maintain strong and open relationships with [removed: its] [added: our] franchisees and their representatives.

To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the business, including products, equipment, operational improvements and [removed: standards and management techniques.][added: standards.]

Most restaurants in each Concept offer consumers the ability to dine [removed: in and/or] [added: in,] carryout [removed: food.][added: food and/or have the Concepts' food delivered either through store-level or third-party delivery services.]

Pizza Hut [removed: offers] [added: and Habit Burger Grill offer] a drive-thru option on a much more limited basis.

When prices increase, the Concepts may attempt to pass on such increases to their customers, although there is no assurance that this can be done [removed: practically.][added: in practice.]

The Company does not typically experience significant continuous shortages of supplies, and alternative sources for most of these [removed: products] [added: supplies] are generally available.

In the U.S., the Company, along with the representatives of the Company’s KFC, Pizza Hut and Taco Bell franchisee groups, are members of Restaurant Supply Chain Solutions, LLC (“RSCS"), [added: a third party] which is responsible for purchasing certain restaurant products and equipment.

The Company also believes that RSCS fosters closer alignment of interests and a stronger relationship with [removed: its] [added: our] franchisee community.

In the U.S., McLane Foodservice, Inc. is the exclusive distributor for the majority of items used in Company-owned restaurants and for a substantial number of franchisee [removed: stores.][added: restaurants.]

Our international franchisees generally select and manage their own third-party [removed: suppliers,] [added: suppliers and distributors,] subject to our internal standards.

All suppliers and distributors are expected to provide [removed: products/services] [added: products and/or 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.

When multiple franchisees operate in the same country or [removed: region] [added: region,] the national and regional advertising spending is typically conducted by a cooperative to which the franchisees and Company-owned [removed: stores,] [added: restaurants,] if any, contribute funds as a percentage of restaurants’ sales.

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

The Company believes that many of these marks, including [removed: its] [added: our] Kentucky Fried Chicken®, KFC®, Pizza [removed: Hut® and] [added: Hut®,] Taco Bell® [added: and The Habit®] marks, have significant value and [removed: are materially important] [added: material importance] to [removed: its] [added: our] business.

The Company’s policy is to pursue registration of [removed: its] important marks whenever feasible and to oppose vigorously any infringement of [removed: its] [added: our] marks.

Under current law and with proper use, the Company’s rights in [removed: its] [added: our] marks can generally last indefinitely.

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

Competition has also increased from and been enabled by delivery aggregators and other food delivery services in recent years, particularly in urbanized [removed: areas.][added: areas, which trend has accelerated following the onset of the COVID-19 pandemic.]

The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

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| KFC Division | | | | | | 25,000 | | | | | | 84 | | % | | | | 146 | | | | | | 99 | | % | | | | $ | 26,289 | | | | |

| Pizza Hut Division | | | | | | 17,639 | | | | | | 63 | | % | | | | 110 | | | | | | 99 % | | | | | | 11,955 | | | | | |

| Habit Burger Grill Division | | | | | | 287 | | | | | | 3 | | % | | | | 3 | | | | | | 12 | | % | | | | 370 | | | | | |

| YUM | | | | | | 50,353 | | | | | | 65 | | % | | | | 155 | | | | | | 98 | | % | | | | $ | 50,359 | | | | |

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See further discussion of this performance metric within Part II, Item 7 of this Form 10-K.

(b) System sales of Habit Burger Grill are for the period from March 18, 2020 through December 31, 2020.

*Habit Burger Grill*

The first Habit Burger Grill restaurant opened in 1969 in Santa Barbara, California.

The Habit Burger Grill restaurant concept is built around a distinctive and diverse menu that includes chargrilled burgers and sandwiches made-to-order over an open flame and topped with fresh ingredients.

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

The Company has franchise relationships that are particularly important to our business, such as our relationship with Yum China, 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 Flynn Restaurant Group, an existing YUM franchisee, which recently announced its intention to acquire approximately 950 Pizza Hut U.S. restaurants which would make it the largest operator of Pizza Hut restaurants in the U.S.

The use by Yum China of certain of our material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, and YUM, through YRI China Franchising LLC, a subsidiary of YUM, effective from January 1, 2020, and previously through Yum!

Restaurants Asia Pte.

Ltd., another subsidiary of YUM, from October 31, 2016 to December 31, 2019.

Our restaurant operations and results were significantly impacted by a novel strain of coronavirus, COVID-19, in the year ended December 31, 2020.

This included having a significant number of our open restaurants subject to dining room closures and other limitations on access.

In response, we accelerated our deployment of digital and technology initiatives to enhance the customer experience and our off-premise capabilities.

This included increasing our focus on driving digital sales where customers utilize ordering interaction that is primarily facilitated by automated technology.

In 2020, our system restaurants generated digital sales of $17 billion, which represented an approximate 45% increase over 2019.

Additionally, the number of restaurants that now offer delivery increased to over 35,000 restaurants, which represents over 70% of our global system.

Additionally, The Habit Burger Grill entered into a purchasing agreement with RSCS effective July 31, 2020.

Our Concepts also face competition as a result of convergence in grocery, convenience, deli and restaurant services, including the offering by the grocery industry of convenient meals, including pizzas and entrees with side

dishes.

Human Capital Management

Overview

As of December 31, 2020, the Company and its subsidiaries employed approximately 38,000 persons, including approximately 23,000 employees in the U.S. and approximately 15,000 employees outside the U.S. Approximately 90% and 85% of our U.S. and international employees, respectively, work in restaurants while the remainder work in our restaurant-support centers.

In the U.S., approximately 85% of our Company-owned restaurant employees are part-time and at least 45% have been employed by the Company for less than a year.

In addition to the persons employed by the Company and its subsidiaries, our approximately 2,000 franchisees around the world are estimated to employ over 1 million people working in and supporting the approximately 49,000 restaurants they operate.

Each year YUM and our franchisees around the world create thousands of restaurant jobs, which are part-time, entry-level opportunities to grow careers at our KFC, Pizza Hut, Taco Bell and The Habit Burger Grill brands.

As evidence of the opportunities these positions create, approximately 80% of our Company-owned Restaurant General Managers (“RGMs”) located in the U.S. have been promoted from other positions in our restaurants and such RGMs often earn competitive pay greater than the average American household income.

Human capital management considerations are integral to our Recipe for Growth and Good strategy, the drivers of which include leveraging our culture and people capability to fuel brand performance and franchise success, as well as recruiting and equipping the best restaurant operators in the world to deliver great customer experiences.

Our investment in people includes creating a culture of engagement that attracts, retains and grows the best people and creates high performance in our restaurants.

We are also highly focused on building an inclusive culture among our employees, franchisees, suppliers and partners to reflect

the diversity of our customers and communities.

Our commitments and progress towards executing this strategy are reflected below.

Culture & Talent

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

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

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

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Pizza Hut typically offers delivery service, while, on a more limited but expanding basis, KFC and Taco Bell allow for consumers to have the Concepts' food delivered either through store-level or third-party delivery services.

Employees

As of year end 2019, the Company and its subsidiaries employed approximately 34,000 persons.

The Company believes that it provides working conditions and compensation that compare favorably with those of its principal competitors.

The majority of employees are paid on an hourly basis.

The Company and its Concepts consider employee relations to be good.

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Descriptions of significant current specific claims and contingencies appear in Note [removed: 19,] [added: 20,] Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, which is incorporated by reference into this item.

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

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

| | | [added: | | | |] EXCHANGE ACT OF 1934 for the fiscal year ended | [added: | |] December 31, [removed: 2019] [added: 2020] | [added: | |]

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

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

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

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

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

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

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

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

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

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

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

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

| | [added: | |] None | | | [added: | | | | | |]

| Large Accelerated Filer | [added: | |] ☒ | | [added: | | | |] Accelerated Filer | [added: | |] ☐ | [added: | |]

| Non-accelerated Filer | [added: | |] ☐ | | [added: | | | |] Smaller Reporting Company | [added: | |] ☐ | [added: | |]

| Emerging Growth Company | [added: | |] ☐ | | | | [added: | | | | | | | |]

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: 2019] [added: 2020,] 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: $33.6] [added: $26.2] billion.

The number of shares outstanding of the registrant’s Common Stock as of February 12, [removed: 2020] [added: 2021,] was [removed: 300,822,322] [added: 300,055,312] 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: 14, 2020] [added: 11, 2021,] are incorporated by reference into Part III.

Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those [added: forward-looking] statements.

Factors that could cause actual results and events to differ materially from our [removed: expectations and] [added: expectations, estimates, assumptions, projections and/or] forward-looking statements include (i) the risks and uncertainties described in the Risk Factors included in Part I, Item 1A of this Form 10-K and (ii) the factors described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K.

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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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: 2019] [added: 2020] fiscal year and that remain unresolved.

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As of year end [removed: 2019,] [added: 2020,] the Company’s Concepts owned land, building or both for [removed: 337] [added: 333] restaurants worldwide in connection with the operation of our [removed: 913] [added: 1,098] Company-owned restaurants.

[removed: | • |] [added: -] The KFC Division owned land, building or both for [removed: 73] [added: 70] restaurants. [removed: |]

[removed: | • |] [added: -] The Pizza Hut Division owned land, building or both for [removed: 5] [added: 3] restaurants. [removed: |]

[removed: | • |] [added: -] The Taco Bell Division owned land, building or both for [removed: 259] [added: 260] restaurants. [removed: |]

The Company currently also owns land, building or both related to approximately 500 [added: franchise] restaurants and leases land, building or both related to approximately [removed: 400] [added: 350 franchise] restaurants, not included in the property counts above, that it leases or subleases to franchisees, principally in the U.S., United Kingdom, [removed: Australia, Germany] [added: Australia] and [removed: France.][added: Germany.]

Company-owned restaurants in the U.S. with leases are generally leased for initial terms of [removed: 15 or] [added: 10 to] 20 years and generally have renewal [removed: options; however, Pizza Hut delivery/carryout units in the U.S. generally are leased for significantly shorter initial terms with shorter renewal] options.

The Habit Burger Grill Division leases its corporate headquarters in Irvine, California.

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The executive officers of the Company as of February 19, [removed: 2020,] [added: 2021,] and their ages and current positions as of that date are as follows:

David Gibbs, [removed: 56,] [added: 57,] is Chief Executive Officer of YUM a position he has held since January 2020.

Scott [removed: Catlett, 43,] [added: Catlett, 44,] is [removed: General Counsel] [added: Chief Legal] and [added: Franchise Officer and] Corporate Secretary of YUM.

He has [removed: severed] [added: served] in this position since July [removed: 2018.][added: 2020.]

Prior to [removed: serving] [added: that, he served] as General Counsel [added: and Corporate Secretary of YUM from July 2018 to June 2020 and] he served as Vice President and Deputy General Counsel of YUM from November 2015 to June 2018.

Mark King, [removed: 60,] [added: 61,] is Chief Executive Officer of Taco Bell Division, a position he has held since August 2019.

Tony Lowings, [removed: 61,] [added: 62,] is Chief Executive Officer of KFC Division, a position he has held since January 2019.

David Russell, [removed: 50,] [added: 51,] is Senior Vice President, Finance and Corporate Controller of YUM.

Tracy Skeans, [removed: 47,] [added: 48,] is Chief [removed: Transformation] [added: Operating Officer] and [added: Chief] People Officer of YUM.

She has served as Chief [removed: People] [added: Operating] Officer since January [removed: 2016] [added: 2021] and Chief [removed: Transformation] [added: People] Officer since [removed: November] [added: January] 2016.

Prior to this position, Ms. Skeans served as Chief People Officer of Pizza Hut Division from December 2013 to December 2014 and [removed: Chief People Officer of Pizza Hut U.S. from October 2011 to November 2013.]

Arthur Starrs, [removed: 43,] [added: 44,] is Chief Executive Officer of Pizza Hut Division, a position he has held since August 2019.

Christopher Turner, [removed: 45,] [added: 46,] is Chief Financial Officer of YUM, a position he has held since August 2019.

She also served as Chief Transformation Officer from November 2016 to December 2020.

Chief People Officer of Pizza Hut U.S. from October 2011 to November 2013.

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As of February 12, [removed: 2020,] [added: 2021,] there were [removed: 40,958] [added: 39,395] registered holders of record of the Company’s Common Stock.

In [removed: 2019,] [added: 2020,] the Company declared and paid four cash dividends of [removed: $0.42] [added: $0.47] per share.

The following table provides information as of December 31, [removed: 2019,] [added: 2020,] with respect to shares of Common Stock repurchased by the Company during the quarter then ended.

| Fiscal Periods | | [added: | | | |] Total number of shares purchased (thousands) | | [added: | | | |] Average price paid per share | | | | [added: | |] Total number of shares purchased as part of publicly announced plans or programs (thousands) | | [added: | | | |] Approximate dollar value of shares that may yet be purchased under the plans or programs (millions) | | |

As of December 31, [removed: 2019,] [added: 2020,] we have remaining capacity to repurchase up to [removed: $2] [added: $1.75] 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: 2014] [added: 2015] to December 31, [removed: 2019.][added: 2020.]

The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 31, [removed: 2014] [added: 2015,] and that all cash dividends were reinvested.

[removed: ][added: ]

| | | [removed: 12/31/2014] | | | | 12/31/2015 | | | | [added: | |] 12/30/2016 | | | | [added: | |] 12/29/2017 | | | | [added: | |] 12/31/2018 | | | | [added: | |] 12/31/2019 | | | [added: | | | 12/31/2020 | | |]

Future decisions to pay cash dividends continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant.

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| 10/1/20 - 10/31/20 | | | | | | 160 | | | | | | $ | 93.48 | | | | | 160 | | | | | | $ | 1,985 | |

| 11/1/20- 11/30/20 | | | | | | 1,224 | | | | | | $ | 101.49 | | | | | 1,224 | | | | | | $ | 1,861 | |

| 12/1/20 - 12/31/20 | | | | | | 1,034 | | | | | | $ | 107.10 | | | | | 1,034 | | | | | | $ | 1,750 | |

| Total | | | | | | 2,418 | | | | | | | | | | | | 2,418 | | | | | | | | |

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| YUM | | | | | | $ | 100 | | | | | $ | 123 | | | | | $ | 162 | | | | | $ | 185 | | | | | $ | 207 | | | | | $ | 227 | |

| S&P 500 | | | | | | $ | 100 | | | | | $ | 112 | | | | | $ | 136 | | | | | $ | 130 | | | | | $ | 171 | | | | | $ | 203 | |

| S&P Consumer Discretionary | | | | | | $ | 100 | | | | | $ | 106 | | | | | $ | 130 | | | | | $ | 131 | | | | | $ | 168 | | | | | $ | 224 | |

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

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| 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.

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| 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 | |

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| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

| Income Statement Data | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Revenues | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Company sales | [added: | |] $ | [removed: 1,546] [added: 1,810] | | | [added: | |] $ | [removed: 2,000] [added: 1,546] | | | [added: | |] $ | [removed: 3,572] [added: 2,000] | | | [added: | |] $ | [removed: 4,189] [added: 3,572] | | | [added: | |] $ | [removed: 4,336] [added: 4,189] | |

| Franchise and property revenues | [added: | | 2,510 | | | | | |] 2,660 | | | | [added: | |] 2,482 | | | | [removed: 2,306] | | [added: 2,306] | | [removed: 2,167] | | | | [removed: 2,082] [added: 2,167] | | |

| Franchise contributions for advertising and other services | [added: | | 1,332 | | | | | |] 1,391 | | | | [removed: 1,206] | | [added: 1,206] | | [removed: —] | | | | — | | | | [added: | |] — | | |

| Total | [added: | | 5,652 | | | | | |] 5,597 | | | | [added: | |] 5,688 | | | | [removed: 5,878] | | [added: 5,878] | | [removed: 6,356] | | | | [removed: 6,418] [added: 6,356] | | |

| Refranchising (gain) loss | [removed: (37] | | [removed: )] [added: (34)] | | [removed: (540] | | [removed: )] | | [removed: (1,083] [added: (37)] | | [removed: )] | | [removed: (163] | | [removed: )] [added: (540)] | | [removed: 23] | | | [added: | (1,083) | | | | | | (163) | | |]

| Operating Profit | [added: | | 1,503 | | | | | |] 1,930 | | | | [added: | |] 2,296 | | | | [removed: 2,761] | | [added: 2,761] | | [removed: 1,682] | | | | [removed: 1,434] [added: 1,682] | | |

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

| Interest expense, net | [added: | | 543 | | | | | |] 486 | | | | [added: | |] 452 | | | | [removed: 445] | | [added: 445] | | [removed: 307] | | | | [removed: 141] [added: 307] | | |

| Income from continuing operations before income taxes | [added: | | 1,020 | | | | | |] 1,373 | | | | [added: | |] 1,839 | | | | [removed: 2,274] | | [added: 2,274] | | [removed: 1,345] | | | | [removed: 1,253] [added: 1,345] | | |

| Income from continuing operations | [added: | | 904 | | | | | |] 1,294 | | | | [added: | |] 1,542 | | | | [removed: 1,340] | | [added: 1,340] | | [removed: 1,018] | | | | [removed: 926] [added: 1,018] | | |

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

| Net Income | [added: | | 904 | | | | | |] 1,294 | | | | [added: | |] 1,542 | | | | [removed: 1,340] | | [added: 1,340] | | [removed: 1,643] | | | | [removed: 1,283] [added: 1,643] | | |

| Basic earnings per share from continuing operations | [added: | | 2.99 | | | | | |] 4.23 | | | | [added: | |] 4.80 | | | | [removed: 3.86] | | [added: 3.86] | | [removed: 2.58] | | | | [removed: 2.13] [added: 2.58] | | |

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

| Basic earnings per share | [added: | | 2.99 | | | | | |] 4.23 | | | | [added: | |] 4.80 | | | | [removed: 3.86] | | [added: 3.86] | | [removed: 4.17] | | | | [removed: 2.95] [added: 4.17] | | |

| Diluted earnings per share from continuing operations | [added: | | 2.94 | | | | | |] 4.14 | | | | [added: | |] 4.69 | | | | [removed: 3.77] | | [added: 3.77] | | [removed: 2.54] | | | | [removed: 2.09] [added: 2.54] | | |

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

| Diluted earnings per share | [added: | | 2.94 | | | | | |] 4.14 | | | | [added: | |] 4.69 | | | | [removed: 3.77] | | [added: 3.77] | | [removed: 4.10] | | | | [removed: 2.90] [added: 4.10] | | |

| Diluted earnings per share from continuing operations excluding Special Items | [added: | | 3.62 | | | | | |] 3.55 | | | | [added: | |] 3.17 | | | | [removed: 2.96] | | [added: 2.96] | | [removed: 2.46] | | | | [removed: 2.31] [added: 2.46] | | |

| Cash Flow Data | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Provided by operating activities | [added: | |] $ | [removed: 1,315] [added: 1,305] | | | [added: | |] $ | [removed: 1,176] [added: 1,315] | | | [added: | |] $ | [removed: 1,030] [added: 1,176] | | | [added: | |] $ | [removed: 1,248] [added: 1,030] | | | [added: | |] $ | [removed: 1,260] [added: 1,248] | |

| Capital spending | [added: | | 160 | | | | | |] 196 | | | | [added: | |] 234 | | | | [removed: 318] | | [added: 318] | | [removed: 427] | | | | [removed: 442] [added: 427] | | |

| Proceeds from refranchising of restaurants | [added: | | 19 | | | | | |] 110 | | | | [added: | |] 825 | | | | [removed: 1,773] | | [added: 1,773] | | [removed: 370] | | | | [removed: 213] [added: 370] | | |

| Repurchase shares of Common Stock | [added: | | 239 | | | | | |] 815 | | | | [added: | |] 2,390 | | | | [removed: 1,960] | | [added: 1,960] | | [removed: 5,403] | | | | [removed: 1,200] [added: 5,403] | | |

| Dividends paid on Common Stock | [added: | | 566 | | | | | |] 511 | | | | [added: | |] 462 | | | | [removed: 416] | | [added: 416] | | [removed: 744] | | | | [removed: 730] [added: 744] | | |

| Balance Sheet Data | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Total assets | [added: | |] $ | [removed: 5,231] [added: 5,852] | | | [added: | |] $ | [removed: 4,130] [added: 5,231] | | | [added: | |] $ | [removed: 5,311] [added: 4,130] | | | [added: | |] $ | [removed: 5,453] [added: 5,311] | | | [added: | |] $ | [removed: 4,939] [added: 5,453] | |

| Long-term debt | [added: | | 10,272 | | | | | |] 10,131 | | | | [added: | |] 9,751 | | | | [removed: 9,429] | | [added: 9,429] | | [removed: 9,059] | | | | [removed: 2,988] [added: 9,059] | | |

| Total debt | [added: | | 10,725 | | | | | |] 10,562 | | | | [added: | |] 10,072 | | | | [removed: 9,804] | | [added: 9,804] | | [removed: 9,125] | | | | [removed: 3,908] [added: 9,125] | | |

| Other Data | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Number of units at year end | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Franchise | [added: | | 49,255 | | | | | |] 49,257 | | | | [added: | |] 47,268 | | | | [removed: 43,603] | | [added: 43,603] | | [removed: 40,834] | | | | [removed: 39,320] [added: 40,834] | | |

| Company | [added: | | 1,098 | | | | | |] 913 | | | | [added: | |] 856 | | | | [removed: 1,481] | | [added: 1,481] | | [removed: 2,841] | | | | [removed: 3,163] [added: 2,841] | | |

| System | [added: | | 50,353 | | | | | |] 50,170 | | | | [added: | |] 48,124 | | | | [removed: 45,084] | | [added: 45,084] | | [removed: 43,675] | | | | [removed: 42,483] [added: 43,675] | | |

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

| System and same-store sales | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| KFC Division System sales | [added: | |] $ | [removed: 27,900] [added: 26,289] | | | [added: | |] $ | [removed: 26,239] [added: 27,900] | | | [added: | |] $ | [removed: 24,515] [added: 26,239] | | | [added: | |] $ | [removed: 23,242] [added: 24,515] | | | [added: | |] $ | [removed: 22,628] [added: 23,242] | |

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| Investment (income) expense, net | | | (74) | | | | | | 67 | | | | | | (9) | | | | | | (5) | | | | | | (2) | | |

System sales growth and unit growth measures in 2020 reflect the addition of 276 units through our acquisition of The Habit Restaurants, Inc. in March 2020.

See additional discussion of the acquisition of The Habit Restaurants, Inc. and the Telepizza strategic alliance within our MD&A.

Special Items in 2017 positively impacted Operating Profit by $1,001 million and positively impacted Net Income by $288 million, primarily due to $1,083 million in Refranchising gains, partially offset by $31 million in costs associated with the Pizza Hut U.S. Transformation Agreement, $23 million in costs associated with YUM's Strategic Transformation Initiatives, $18 million in share-based compensation charges related to the Separation, $17 million in costs associated with the KFC U.S. Acceleration Agreement, $434 million recognized in our Income tax provision as a result of the Tax Cuts and Jobs Act of 2017 and a $23 million charge within Other Pension (income) expense primarily due to an adjustment of certain historical deferred vested pension liability balances as a result of the completion of a pension data review and reconciliation.

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Refer to Note 2 in our Consolidated Financial Statements for information regarding our adoption of the new lease standards.

The table above reflects the impact of the adoption of new revenue recognition accounting standards in fiscal year 2018.

Refer to Note 2 in our Consolidated Financial Statements for further information.

See Management's Discussion and Analysis ("MD&A") Part II, Item 7 for a description of the Telepizza strategic alliance.

The historical stock price for year end 2015 does not reflect any adjustment for the impact of the Separation.

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.

Special Items in 2015 negatively impacted Operating Profit by $91 million and negatively impacted Net Income by $95 million, due to costs associated with the KFC Acceleration Agreement and Refranchising losses.

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| | [added: | |] Page Reference | | [added: | | | |]

| Consolidated Financial Statements | | | [added: | | | | | |]

| Report of Independent Registered Public Accounting Firm | [removed: [49](#s2E22A13E9EB65D2886D309EF36874077)] | | [added: [57](#i089085605c504b5c8a281dbe36f6826c_88) | | | | | |]

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

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

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

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

| [removed: Consolidated] [added: Consolidated] Statements of Shareholders’ [removed: Deficit] [added: Deficit] | [removed: [56](#s70DB0DF637BB5247BD5C014763A21814)] | | [added: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Notes to Consolidated Financial Statements | [removed: [57](#s6E10505B66855D7AB952611FE4967EDA)] | | [added: [65](#i089085605c504b5c8a281dbe36f6826c_112) | | | | | |]

Brands, Inc. and Subsidiaries (the Company) as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the related consolidated statements of income, comprehensive income, cash [removed: flows,] [added: flows] and shareholders’ deficit for each of the [removed: fiscal] years in the three-year period ended December 31, [removed: 2019,] [added: 2020,] and the related notes (collectively, the [removed: “consolidated] [added: consolidated] financial [removed: statements”).][added: statements).]

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control [removed: -] [added: –] Integrated [removed: Framework* *(2013)*] [added: 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: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, [removed: 2019,] [added: 2020,] 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: 2019] [added: 2020] based on criteria established in *Internal Control [removed: -] [added: –] Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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

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

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in [removed: Management’s] [added: the accompanying Management's] Report on Internal Control Over Financial Reporting in the accompanying Item 9A.

As discussed in Note [removed: 17] [added: 18] to the consolidated financial statements, the Company has recorded unrecognized tax benefits, excluding associated interest, of [removed: $188] [added: $175] million.

We identified the evaluation of [added: the Company’s] 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 [removed: various] [added: the related] taxing [removed: jurisdictions] [added: jurisdiction] to [removed: assess] [added: determine] the population of significant uncertain tax positions identified by the Company arising from tax planning strategies.

The [added: following are the] primary procedures we performed to address this critical audit [removed: matter included the following.][added: matter.]

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

We involved [removed: tax] [added: valuation] professionals with specialized skills and knowledge who assisted in:

[removed: | • |] [added: *●*] Obtaining an understanding of the Company’s [removed: implementation of] tax planning strategies; [removed: |]

[removed: | • |] [added: ●] Identifying [removed: new] tax positions created by tax planning strategies and comparing the results to the Company’s identification of uncertain tax positions; [removed: |]

[removed: | • |] [added: ●] Evaluating the Company’s interpretation of tax laws and court rulings by developing an independent assessment; and [removed: |]

[removed: | • |] [added: ●] 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. [removed: |]

[removed: As discussed in Note 17 to the consolidated financial statements,] [added: *Intercompany Restructuring.* In December 2019,] the Company completed an intercompany restructuring [removed: and] [added: that resulted in the] transfer of certain intellectual property rights [added: held by wholly owned foreign subsidiaries] primarily to [removed: subsidiaries in] the [removed: United States] [added: U.S.] and [removed: United Kingdom (UK).][added: the UK.]

The [added: following are the] primary procedures we performed to address this critical audit [removed: matter included the following.][added: matter.]

| [removed: Consolidated] [added: Consolidated] Statements of [removed: Income | | | |] [added: Income] | | | [added: [60](#i089085605c504b5c8a281dbe36f6826c_91)] | | | | | |

| Yum! Brands, Inc. and Subsidiaries | | | | | | | | | | | | | [added: | | | | | | | |]

| Fiscal years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] | | | | | | | | | | | | | [added: | | | | | | | |]

| (in millions, except per share data) | | | | | | | | | | | | | [added: | | | | | | | |]

| | | [removed: 2019] | | | | [removed: 2018] [added: 2020] | | | | [removed: 2017] | | [added: 2019] | [added: | | | | | 2018 | | |]

| Revenues | | | | | | | | | | | | | [added: | | | | | | | |]

| Company sales | | [added: | | | |] $ | [removed: 1,546] [added: 1,810] | | | [added: | |] $ | [removed: 2,000] [added: 1,546] | | | [added: | |] $ | [removed: 3,572] [added: 2,000] | |

| Franchise and property revenues | | [removed: 2,660] | | | | [removed: 2,482] [added: 2,510] | | | | [removed: 2,306] | | [added: 2,660] | [added: | | | | | 2,482 | | |]

| Franchise contributions for advertising and other services | | [removed: 1,391] | | | | [removed: 1,206] [added: 1,332] | | | | [removed: —] | | [added: 1,391] | [added: | | | | | 1,206 | | |]

| Total revenues | | [removed: 5,597] | | | | [removed: 5,688] [added: 5,652] | | | | [removed: 5,878] | | [added: 5,597] | [added: | | | | | 5,688 | | |]

| Costs and Expenses, Net | | | | | | | | | | | | | [added: | | | | | | | |]

| Company restaurant expenses | | [removed: 1,235] | | | | [removed: 1,634] [added: 1,506] | | | | [removed: 2,954] | | [added: 1,235] | [added: | | | | | 1,634 | | |]

The Company acquired The Habit Restaurants, Inc. and its subsidiaries (Habit Burger Grill) during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Habit Burger Grill’s internal control over financial reporting associated with approximately 9% of total assets and 6% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2020.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Habit Burger Grill.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s identification of uncertain tax positions process.

*Acquisition-date fair value of the brand and subsequent assessment of goodwill impairment - Habit Burger Grill*

As discussed in Note 3 to the consolidated financial statements, the Company completed the acquisition of The Habit Restaurants, Inc. (Habit Burger Grill) during fiscal year 2020 for total cash consideration of $408 million.

The acquisition was accounted for as a business combination using the acquisition method of accounting.

As a result of the transaction, the Company acquired certain intangible assets, including the Habit Burger Grill brand (the brand).

The acquisition-date fair value for the brand was $96 million.

The Company performs its goodwill impairment testing on an annual basis and whenever events

As a result of the impact of COVID-19 on substantially all of Habit Burger Grill restaurants’ operations during the first quarter of 2020, the Company performed an interim impairment test of the Habit Burger Grill reporting unit (the reporting unit) and recorded a goodwill impairment charge of $139 million and a corresponding income tax benefit of $32 million.

We identified the evaluation of the acquisition-date fair value of the brand, and the subsequent fair value estimate of the reporting unit for the subsequent goodwill impairment assessment as a critical audit matter.

Subjective and complex auditor judgment was required to evaluate the acquisition-date fair value of the brand and subsequent fair value of the reporting unit.

The fair value estimates used the following significant assumptions for which there was limited observable market information: projected cash flows, including the projected growth in restaurant unit counts and average unit volumes, royalty rate, and discount rates.

The determined fair values of the brand and the reporting unit, which directly impacted the goodwill impairment charge, were subjective determinations and sensitive to variation.

Changes in those assumptions could have had a significant effect on acquisition-date fair value of the brand and subsequent fair value of the reporting unit.

In addition, due to the economic impact of the COVID-19 pandemic on the Company’s business, there was significant uncertainty associated with these inputs.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s acquisition and related impairment process, including controls related to:

● the development of the projected cash flows including the projected growth in restaurant unit counts and average unit volumes used to determine the acquisition-date brand fair value and subsequent fair value of the reporting unit

● the assumed royalty rate used to determine the acquisition-date fair value of the brand; and

● the assumed discount rates used to determine the acquisition-date brand fair value and subsequent fair value of the reporting unit

We compared the Company’s projected cash flows including the projected growth in restaurant unit counts and average unit volumes used in the valuations to the underlying business strategies and growth plans for the acquisition.

We compared the Company’s projected cash flows to Habit Burger Grill’s historical results.

● evaluating the projected cash flows by comparing them to peer companies used in both the acquisition-date brand fair value and subsequent fair value of the reporting unit

● analyzing the assumed royalty rate by benchmarking against other acquisitions of peer companies; and

● evaluating the discount rates used in the valuations, by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable entities.

| | | | | | | 39 | | | | | | 28 | | | | | | (98) | | |

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| Acquisition of The Habit Restaurants, Inc., net of cash acquired | | | | | | (408) | | | | | | — | | | | | | — | | |

| Proceeds from sale/(purchase) of investment in Grubhub, Inc. common stock | | | | | | 206 | | | | | | — | | | | | | (200) | | |

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*Evaluation of intercompany transfer of certain intellectual property rights*

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.